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

Explicit Guidance:

• FY2026 Revenue: Raised to $5.450–$5.550 billion, reflecting 30 bps increase over July guidance; implies constant currency growth of 6.1%–8.0%.
• FY2026 Adjusted EBITDA: Raised to $1.090–$1.140 billion; implies adjusted EBITDA margin of ~20.3% at midpoint (approx. 130 bps above Investor Day target).
• FY2026 Gross Margin: Revised upward to 62.5%–63.0% (previously ~62.0%).
• FY2026 Tax Rate: Revised downward to ~18% (previously 19%).
• FY2026 R&D Investment: Maintained at 7.5%–8.0% of revenue.
• FY2026 Capital Expenditures: Maintained at ~$285 million.
• FY2026 Interest Expense: Maintained at ~$365 million.
• FY2026 Currency Impact: Estimated $40 million tailwind (down from $45 million previously).
• 2028 EBITDA Margin Target: Target of 23% remains unchanged, representing ~600 bps expansion from 2025 levels; current 2026 guidance implies significant progress toward this goal.
• Net Leverage Target: Continued focus on reducing leverage to 3.5x by the end of the 2025–2027 plan (currently at 4.1x).

Business-Segment Outlook:

• Pharmaceuticals: Continued strong momentum in dry eye; Mibo remains a standout driver with double-digit growth; Zydra growing steadily; Lumify (Consumer) expected to maintain durability with next-generation launch anticipated in H1 2027.
• Vision Care: Growth expected to continue driven by Daily Sci-Fi (up 25% YoY) and Ultra (up 17% YoY); Project Halo (bioactive lens material) under development as a future differentiator with potential for significant growth; Project Ilios expected to receive FDA approval by end of 2026 (subject to no FDA issues); Myopia study in the U.S. planned for Q4 2026.
• Surgical: Strategy focuses on premium IOLs (reported growth ~70% in Q3) and consumables to drive high-margin mix; equipment sales intentionally moderated to prioritize strategic placements for future recurring consumable revenue; premium IOLs expected to expand adoption in the U.S. and Europe.
• Pipeline Specifics: Oral small molecule for dry AMD (pre-geographic atrophy) – FDA meeting held; PK safety study planned to start beginning of 2027; EDOF (Extended Depth of Focus) pre-submission meeting with FDA planned for mid-December 2026; Phase 3 studies for dual-action dry eye products and ocular surface pain (post-PRK) currently in planning or nearing results.

Market and Competitive Outlook:

• Contact Lenses: U.S. market outperforming with 9% growth (led by Daily Sci-Fi and Ultra); International market growing at 4%; portfolio viewed as durable and underappreciated relative to competitors facing challenges.
• Consumer Demand: Strong underlying consumption trends persist; Lumify brand durability noted as rare for an 8+ year old product.
• Competitive Position: Company anticipates "significant runway" for premium IOL adoption; Project Halo positioned to offer cost and manufacturing advantages (utilizing existing lines vs. new capital intensity) to enhance margins.

Macro / Industry Outlook:

• Currency: Full-year 2026 currency tailwind estimated at $40 million; moderate exchange rates expected to continue impacting growth rates.
• Regulatory: Active engagement with FDA; encouragement received for upstream approach in dry AMD treatment; Project Ilios on track for year-end approval.
• Supply Chain: Manufacturing and supply chain teams executing on "Vision 27" network optimization and vertical integration; early signs encouraging for gross margin expansion.

Strategic Initiatives:

• Vision 27: Progressing through the three-year plan; on track to meet or exceed targets with 120 bps margin expansion achieved one year in; focus remains on product mix, supply chain optimization, and SG&A efficiency.
• Innovation: Continued investment in R&D ($91M in Q3); prioritizing resources on high-value projects including Project Halo, Project Ilios, EDOF, and oral dry AMD therapies.
• Capital Allocation: Net leverage reduction to 3.5x is the #1 priority; subsequent focus on organic investment and accretive M&A to fill portfolio gaps; SG&A efficiency initiatives targeting further 200 bps improvement over the next two years.
• Leadership: Interim CEO Tom Appio leading transition with focus on operational excellence, pipeline execution, and balance sheet strength.

Risks and Headwinds to Outlook:

• Currency Volatility: Exchange rate fluctuations remain a variable affecting reported revenue growth.
• Regulatory Delays: FDA approval timelines for Project Ilios (pending) and upcoming studies for dry AMD, EDOF, and myopia products carry execution risk.
• Product Mix/Execution: Ability to sustain growth rates and margin expansion depends on successful execution of supply chain optimization and the commercial traction of next-generation products (e.g., Project Halo).
• Pricing/Reimbursement: Gross-to-net dynamics for Mibo maintained at mid-70s; no changes expected in 2026, but future changes could impact revenue.

Management Tone on the Future:

• Confidence Level: Highly confident and optimistic; management describes the trajectory as "encouraging" and notes "increasing momentum."
• Progress vs. Priorities: Management expresses pride in exceeding the Investor Day margin targets (20.3% implied vs. 19% target) one year early; emphasizes that the "breadth" of growth across segments validates the strategy.
• Strategic Shift: Interim CEO signals a focus on operational efficiency and resource allocation, moving from "launch phase" to "growth mode" to unlock further value.
• Hedges: Guidance remains subject to market conditions, FX rates, and regulatory outcomes; management notes they do not typically update guidance outside of quarterly reports unless required.

Miscellaneous:

• One-Time Item: Q3 Adjusted Gross Margin included a $14 million tariff refund; excluding this, margin was 63.6%.
• Cash Flow: Q3 Free Cash Flow was $178 million; Q3 Operating Cash Flow was $233 million.
• Leadership Transition: Tom Appio serves as Interim CEO following a mutual agreement with the board; focus remains on Vision 27 execution rather than immediate M&A or structural changes.