Bausch Health Companies Inc. (BHC) Q2 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the Bausch Health Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I'll now turn the conference over to Garen Sarafian, Vice President, Investor Relations. You may begin.

Good afternoon, and welcome to Bausch Health's Second Quarter 2026 Earnings Conference Call. My name is Garen Sarafian, Vice President of Investor Relations. Participating in today's call are Thomas Appio, Chief Executive Officer; J.J. Charhon, Chief Financial Officer; and Jonathan Sadeh, Chief Medical Officer and Head of Research and Development. Before we begin, I would like to remind you that today's presentation contains forward-looking information. Please take a moment to review the forward-looking statements disclaimer at the beginning of the slides accompanying this presentation, as it contains important information. Actual results may differ materially from those expressed or implied in these forward-looking statements, you should not place undue reliance on them. Please also refer to our SEC filings and our filings with the Canadian Securities Administrators for discussion of certain risk factors that could cause actual results to differ materially from expectations. We use non-GAAP financial measures to help investors better understand our operating performance. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should be considered in addition to, and not as a substitute for, measures calculated in accordance with GAAP. Reconciliations to our non-GAAP measures are included in the appendix of the slides accompanying this presentation, which are also available on the Bausch Health's Investor Relations website. Finally, the financial guidance in this presentation is effective as of today only. We do not undertake any obligation to update guidance. Our discussion today, Wednesday, July 29, will focus on Bausch Health, excluding Bausch + Lomb. However, we will briefly comment on Bausch + Lomb's results announced this morning. We will refer to year-over-year comparisons with the same period last year unless otherwise noted. With that, I will turn the call over to our CEO, Thomas Appio. Tom?

Thank you, Garen, and thank you to everyone joining us today. Bausch Health had an exceptional quarter in Q2, marking the 13th consecutive quarter of top-line and bottom-line growth, with all our segments contributing to segment profit growth. Performance was outstanding from revenue to adjusted EBITDA to cash flow generation. More importantly, we achieved several milestones in Q2. First, we grew revenue 16% and adjusted EBITDA 28%, our highest growth for both metrics in the last 3 years. Second, we generated a historical high of 59% adjusted EBITDA margin, up 530 basis points year-over-year. Third, we generated our strongest quarter of adjusted cash flow from operations since the fourth quarter of 2024, allowing us to lower our net debt to $13.7 billion since our debt refinancing in 2022. While there were many business accomplishments in the quarter, let me highlight a few areas that stand out the most. Our Salix segment grew 21% in the quarter, fueled by net realized pricing and continued Xifaxan demand in the channels we serve today. Within International, EMEA continued its streak of organic revenue growth, now achieving 14 consecutive quarters. And in LATAM, also delivered strong underlying performance supported by continued expansion of our cardiometabolic franchise. Finally, Solta had another outstanding quarter with revenue up 38% and segment profit up 69%, illustrating for the first time the expected margin accretion associated with the integration of our full-service distributor in China. These outstanding results underscore the strength of the global organization. I want to personally thank and congratulate our teams worldwide for their dedication, collaboration, and exceptional execution throughout the second quarter. The achievement that stands out the most is the consistency of our performance over the past 3 years. 13 consecutive quarters of revenue and adjusted EBITDA growth reflect the strength of our strategy, disciplined execution, and the consistency of our application of management principles that have become embedded throughout our organization. It starts with revenue and the intention of capitalizing on every single operating lever to drive profitable growth. Whether it's maximizing Salix performance through our customer insights engine, improving sales force effectiveness in Solta, launching new products in Mexico or Poland or driving performance organically. It is all grounded in the belief that we have market-leading commercial capabilities across our segments. Without sustainable profitable growth, there is no lasting value creation. The best illustration of that consistent and relentless drive is the evolution of our last 12 months, or LTM for revenue, which has grown every quarter since year-end 2023, leading to 20% revenue growth. Second, the focus on growth does not minimize the need to manage resources effectively and drive operating leverage. While there are at times purposeful strategic investments, there is a continuous effort to tighten our G&A infrastructure as much as possible through productivity initiatives. The result is an adjusted EBITDA margin that has steadily grown over 400 basis points when compared to 2023. Finally, these achievements have been realized without any major investments or acquisitions. This disciplined approach has enabled cash flow generation to grow disproportionately relative to the business while supporting a consistent reduction in net debt every quarter since Q4 of 2023. The consistent application of these management principles across our business is fundamental to our success. Our Q2 performance is a strong testament to the sustainable value we have strived to generate for our stakeholders, patients, customers, and employees. With that, I will turn the call over to J.J. for further details on our financial results.

Thank you, Tom. Let's start with our consolidated non-GAAP financial results for the second quarter, which you will find starting on page 12. Revenue was $2.852 billion, a 13% increase on a reported basis and 11% on an organic basis compared to the same period a year ago. Adjusted gross margin was 72.9%, which was 230 basis points higher year-over-year. Adjusted EBITDA was $1.075 billion, an increase of $233 million, which was a 28% increase year-over-year. Finally, adjusted cash flow from operations was $637 million, an increase of $195 million, or a 44% increase year-over-year. Moving to the performance of Bausch Health, excluding Bausch + Lomb, for the second quarter starting on page 14. As Tom indicated earlier, we had an outstanding second quarter with several milestone achievements across the board. The highlights for the quarter were as follows. Revenue was $1.458 billion, a 16% increase when compared to the second quarter of 2025. Adjusted EBITDA was $865 million, up 28% year-over-year, reflecting the full impact of all the growth and productivity initiatives we have executed since the beginning of the year. Finally, adjusted cash flow from operations was $471 million, an increase of $116 million year-over-year, reflecting strong business performance across the portfolio together with favorable working capital change. The largest driver of growth remains Salix, which we'll review shortly, but it is important to note that our portfolio, excluding the Salix segment, grew revenue and segment profit respectively 12% and 19% year-over-year. We continue to advocate for the strength of our portfolio outside of Xifaxan, and our Q2 results were a good illustration of that. Moving now to our second quarter performance by segment, starting with Salix on page 15. Salix had another quarter of double-digit revenue and segment profit growth in 2026. Revenues were $758 million, an increase of $131 million, or 21% up when compared to the same period last year. Xifaxan remained the key driver of Salix's performance in the quarter, with revenue increasing 26% year-over-year. Xifaxan volume continues to be strong in the distribution channels we serve. Total retail scripts excluding Medicaid were up 4%, while expanded units excluding Medicaid were down 2% year-over-year, reflecting the reduction of volume associated with 340B institutions. Separately, we benefit from favorable net pricing as we continue to optimize the volume-price trade-off following our exit of Medicaid and the 340B program. Now moving to the International segments. Revenues in the second quarter were $305 million, which was up 10% on a reported basis and up 5% on an organic basis compared to the second quarter of last year. Performance by region was mixed. On an organic basis, LATAM was up 16% and EMEA was up 9%, while Canada declined 9%, reflecting the absence of prior one-time net pricing benefits. More specifically, here are the highlights of each geography. EMEA delivered a remarkable 14 consecutive quarters of organic revenue growth. In LATAM, revenue growth was supported by both volume expansion and favorable net pricing across our portfolio, led by Bedoyecta and our newly launched cardiometabolic franchise. In Canada, excluding the $6 million one-time pricing benefit recorded in Q2 of last year, our promoted brand portfolio grew 14% led by Ryaltris, which was up 64% year-over-year. Now, moving to page 17 for a review of our Solta Medical segment. Revenues were $176 million, an increase year-over-year of 38% on a reported basis and 12% on an organic basis. Separately, segment profit grew 69% on a reported basis. Solta delivered once again strong revenue growth in the quarter led by performance in China, where revenue increased 136% year-over-year. Growth was further supported by double-digit organic growth, reflecting the successful integration of our full-service distributor, Shibo, in China and continued momentum across other key APAC markets such as South Korea and Taiwan. More specifically, South Korea, our second largest revenue contributor, grew 8% in the second quarter. While medical aesthetics tourism remains a positive driver, the market has stabilized when compared to the growth experienced over the prior 2 years. Taiwan, our third largest market in APAC, delivered strong growth of 42%, reflecting robust local dynamics. The integration of Shibo has been executed exceptionally well and has already created significant value for Bausch Health in just 6 months, a testament to the quality of the asset, the strength of our teams, and our disciplined approach to integration. Let me be more specific. As Tom indicated, Solta recorded a segment profit of $91 million in the second quarter, which was the first true indicator of the value accretion associated with the integration of our full-service distributor in China. Even if we adjust for revenue seasonality and expense phasing, management believes that the full-year run rate for Solta segment profit now stands at approximately $330 million, which is approximately a $100 million increase when compared to 2025. If we apply a conservative 10x earnings multiple, it does not seem unreasonable to assume that everything being equal, this should translate into an increase in our Bausch Health enterprise value of roughly $1 billion or $2 to $3 per share. We do not believe that BHC's current share price fully reflects that. Turning now to our Diversified segment, which you will find on page 18. Revenues were $219 million, flat on a reported basis compared to the same period a year ago. Growth in neuroscience driven by favorable net pricing was offset by lower revenue in dermatology, generics, and dentistry. Finally, Bausch + Lomb's revenue was $1.394 billion, up 9% on a reported basis and 8% on an organic basis compared to the same period last year. Now, turning our focus to our balance sheet, adjusted operating cash flow and adjusted free cash flow were outstanding in the quarter and stood at $471 million and $465 million, respectively. Our strong operating performance was the primary driver, together with a favorable change in working capital. Even more impressive was our ability to reduce our net debt by $434 million in the second quarter, thanks to low outflow associated with legacy litigation and restructuring payments. As a reminder, we have fully settled our opt-out litigations in the U.S., and the last payment was executed in the first quarter of 2026. In summary, and at the half-year mark, we are well ahead of expectations with revenue and adjusted EBITDA growing respectively 15% and 23% when compared to the first 6 months of 2025. This allows us to raise our full-year guidance for Bausch Health, excluding Bausch + Lomb, across all metrics. More specifically, we are increasing the midpoint of our full-year guidance by $100 million for revenue, $150 million for adjusted EBITDA, and $200 million for adjusted cash flow from operations. As a result, the new guidance for the full year now stands as follows. Revenue is expected to be between $5.35 billion and $5.50 billion. The midpoint of that range translates into a 5% increase year-over-year. Adjusted EBITDA is now expected to be between $3.025 billion and $3.100 billion. The midpoint of that range represents a 10% increase versus 2025. Finally, we now anticipate adjusted cash flow from operations to be between $1.4 billion and $1.475 billion. The midpoint of that range would translate to a 21% increase year-over-year. Before I hand it back to Tom, let me conclude with some additional color on quarterly phasing as well as the implied adjusted EBITDA guidance for 2027. Let's start with the difference in anticipated growth rates between the first and the second half. Even with the increase in the full-year guidance, our growth rate year-over-year for revenue and adjusted EBITDA will be lower in the second half of the year when compared to the first half, primarily for the following 3 reasons. First, the change of our gross-to-net accrual associated with the channel inventory is anticipated to be a headwind of roughly $150 million. As a reminder, we recorded approximately a $60 million benefit at the end of Q3 last year to reflect the exit of the Medicaid and 340B channels. Conversely, we anticipate recording approximately a $90 million expense in the fourth quarter of this year in anticipation of the increase in rebates to CMS, which is due to start on the 1st of January, 2027. Second, Aplenzin sold through our neuroscience business within our Diversified segment recently lost exclusivity at the end of June. We expect to have generic competition starting in Q3, which should translate into a $50 million headwind for the second half of 2026. And third, while revenue for the Medicaid channel and patients originally covered by the 340B institutions has been more resilient than originally anticipated, we still expect gradual erosion over the course of the following quarters. This is expected to represent approximately another $75 million headwind in the second half versus the revenue recorded in the first half. In conclusion, 2026 is shaping to be a much stronger year than originally anticipated. Given that most of the drivers of overperformance in the first half could be qualified as transitional, we are not yet ready to increase the implicit adjusted EBITDA guidance for 2027, which still stands at $2.7 billion. Please note that the 2027 guidance still assumes that we will maintain market exclusivity for Xifaxan until the 1st of January, 2028. With all of that said, I will now hand it back to Tom.

Thank you, J.J. As J.J. outlined, we delivered a very strong first half, growing revenue and adjusted EBITDA respectively 15% and 23%. Moving forward, our business priorities remain unchanged. First, drive peak performance across our portfolio, including the disciplined optimization of Xifaxan revenue and margin profile for the duration of its exclusivity period. Second, enhance the value of our portfolio through consistent organic growth and operational excellence initiatives while strengthening our competitive position and earning power for 2028 and beyond. Third, build a sustainable pipeline of future growth opportunities through selective business development and investments that maximize the value of our commercial reach and R&D capabilities. And finally, an unwavering focus on maximizing the value of Bausch + Lomb for Bausch Health shareholders. As previously discussed, business development remains one of our highest strategic priorities and represents a compelling opportunity to strengthen our pipeline, accelerate innovation, and build the next generation of growth drivers for Bausch Health. While opportunities exist across all of our businesses, U.S. Pharma represents one of the most attractive platforms for future value creation. Supported by a best-in-class commercial organization, an AI-powered customer insights engine that provides unparalleled visibility into market dynamics and prescribing patterns, and deep scientific expertise. We are exceptionally well-positioned to maximize the value of both our existing portfolio and future business development investments. Given the strength of our market-leading commercial infrastructure, we remain open to pursuing opportunities in new therapeutic areas where there are meaningful unmet patient needs and where we can leverage our capabilities to accelerate growth, enhance patient outcomes, and create a long-term shareholder value. In closing, our first half performance reinforces our firm belief that 2026 is shaping up to be another exceptional year for Bausch Health. The substantial increase in our guidance for revenue, adjusted EBITDA, and cash flow generation is a clear reflection of the strong momentum across our businesses and the disciplined execution of our strategy. While uncertainty remains in the broader environment, our focus is unwavering to continue driving operational excellence, strengthening our portfolio, and pursuing every opportunity to create long-term value for our stakeholders. I would like to again extend my sincere thanks to our colleagues around the world. Their passion, dedication, resilience, and commitment to excellence are the foundation of our success and the reasons we continue to outperform expectations. We enter the second half of the year with considerable momentum, a clear strategic direction, and optimism in the opportunities ahead. We are committed to continuing to unlock the full potential of Bausch Health for the benefit of all stakeholders. With that, I will turn the call over to the operator so we can open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Michael Freeman with Raymond James.

My first question, you talked about business development as a priority. I wonder if you could maybe give us a few ideas of areas of interest where you think Bausch could really add value to assets. And I wonder if you could describe some financial guidelines around -- or guardrails that you might set around business development. For instance, would you be willing to increase leverage to pursue this? Thanks.

Hi, Michael, thanks for the question. When we look at, as I said in my prepared remarks, I think the first thing, we could be a great partner for companies out there looking to do business development with us. If you look at the infrastructure we have and the great commercial engine we have, so we think we have a competitive advantage there over many companies. When we look at business development. As we talked about, in terms of the therapeutic areas that we're in, of course GI, specifically liver, our neuroscience business, our derm business, we also have a pain team as well. If you look at some of the other areas that are adjacent to that, are very interesting to us as we did the acquisition of DURECT, what we think we can do there. So as we look at it, I keep, as I said in my prepared remarks, an open mind to the assets that we can bring in to drive future growth. And what I would say is there is adjacency categories to where we compete, but also there's other categories that I think that we can add value as well, given the outstanding commercial infrastructure we have and then, of course, our AI engine that we've adapted in various -- into our various other therapeutic areas. In terms of the capital allocation, this is always a discussion that J.J. and I have looking at our assets today and then where we can allocate capital. And it also depends on the asset that we're looking at and the cost. I'll just hand it to J.J. Maybe he may want to make a few other comments on capital allocation.

Yes, absolutely. Hi, Michael. The strategy that we've set out for capital allocation remains the same. The first one is obviously to fix the capital structure and reduce our net debt leverage. Second is to reinvest in the business. And then if there's any return to shareholders at some point in time, then we may want to consider it, but obviously, obviously not a topic for discussion at this point in time, which then leads us to different type of assets that we could go after. As we've communicated in the past, there are really 2 buckets. The first one would be relatively small investments that could be at the development stage, and I think DURECT is a good example of that, that we've done third quarter of last year. We can not only digest the upfront, but also fund the further development until the product comes to market. As you've seen with DURECT, it fits totally our strategy and our scientific and commercial capabilities. And then on the other end of the spectrum, we could go for a larger asset, either in the form of a single asset or a company, but the payback would have to be relatively quick, so it would have to be relatively close to commercialization or we would have to have good line of sight into significant synergies and the ability to turn around the P&L of the asset that we will acquire because it cannot too much stand in the way of our first strategy, which is to ultimately fix the capital structure.

I think also, Michael, when we look at business development, as I said in my prepared remarks, the greatest opportunities in the U.S. Pharma platform in terms of those therapeutic areas. Because when you look at the international side, we are continuing to do, you know, tuck-in type acquisitions in our branded generic businesses in EMEA and Latin America. So when we look at it, we discussed it in the prepared remarks of what we've done in Latin America. We had a really good quarter. The overall portfolio did well. But along with our entrance into the cardiometabolic franchise and our expansion there, I think when we're also looking at business development, when we look at the U.S., we're also trying to do North American deals that we can get new products into Canada. So that's an area where I think we also have to do some business development. In the promoted brands that we have in Canada, they're doing well. It's the LOEs that drag the business a little bit on the Canadian side. So if we can do North American deals, that would be the focus as well.

Okay, all right, thank you for that fulsome answer. That's great. Just one follow-up. I wonder if you could describe what might be the next observable milestone in monetizing the Bausch + Lomb asset?

So, I will start with kind of the high-level strategy here. As you know, we've done a large refinancing last year in 2025, and I think the objective was to extend the runway, for lack of a better term. Therefore increase flexibility around the timing in the process, we might decide to fully realize the value of our B+L asset for BHC shareholders. That continues to be the mindset. You know, there are obviously a number of considerations to evaluate and to figure out exactly how do we translate the value of B+L into BHC share price, and we're looking at all and any avenues to do so. The company, B+L, communicated some aggressive financial targets, Vision 2027, with a significant increase in EBITDA and revenue by 2028. So obviously that's an important consideration how we think about our options.

Our next question comes from the line of Michael DiFiore with Evercore ISI.

This is Mike DiFiore on for Umer. Congrats on a great quarter. Two for me. Ex- B+L, what EBITDA do you expect to settle at once Xifaxan is fully generic? And my other question is, if payers have referenced IRA pricing in your 2027 commercial contracting, has this happened? And what leakage are you assuming into the commercial book? Thank you.

So, Michael. I will take those questions. We haven't provided any guidance for 2028. One of the variables is obviously the pending IP litigation associated with Xifaxan. So once that is settled, I think we should be in a better position to start guiding the market as to what 2028 looks like. We have provided a guidance for 2027 that stands currently at $2.7 billion. That includes the impact of the incremental CMS rebate that we are contractually obligated to provide starting January 1, 2027. So if you look at our guidance for 2026, if you look at our guidance for 2027, everything has been equal and factoring some growth in the rest of the portfolio. You should be able to deduce fairly easily what is the magnitude of the additional rebate associated with CMS.

Yes, Michael, on the second part of your question, I don't believe the payers have referenced the Part D pricing, you know, in 2027 contracts, but we have to, again, have to see how that plays out. All right. Thank you.

[Operator Instructions] Our next question comes from the line of Douglas Miehm with RBC Capital Markets. Please proceed.

I just wanted to go back to Solta. Very strong numbers in the quarter and J.J., I think you talked about baseline business now at $330 million, but would you be able to maybe provide a bit more detail on that $330 million? And then as we look into next year, is there the opportunity for margin growth? Or if we use what we're seeing for this year and then look at revenue growth, that would be a good yardstick in terms of how we should think about the opportunity available to Solta as we look to next year?

Yes, Doug, I'll give the question to J.J. I'll just make an opening comment. When you look at the performance, of course, we had an outstanding quarter in China. And we look at our business in Asia Pacific, continues to perform well in China and Korea. Taiwan had a very good quarter as well, and returning Taiwan back to growth. So we're pleased with our results and continuing to look at the business, you know, and drive it forward. And then, looking in the U.S. to again, look to do more direct-to-consumer and investing and maximizing our field force. So, the Solta franchise is a great platform for us. And we think as we go forward what we can do with it. And clearly the acquisition of Shibo in China, our full-service distributor, has really powered our growth, not only on the top line, as J.J. articulated in his prepared remarks, on the bottom line. But he can give you more color to the $330 million.

Yes, well, first of all, if you look at the halfway mark, you know, you're not far away from the, I would say, the half of the $330 million, which is $165 million. One thing that you need to take into consideration is the fact that in the first quarter, we still had the residual impact of the inventory step-up that we acquired when we fully integrated our full-service distributor. So the Q1 margin was a little bit depressed for, I would say, the last time. Obviously, it was the case also in the fourth quarter of '25. And this is why I think we're referencing to Q2 as a good starting point for thinking about the full-year run rate. What you have to factor in, which I put in my prepared remarks, is really, I think, the phasing of the expenses, particularly on the G&A, on the commercial side, were a bit light in the second quarter. That's why the $330 million doesn't quite reconcile to $91 million times 4, but it's a good starting point. It does include the full, I would say, price increase, really the fact that we've done this vertical integration, and then, of course, the continued growth we're seeing in the China market and also in South Korea that basically brings kind of the run rate to the $330 million I provided.

Okay, that's very helpful.

And then -- and then for next year, just a couple of mention. You know, when you think about, I would say I'll start with gross margin. Gross margin is fairly stable. Really the integration of our full services in China really hasn't materially changed really the gross margin profile for the business. Obviously, when you grow the top line, you continue to manage tightly expenses like we do in Solta and like we do across our portfolio, you're going to have operating leverage. So not that it's by design because it's already fairly high at Solta. We want to make sure we're funding innovation and we're funding commercial investment to continue to support all of our business across all of our geographies. We've communicated consistently that from a top-line perspective, we're still expecting the medium term for this business to grow double-digit. I think the key thing to look for, as we've said a number of times, is really rebalance the contribution of growth not only coming from other Asian markets besides South Korea and China, but also in the U.S., which is a very important market for us.

Yes, I think, Doug, the other thing that when we look at it, if we just stay focused on China, you know, now that the integration has taken place we continue to look for areas to continue to invest and build out more of our field force capabilities. And then if you look at in the U.S., clearly investing behind our field force with field force effectiveness initiatives and also increases along with really today the direct-to-consumer advertising is essential. So there's investments to be made to continue to drive the revenue growth and ensure profitability.

Our last question comes from the line of Michael Nedelcovych with TD Cowen.

I have one. We recently got some news on the tariff front from the current administration indicating that tariffs on generics in the United States may be forthcoming. I know that generics strictly speaking, is kind of a small portion of your business, but I'm just curious how you estimate the impact of that announcement one way or the other, given that generics are also an important part of the ecosystem.

Well, as you know, those tariffs are not going to be effective until the middle of 2028. So obviously we have to understand the size of our generic business at that time to better assess that impact to your point, which should be fairly small in relation to the other components of our business. So we should be in a better position to do that, assuming, obviously, those tariffs hold sometime next year.

Thank you. There are no further questions. I'll pass the call back over to Tom for any closing remarks.

Thank you, Operator. I want to just say thank you for all the questions today and the continued interest in Bausch Health. We talked about in the prepared remarks, you know, we're exiting this quarter with strong momentum. We have a favorable outlook. We raised guidance and have confidence in the ability to execute against our strategic priorities. So across the organization, our teams are continuing to operate with focus, discipline, accountability, and positioning us to capitalize on the opportunities ahead. So while there is always more to achieve, we remain committed to driving profitable growth and unlocking the full potential of our company for all stakeholders. Thank you for your continued engagement and support. We look forward to updating you on the progress in the quarters ahead. Thank you and have a pleasant evening.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.