Q4 2023 Bausch + Lomb Corp Earnings Call

Participants

George Gadkowski; Vice President of Investor Relations and Business Insights; Bausch & Lomb Corp

Brent Saunders; Chairman and Chief Executive Officer; Bausch & Lomb Corp

Sam Eldessouky; Chief Financial Officer, Executive Vice President; Bausch & Lomb Corp

Matt Miksic; Analyst; Barclays

Patrick Wood; Analyst; Morgan Stanley

Craig Bijou; Analyst; Bank of America

Larry Biegelsen; Analyst; Wells Fargo

Robbie Marcus; Analyst; JPMorgan

Vijay Kumar; Analyst; Evercore ISI

Joanne Lynch,; Analyst; Citibank.

Presentation

Operator

Good morning and welcome to the Bausch & Lomb's Fourth Quarter and Full Year 2023 earnings call,(Operator Instructions) . Please note, this event is being recorded.
I would now like to turn the conference over to George Kowalski, Vice President of Investor Relations and Business Insights. Please go ahead.

George Gadkowski

Thank you.Good morning, everyone, and welcome to our fourth quarter and full year 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 Aldo, Suky. 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, and 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 1 of the presentation. Non-gaap reconciliations can be found in the appendix to the presentation posted on our website. Finally, the financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter, unless required by law and not to update or affirm guidance other than through broadly disseminated public disclosure.
With that, it's my pleasure to turn the call over to Brent.

Brent Saunders

Thank you, George, and thank you, everyone, for joining us today. We're going to follow our familiar format. I'll cover highlights from the fourth quarter and full year, and Sam will dive deeper on financials and provide 2024 guidance. I'll close by reviewing growth drivers, and then we'll take your questions.
The first of our three key takeaways speaks for itself. Revenue growth in 2023 and in the fourth quarter, in particular exceeded our expectations and set the tone for 2024 double digit growth is always impressive, but even more so when you consider how we got there, our quality of growth is what helps set us apart from others, and that will be enhanced as we've entered one of the most active volunteers in our company's history.
You've heard me talk about selling and operational excellence quite a bit. It's central to any discussion I have on Company strategy and will dictate our success going forward. Here's the good news. We're making solid progress in both areas. Our Dry Eye franchise is a perfect example combined mobile and Zohydro sales force is the largest and. I would argue most sophisticated in eye health. And when it comes to operations, our mindset hasn't changed. We're taking a methodical approach to addressing the challenges we face with the expectation that our supply chain will become a competitive advantage in time. Hasty climbers had sudden falls as the saying goes, which means we won't lose sight of our long-term goals for short term gains.
The last takeaway is focused on innovation, which has been the driving force throughout Bausch & Lomb's a 170 year history. We've made no secret of our desire to put innovation at the forefront once again, and we're doing that in two ways. First, we're expanding our internal R&D capabilities across our entire portfolio from prescriptions to IOLs, we can and should explore all possibilities when it comes to building on the success of existing brands.
Second, we're reloading our pipeline with a focus on areas of unmet need. Our reinvigorated business development function will play a key role there as we cast a wide net for potential game chips the roadmap slide has become a fixture in earnings presentations and the roadmap itself continues to guide our strategic decision-making as we unlock the company's full potential in a thoughtful and phased approach each quarter, our progress indicator shifts steadily to the right as we move closer to Phase 2,
Let's take a look at how we delivered against Phase one goals in 2023, a report card of sorts with an understanding that I'm a tough grader. We've already touched on top line performance last year, but I'm happy to bring it up every chance I get 12% constant currency revenue growth, which are the highest grade on its own.
But again, I'm more impressed with how we did it when it comes to selling excellence. We made significant strides in 2023 with a focus on high priority areas like dry eye. But with the number of planned launches in 2024, there's even more of an urgency to build on that work with a balanced approach across all categories.
Business development is a function that has matured in short order. Last year the most obvious example is our acquisition of Novartis is front of the eye assets in addition to our acquisition of Blink eyedrops from Johnson & Johnson. Equally as important, the growing business development team has laid the groundwork for strategic deal making this year and beyond with an eye towards sustainable growth.
Our group, the last two items together, while they appear to have the lowest mark a single checkmark. It's really more of an incomplete or too new to rate building leading digital capabilities in core areas, enhancing agility and innovation or broad organizational competencies. The required discipline and time that said, progress in those areas introducing the roadmap, it certainly had an impact on margin expansion.
We've covered revenue may only add. There would be that this is our third straight quarter of more than $1 billion in sales, our new normal when it comes to individual segments, there is no laggards. In fact, I only see opportunity as both Vision Care and Surgical, in particular felt the effects of operational challenges, some self-inflicted others out of our control. You've both delivered impressive year-over-year growth.
Now let's address individual product performance and I'll stick with the opportunity fee. Despite an average growth of more than 25% among the key franchises highlighting they haven't realized their full potential, not by a long shot for additional geographic expansion, new ways of reaching customers, including direct to consumer engagement and a persistent focus on providing the best customer experience possible. We'll propel these products and others to new heights.
Before I turn things over to Sam, I'd like to thank my 13,000 colleagues for their performance in 2023, and it's not just execution. I'm grateful for their belief in our potential and commitment to doing what it takes to get there. Sam?

Sam Eldessouky

Thank you, Brent, and good morning, everyone. Before we begin, please note that most of my comments today will be focused on growth expressed on constant currency basis.
Turning now to our financial results on Slide 8. In the fourth quarter, we once again saw strong revenue growth across each of our segments and key product franchises. We're pleased with how we ended the year and our performance for the full year. In 2023, our business demonstrated growth in revenue and adjusted EBITDA with revenue exceeding our full year guidance.
We are excited by the momentum we have heading into 2024, which, as Brian mentioned, we expect will be one of the most active launch years in our history. Total company revenue of $1.173 billion for Q4. It reflects growth of 19% on a constant currency basis. For the full year, total company revenue of [$4.146 billion] reflects growth of 12% on a constant currency basis. This was the first full quarter following the launch of mobile and the closing of the Zyga acquisition, I'll be discussing the impact of these key dry eye franchises more throughout the call, but the headline is that we are highly encouraged by what we're seeing so far.
Touching briefly on supply, we have continued to make improvements to strengthen our supply chain in 2023, and we're pleased with the progress. While there's still work to be done, we feel confident about the path forward. As Brent will discuss, we expect to continue our efforts to implement efficiency measures throughout 2024, which we expect will be an important factor to drive sustainable margin expansion.
Volatility in our currency mix moderated in the fourth quarter. It did not have a material impact on the results for the quarter. For the full year, currency was a headwind of $68 million to revenue and $51 million to adjusted EBITDA. While the currency headwinds are not as sizable as we saw last year. The impact on our results continues to be driven by our geographic footprint and the currency mix.
Now let's discuss the results in each of our segments. Vision Care fourth-quarter revenue of $662 million increased by 8% on a constant currency basis, driven by growth in both the consumer and lunch portfolios. For the full year, Vision Care revenue was $2.543 billion and increased by 10% on a constant currency basis.
The consumer business again demonstrated a strong performance both in the US and internationally, with growth of 11% on a constant currency basis in Q4, we continue to see growth across our key franchises including eye vitamins, which grew by 7% in the quarter and Lomb five, which grew by 17% in the quarter.
Our consumer dry portfolio delivered $88 million. Revenue in the quarter, representing 12% organic revenue growth. Reported revenue from dailies high lenses grew by 31% in the quarter. As we discussed in our last earnings call, we recently expanded the dailies high family with the launch of the multifocal lens in the US. and the rollout of dailies high in China will continue to see strong demand globally. And today's high category. Revenue in the lens portfolio was negatively impacted throughout 2023 by disruptions at our Lynchburg distribution facility. Excluding the impact of these disruptions, global length, constant currency revenue growth was 9% in the quarter and 10% for the full year.
Moving now to the surgical segment, fourth quarter revenue was $204 million, an increase of 7% on a constant currency basis. For the full year, growth was also 7% on a constant currency basis. That consumables portfolio, our largest category in the surgical business grew in the quarter by 7% on a constant currency basis, mainly driven by cataract. Implantables were flat for the quarter. On a constant currency basis, our premium IOL portfolio continues to expand and was up 30% in constant currency in the quarter.
As I mentioned last quarter, our standard IT. one IOL continues to be impacted by the product recall issue by our partner in 2023, which offset the strong growth in our premium IOL portfolio. Excluding the impact of ICU one, the implantables portfolio grew 12% in constant currency in Q4 revenue from a quarter and was up 13% versus Q4 22 on a constant currency basis, mainly driven by Solaris system sales.
We have recently launched a number of products in our surgical business, and we'll continue to launch new products in 2024 and beyond, including the higher margin premium end of the market. We intend to continue to invest behind these launches as this is an important area to drive value and margin expansion.
Lastly, revenue in the Pharma segment was $307 million for the quarter, which represents constant currency growth of 66%. For the full year, revenue in the Pharma segment was $836 million, which represents constant currency growth of 24%. Zadra delivered $106 million revenue in the fourth quarter, exceeding our previous guidance range of 80 to $90 million following the relaunch of Zohydro in Q4, we saw TRxs stabilize throughout the quarter. Additionally, in the quarter, we had a one-time benefit of $8 million due to lower-than-expected rebate charges for Zohydro
As I said before, Zohydro continues to be a primary focus for us in 2024 to date. We're also very pleased with what we have seen from the mobile launch. The early performance and feedback from eye care professionals have been incredibly positive, and we're committed to continuing to invest behind this launch together, Zohydro and Mike will provide us with clear leadership in dry eye disease, and we're excited about reaching their full future potential.
Now let me walk through some of the key non-GAAP line items. Adjusted gross margin for the fourth quarter was 62.5%, which was up 470 basis points compared to Q4 22. For the full year, adjusted gross margin was 61%, which was up 130 basis points compared to last year. The gross margin improvement was mainly driven by favorable product mix, including cyber. This was balanced by pressure on the gross margin driven by the higher inventory costs in our surgical business.
In the fourth quarter, we invested $79 million in adjusted R&D or approximately 7% of revenue. Q4 adjusted EBITDA was $231 million, which represents 28% growth versus the fourth quarter of 22. For the full year, adjusted EBITDA was $738 million. Full year 2023 adjusted EBITDA was negatively impacted by currency headwinds of $51 million and Logic Mark related disruptions of $30 million.
Excluding the impact of currency. Adjusted EBITDA grew 10% compared to last year. Net interest expense for the quarter was approximately $96million, and $252 million for the full year. Excluding the one-time upfront financial costs directly related to the Zyga acquisition, full year 2020 adjusted tax rate was 4%, which is slightly lower than our previous guidance of approximately 6%. The lower tax rate was mainly driven by the geographic mix of our earnings. Adjusted EPS for the quarter was $0.24 and $0.73 for the full year 2023. Adjusted cash flow from operations was $28 million in the fourth quarter, and CapEx was $84 million.
Turning now to our 2024 guidance on slide 15, we're saying 2024 revenue guidance at a range of $4.6 billion to $4.7 billion. This reflects expected constant currency growth of approximately 12% to 14%. We expect the fundamentals of the eye care market to remain strong, and we expect each of our segments to deliver growth in 2024, along with solid momentum in our base business.
The recent and upcoming product launches will be an important driver following the relaunch of Zara in the fourth quarter, we expect to build on the performance throughout 2024. For the full year 2024, we expect to generate approximately $400 million in revenue.
As I noted earlier, the mobile launch is off to a great start. My view has been the strongest launch in dry eye disease in recent years. We expect the positive momentum to continue in 2024, and we plan to invest to position the brand to reach its full potential. We expect mobile to contribute approximately $95 million of revenue in 2024. We'll continue to see currency headwinds moderate based on current exchange rates, we estimate currency headwinds to have a negative impact on revenue of approximately $40 million for the full year.
Shifting to adjusted EBITDA, we are extending our adjusted EBITDA guidance for 2024 to a range of $840 million to $890 million at the midpoint of the guidance range. This reflects margin expansion of approximately 80 basis points compared to full year 2023. Margin expansion is driven by a number of factors, including our strategy to shift mix to high margin products, our efforts to continue to drive operational excellence and our focus on maintaining cost discipline as we continue to make investments to fully capture the value potential ahead of us.
We expect to sustainably build on the margin expansion in 2024 over multiple years with the growth of our recent and upcoming launches. I told you in the past, we'll continue to remind you that there is natural seasonality in our business. We expect 2020 for phasing to follow a similar trend as we saw in 2023 with the first quarter being the lowest and the fourth quarter being the highest.
As we continue to drive pipeline innovation, we may enter into collaborations with external partners. It should be noted that our adjusted EBITDA guidance does not reflect any one-time upfront payments that may be made as part of such arrangements.
In terms of the other key assumptions underlying our guidance, we expect gross margin to be approximately 62%. We anticipate investments in R&D to be approximately 78% of revenue and interest expense to be approximately $385 million. For the full year, our adjusted tax rate is expected to be roughly 15%, which takes into consideration our tax geographic mix and the Pillar $2 million tax rules, full-year CapEx is expected to be approximately $250 million. We are pleased with our financial performance in 2023 and a solid momentum entering 2024 as we continue to drive growth in our current portfolio and the launch of new products, we have a clear strategy to deliver strong growth and drive sustainable margin expansion. And now I'll turn the call back to Brent.

Brent Saunders

Thanks, Sam. Let's focus on what we need to do to win in 2024. Recent and upcoming launches have us positioned for success in each of our businesses. But the only way we fully take advantage of those opportunities is by reaching more customers and consumers and separating ourselves from the pack with how we sell.
As Sam outlined, we're off to a great start with mobile eye care professionals are prescribing and consumers are coming back for more post-launch. Excitement hasn't waned. In fact, it continues to build. We need to harness that momentum in 2024 and ensure mobile becomes the category altering medication. It has the potential to be, which means continuing to invest in sales and marketing.
In concert with our mobile push, we need to not only keep working to restore Seibert to its place as a category leader but unlock its full potential. It's important to remember that cider sales and marketing operation we inherited it was not in the same condition when at its peak on the dog lover. So, I'll use an abandoned pet analogy, we took it in and nursing it back to health.
So it can thrive once again and also pointed to daily side, high success. There's growing demand for these lenses, which is why we're expanding our offerings, including the launch of a multifocal in the US. Demand is also a theme in dry eye as we've made clear. And while that focus is often on prescription medications. We build a formidable stable OTC dry eye brands on a global scale. Most notably our Dubach that's stable, expanded with the acquisition of blink, which we expect will be a steady and growing contributor for years to come.
Finally, premium IOLs continue to represent our biggest opportunity in surgical where sales are influenced by relationships. First and foremost, as we've prepared to push deeper into higher margin offerings, including expansion of our Invista product line. It's incumbent on our sales force to turn their deep relationships. The conversion last quarter we stressed a practical approach to supply chain that hasn't changed.
And well, what has changed is my comfort level and how the challenges we faced are being addressed. We brought our Waterhouse to Bausch & Lomb with a simple yet incredibly complex agreement take off for counting our global manufacturing and distribution network put a comprehensive plan in place to turn that network into a competitive advantage and execute with the understanding that we won't cut corners ever. It's early days, but I'm very pleased with the initial returns and more importantly, the path forward in 2024.
Our focus will continue to be on reducing complexity while streamlining how we put product in the hands of customers and consumers with DTC. efforts in China being the most prominent example. We'll also continue to digitize operations using lessons learned from our distribution center in electric for Virginia. Remediation is near complete, and we've turned our attention to gaining efficiency over the next few quarters.
Optimizing our supply chain will take time. Incremental improvements will be reflected in margin expansion and long-term success will be foundational for a future proof, Bausch & Lomb part of R&D investment is often taken with a grain of salt and for good reason, some companies invest because they have to or need to hit a self-imposed minimum, we invest because innovation has been the lifeblood of Bausch & Lomb for 170 years. In 2023,
We invested more than $300 million and a new look older and better R&D department, and we've infused it with talent. And the last two years, we grew the team by more than a third, including hiring top scientists who want to be part of what we're building here, but money and talent only get you so far, we've refocused the team to better support our reloaded, robust pipeline that cuts across every business. While in-house capabilities are nonnegotiable, we can't do it all ourselves.
As previously mentioned, our business development team has been working hand-in-hand with R&D leadership to identify and vet potential products and therapies, it would benefit from our scale and know-how. As long as we keep adding products, we'll keep showcasing our launch slide. There's a nod to what we accomplished in 2023 and a preview of what's to come this year.
This view best represents the opportunity in front of us. Innovation provides new offerings, operational and selling excellence leads to revenue growth and margin expansion. Sam highlighted it's not a terribly complicated formula, but one that requires a relentless focus on doing the small things incredibly well in my regular conversations with eye care professionals and visits to industry meetings.
There are two consistent themes around Bausch & Lomb excitement and anticipation that's echoed within our company walls. My travels take me all over the globe and from Berlin to Bridgewater, colleagues are anxious to make 2024 a defining year in our company's history. I look forward to keeping you updated on our progress. One quick note. I'm still on the mend from rotator cuff surgery just a few days ago. So take it easy on me in the Q&A. Operator let's open the line for questions.

Question and Answer Session

Operator

Certainly, we will now begin the question-and-answer session to ask a question. (Operator Instructions). Your first question for today, is coming from Matt Miksic, Barclays.

Matt Miksic

Hey, good morning and thanks so much for taking the questions and congrats on a really strong finish here to 2023. I had one question, if I could on Cidra, I think you did a pretty great job last year of sort of framing out expectations for because I joined my VOS and how they would kind of interplay and ended up finishing, as you mentioned, a bit stronger out of the gate.
And could you maybe talk a little bit about how the how we should maybe recalibrate or the trajectory of what we're expecting from Cidra, assuming you're still going to invest behind it, as you mentioned, but done, does that is that just a quarter or two ahead of plan here? Or is there some kind of ups and downs we should expect in the coming quarters? And I have one follow-up.

Brent Saunders

Sure. Thanks, Matt. So look, designer is an incredibly important focus for us in '24. And I I have to give a nod to our sales team in the fourth quarter, right. We got a product that had been kind of left behind. And what's interesting when you look at the fourth quarter, there's some seasonality there. Fourth quarter is always the best for chronic prescription demand because of that deductible and the like.
But then when you look at what happened was in the fourth quarter, we brought the Novartis sales team and made them about Schwab sales team, and they really were just focused on basic execution. And you saw with what what happens right. We saw really good performance in the fourth quarter.
I think that that should give us optimism for what can be done in early January. We actually integrated the field force on and they're actually in their sales meeting their annual sales meeting as we speak. This week Orlando.
And so I'm pretty optimistic when you look at tactics and when you look at our execution on the ground and couple that now with reinvesting in marketing, right we're back on TV as of mid-January. And so we've been on TV for a couple of weeks with ER. I'm pretty optimistic that this can be a growth driver. So, if you think about it, just in basic terms, Novartis, in the quarters they had they did about 250. We did 106 in the fourth quarter. So, if you've got a performance at 335 of them in his comments, guided to $400 million. That's a 13% growth if we pull that off when we bought it and we announced the deal model, we talked about mid-single digit growth.
So, we feel like we can get back on track and make this a real growth driver now in all dry including my, but there is seasonality in the first quarter because of deductibles. It is always the weakest, and the fourth quarter is always the strongest. But yes, I wouldn't just divide the 400 by four and look for it that way. But you'll see a nice, steady build as we execute, and we drive marketing, and the seasonality is a factor and I think we're going to set ourselves up for a very nice year in cyber.

Matt Miksic

That's great. Thanks for that. And then one other area that was you had a pretty strong finish important category within Surgical is around IOLs. And I know you have a pipeline of new products you've talked about planned out for this year on the ATOL. side, but and some of the sort of just underlying growth of that business was quite strong in Q4. And just wondering if you could comment on whether you know that was a market phenomenon, whether you feel like your some of the products in the market currently are gaining momentum and how sustainable that that is. Thanks.

Brent Saunders

Yeah. So, you're right, we did see some strong demand of prior wells in the quarter and throughout the year, I think it really is a foreshadowing of what we want this business to look like. So premium IOLs were up 30%, SAM about 30% in the fourth quarter. You know, I think it's off a small number, right? And what we need to transition to if you look at surgical for the year, again of packs were up about 9% for the year.
Equipment was up about 11% for the year. So better, we're taking market share. We're growing faster than the market. What we need to do in '24 and really in '25 and '26 is drive that IOL mix and drive it towards the premium side of the Iowa, that actually is the way you run a surgical business, and it has a tremendous benefit of driving margin improvement.
And so, when we talk about margin improvement mix is critical. And one of our most important strategies is to drive from the lower margin packs and question to pull through of the higher margin IOL. So really good foreshadowing of I see that the new launches we have, the Aspire that we launched, we have the ICA, which we're still launching. We have, you know, a trifocal getting approved at the back end of the year. And then we have our EDOF lens, hopefully getting approved in later 25. So the setup there is really nice for constant new product new innovation and higher margin products to drive through that business. And that's my reason I get excited about. Surgical is pulling that up, but it is going to take two years to get there.

Matt Miksic

Right. Well, that's super helpful. And congrats again, Brent and to the team on the solid results.

Brent Saunders

Thanks. Yes.

Matt Miksic

Thanks, Matt.

Operator

Your next question is from Patrick Wood with Morgan Stanley.

Patrick Wood

Amazing. Thank you for taking the questions. I've got one and then a quick follow-up. I guess for the first one, sort of a bit more high level. Obviously, on the consumer side and then the pharma business unit, you've got you've got merchant scale now. And so I guess, how are you thinking about things going forward? You mentioned the BD team a bunch of times, but organically and inorganically, how you're splitting your energy between the segments and going forward, where do you think the biggest opportunities are? You obviously talked a little bit about premium IOLs. There's other areas like custom packs, glaucoma, it's a big market, right? Where how do you see the direction strategically and where you feel the biggest gaps that you might like to bulk up in all?

Brent Saunders

Yeah, it's a great question. So, a little different than how we report the way I think about the business is four, four business units, right? We have the pharmaceutical consumer Vision Care and Surgical. And when you look at it to are in really good shape, right, consumer, we are the leader in eye care. We have demonstrated great growth in the consumer business, up 11%. And what's interesting, a lot of that is volume where in the past years, a lot of that was price. And so really healthy performance there. We have some new products coming in consumer. We have some new incremental innovations coming. We have packaging innovation coming.
So pretty excited about the consumer business combined with just a great team, right? We have a really strong team at FP. and L. on consumer pharma, you know the story, right? We're really investing, particularly in the US. We have my but we have Zohydro whereby Solta we have on the hunt for other things to add to the bag.
But we have a lot of strength and a lot of growth for several years to come in pharma and lots of opportunities to add innovation, vision care, a very strong performance. If you normalize for Lynchburg and we look at Vision Care is very strategic, but still a work in progress, right? We've got to drive growth daily site infused, as an example, was up 46% for the year. That's our fastest growing product and a great contact lens. And so our job there is simply execution. Surgical still work in progress, as I mentioned. And there, it's a two to three year program to drive towards IOLs and premium IOLs becoming a larger contributor with much higher margins.
And so to summarize, I'd say we have two of our businesses in really good shape. And to that, that our focus on execution and delivering that being said, you're right, how do you how do you split your time between the four for me. It's quite simple. You've got to build great teams and we've done that. You've got to focus on execution. And then you have to work with R&D to drive innovation and we've organized ourselves to do that and I think we can pull it off and then that's super handy.

Patrick Wood

And then obviously, aspires looks like it's done very well in the US. And I think it's like almost 14,000 units just in the 4Q right off the bat. But I think I see a I think from memory you guys still have some production challenges, though, I think I think you probably only have like 1,000 units or so that seems like a very differentiated lens, you know, going forward is that is there an opportunity to kind of push that on the production side and get the volumes up a little bit faster?

Sam Eldessouky

Yeah, absolutely. So, you're right. And this is fire was launched we were up about 100 days into the launch, give or take. We've had about 350 surgeons actually implant the Aspire and where the Aspire torque and what we're hearing anecdotally and what we're hearing from our field force is great results by the doctors and absolutely great outcomes from from the patients know that that leads is positioned as a monofocal plastic to compete against J&J.
I have and I think our team has done a great job there, and there's a really big opportunity on the ICA or a clearer lens, you're absolutely on the money. We are third party manufacturing there is struggling and our Waterhouse knows that well because it came from up there before coming from from J and JBAMLB., the issue there is right driving production capability and that is in place, but it will take a few quarters to get to where we want to get to. And so again, great outcomes, great, great patient satisfaction, surgeons who have implanted it love it, but we don't want to roll it out to all surgeons a you have to train them until you have to have supply. And so that that is a work in progress without a doubt. But I think that sets us up. If you look at the team's performance on Aspire, it really gets you excited for the potential for the pipeline that's going to pull through later this year and next year.

Patrick Wood

Super helpful. Thank you. And hope to show it gets better soon.

Brent Saunders

Yeah Thank you. And I'm I'm it's my right shoulder, I'm right-handed. So it's even turning pages here left in Colombia.
Yes.

Operator

Your next question for today is coming from Craig Bijou, Bank of America.

Craig Bijou

Good morning, guys. Thanks for taking the questions and congrats on a strong finish. I'm wondering just talk about the margin opportunity for you guys in '24 and maybe beyond given the strength of Zohydro ER? My couple excuse me. So the margins, the margin expansion that you are guiding to is in line with some of your comments from earlier in the year.
So just wanted to understand, as you're in this investment mode to the extent that Zohydro and Weibo and maybe the rest of the business outperform. How should we think about you either dropping some of that benefit or outperformance to margin improvement? Or are you going to reinvest that? It's a drive to drive even more growth.

Brent Saunders

Yes, that's a great question. Says it all margin expansion is a critical part of our long-term strategy, right? We want to deliver sustained margin improvement for the next several years. And I think we're set up to do just exactly that. But as you mentioned, right, product mix is a big part of improving margins. The operational excellence we've been talking about for the last few quarters, critical and obviously cost discipline. When you think about '24 of 2024, remember, it is our largest launch here in the history of the Company.
And so, let's just take the example. You mentioned mind, but right, we have guided for around $95 million in sales a month, but our investment is significantly higher than the $95 million significant. And so as that pharmaceutical, you tend to invest to run two to two to three years and then they become vastly profitable. So, we have a direct line of sight of extensive margin improvement over the next few years, but you got to set up these products to realize their potential and directly to your question, Craig, if we have upside, would we've profit through.
I think we would like to do that. The only hesitation I have there is if we believe we can change the trajectory of the curve on a product like my boat. You'd probably want to do that as an investor. You probably want to set that up for higher peak sales because we have it for a long time, and he knows that it can drive massive growth and profitability with the right investment.
That being said, I think we've made a massive investment. We have a great plan. We're tracking KPI.'s on a daily, weekly, monthly and quarterly basis. We make the investment decisions based on performance. We don't just turn over that investment and say good luck. It's gated and it's done with stage gates based on hitting KPI. So we're going to watch that carefully. But yes, I think all things being equal, we would trade at drop a greater performance all the way through the P&L.

Craig Bijou

Great. Thanks for that, Brent. And maybe a follow-up on some of your comments on the contact lenses and that business. Just wanted to get your perspective on what seems like a pretty strong underlying market. And then maybe comments on and how pricing looks there in '24 and your position within that market? And just any other trends that you're seeing there?

Brent Saunders

Yeah. So, you're right, the contact lens market globally is very healthy, growing around 7%. So really good trends, good demographics, a lot of tailwinds in that business and are a lot of reason to like contact lens as a category. I think if you looked at our performance and you tried to normalize for lunch for we're growing slightly faster than market.
And I already gave you the great performance on INFUSE or ultra daily our daily site. And there's a lot to be excited about in that in that our category trends there remain the same, a big shift to daily silicone hydrogels as we complete the rollout of the full line of INFUSE. We have the multifocal in several key markets. We want to continue launching that around the world. We have the toric coming and then we had the multifocal toric coming. So a lot of work, a lot of new launches within that brand over the next, let's say, 12, 18 months. So, we feel pretty good about it pricing.
Well, I think there are pricing opportunities in that in that market. When you look at the fourth quarter, there was a lot of rebating by our competitors. We did not participate in that given our Lynchburg situation and the launch mode of INFUSE. But we look at it very closely. We look at all the trends and we do make strategic pricing decisions, particularly one, perhaps some of the of the older products, but the new products right now it's about building share share pricing appropriately and building share. And I think we have a very strong strategy there. So we're thoughtful about it.

Craig Bijou

And in other words, thanks for taking the questions.

Brent Saunders

Sure.

Operator

Next question is from Larry Biegelsen with Wells Fargo.

Larry Biegelsen

Good morning. Thanks for taking the question and congratulations on a strong finish to the year here. Brett and Sam, love to start without my boat. Brent, could you talk about the adoption so far, what's going well, where do you see opportunities to improve such as payer coverage? And how are you feeling about the peak sales of $350 million that you laid out recently. Could you exceed that?

Brent Saunders

And I had one follow-up. Sure. So, I think when you look at my, but what you'd like is the that the initial target, as you would in any launch was against high-prescribing drive ECPs, right, eye care professionals. And I think the team did a really good job and the excitement among that community was strong and remains strong and their experience with my boat with patients has been excellent.
Right. And you said the reason, you know that as you look at refill rates which are trending way above five dry category refill rates. So that means, you know, early KPI.s are experience dry eye. ECP.s love the product and their patients love it even more and refill. So that's part of the thesis of why you're going to make such a massive investment in mind, though, in 2014 is because there's a lot to like there.
I think when you think about what has to happen in '24, there's two probably key activities that our team has to execute against once is to drive adoption more broadly by ECP.s. We have, you know, order of magnitude, tens of thousands of new targets that the team has to reach this year and drive adoption by both. And that that's the theme of what they're talking about in Orlando that had a whole field force has been there this week, and that's one of the key themes. And the second, Larry, you hit it right on the nail on the head is to drive managed care adoption with that as a big priority for 2020 for just the normal cycle. Remember, this is a new drug and new drugs take some time. But given the demand we've seen in the market, managed care is much more open to working with us than they were just a quarter ago. So really positive momentum there. And I suspect by the back half of '24, commercial coverage will be really, really strong. And there will be more work to do in '25 to '24. It will be ahead of our expectations on commercial coverage.
Now Medicare is the has the longest lead time or lag hope to drive coverage. But I'm optimistic we'll due to a strong performance in '24, but '25, it will catch up to commercial coverage. And so, I think those two areas are really important and for execution. And when I look at that the three 50 peak number, I'm actually pretty optimistic we can exceed that. I think given the investment we're making in the early KPI.s, I think we do better than them the data backs up.

Larry Biegelsen

Just a quick one for Sam. On the margin cadence some Could you any help on the phasing of margins in 2024? Thanks for taking the question.

Sam Eldessouky

Good morning, Diane. That's a good question is now is a very important part of our business, and that's why I highlighted in my prepared remarks. So if you think about '24 for us will follow a similar trend as we saw in 2023 with our first quarter being the lowest in terms of contribution and Q4 is the highest. So I just use that as an example, last year in Q1 last year, 2020 in Q1, for revenue, we contributed roughly about 22% of the full-year results and for EBITDA was contributing roughly about 19% of the full year of EBITDA numbers that we had for '23. So if you follow a similar trend and use the midpoint of our guidance that we provided this morning, that should give you a pretty good sense of our phasing as we think about it in 24 and it builds on from Q1 onwards as you go to Q4.

Larry Biegelsen

Thank you.

Brent Saunders

Thanks, Art.

Operator

Your next question for today is coming from Robbie Marcus with JPMorgan.

Robbie Marcus

Great, thanks for taking the questions and congrats on a good quarter. And maybe to follow up on Larry's question, Hydra, I wanted to spend a minute here. You talked about $400 million for the year. That's basically if you back out the one-time and fourth quarter, it's basically just yes, roughly $100 million a quarter, and I realize there's seasonality. So maybe just speak to why$400 million given such a strong fourth quarter here and how we think about what Zohydro is adding down the P&L in terms of adjusted EBITDA?

Brent Saunders

Yes. So great question, Robbie. I unfortunately, you can't just take the 400 and divide by four, as he's said earlier, there's a lot of seasonality in in in prescription coverage, right? And particularly in this category. And I think here I'm putting up about 13% growth on Zohydro in 2024, which is what we're guiding towards, would be a very impressive performance by our team, particularly when we announced the deal, we said it was going to be a mid-single digit grower.
So this is more than doubling our expected growth has some of that is just returning Zohydro back to where it belongs to tactical execution. And keep in mind, as I've said this multiple times that dry eye is a very promotionally sensitive category, right? And so in fairness, in '24, we're investing a little bit more on Zohydro than we would have if it hadn't been given to us in a in a bit of a kind of left behind or neglected safe from Novartis. But we're very confident that Zohydro, once we get it back on path can be a very strong contributor on margin via product mix.
And so yes, we're making a stronger, stronger investments. But I think at the you know, the data from Q4 proves that that it's a smart investment for us. We're tracking the KPIs on this one very closely as well and investing only when we hit certain stage gates of performance. But right now, there's a lot of reasons to believe our team can execute against it. And keep in mind having Zager with my ball, right, we've integrated the field force is a win-win.
It is actually at a one plus one equals something greater than three prior to having our field force be able to promote to differentiated mechanistically different drugs for dry eye therapy really positions us as is the company in dry eye and our representatives with the greatest portfolio of the best products. And so I'm really optimistic on Zygo that perhaps we can do better than 400 watts to see its February mid February. And with the teams at their sales meeting right now, I think there will be a lot of momentum coming out of out of this week and throughout the year as as seasonality built as the investment in marketing builds and the focus on on execution in the field.
Great. I appreciate that. And I'm maybe just as a follow up on free cash flow generation in 2024, I realize you have a lot of integration activities here, but how should we think about free cash flow in 20 for any phasing through the year we should consider?
Sure, Ravi. So good question. When you think about cash and cash is very important element for us is part of our DNA as we call it, catches cultural, right? So it's a it's something we spend a lot of time talking about is we're focused on it. So when you think about and maybe before I talk to '24, I want to step back and just top '20, it could detect a base for how we think about '24. So when you think about '23 cash played out exactly as we anticipated the first half of the year, we were in a growth mode with our top line and gaining market share. And that was a use of working capital.
And we've seen that in the first half of the year expecting that will turn positive in the second half of the year. So you think of a second half cash flow for us in the year was January, roughly about $95 million in Q3. And Q4. Keep in mind that was all happening as we were building up inventories to those roughly about $250 million of inventory throughout '23 reasons that helped us as we were working through our supply chain challenges that we've talked about. So that's a very important background for us to set the stage on for 2018 now and you reflect to '24, we expect cash to we don't expect the level of inventory buildup that we've seen in '20 does not repeat again into 24 at that same level.
So we expect that to be a more of a short-term element will stay probably at a higher elevated level, but we don't expect a step up in inventory again. So with that, I expect our cash for '24 to be roughly about the conversion rate from EBITDA at midpoint of guidance, roughly about anywhere between 30% to 35% conversion rate for our cash flow. That phasing will follow a similar phasing as we think about the P&L. So the phasing that I highlighted today, that would probably be something you have to keep in mind as well as you think about from our cash flow generation throughout the year, we'll start low and will build up as we get into Q4.

Robbie Marcus

Appreciate the color. Thank you.

Operator

Your next question is from Vijay Kumar, Evercore ISI.

Vijay Kumar

Hey, guys. Congrats, Lisa, our print here and thanks for taking my question. I guess my first one here Brent, I just wanted to clarify, did you say the investments in mobile are well above the $95 million, so how much of a drag it might have on margins?
Right. Now. I'm curious when do you think this margin will be accretive to corporate?

Brent Saunders

Yes. So the I did I did say it is significant, and I chose the word significant on purpose up more than the $95 million, right? And that is very typical of the 1st year of a very promising pharmaceutical launch. In fact, when you when you look at the history of pharmaceutical launches, you tend to see the first two to three years in investment mode. And so, I see this being a margin contributor in a more meaningful way in '26 and becoming a significant contributor in '27 and for years to come.
And so that that that's still the right way to provide for drug. And as I said earlier to Larry, I do think we can exceed our targets on peak sales. I'm not ready to set a number on it. We need more experience, but I'm very optimistic that this is a great drug and the acceptance is great. We need to execute. We need to expand the prescribers. We need to get the managed care coverage a lot of work to do, but we our team is killing it and we are set up for what could become a very promising product and margin contributor on a significant basis over the mid to long term.
Sam, any counter and J,

Sam Eldessouky

It's of similar sort of comments that we made before. When you think about the launches and especially my will be one of the most important launches for us. We're playing the long game here in terms of the investment. And when I think about it from a margin contribution, I would probably step back and look at everything we put on the on the table from a sort of a P&L for P&L.
So, when you take a look at our guidance for 2024, we expect margin to expand anywhere between 50 basis points to up to 110 basis points. If you take the midpoint of that of our guidance, that's about 80 basis points of expansion. While we're still investing for the long term, the benefit by investing behind mobile and other launches as well.
Just keep in mind that next year is one of our highest launches, a number of launches that we're seeing this year, 2024 or '24.
Yes.

Brent Saunders

I mean, look, I think the that we have been. And I said this at JPMorgan, when I'm when I was interviewed by Robbie, I think that we've been very deliberate, right? We want to drive net margin expansion, but we want it to be sustainable margin expansion. And we have said countless amount of times 2024 was a massive investment here in the launches despite that. And despite the fact that we are investing heavily in mobile and I'm pretty heavily in cyber as well as several other launches like INFUSE globally and Aspire. We are still going to drive margin improvement in 24. We hope it's towards the top end of that range as we talked about upside earlier. But in 25, we're going to have margin improvement. 26. We're going to have nice margin improvement, 27 is going to be even greater. We are we are really committed to driving long-term margin improvement. And if you look at over the next, you know, three to five years, it will be meaningful, but it's going to take time because the way to get there is to do the right thing and investing in these very important launches.

Vijay Kumar

That's helpful. Brent, if I may, one follow up to maybe $95 million in contribution, 200 basis points to organic. Just yet, given your comments your bullishness on this product. Is that a sustainable number, just contribution to growth? When you look at 25, 26, could maybe you add in the 50 to $100 million range? And what is the guidance assuming for prelims, a loss of exclusivity in fiscal 24?

Brent Saunders

Yes. So yes, I mean, I think you could see buyback continuing to be a very nice contributor. We had mentioned $250 million peak sales. You tend to hit your peak sales in year four or five on a product like this. And so if you model that out and then I did put it some optimism that we could do better than that, not ready to call the number yet, but it did put us optimism so that that's what we're going to watch very carefully this year. As we see execution, we will guide appropriately based on performance, which is the responsible way to do it. But again, a lot of optimism there per lender to go generic, the generic centered in January and the impact is around $40million to $50 million this year.
That's a very high margin product, end-of-life product that are very high margin. And so when you think about and I know you didn't ask this question, but I'll just use the opportunity when you think about our guidance for '24, we're covering a significant amount of headwind. And despite that, still having a really nice guidance, you covering 50 ish million and provides you're covering a currency. And I think I mentioned this at the JPMorgan conference on the webcast, we're covering another $40million $50 million of skew reduction that we did and are doing this year to focus on the higher margin products. So there's a lot of headwind there that's meaningful to us, and we're jumping right over that and still growing very nicely. So that's why I have a lot of optimism for the business in 24, but start to get really excited in the coming years as we finish the the hard work that we're doing here to reorganize the Company to simplify the company and to invest in strategic areas that will drive growth.

Vijay Kumar

That's very helpful. Thanks, guys.

Brent Saunders

Yes. And I think we'll take one more question.

Operator

How is your final question for today is from Joanne Lynch, Citibank.

Joanne Lynch,

Thank you for taking the question and good morning, and I'll say upfront.I hope your shoulder heals quickly, quick question.
What percentage of your contact lenses are silicone hydrogel today versus a year ago? And I'll toss my second one and now where are you feeling or how are you feeling about M&A?
Thank you.

Brent Saunders

So let me take the second part first and then Sam will give you some guidance on the first part. When I think about M&A you know, I've said this when we did this after our priority is to digest and delever the Novartis assets, namely cider. That is our plan for '24. That being said, you know, I mentioned in the prepared remarks, investing in R&D capabilities and BD capabilities. We are actively involved in numerous discussions around some smaller products, R&D assets and the like. And I expect us to use '24 to build our pipeline in pharma and surgical and consumer and the like. And there's some really exciting science and there's some really exciting early-stage products that could be meaningful contributors to us if we make the investments. So long-winded way to say nothing significant in '24 for us, but some look for us to be very strategic, adding profitable, smaller products are for mid to late stage R&D products for all of our businesses.
Sam, you want to say?

Sam Eldessouky

Yes. And you ended in terms of the high it seeing right now as we think about '20 is roughly about 10% is growing faster. We've seen it growing really fast between '22 and '23. And as we have brands such as growing in the high single digit going into double digits. We saw Q4 was about 31% growth.

Brent Saunders

Thanks, Joanna, and thanks for asking about the shoulder set up.
So Harvey, let me just conclude with some remarks, if that's okay.

Operator

Sure.

Brent Saunders

Great stuff. So thank you all for joining the call reflecting on 2023 for just thirty seconds. I just hit my one year mark here. It was a very busy year. I think the team accomplished a lot. We we did a lot of activities. We remade the executive management team. We did a complete reorganization of our organization. We invested in big capabilities around selling excellence and digital.
We started our strategic planning on supply chain. And I'm really proud of the team and what they accomplished in '23. And I think our performance was very strong. What gets me really excited as I think about 2014 and beyond. And I hope as we continue to interact with all of you in 2024, you'll see a strong focus on execution and driving this company to reach its potential in the years to come. So very excited outlook, and I look forward to keeping you all updated. Thank you so much.

Operator

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