Good morning and welcome to Bausch + Lomb's Third Quarter 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to George Gadkowski, Vice President of Investor Relations and Business Insights. Please go ahead.

Thank you. Good morning everyone, and welcome to our third quarter 2024 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 1 of the presentation. Non GAAP reconciliations can be found in the appendix to the presentation posted on our website. 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.

Thank you George, and thank you everyone for joining today's call, I'm going to share the latest chapter in our execution story. Sam will dig into the numbers, and I'll close by highlighting some of the diverse products and services that position us for sustained profitable growth. But first, an important note on recent speculation around a potential sale of Bausch + Lomb. While all parties remain committed to a full separation from Bausch Health, and there are multiple paths to making that happen. We don't comment on rumors involving the company. I certainly appreciate that some of you may ask about these rumors in the Q and A portion of today's call, as I'm sure you'll appreciate our standard response. You may be bored by our three areas of focus, and that's a good thing. We don't need a dramatic shift in strategy or a change in how we report our progress. Instead, we need to continue our relentless focus on execution, which is exactly what we are doing. 1920, 2019, those figures represent our constant currency revenue growth over the past 4 quarters. Top line growth is one of the 3 critical metrics we're focused on as we work to become the best eye health company. We obviously made great strides there, while steadily improving the other 2 metrics, margin expansion and cash flow, which Sam will cover in his remarks. Our revenue growth is fueled by our sales force. We're giving them a steady stream of new products to place online, in store, on prescription pads and in the operating suites, but we're also making their jobs easier by enhancing our digital capabilities. On our last earnings call, I highlighted [Glimpse] a new proprietary digital sales platform that uses AI and machine learning to provide tailor made…

Thank you, Brent, and good morning, everyone. Before we begin, please note that all my comments today will be focused on growth expressed on a constant currency basis unless specifically indicated otherwise. Turning now to our financial results on Slide 7. We are pleased to report another quarter of solid performance with revenue growth across all segments, geographies and product franchises. We're seeing the broad-based growth momentum in our business continue, driven by our intense focus on execution. Total company revenue of $1.196 billion for the quarter reflects growth of 19% and 10% on an organic basis. As Brent highlighted, we're continuing to execute our strategy. We remain focused on driving selling and operational excellence and prioritizing innovation. Our steady stream of product launches continues to drive growth, and we're excited about the opportunity ahead of us for the remainder of 2024 and future years. For the third quarter, currency was a headwind of $5 million to revenue. Now let's discuss the results in each of our segments. Vision Care's third quarter revenue of $684 million increased by 6%, driven by growth in both the consumer and contact lens portfolios. The consumer business grew by 3% in Q3. Let me go over a few highlights. In the quarter, LUMIFY grew by 7% and continued to expand its market-leading position. Our consumer dry eye portfolio delivered $93 million in revenue, representing 19% growth in the quarter. Our 2 key franchises, Artelac and Blink, continue to drive the strong performance. Artelac grew by 19% and Blink grew by 35% in the quarter. While we continue to see solid retail consumption and market share across our portfolio, during the third quarter, the broader consumer market in the U.S. experienced disruptions in the drug store channel and retailer inventory rebalancing. These market dynamics had…

Thanks, Sam. Let's move to products and services that will be synonymous with Bausch + Lomb for years to come. We built an impressive and all-encompassing dry eye product portfolio with revenue growth that reflects increasing awareness of a common but commonly untreated condition. If you're one of the approximately 150 million U.S. adults that experience occasional or frequent symptoms of dry eye or one of around the 38 million living with dry eye disease, we have a treatment option for you. I'll highlight over-the-counter growth on the next slide. So let's focus on our flagship prescription products. We celebrated Miebo's 1-year anniversary in the third quarter and what we've been able to accomplish since launch has been remarkable. Approximately 17,000 eye care professionals are prescribing Miebo to approximately 150,000 patients. Feeling is believing for dry eye disease sufferers, which is why we're excited that our new 1.6 ml sample began shipping weeks ago. Those samples will help activate new prescribers, along with a high percentage of covered lives this early in a launch cycle, approximately 70% in commercial and approximately 45% in Medicare Part D. Last quarter, we alluded to making a significant investment in direct-to-consumer campaign for Miebo, which launched earlier this month. The ads are memorable and target a somewhat younger demographic as dry eye disease isn't solely age-related. We also launched a sizable direct-to-consumer campaign for Xiidra in Q3 that features Emmy award-winning actress, Julie Bowen, of Modern Family fame. It's early days, but it appears the campaign is already providing a boost to Xiidra prescriptions, which show a positive momentum as we continue to execute on our strategy. Julie took part in an event we hosted in September to coincide with Vision Expo West in Las Vegas. While she shared her dry eye journey with…

[Operator Instructions] And the first question today is coming from Patrick Wood from Morgan Stanley.

I'll do 2 quick ones, if I can. I mean, I guess, taking a step back, there's been a lot of change in the business today to get us to where we are, both on the employee side and then on the product launch side. If you had to characterize it, I guess, what do you think the biggest factor has been getting us to where we are today? And how do you think about -- you mentioned, obviously, the launch cycle in 2 to 3 years and living, breathing. How do you think about investing behind those launches and the interplay between margin and growth going forward? And then I have one quick follow-up.

Sure. Thank you, Patrick. I appreciate the 2 questions. So on the first question, really interesting question around what is the biggest factor. It's hard to point to one, but let me just take a step back and give you my two cents. So I joined almost 2 years ago and laid out a very clear strategy for this company, which was to really focus on sales excellence, operational excellence and innovation. And I think when you lay out a very clear strategy with very specific actions around it and you get the buy-in of 13,000 people to really focus relentlessly on execution, good things happened. Now it's easy to say, it's hard to do, but the team has been working very hard at doing just that. And I think when you see broad-based performance, you know that it's really working. And so if you think about a constant currency growth of 19%, organic 10% across the company. But when you look at like a business like contact lenses that was up 12% on a constant currency basis. And you even just drill down on that as an example, the U.S. was up 13%. International was up 11%. Our Daily SiHy was up 79%, but even some of our FRP products continue to grow. Biotrue up 4%, Ultra up 6%, even soft lens up 3%. Or digging even deeper, China up 16%. And so when you see performance in a business like that, you know that the team is really executing with excellence. And I think that's partly driven by really enhancing capabilities, whether it be digital, DTC, we did in China or Opal, we're launching now in the U.S., but also the fact that we have great products, and we finally have uninterrupted supply, and we have a great…

I will pass the Commercial and Times Square every day for Miebo, which is [indiscernible].

Well, hopefully, you're visiting a doctor and talking about your symptoms, too.

The next question will be from Xuyang Li, Jefferies.

I guess to start, maybe just focusing on the dry eye portfolio. It's doing really well broadly. And it seems like the OTC side is also benefiting from some of the pull-through or halo effect from the script side. Maybe can you talk a little bit about the sustainability of that pull-through growth? And do you think there's opportunities to add some incremental OTC products into that portfolio as well?

Yes, you're right. So the dry eye portfolio on a comprehensive basis is a really important strategic imperative for us and very pleased with what we saw in the third quarter. On the consumer side, you saw that portfolio up 19% on a constant currency basis with really strong performance from our OTC offerings, Blink and Artelac. Blink is our predominantly U.S., but also some international markets and then Artelac is exclusively in the international marketplace. And both are really important growth drivers. Obviously, in the U.S. pharmaceutical business, Miebo and Xiidra are really important. Miebo continues to set new records for ocular surface pharmaceutical launch, outpacing any benchmark that we see. And there, I think we're just getting started 1 year in. And we just launched DTC a couple of weeks ago. I think we have a really strong creative ad. And we're going to look for early signs as that's only been on air for probably 2 weeks at this point. But we're also expanding coverage. Commercial coverage now is at 70%. Medicare is at 45%. We anticipate Medicare to jump over 50% in the first quarter. And that's really the important benchmark for coverage for Miebo. And so that's important. Xiidra was obviously a repair situation. I think the team did a really nice job in the second quarter stabilizing. And then as you look at the third quarter, you start to see green shoots of growth. But more importantly, as we look at prescription trends and TRx in particular, you're starting to see solidly TRxs above 22,000 a week. We expect, hopefully, as we go into the third quarter, our goal is to get in solidly into the 23,000 to 24,000. And so a lot of things are working well. Obviously, Sam called out next year, the Inflation Reduction Act and some gross to net pressure. But on a TRx basis, I think we're seeing really nice growth there. And so when you put it all together and you're using your megaphone, whether it be in consumer or prescription and you look at the market, let's just take the U.S. as an example, 150 million people with symptoms, 38 million people with dry eye disease, but only 1.5 million actually roughly 1.5 million receiving a prescription, there is a huge untapped market there, whether we're driving them into Amazon or to a drugstore or a Walmart to pick up an OTC option or whether they're going to talk to their physician about their symptoms and getting a Miebo or Xiidra script. And so that strategy was very intentional to be able to look at the disease more holistically. And I think we're seeing really early signs of it paying off. And we have a long runway on these products. And so it's a really important part of growth for us for the next decade or more.

I guess to follow up, I was wondering on the contact lens business, and it seems like the premium Daily SiHy portfolio is driving new start share taking. I wanted to hear the thoughts on sustainability of that. And more broadly, you have a diverse consumer portfolio. What are you seeing with the health of the U.S. consumer, ability for industry to increase prices going forward and industry capacity versus demand dynamics?

Sure. So let's take the lens business first, and we'll come back to consumer. So yes, great performance holistically in lens around the world. Even in markets like Japan, which are relatively soft right now, we grew about 3% in Japan. So really nice performance. As I mentioned earlier, China, 16%; international 11% and U.S. up 13%. And what I'm really pleased about is not just the performance of the Daily SiHy, which is exceptional. And remember, I think that has a long runway of growth because the only market that has the full portfolio of spherical, multifocal and toric is the U.S. That will roll around the world over the next year or 2. And so a lot of future growth to go there. But growing that business while maintaining the FRP and non-SiHy lenses is really an important part of the strategy, and the team is doing just that. As I mentioned earlier, Biotrue up 4%, Ultra up 6%, even soft lens up 3%. And so as we can continue to maintain growth in let's call it, the older portfolio, while we drive growth -- exceptional growth in the new portfolio is really what you want to see in that business. So I think there's a long runway there. And as we continue to embrace digital technologies in markets like China, which is a DTC market, adding Opal in the U.S. just a few weeks ago, it went live October 1. I think we continue to look holistically at how we improve the customer experience for the ECP and then make it easier for the consumer to stay in our lenses is an important part of that strategy. On consumer, a little bit of a multifactorial situation on actual revenue growth in the quarter, which was about 3%…

The next question is coming from Larry Biegelsen from Wells Fargo.

This is Simone on for Larry. Congrats on the quarter. I'll start off on guidance, and then I have a quick follow-up. Brent, as you mentioned earlier, constant currency growth has been between 19% to 20% over the past 4 quarters, and we see EBITDA margins have steadily moved upwards through the year. If I look at your guidance at the midpoint, it implies the constant currency growth decelerates to 8%, while margins continue to kind of accelerate towards the 20% range in Q4. Maybe help bridge the gap for us? And how should we think about each of these items heading into 2025?

Sure. Maybe I'll let Sam take it, and I'll add any color after he answers.

Sure. And we're very pleased with what we've seen in Q3 in terms of the actual results. And also when you reflect back and just reflecting back on what Brent said, when you look at Q1, 2 and 3 throughout '24, we're pleased with what we were able to do. So when you think about our guidance, and we've said this always in terms of how we think about our guidance and our philosophy on guidance was it always factors in a range of outcomes, and we tend to be trying to stay balanced with our views. When we think about our guidance and you think about this quarter, 19% constant currency, 10% organic. When you think about for Q4, our guidance is just anywhere or still holds for the full year anywhere between 9% to 11%. And if you're taking the midpoint of that is roughly about 10% in terms of an organic growth. And just using that number because if you have to remember that Xiidra, we had Xiidra for full year last year. So we're lapping Xiidra in Q4. So constant currency and organic are going to be almost the same number as we think about Q4. So we don't see that the sort of slowdown in the Q4. We actually probably think about we're continuing with our midrange of the guidance, which is still 10%, which is consistent with our performance of the year. When you think about EBITDA, it was a very nice margin expansion, as we said in the beginning of the year that we're going to continue to have a steady margin expansion as we go forward throughout '24, and we've seen that play out really between Q1, Q2 and Q3, and we expect that will continue as we push forward into Q4. Just remember, there's always seasonality in our business. Our first half of the year tend to be a little bit slower as we compare to the second half. So we factored that also in our phasing as we talk about Q3 to Q4.

And maybe just for my follow-up, can you quantify the impact to Xiidra in 2025 from the 2 headwinds that you mentioned earlier? And can Xiidra sales grow in 2025 with those 2 headwinds?

Yes. I don't want to guide to '25 on this call. I think probably the best way we think about Xiidra right now because we're still evolving our thinking, especially around the Inflation Act as well as some of the rebate discussion that we highlighted in my script. But you should think about Xiidra in 2 parts here. If we step back and you think about the volume in Xiidra, which is one of the key drivers that we think about from a growth perspective, we've seen that really nice sequential growth in volume and holding the TRxs at 22,000 TRxs average that we've seen now and we continue to drive that volume as we go into '25. Our thinking is still continuing to evolve in terms of how we're thinking about the Inflation Act and the rebates and managing sort of the access versus volume for next year. So I don't want to guide a specific number in this call here today. But what we know is going to be when you look at it on an equal basis, it will be a headwind for us. We anticipate to be a headwind for us in '25.

Next question?

The next question will be from Matt Miksic from Barclays.

So one question on some of the DTC efforts that you've put in place for Xiidra and Miebo, which I've seen both and they look great. Just be helpful maybe to understand what do you think the timing of the effect of those efforts tends to look like over the next couple of quarters? And then I have one follow-up.

Yes. So thanks for the question. So Xiidra, we launched towards the end of the second, early third quarter. So it's been out for a few weeks. It's good creative. It's a big change from the way Novartis positioned the drug. I think Julie Bowen is a great spokesperson and lead for the spot. And in fairness, I always joke with my -- I'm not even sure I'm joking -- with my commercial leads that great creative is really the best KPI for great creative is sales growth. And since we've launched Xiidra, we've seen the best sales growth in TRxs. And so early days, and we'll have a better measure after it's been out for several months. But I think that spot is really working and driving patients in to ask about Xiidra or talk about their dry eye with their physician. The Miebo spot has only been out for 2 weeks, but I've been doing DTC for a long time, 20-plus years. And my intuition is that is an incredibly strong spot, but too early to see any results in sales, but I expect that, that spot will do very well. In terms of investment, these are the types of spots when you start to see response, you tend to continue to invest. And so right now, I would say we would continue to invest behind both of these creatives throughout '25. And if they continue to do well, we will pulse up. And if they don't, we'll pulse down. And Sam and I look at it with the commercial leads every quarter and think about our investment based off of an ROI analysis every quarter. So we don't just set a number for the year and say, go spend it. We really analyze it very quickly. And I wouldn't -- I fail to mention the Blink spot, which the consumer team put out is probably one of the best ads of all time. And I've been doing consumer a long time back to Claritin or Miralax or Coppertone back in my Schering-Plough days. And I got to say that, that is one of the strongest spots I've seen, and I've done a lot, including Botox or LINZESS or others. And I'm really excited, and we saw what was a 35% growth in Blink in the quarter. And so that probably is the biggest difference in growth is just that spot. And so that's what you want to see. You want to see a real response in sales. And when we see it, we continue to invest.

And then just similarly, given the interest in sort of a multi-mechanism of action strategy for dry eye in the clinician community, what's the messaging look like to the clinicians on how to think about these 2 products together? And maybe what early evidence are you getting in terms of how they're being used alternatively or together to drive synergy between Miebo and Xiidra?

Yes. So great question, right? Clearly, they work very differently. Xiidra is an anti-inflammatory and Miebo is the only approved anti evaporative mechanism. And so when you look at Xiidra, it's really competing against the other anti-inflammatories, which tend to be cyclosporine-based options. And Xiidra is just better medicine. It tends to work. Obviously, no head-to-head direct studies. So take this for what it's worth, but it tends to work faster and it tends to be more effective. And so clearly, we believe we have the best anti-inflammatory. And so when a doctor sees that cascade, we want them to highly consider Xiidra as the best option for their patients. And then Miebo really has a much simpler proposition. It's the only drug approved for evaporative dry eye and the overwhelming majority of patients experience evaporation, which tend to be caused by meibomian gland dysfunction. And so I think the way we think about it is regardless of the type of dry eye you have, we have an option for physicians to treat their patients. And that's really how we look at it. And when we go out and you talk to physicians, they get it. They understand it. We're doing a lot with our medical affairs team to really tell the clinical story about each product and how to position in the practice. And that seems to be really working quite well. I would also -- you didn't ask this, but as a side note, the other -- the other advantage of being a holistic eye care company and having anchor brands like Xiidra and Miebo with a lot of promotional support behind them, whether it be direct-to-consumer or even medical meetings and medical fairs is that we are getting the attention of a lot of ECPs. And that's whether it's an optometry and that helps support the contact lens business or if it's an ophthalmology and it helps support the Surgical business because Bausch + Lomb is front and center with doctors around the world, and that can help support an enVista launch or even pulling through monofocal IOLs. And so there really is an interconnectivity here that's hard to describe unless you get out in the field and you talk to doctors. And they say Bausch + Lomb is everywhere, they're back and they've got a lot of energy and most importantly, a lot of innovation. And that really is a rising tide kind of situation. And we suspect and we really are investing in early innovation to maintain that for the next decade or longer.

The next question is coming from Doug Miehm from RBC Capital Markets.

I just wanted to delve a little bit deeper on that with respect to your prescription business. And what I mean by that is there are obvious benefits to having a prescription business, even though these businesses do trade at lower multiples. And I'm curious, given the investment that you're making in the various programs, the Miebo launch, getting Xiidra back on track, would you view investors and potential larger investors as recognizing the fact that there is an opportunity where you can leverage that capability. But at the same time that today, the EBITDA, other valuation metrics might be dragging a bit as a result of that?

Yes. It's actually something we spent a lot of time thinking about. I think you have to keep it in context. I think Pharmaceuticals for us is about 25% of the overall company, which means 75%, right, is Surgical, Vision Care and consumer. Very durable businesses and clearly an incredibly important part of our future. And so while today, Pharma may be driving the largest growth, I think you look at what's happening, let's take Surgical as an example, 12% growth. We're at the very early stages of a really strong launch cycle with premium IOLs and equipment upgrades. And so I really do believe the best -- the most important and probably largest opportunity for margin improvement is in Surgical over the next few years as we drive operating efficiency, we drive, frankly, better manufacturing efficiencies, but most importantly is new product launches. And the premium IOLs is a great example. enVista Envy just launched, what, 2 weeks ago. I can't tell you the number of texts and messages and calls I've gotten from ophthalmic surgeons sending me pictures of their boxes and their patient with their enVista Envy. And early data is quite compelling. Now it's too early to call any kind of trend, but really exciting. And then you think about enVista Aspire, which launched early in the year in the monofocal plus category with very limited competition. We are starting to build out one of the -- probably the top-tier IOL portfolios. And so that really portends for great opportunity over the next 2 years in that business to really drive that on equal footing of Pharma. Same with contact lenses. I've told that story a bunch of times already in this call. So this isn't really a Pharma story. This is an eye health company story. And Surgical, consumer and Vision Care are incredibly important parts of future growth.

And then as a quick follow-up for Sam. You talked about 62.5% margins for the full year as a guide. And that may be conservative. But when you look at the 9-month number, it's 62.7% so far. So does that mean we could see a bit of a squeeze? Or are you just being conservative as we look at the Q4 numbers, which is typically a much stronger quarter for the company? And I'll leave it there.

Thanks, Doug. I would probably say I'm pretty balanced as I think about the 62.5%. And again, I call it squiggly 62.5% as we think through it. It could be a range based on, again, how we think about the range of our revenue as well and the mix of our products. But what's more important here and I think we should not lose sight of is, when you think about just '24 to '23 year-to-date and what we've been doing so far has really been sort of executing on what we said we're going to do, which is really trying to drive that product mix to the higher-margin products, and we've seen that happen in the Pharma side. We're -- Brent highlighted the IOLs that's really a very good and nice step forward. So we're seeing that product mix shift, which is exactly what our strategy is and what we sort of our plan, and we're seeing that play out. So could it be 62.5%, could it be 62.7%? It's squiggly 62.5% right now in terms of the higher end of our range. Again, it's -- there's multiple outcomes that come from the range of the guidance. And the key important is we're showing the improvement in the gross margin.

The last question today will be coming from Robbie Marcus from JPMorgan.

This is Lilly on for Robbie. You've had a nice steady cadence of reported and constant currency sales upside in guidance throughout the year, but adjusted EBITDA has held steady throughout. So why haven't we seen that top line strength start to flow through to the P&L just yet?

Yes. It's a great question. And a large reason for that, and Sam can add some color commentary here, is the investments in the launch cycle we're in. I've highlighted on the last few calls, we're probably in the most robust launch cycle in our 170-year history, whether that's Miebo or relaunching Xiidra or the new IOLs or the new Daily SiHy lenses or Blink in consumer, but also continue to invest in LUMIFY and PreserVision as well. And so there is a really important strategy of getting these launches on the right trajectory, which require outsized investment in the first, let's call it, 2 to 3 years of the launch cycle. And then they become incredibly more profitable as you move forward. And so that's what we're doing. I think we've been very transparent about the launch cycle that we're in. We've highlighted the launch slide on every earnings call. And that's probably the main reason. But Sam, any other?

Yes. No, that's exactly right. And we've actually came when you think about sort of reflecting from the beginning of the year, even before we give the guidance for the full year as we were in one of the first conferences at the beginning of the year, we highlight that this year is going to be an investment year for us. And really, that was coming from the point of knowing that the number of launches that we have, and we will want to invest behind those launches. And what you've seen right now, the work that we've been doing is sort of focusing on the top line and the top line growth. And with that top line growth, that's given us the margin expansion that we've seen in Q1, Q2, Q3 and also gives us the freedom and the liberty to be able to expand our margin as we go forward into Q4 and beyond as well. So I think the story is still there in terms of investing behind the launches and having the ability to be able to continue to show that steady margin expansion as we go forward.

Okay. So maybe just some quick closing comments. Thank you all for joining us for the quarter call. We look forward to keeping you all updated as we continue to make progress. And with taking the liberty of not repeating myself here, I'd like to just again call out the really strong relentless focus on execution, on servicing our customers, on supporting our colleagues who sell and make our products and a special thanks to all 13,000 Bausch + Lomb colleagues for their focus on execution and driving results. Thank you so much.

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