Q3 2025 Bausch + Lomb Corp Earnings Call

Speaker #5: Good morning and welcome to Bausch and Third Quarter 2025 Earnings Call . All participants will be in a listen only mode . Should you need assistance , please signal a conference specialist by pressing the star key , followed by zero .

Speaker #5: After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on your touchtone phone to withdraw your question , please press star .

Speaker #5: Then, two. 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.

Speaker #5: Please go ahead .

Speaker #6: Thank you . Good morning , everyone , and welcome to our third quarter 2020 financial results conference call . Participating on today's call are Chairman and Chief Executive Officer , Mr. Brenton Saunders and Chief Financial Officer , Mr. Sam El-desouky .

Speaker #6: 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 .

Speaker #6: 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 .

Speaker #6: This presentation contains non-GAAP financial measures and ratios . For more information about these measures and ratios , please refer to slide one of the presentation non-GAAP reconciliations can be found in the appendix to the presentation posted on our website .

Speaker #6: 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 .

Speaker #6: 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 .

Speaker #7: Thank you, George, and good morning to everyone joining us today. I'm going to provide an overview of our impressive third quarter performance and speak to how our strategy and patience are paying off.

Speaker #7: Sam will go deeper on the financials and update 2025 guidance . And I'll close with a look at products driving growth and opportunity .

Speaker #7: I'd like to thank my 13,000 colleagues around the world up front because, without their commitment and belief in what we can achieve together, we'd be stuck neutral.

Speaker #7: Instead , we're delivering on the vision we laid out in 2023 6% constant currency revenue growth was once again fueled by a base business engine that continues to hum , and the steady introduction of innovative products across categories .

Speaker #7: Pharmaceuticals was a standout thanks to 84 million in Miebo revenue . Miebo growth helped bolster in our comprehensive drive portfolio , which is front and center for eye care professionals , patients and consumers .

Speaker #7: Effective selling has also meant more surgeons implanting Vista intraocular lenses, helping drive 27% constant currency revenue growth in premium IOLs. Our loaded and differentiated pipeline will be on full display in just a few weeks at Investor Day.

Speaker #7: Importantly , the pipeline products will highlight our aspirational . These are clinical stage programs with anticipated launches over the next several years . Every part of our nearly three year journey since I returned as CEO has been aligned to one or more of three categories .

Speaker #7: You've all become familiar with . Selling excellence . Operational excellence , and disruptive innovation . Those aren't optional . They're imperatives . While our journey is nowhere near complete , given how far we've come , we've introduced a fourth category .

Speaker #7: Financial excellence . This is our opportunity to . Deliver sustained , profitable growth that reflects our real potential . We'll show you what that looks like at Investor Day when we share our three year plan .

Speaker #7: We've reached a pivotal point in our journey to becoming the best eHealth company. Being the best means elevating the standard of care in eHealth, which is why our pipeline is filled with products that have the potential to be truly disruptive and reset expectations for eye care professionals, patients, and consumers.

Speaker #7: You'll learn much more about the science behind our pipeline and market opportunity at Investor Day , but here's a sneak peek in consumer new formulations of Lumify , Preservision , and Blink Triple care will make category leaders even more appealing and are expected to unlock significantly larger audiences in pharmaceuticals .

Speaker #7: Next-generation Lifitegrast would change the dry eye disease treatment paradigm. Our ocular surface pain medication would be the first of its kind, and our glaucoma medication would be the first to improve visual acuity.

Speaker #7: The contact lens market has been starved for innovation . There's been no material science breakthrough since 1999 , which we're addressing with a first of its kind bioactive lens .

Speaker #7: Our highly successful sci fi platform will expand with a cost competitive daily disposable , a frequent replacement offering and a lens designed to slow the progression of myopia in children and young adolescents .

Speaker #7: Finally , in surgical , we're building on a steady stream of premium products representing consumables , equipment and implantables . The holy trinity of that business .

Speaker #7: We delivered growth across all segments in the third quarter . Once again demonstrating our holistic strength . I mentioned pharmaceuticals as a standout earlier , but I would be remiss if I didn't recognize Vision Care , which captures contact lenses and consumer offerings .

Speaker #7: Several franchises in both categories are highlighted here , including blink , with 37% reported revenue growth , Artelac at 24% , daily sci fi offerings at 22% , and eye Vitamins at 12% .

Speaker #7: Our overall contact lens portfolio grew a healthy 6% on a constant currency basis. We'll discuss new iterations of some of the highlighted products at Investor Day as we work to make established high performers even more popular with meaningful scientific advancements.

Speaker #7: I'll now turn it over to Sam for a closer look at the financial metrics , including significantly improved cash flow figures and an update on 2025 guidance .

Speaker #7: Sam .

Speaker #8: Thank you , Brent , and good morning , everyone . Before we begin , please note that all of my comments today will be focused on growth expressed on a constant currency basis , unless specifically indicated otherwise in Q3 , we delivered strong performance with year over year revenue and adjusted EBITDA growth .

Speaker #8: We're also very pleased with our cash flow generation this quarter . Turning now to our financial results on slide eight . Total company revenue for the quarter was 1.281 billion , which reflects year over year growth of 6% .

Speaker #8: The revenue growth was across all our segments for the third quarter . Currency was a tailwind of approximately 19 million to revenue . Now let's discuss the results of each of our segments in more detail .

Speaker #8: Visioncare third quarter revenue of 736 million increased by 6% , driven by growth in both consumer and contact lenses . The consumer business grew by 6% in Q3 as our key brands performed well and consumption trends remained steady .

Speaker #8: We delivered solid growth in the quarter while absorbing a destocking impact of approximately 6 million . Let me go over a few highlights .

Speaker #8: Eye vitamins , preservation and ocuvite grew by 11% . Lumify generated 48 million of revenue , up 2% in the quarter . We continue to see strong consumption year to date , Lumify revenues up 13% .

Speaker #8: We saw strong execution in the consumer dry eye portfolio , which delivered $113 million of revenue in Q3 , up 18% . Our two key franchises , Artelac and Blink once again contributed to the strong performance .

Speaker #8: Artelac was up 18% and blink was up 36% . Contact lens revenue growth was 6% . Our contact lens business has outpaced the market , and we saw strong performance once again in the quarter .

Speaker #8: The growth was led by daily Cihi , which was up 24% . Biotrue was up 7% and ultra was up 4% . In Q3 , our contact lens business saw growth in both US and international markets US was up 9% .

Speaker #8: And international was up 4% . Moving now to the surgical segment where we continue to see steady market dynamics and procedure volume . Third quarter revenue was 215 million .

Speaker #8: An increase of 1% . Excluding the investor recall . Q3 revenue growth was 7% in Q3 , Implantables were up 2% and 14% sequentially as Brent will discuss , we are continuing to make solid progress with the investor return to market , and we are regaining momentum in premium iols consumables were flat on a constant currency basis and up 4% on a reported basis as we lapped last year's notably strong Q3 , which saw stronger volumes driven by resupply into the market .

Speaker #8: Finally , equipment was up 4% . Revenue in the pharma segment was 330 million in Q3 , which represents an increase of 7% .

Speaker #8: Our US branded RX business was up 13% in the quarter . Mabel delivered 84 million of revenue in Q3 . This represents sequential growth of 33% and a 71% increase year over year . .

Speaker #8: Our US branded RX business was up 13% in the quarter . Mabel delivered 84 million of revenue in Q3 . This represents sequential growth of 33% and a 71% increase year over year .

Speaker #8: Dr. growth of 110% . The delivered 87 million of revenue in the quarter , which is in line with our The expectations for growth , was 8% .

Speaker #8: Our international pharma business was up 12% in the quarter . We continue to make progress in our US generics business as anticipated , we are seeing sequential growth with US generics up 2% this quarter compared to Q2 .

Speaker #8: Now , let me walk through some of the key non-GAAP line items on slide nine . Adjusted gross margin for Q3 was 61.7% , which represents a 130 basis points decrease year over year .

Speaker #8: This was mainly driven by product mix and the one time impact of the investor recall in Q3 . We invested 95 million in adjusted R&D , which represents an increase of approximately 13% over Q3 of 2020 .

Speaker #8: For third quarter adjusted EBITDA , excluding acquired IP , R&D was 243 million , up 7% year over year on a reported basis .

Speaker #8: Q3 adjusted EBITDA margin , excluding acquired IP , R&D was 19% , which represents a sequential increase of 400 basis points . We are continuing to execute our margin expansion strategy as we transition from the most active product launch cycle in the history of the company to a growth phase .

Speaker #8: And as we remain focused on disciplined cost management , adjusted cash flow from operations was 161 million in the quarter . An adjusted free cash flow was 87 million .

Speaker #8: We are pleased with the continued progress of our efforts to drive cash flow optimization initiatives . Net interest expense for the quarter was 98 million adjusted EPs , excluding acquired IP , R&D was $0.18 for the quarter .

Speaker #8: Now turning to our 2025 guidance on slide 12 . We are maintaining our full year revenue guidance at a range of 5.05 billion to 5.15 billion .

Speaker #8: This revenue guidance represents constant currency growth of approximately 5% to 7% , shifting to adjusted EBITDA , we are updating our adjusted EBITDA guidance to a range of 870 million to 910 million , from a range of 860 million to 910 million .

Speaker #8: The raise in the lower end of the range is driven by the strength in the performance of the business in terms of the other key assumptions underlying our guidance. We continue to expect adjusted gross margin to be approximately 61.5% for the full year.

Speaker #8: We continue to expect investments in R&D to be approximately 7.5% of revenue , and interest expense to be approximately 375 million . We continue to expect our adjusted tax rate to be approximately 15% .

Speaker #8: We now expect full year CapEx to be approximately 295 million , consistent with our previous guidance , our current guidance excludes any potential one time IP , R&D charges that we may incur in 2025 .

Speaker #8: Finally , a brief word on tariffs . The tariff policy remains fluid and we are continuing to monitor updates based on where the policy stands today .

Speaker #8: And the actions we are taking. Our updated guidance assumes we will be able to offset the impact of tariffs in 2025. To conclude, we had a strong quarter and our business fundamentals remain solid.

Speaker #8: We are committed to our strategy to drive sustainable growth and margin expansion . I look forward to seeing you all at our Investor Day on November 13th .

Speaker #8: And now I'll turn the call back to Brent .

Speaker #7: Thanks , Sam . Let's spend some time highlighting growth drivers in each business . There's not much I need to say here as these charts plotting TRX growth for Meibo and speak volumes 110% year over year .

Speaker #7: Prescription growth for Meibo is outstanding , especially considering there was a new entrant in dry eye disease treatment . Xiidra is doing what we said it would steadily growing in volume while maintaining a sizable market share .

Speaker #7: We expect both medications will continue to benefit from ongoing category expansion as dry eye awareness and education increase as a reminder , we're at the tip of the iceberg when it comes to treating the millions of Americans who suffer from dry eyes .

Speaker #7: We often reference a thoughtful approach to expanding our daily sci-fi portfolio, as was the case in the third quarter when we launched a toric model in Japan.

Speaker #7: We're now in more than 50 countries , and the portfolio still shows no sign of slowing down , with 24% constant currency revenue growth in Q3 , we're still in early innings , but remain excited for additional expansion and anticipated introduction of new .

Speaker #7: Sci offerings under development at a macro level in consumer. We saw impressive consumption, considering a work down of inventory in the trade.

Speaker #7: That's a testament to brand building and confidence in our products . Among eye care professionals whose OTC recommendations carry significant weight , it's worth taking a moment to remember that we only acquired the blink family of eyedrops a few years ago , in a deal that was largely overshadowed by our acquisition in that short period , we've completely revitalized the global brand and introduced new options , helping drive nearly 40% reported revenue growth in the third quarter .

Speaker #7: Earlier , I referenced Artelac , which , as a reminder , continues to be our most global dry eye option with availability in more than 40 countries and plans to expand further double digit reported revenue growth is common for the brand , and Q3 was no different .

Speaker #7: I vitamins saw a nice uptick , with 12% reported revenue growth . Our new formulation of Preservision , which we expect will be on the shelves in the first half of 2026 , could significantly increase the addressable market for age related macular degeneration .

Speaker #7: One caveat on Lumify performance is that our typical growth wasn't reflected in the third quarter due to the timing of a large promotional order shipped to Costco in June.

Speaker #7: That meant we saw the benefit in the second quarter , with 27% reported revenue growth . Lumify popularity and category dominance is clear , with consumption seeing 14% growth in Q3 .

Speaker #7: Two call outs for surgical , both related to our momentum in the high margin premium market . While not fully recovered , progress on our return to market for the Envista IOL platform and N.V.

Speaker #7: In particular, our recovery has been faster than expected thanks to the tireless work from the team and our deep relationships with ophthalmic surgeons. Total Envista sales in the third quarter reached 82% of Q1 or pre-recall levels, with Envista coming in at 91% in September.

Speaker #7: N.V. sales surpassed first quarter average monthly sales , while Envista N.V. has a foothold in North America pending additional launches . Our Lux Smart Premium offering continues to expand in Europe , with 6% constant currency revenue growth in the third quarter .

Speaker #7: I've already said as much as I can on our pipeline . The rest will save for Investor Day , which will take place at the New York Stock Exchange on November 13th .

Speaker #7: What I can say is we put a premium on the durability of growth through innovation and that these are exciting times for Bausch + Lomb.

Speaker #7: Let's now move to Q&A . Operator .

Speaker #5: Thank you . We will now begin the question and answer session in the interest of time . We ask that participants limit themselves to one question and one follow up on today's call to ask a question , you may press star , then one on your touchtone phone .

Speaker #5: If you are using a speakerphone , please pick up your handset before pressing the star keys to withdraw your question , please press star then two .

Speaker #5: At this time, we will pause momentarily to assemble our roster. And the first question today is coming from Patrick Wood from Morgan Stanley.

Speaker #5: Patrick , your line is live .

Speaker #9: Brilliant . Thanks so much , guys . I'll keep it to one . Just in the interests of time . But not to steal the thunder from the Investor Day .

Speaker #9: But you added , obviously that financial excellence pillar , you know , high any kind of commentary you could give us on how we should interpret that .

Speaker #9: Are we level , thinking about , you know , is this a cash conversion thing ? Is this like a margin structure thing ?

Speaker #9: What what was the impetus at least behind kind of adding that ? Curious what you can add at least ahead of the Investor Day in November ?

Speaker #9: Thanks , guys .

Speaker #7: Yeah , of course . And thanks , Patrick . Look , under our roadmap , which we've been talking about since I joined three years ago , we've made , excuse me really strong progress across our three core pillars selling excellence , operational excellence and innovation .

Speaker #7: This fourth pillar , financial excellence , is really about sharpening how we execute really on a day to day basis . In essence , really ensuring every dollar we spend drives growth and or efficiency .

Speaker #7: So look, we announced this Vision 27, which you'll see some greater detail on in two weeks. But essentially, we're being very intentional about controlling operating expenses, improving our mix, and setting up for meaningful margin expansion over time.

Speaker #7: So it's not really about just cost cutting . It's really about disciplined execution and better outcome . And resource allocation . But I'll turn it over to Sam .

Speaker #7: Maybe you want to add some more color.

Speaker #10: Absolutely . And what Brent said here , Patrick , is very important because it outlines our strategy . So let me give you more insights on how we see this strategy drives both the top line growth , the margin expansion and the strong cash flow generation .

Speaker #10: So, when you think about it, we reflect on the revenue we've been driving. Revenue growth across all of our businesses has been strong, and our team executed really well.

Speaker #10: And you've seen that throughout the last number of quarters . And you also see that in Q3 as we reported this morning , we expect to continue with this momentum with our guidance suggests , above market growth as we go forward and as we look forward again , we'll say more in a couple of weeks .

Speaker #10: But we see that momentum carrying forward with us on the margin expansion . It's been a focus for us and this quarter we're seeing a margin improvement sequentially , 400 basis points .

Speaker #10: We're seeing the benefit of the work that we've been sort of going on with the Vision 27 that Brent announced earlier in the summer, and we're seeing these benefits this quarter with a lower percentage sequentially and year over year, which is very important.

Speaker #10: That sets the foundation for us as we think about margin expansion for this quarter and, more importantly, for the future as well.

Speaker #10: And then the last pillar of the financial metrics is the cash flow . On the cash flow . We've been working on optimizing our cash flow generation , and we're seeing the results this quarter with a strong cash generation , adjusted cash flow from operations by 161 million .

Speaker #10: That's a 66% conversion to EBITDA , which is very strong . And what's important here is that sets also the foundation for us of what we were able to generate this quarter , but also as we go forward .

Speaker #10: So the point that I can't emphasize enough is what we've been doing and executing on the work that we've been doing for the last number of years is setting us up well for what we delivered this quarter in Q3 .

Speaker #10: But more importantly , setting us up well for the rest of this year . And what we will be able to do beyond 2025 , which we'll talk about more on November 13th .

Speaker #7: Yeah . And I would just add a little bit more color . I think it's important to know that our vision 27 , our , which is the , the project that that instigated our financial excellence pillar , is very broad .

Speaker #7: Almost all 13,000 colleagues are included . There are hundreds of projects . We have a dedicated PMO that we put our some very high potential people in full time to to manage .

Speaker #7: And so this is a really comprehensive initiative . And and there no project that's too small . And obviously , you know , every every dollar counts .

Speaker #7: And so this is a full-court press to really deliver financial excellence over the next few years.

Speaker #9: I the call looking forward to it . Thanks guys .

Speaker #11: Yep .

Speaker #5: Thank you. The next question will be from John Winch from Citibank. Joanne, your line is live.

Speaker #12: Good morning and thank you for taking the question . My favorite question is always to ask about your contact lens business . And you put up growth ahead of the market growth rate from what we can calculate .

Speaker #12: I'd love to get your impression of your share and the market. There was an article in the Wall Street Journal that talked about changes in the contact lens market.

Speaker #12: And you were quoted in it and was interested if you had any additional color you could add . Thank you .

Speaker #7: Yeah . Thanks , Joanne . So look , I think the lens market is growing still in the mid single digit , probably at the lower end of the mid single digit .

Speaker #7: We'll see when when a few more of our competitors report . But but that's probably where it's at . You know we have now I think for several quarters grown the fastest in the industry and growing faster than , you know , significantly faster than the market .

Speaker #7: And I attribute that to to new product innovations and good execution . And I've said this before , but the thing that I've always been very proud about are our team is that they continue to to grow our new products , our daily sci high infused or ultra daily while continuing to maintain growth in the older products and thereby really avoiding the leaky bucket syndrome .

Speaker #7: And that's a big contributor to our growth . You know , with respect to to , I guess , the the Wall Street Journal article and , and the Cooper situation , I want to be be very clear about one point that that the matter is that that they're facing is strictly between Cooper and it's shareholders .

Speaker #7: We have no intention of of getting involved . That being said , what I did say , which I do believe that a more scaled competitor certainly would would strengthen competition and be beneficial to consumers and patients .

Speaker #7: And so , look , we continue to evaluate it , but it really is a matter for Cooper . And and shareholders .

Speaker #12: Thank you .

Speaker #5: Thank you . The next question next question will be from Jung Lee from Jefferies . Jung , your line is live .

Speaker #13: All right . Great . Thanks for taking our questions . I guess first one just on , you know , my dry eye and the launch of triple tier .

Speaker #13: So, you know, I heard your comments about my approach and performance. Even with the competitive launch, I went to AAU and joined some of the sessions where stocks were talking about using products and combo, either drip tier or to stimulate tier production.

Speaker #13: And then my go to sort of lock that in . Can you maybe , you expand on that thought a little bit and talk about just the , the use of combo drugs to help expand the dry eye market opportunity ?

Speaker #7: Yeah , absolutely . And thank you for the question . And you here shout our head of R&D and Chief Medical officer is here .

Speaker #7: And so maybe he can he can weigh in here as well . But look you know when I look at the third quarter and you know , I've been through .

Speaker #7: Competitive launches , I remember when , when I was at Allergan , when I launched , you know , we're seeing the same pattern here when is launching in the face of this market , which is the market tends to expand and and there's no better proof point than looking at at , you know , TRX growth of 110% for Meibo and 8% for Xiidra in the face of a competitive launch from an established significant player in the industry .

Speaker #7: So that's a really good sign . I think , you know , when you look at and always , always difficult to do .

Speaker #7: So I wouldn't read into this precisely , but I think it's helpful to think about it directionally . If you look at here in a launch aligned basis with Meibo , it's running at a very small percentage of of TRX compared to to where Meibo was , I think in last week's number .

Speaker #7: It was around 20% on a launch aligned basis of the Meibo launch . So , you know , clearly a different type of launch with a different type of profile and curve .

Speaker #7: That being said , you know , we do think that there is a a place for for a drug that stimulates tear production .

Speaker #7: There are other drugs in the market , is not the first to to do it . Restasis has has that in its label as well as a few of the other smaller products .

Speaker #7: And so , you know that that leads to the last point , which is this is a multifactorial disease . The two most prevalent , you know , conditions are evaporation and inflammation .

Speaker #7: That probably makes up somewhere close to 80% of the patient population and thereby , you know , creates a great opportunity for combination therapy to allow Isa to really have the what I call the easy button , not trying to to and many of them don't even have the diagnostic capabilities to determine the etiology of the disease and the patient .

Speaker #7: And so having a product where where lifitegrast and meibo or amoeba are combined really is , I think an advancement for patients and certainly an advancement in treatment .

Speaker #7: But please jump in .

Speaker #14: I think . Brent , you addressed really the critical points just to re-emphasize that dry eye diseases are multifactorial disease . Naturally it could , it could actually be triggered by either aqueous deficiency or more much more common by evaporation of the tear film .

Speaker #14: Meibo is the only product that's been approved for the evaporative component of dry eye . Regardless , it's an aqueous deficient or evaporative .

Speaker #14: If the osmolarity and with the chronicity of the disease , if the osmolarity is changed . This could trigger a vicious circle of inflammation and actually it's a very good reason to start to think about combining two mechanism of actions in order to address the disease .

Speaker #14: It has the potential of more efficacy , and also it has the potential of more compliance for the patients . And it has also the potential for maybe less adverse events due to much better innovative formulations .

Speaker #14: So I think this is where we are targeting our new programs as well with the combination between Meibo and Xiidra , and we still are actually very confident about our profile of products .

Speaker #14: As the only evaporative , the only treatment for evaporative dry eye , which is meibo .

Speaker #13: All right . Great . Thank you . Helpful .

Speaker #11: Thank you .

Speaker #5: Thank you . The next question will be from David Roman from Goldman Sachs . David , your line is live .

Speaker #15: Thank you . Good morning everybody . I was hoping Brent , you could spend a little bit more time on the surgical business and appreciate your sharing the metrics around the evolution of the franchise , both in in third quarter and how you exited relative to where you had started pre recall .

Speaker #15: But but maybe you could just contextualize a little bit the Vista launch with where it's going . We what feedback you're getting , how the recall may have impacted the overall trajectory and how to just think about the business as we head into Q4 .

Speaker #15: And then, just next year, maybe directionally.

Speaker #7: Sure . And , David , welcome . So so look , progress on on the Vista platform , I think has been impressive .

Speaker #7: And certainly faster than we expected . This was a an all out effort on everyone in our surgical team . But in particular to our frontline sales colleagues who worked so hard to to work with with surgeons and ASCs to make sure that that they manage through the recall and came out with with with trust in in us and our products .

Speaker #7: I would say , you know , the other unintended super , super big benefit of this is the way we handled the recall .

Speaker #7: I think really even at this , how where the recall is , you know , something that was really not discussed at all , but the trust that we , we , we , we developed in how we handled it .

Speaker #7: I think was on full display and many , many surgeons always commending us for doing the right thing and handling it with such transparency .

Speaker #7: When you look at all the metrics , though , you can really see that the recovery is strong , showing both a year over year basis and sequentially .

Speaker #7: And we are , as we had planned , quickly approaching Q1 pre recall revenue levels . In fact , MV slightly surpassed that in in the month of September .

Speaker #7: So third Q 25 revenue relative to Q1 25 pre recall total Envista sales in Q3 reached 82% of Q1 pre recall levels . MV sales in Q3 reached 91% of Q1 pre recall levels .

Speaker #7: As I mentioned, September Envy sales surpassed Q1 on a monthly basis. Revenue growth year over year in the total implantable portfolio was 2% sequentially, and total premium IOLs was 27% sequentially.

Speaker #7: When you look at it . Q Q3 25 versus Q2 . So on a sequential basis , the implantable portfolio was up 14% sequentially in the premium , IOL was up 67 sequentially .

Speaker #7: I think , to just answer the last part of your question , there is a still some impact , right ? Which is many of our our sales colleagues , particularly in North America , really spent , you know , the last several .

Speaker #7: Well , 3 or 4 months managing the recall . Right . We we had to go and get the inventory back . Our reps had to to help , you know , establish new consignments and , the like .

Speaker #7: And so that did probably , you know , shift some focus from , from some of their other responsibilities to focusing on , on managing this situation .

Speaker #7: I think that's nearly behind us now . And we're back out on our front foot and moving quickly . I think with respect to consignment , we we have most of our our brands in full consignment with N.V.

Speaker #7: getting there in probably before before Investor Day . We should be back at full consignment in the market . So we're we're at the very tail end of hopefully having to talk about recalls anymore and just focusing on growth .

Speaker #15: Super helpful perspective and maybe just a follow up on on on the PNL here . Clearly starting to see a lot of SG&A leverage as a reflection of of focus you've put on on financial excellence .

Speaker #15: But maybe just can you help us think about the sustainability of that trend and how you balance reinvesting in the business for growth , given the plethora of opportunities you have in front of you versus driving , driving financial leverage , and I know you'll get into more of that .

Speaker #15: At the analyst meeting, but just maybe help us think about Q3 in context here.

Speaker #7: Yeah . So maybe I'll start and then Sam could could add some color . Look , our goal is that it is sustainable .

Speaker #7: And we've been saying this for some time . I think now we're trying to put some points on the board to show you that we can deliver .

Speaker #7: And , you know , really the emphasis of the Investor Day is to to walk you through our three year plan to show you what we believe we can deliver and how sustainable it really is .

Speaker #7: And I would say that that , you know , under vision 27 , you know , some key factors here , not just about cost and opex discipline , but , you know , some of our launch products are moving more to growth mode .

Speaker #7: Right ? So where we we overinvested now , we can we can come back to just growing some of these products that that are no longer in launch mode .

Speaker #7: But but just growth mode . So that's that's a piece of it product mix . You know , continues to to be a large portion of of how we can improve margins .

Speaker #7: And then , you know , lastly , I would say some of our manufacturing efficiencies or probably towards the tail end or the back end of the three year cycle , just because of the timelines and regulatory burdens and whatnot of , of improving manufacturing capabilities .

Speaker #7: But all those things are in motion, and you'll get much more color when you see the three-year plan in two weeks.

Speaker #7: But Sam , anything you did .

Speaker #10: Yeah . Let me give you more more insights here and put it in context for you in terms of the numbers . And when you think about the Q3 PNL and you think about what we accomplished , again , this is we're very pleased with what we have done from an execution because three sets the foundation .

Speaker #10: Like Brent said , of what we will be able to do going forward . And we'll speak about that more as we go into the Investor Day in a couple of weeks .

Speaker #10: But just to focus on Q3 right now and the trajectory short term this year , Cigna hit its lowest point this year in Q3 .

Speaker #10: We're running a roughly about 40% , which is about less than what it was sequential , about 290 basis points on a sequential basis .

Speaker #10: Lower when you look at it on a year to year basis , about 130 basis lower than compared to Q3 last year . So we're seeing the sequential improvement .

Speaker #10: And that's really setting the new foundation for us of what we think about . And it's all about not just the quantum of declining or going down .

Speaker #10: It is actually also the shift in the mix of what we're doing with the SG&A and repointing . Many of the dollars within to revenue generation .

Speaker #10: And you're seeing that in the top line growth here , David . So really , everything is pointing into the right direction for us in terms of what we've been doing and the execution that we've done is going pretty well , and that would be setting up the foundation for us as we wrap up 2025 and more importantly , as we go beyond 2025 .

Speaker #7: You know , and I would add one other thing , because you asked the question , David , how do we prioritize investment ?

Speaker #7: You know , you see this nice improvement in the quarter despite a 13% increase in R&D expense . And that's because we are prioritizing , you know .

Speaker #7: This continuous stream of innovation which he and his team are going to be , I think , very proud to to highlight in two weeks .

Speaker #7: So I think we can continue to to invest in R&D and reallocate towards internal R&D development and still deliver the margin expansion . We discussed .

Speaker #7: And so that's the balancing act . But but I think we've we've figured it out .

Speaker #13: Excellent .

Speaker #15: Look forward to .

Speaker #16: The update in a couple of weeks .

Speaker #5: Thank you . The next question is coming from Matt Miksic from Barclays . Matt , your line is live . Hi , Matt .

Speaker #5: Your line is live . Yeah . Please check your mute button . Hi , Matt . Once more , if you're on the line , please check your mute button .

Speaker #5: Your line is live .

Speaker #7: I guess we lost Matt . We'll see if he gets back in the queue , but let's move on .

Speaker #5: Certainly the next question is coming from Robbie Marcus from JP Morgan . Robbie , your line is live .

Speaker #17: Hi . This is Lily on for Robbie . Thanks for taking the question . I heard you said you expect to be able to offset tariffs in 2025 , but how should we think about your ability to offset that in 2026 ?

Speaker #17: And with where things stand now , how big is the gross tariff impact for next year ? If you're willing to share any color on how we should be thinking about the magnitude of that .

Speaker #7: Yeah . So so , Lily , I think I think we've been very transparent about tariffs and and the impact and our ability to mitigate it .

Speaker #7: The problem is that the situation remains very fluid . One of the biggest impacts to us . From tariffs is the reciprocal tariff from from China .

Speaker #7: And as we know , the president is on a trip to Asia right now and is meeting with President XI Friday to to try to finalize trade negotiations .

Speaker #7: He did did tweet or true social yesterday that he expects a deal to be done in tariffs to be lowered . That would obviously be easier if that were to go the other way then .

Speaker #7: Then we'd have to , you know , continue to , to to work hard to , to mitigate the point . I guess I'm making is , you know , I know people are upset with us after the first quarter where we , where we just didn't add it to our guidance because of the fluidity of the situation .

Speaker #7: I think we turned out to be correct . And we managed through it . I , I would hesitate to to guess what the president's going to tweet .

Speaker #7: You know , tomorrow . But but I think the long story is we can absorb it . We can manage it . Our team is is we've got a dedicated team that tracks it and mitigates , and we've got a lot of levers we can pull to do it .

Speaker #7: Now , if something came out of left field , we'll have to deal with that . But I think we feel like we're on very solid ground now with tariffs .

Speaker #17: Great . That's helpful . And just as a follow up , I heard you said contact lens market growth at the low end of the mid-single digit range , which sounds like it's a little bit softer than what you had been pointing to previously .

Speaker #17: So if you could just dig into that a little bit more , that would be helpful . What's driving what sounds like a slightly softer outlook and how big of a contributor do you think price can continue to be ?

Speaker #17: Thanks so much .

Speaker #7: Yeah , absolutely . So , you know , I always think about this as a mid-single digit market . But you know , that that could be 6% one year .

Speaker #7: And 4% another . I think we're probably more between the four and 5% this year . There is some some softness in different parts of the world .

Speaker #7: We see a little bit more softness in Southeast Asia . China is a watch out . We we we do see consumer softness in in the data in the global data .

Speaker #7: We grew 10% in China . But you know , we do have it on our watch list . We have a very important , you know , event on on November 11th .

Speaker #7: Singles day is a very big event for us with our DTC approach in , in China . And so , you know , I'll know a lot more when we get to Investor Day after we see the results of Singles Day for the Chinese market .

Speaker #7: That being said , you know , big online players like Alibaba have seen big , big decreases . And so , you know , you just have to be be thoughtful and watch .

Speaker #7: The data is mixed . There was some positive data Monday out of China on exports . So so we we watch it carefully .

Speaker #7: I think when you look at at the market , maybe there's a little bit of a bifurcation . I think some of the , the , the lower income consumer is , I think , feeling more stressed than the higher income consumer .

Speaker #7: There's , there's a nice bifurcation there . And so , you know , some of the private label or cheaper lenses seem to be growing the market a little bit slower than , than the more premium part of the market .

Speaker #7: And , you know , even in the US , we're in this weird place where you see the stock market at all time highs .

Speaker #7: Yet consumer confidence , you know , on a relative basis quite low . And that's hard to , to , to reconcile . And so we just keep monitoring it very closely .

Speaker #7: But our our outlook is , is , is positive . We'll grow faster than the market . We feel good about our business .

Speaker #7: But you know , some of our competitors may may have some different struggles .

Speaker #17: Great . Thanks so much .

Speaker #5: Thank you . And once again , if you do have a question on today's call , please press star . Then one on your touchtone phone .

Speaker #5: The next question is coming from Pito Chickering from Deutsche Bank . Peter , your line is live .

Speaker #18: Hey good morning guys , and thanks for taking my question . I just digging into sort of the gross profit margin that you saw this quarter .

Speaker #18: Just looking at the strong , constant currency growth coming from pharma . And it makes tailwind that that provided . And then can you walk us through sort of the other moving parts sort of within the quarter , including tariffs and or FX changes .

Speaker #18: Thanks so much .

Speaker #7: Yes . Why don't you you take that one .

Speaker #10: Yeah. So let me put it in context for the gross margin. When you look at the gross margin this quarter, we had roughly about 130 basis points.

Speaker #10: Year over year decline . And that's really , as I said in my prepared remarks , there's the element of that . We're still ramping up the reintroduction of the iOS with Invista .

Speaker #10: That's a higher margin . So you're seeing that impact in the current from a mix . And also you see a product mix playing out in some of our businesses , driving some of the remainder of the 130 basis points .

Speaker #10: So it's really more of a product mix story . Plus a investor recall adjustment on a year to year basis .

Speaker #18: Right . Then , you know , like for the guidance , I guess , I guess implied on the fourth quarter that that that that ramp for 3 to 4 .

Speaker #18: Q that's primarily from investor coming back online . Or are there any other moving parts which you think about there ?

Speaker #10: Yeah , there's two parts here . I think the investor , as Brent said earlier , the we're seeing the ramp up in investor continues .

Speaker #10: So that will continue in our Q4 . So that playing a big factor there . The other part of it is also our seasonality in our business , which tend to be Q4 , tend to be stronger quarter out of all three .

Speaker #10: Out of all four quarters . So you'll see that seasonality playing out into the gross margin .

Speaker #18: Great . Thanks so much . Nice quarter .

Speaker #19: Thank you. Thank you.

Speaker #5: The next question is coming from Matt Miksic from Barclays . Matt , your line is live .

Speaker #20: Hey , thanks so much for taking the question . Sorry about earlier . Just a couple of quick follow ups . One on surgical and one on pharma .

Speaker #20: So congrats on the you know , the great kind of comeback from the recall . And momentum and interest . In envy and the rest of the portfolio just on the market .

Speaker #20: I know you're in a position of I'd say seems like share growth , share recovery , maybe from from the recall just health of the market volumes in the market .

Speaker #20: Is it it was kind of a question of debate over the weekend . And just wondering if your thoughts on that . And as I mentioned , just one quick follow up on that .

Speaker #20: Thanks .

Speaker #7: Yeah , I think the excuse me , I think that the the health of the market is , is , is steady . You know , I was also at AAU and I , I talked to hundreds of surgeons .

Speaker #7: There as well . I look at all of our data on a on a regular basis . And , you know , I really see a very steady market in cataract .

Speaker #7: We know that that there is a a growing patient population as the as the world ages . And so , you know , I , I don't see any , any real washouts or anything to worry about in terms of health of the market .

Speaker #7: I think it's pretty steady . And over time should expand .

Speaker #11: Okay .

Speaker #20: That's helpful . And then just on pharma , you know , the the momentum has been impressive . I'm not sure . But you'd love to hear if you feel like you're at a full sort of array of coverage at this point .

Speaker #20: Or is that something that's still improving ? And then on Xiidra , if you could just remind us , you know , when you begin to annualize , you know , some of the some of the investments that you made , you know , late last year , early this year , again , it's next year .

Speaker #20: Thanks .

Speaker #7: Yeah . So I . Think coverage for for both products is pretty steady . You know , in the 70% , range , which is for , for this product category is is pretty much full coverage .

Speaker #7: So I think we're , we've made those investments . We feel good about where we're at . You know , with the investments were made this year .

Speaker #7: So this year 2025 establishes the new baseline . And so I think , you know , we're we're we're in the fourth quarter now .

Speaker #7: So we're near the end of of of that investment cycle .

Speaker #20: Thanks .

Speaker #5: Thank you . Next question will be from Gary Nachman from Raymond James . Gary , your line is live .

Speaker #21: Thanks and good morning . So back to dry eyes , Brent , just talk about the overall market growth and where you think that could go and how under it still is .

Speaker #21: And if that factors into how you'll be investing behind Miebo going forward , if you can still taper that spending , if you want to still grow the market meaningfully , since you guys are the market leader , there and then have a follow up .

Speaker #7: Yeah , I mean , I think I think , you know , being the market leader with the two products and we saw growth in US pharma around 13% for the quarter .

Speaker #7: Most of that is is driven , you know , bye . By Mebo and Xiidra . And so , you know , I think it I think the , the the market is growing roughly around ten plus percent .

Speaker #7: And I do think that , that can , can sustain itself for some time , for at least the next several years . I think combination therapy , when we bring that to market in a few years , would would be an additional opportunity to expand the market .

Speaker #7: And so , you know , I think this has a very long runway with respect to our spend . You know , it it is not necessarily about significant tapering .

Speaker #7: It's about surgical tapering of of our spend where we get the highest ROI , we will continue to maintain the largest field force , obviously , with the pipeline , you know , it would be it would be important for us to , to maintain the the the largest field force and continue to to drive patients into the channel , into the prescription channel .

Speaker #7: So it is a , you know , again , a delicate balance . But we have we're very experienced in the dry market .

Speaker #7: A lot of us , including me , have been doing dry eye for a long time . And so I think I think we've got it sorted out and we'll continue to growth .

Speaker #7: Well , while being more prudent with our investments .

Speaker #21: Okay . Thanks . That's helpful . And then just what else are you looking to do to accelerate us generics ? It sounds like you made some good progress there in the third quarter .

Speaker #21: And I mean longer term , any thoughts on potentially divesting it or are you definitely committed to it ? I guess when you look at over the next 3 to 5 years , thanks .

Speaker #7: Yeah . So look , I mean , we saw sequential improvement in the generics . Obviously the first quarter was was , you know , a bit of a surprise to all of us .

Speaker #7: And and we'll see sequential improvement into the fourth quarter as well . But I think the way to think think about that business is it's really opportunistic for us .

Speaker #7: We have a plant in the United States that that makes our our most of our US pharmaceuticals , including our generics and the that plant is , is is quite good .

Speaker #7: And so we look at generics as being very opportunistic . One it creates absorption in the plant . But it to it , it creates opportunities for when there is a disruption in the market or another competitor goes out , that business can generate very good margins and profitability as well .

Speaker #7: So it's not necessarily about growth in sales; it's more about maintaining profitability and being opportunistic.

Speaker #21: Okay . Thank you .

Speaker #7: Sure .

Speaker #5: Thank you . The next question is coming from Doug Meim from RBC Capital Markets . Doug , your line is live .

Speaker #22: Thank you . Good morning . First question . Just just to continue on my bow to get that out out of the way .

Speaker #22: When you think about the profitability that Doug I know you've always guided to 2026 though . But given the strength in the most recent quarter and what's likely to happen in Q4 , is there a possibility that that could shift ahead to later this year or certainly into early 2026 ?

Speaker #22: And my second question just has to do with capital allocation , as the company becomes more successful and more profitable over the next year or two .

Speaker #22: With that incremental cash , do you expect to be paying down debt or reinvesting it in the business at reasonable multiples ? And I'll leave it there .

Speaker #22: Thank you .

Speaker #7: Yes , maybe I'll answer the part of the capital allocation turnover to to Sam for the remaining answer in the Meibo profitability question .

Speaker #7: Look , you know , capital allocation is pretty always a debate . Right . And something that you have to take quite seriously .

Speaker #7: Clearly , you know , we are committed to delivering a lot of that will come from EBITDA growth . But but also from debt .

Speaker #7: Paydown . And , you know , with respect to M&A , we're always looking for smaller tuck ins that that we can drive profitability from quickly and or investing in R&D or intellectual property that we can develop into successful products .

Speaker #7: But but I would say , you know , managing our , our , our or lowering our , our debt ratios is , is a very high priority for us .

Speaker #7: Sam , you want to add some more color .

Speaker #10: Yeah . So let me let me take them and I'll start with the allocation . I'll come back to my view . But when you think about capital allocation read the framework for us is continue to strengthen the balance sheet and ensure that we're delivering .

Speaker #10: And we'll talk more about our sort of leverage as we go forward into our Investor Day . But our North Star remains unchanged , which is targeting an investment grade .

Speaker #10: So that's really where the path that we're going after from a that perspective , investment in the business is always very important . And we've seen that in the last , say , two years .

Speaker #10: We've seen the investments that will put into the business and they're all being paying quite high level of dividends . We're seeing that in the top line growth , and we're seeing that this quarter , starting with the margin expansion as well .

Speaker #10: So it's really good to see the rewards from the investments in the business . That's something we'll continue when it makes sense to continue to invest in the business .

Speaker #10: And then the sort of to the stool here , which is very important , is how we can continue to increase shareholder value .

Speaker #10: And as we think about that , capital allocation , where we drive the value is going to be a very important metric for us to think about .

Speaker #10: And deploy that cash appropriately . So that's really it's a good position to be in with last the cash strong cash generation that we had this quarter and the conversion that we had .

Speaker #10: So again , it's a good place to be in . And we'll look forward to building that foundation . Now just going back to the Meibo profitability timing , I want to just emphasize one point that Brent made , which is very important around the investments in the business and serve the shift in terms of how we're thinking about the SG&A , because even within the dollars of although the quantum of SNA is coming down , and as a percentage of revenue is coming down , the deployment within the SNA dollars is very important where it's going .

Speaker #10: And we are continuing to ensure that this deployment is putting and providing a very high level of ROI for us . So it's really what we described on the Meibo is we were in the launch phase , and as we wrap up , 25 , we're exiting that launch phase and we're going a growth phase , which we maintain means that we're going to continue to invest behind Bible , but we're going to be very deliberate about that investment and where we're going to make those investments .

Speaker #10: So I think we'll see that as part of the overall leverage in the story , as well as the margin expansion . And again , we'll speak more about it as we go into Investor Day for 2026 .

Speaker #23: Thank you .

Speaker #5: Thank you . And the last question today will be coming from Tom Stephan from Stifel . Tom , your line is live .

Speaker #24: Great . Hey guys . Thanks for squeezing me in . Quick one for me just on Meibo ASP a bit choppy year to date .

Speaker #24: I know coverage has been the focus , but but Brenner . Sam , maybe if you guys can talk about the moving parts there and notably , why this quarter was up , up a lot sequentially by our math on the on the realized ASP .

Speaker #24: And then is this three Q based maybe where we can work off moving forward ? Thanks .

Speaker #7: Thanks , Sam .

Speaker #10: Tom , you are probably the best point . I highlight you or point you to is it's very difficult to look at just any given quarter .

Speaker #10: It's only 90 days in terms of trying to serve . Extrapolate from that point of view what the way I would encourage you to think about the ASP and I would about it as a with the growth is about mid 70s .

Speaker #10: And you think about that more of an annual rate . So if you do on an annual run rate , I think that probably will get your math sort of closer to what we are seeing as well .

Speaker #24: Got it . Appreciate it . Thanks , guys .

Speaker #5: Thank you . And this concludes our question and answer session . I will now like to hand the call back to Brent Saunders for closing remarks .