Bausch + Lomb Third Quarter 2026 Earnings Call - BAUSCH & LOMB CORP

Financial Performance:

• Total Q3 2026 revenue reached $1.375 billion, a 8% increase on a constant currency basis.
• Adjusted EBITDA grew 34% year-over-year to $325 million, expanding the adjusted EBITDA margin to 23.6% (up 460 bps).
• Adjusted gross margin improved to 64.7% (excluding a one-time $14M tariff refund, margin was 63.6%).
• Operating cash flow was $233 million and free cash flow was $178 million, the strongest Q3 since the 2022 IPO.
• Net leverage decreased to 4.1 times, down from 5.7 times a year ago, progressing toward the 3.5 times target.
• Adjusted EPS was $0.34, up from $0.18 in the prior year quarter.

Guidance and Future Outlook:

• Full-year 2026 revenue guidance raised by $10 million to $5.450–$5.550 billion, implying 6.1%–8% constant currency growth.
• Full-year 2026 adjusted EBITDA guidance raised by $65 million to $1.090–$1.140 billion, with a midpoint margin of ~20.3%.
• Full-year adjusted gross margin guidance raised to 62.5%–63.0%.
• Full-year adjusted tax rate expectation lowered to ~18% from 19%.
• R&D investment maintained at 7.5%–8% of revenue; CapEx expected at ~$285 million; interest expense ~$365 million.
• Management reaffirms confidence in meeting Vision 27 targets and exceeding the 2026 investor day margin outlook.

Business Segments and Product Lines:

• Vision Care ($774M): Revenue up 6%; Consumer business grew 6% (Lumify +38%, Dry Eye portfolio +3%); Contact Lenses +6% driven by 25% growth in Daily SiHi and 17% growth in Ultra lenses.
• Surgical ($234M): Revenue up 9%; Implantables surged 40% (Premium IOLs +75%); Consumables +5%; Equipment declined 11% due to strategic focus on system placements to drive future recurring revenue.
• Pharmaceuticals ($367M): Revenue up 11%; U.S. Pharma +14%; Dry Eye Pharma +22% (Mibo +42% to $119M; Zydro +2% to $89M); International Pharma +3%.
• Innovation Pipeline: Project Halo (bioactive lens material) is in development with potential for lower capital intensity and cost per unit; Project Ilios under FDA review for year-end approval; Dry Eye AMD oral small molecule program advancing with favorable FDA feedback.

Market and Competitive Landscape:

• U.S. market growth outpaced international, with Vision Care U.S. up 9% vs. International at 4%.
• Contact lens business outgrowing the market with strong performance in both daily and extended wear (FRP) portfolios.
• Premium IOL adoption in Surgical showing significant runway as the portfolio transitions to higher-margin categories.
• Competitive dynamics in contact lenses noted with some competitors facing challenges, while Bausch & Lomb maintains strong market traction.
• Equipment sales strategy prioritized strategic system placements over immediate revenue recognition to expand the install base and drive consumable pull-through.

Risks and Challenges:

• Foreign exchange rates remain a headwind, though currency tailwinds for the full year were revised slightly down to ~$40M from ~$45M previously.
• Capital equipment revenue reported as a headwind due to the strategic shift in deployment cadence.
• Regulatory and clinical risks associated with pipeline progression, specifically regarding the Dry Eye AMD program which requires PK safety studies before full clinical trials.
• Ongoing need for sustained R&D investment and facility modernization to maintain competitive positioning.

Management Commentary and Tone:

• Tom Appio (Interim CEO) expressed high confidence, citing four consecutive quarters of delivering on Investor Day commitments and a "strong, durable" business model.
• Tone was optimistic and forward-looking, emphasizing "operational excellence," "disciplined execution," and "profitable growth."
• Management highlighted the breadth of growth across all segments as evidence of a resilient business not reliant on single products.
• CEO reaffirmed commitment to Vision 27, focusing on margin expansion, cash generation, and strategic capital allocation.

Analyst Questions and Answers:

• Leadership Transition: Appio stated the change was a mutual agreement with the board to position the company for its next growth phase; no further details provided.
• Capital Allocation: Priorities remain reducing net leverage to 3.5x, followed by organic growth and M&A for portfolio gaps.
• EBITDA Drivers: Strong gross margin driven by favorable mix (Mibo, Premium IOLs, Lumify) and productivity initiatives (supply chain/network optimization).
• Contact Lens Competition: Management views the business as underappreciated for its durability; notes legacy portfolio drag in international markets but strong momentum in U.S.
• Surgical Equipment Softness: Explained as a strategic choice to delay revenue recognition for equipment placements to boost long-term consumable revenue.
• Mibo Growth: Driven by strong transaction counts (avg 37k TRXes); gross-to-net assumptions remain in the mid-70s for 2026.
• Strategic Structure: Appio declined to comment on a potential return to private ownership or parent company integration, stating focus is strictly on executing Vision 27.

Other Key Points:

• Mibo is a standout performer in the dry eye portfolio with 42% growth, establishing a dual-brand franchise with Zydro.
• Project Halo represents a potential game-changer for contact lenses, leveraging existing production lines to minimize capex.
• The surgical segment's gross margin expanded by ~800 bps in the quarter, validating the shift to premium IOLs and consumables.
• Q3 marked the fourth consecutive quarter of beating Investor Day commitments, signaling sustained operating leverage.