Bausch + Lomb Corporation (BLCO) Q3 2024 Earnings Report, Transcript and Summary

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 guidance for gauging eye care professionals. As our team becomes more comfortable with the platform, we're seeing its impact on both sales and employee engagement, we also launched Opal, a digital ecommerce marketplace that I'll go deeper on later. Finally, the ongoing evolution of our R&D function is positioned us to win now and in the future. The most recent example is FDA approval of enVista Envy, our latest entry into the high margin premium IOL category. What's happening behind the scenes will dictate our success for years to come. We're making a calculated move to higher margin product portfolio, which means turning our focus to addressing unmet needs and playing in areas where existing therapies aren't moving the needle. We're doing this through an influx of top talent and by partnering with academic institutions and startups that can deliver multiple candidates ready for clinical stage over the next few years. Keeping with our boring theme, nothing has changed on the roadmap slide, save for the position of our progress indicator, this slide always represents an opportunity to highlight some of the less glamorous but critically important ways we're changing how we operate with efficiency and continued growth, top of mind. Here are a few examples from the third quarter. In July, we installed a new line at our facility in Milan to manufacture small bottle products, which is part of a broader network optimization strategy. This mirrors a similar move earlier this year in Berlin, with one goal in mind, getting products to end users faster. We continue to deploy AI across our contact lens manufacturing sites to drive yield and output gains. It started in Rochester, and last quarter, we extended the program to Waterford. This isn't AI for AI's sake, using predictive analytics to eliminate downtime on automated lines, producing millions of contact lenses, can result in real savings. Product launches and performance get all the hype, but if we're not constantly optimizing how we operate and getting the small things right, we won't realize our full potential. Our holistic strength was once again on full display in the third quarter, and continues to differentiate Bausch + Lomb in the eye health industry and beyond. In our Vision Care segment, we continue to see aggressive growth in Daily SiHy lenses with room to run as we progressively launch multifocal and toric options in new geographies. Big picture, it's clear we're taking market share and not at our own expense. There's growth across our lens offerings with INFUSE, Ultra and BioTrue driving switches and new starts. Our Surgical business, which saw 12% constant currency revenue growth is a microcosm of our holistic strength, which I'll touch on later. We highlighted Miebo and Xiidra revenue, which certainly played an outsized role in 76% constant currency revenue growth for our Pharmaceutical segment. But it's important to understand that combined revenues from these 2 products represents less than half of overall sales for that segment last quarter. International pharmaceuticals in particular, was a solid contributor, with 11% constant currency revenue growth. It's worth pointing out that absence Xiidra revenue Pharmaceuticals saw an impressive 25% organic revenue growth for the quarter. I'll now turn it over to Sam for a deeper dive on our financials.

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 the largest impact on our eye vitamins franchise, which was down 9% in the quarter. Post Q3, we're encouraged by the strong consumption growth in our portfolio during the month of October, and we'll continue to monitor the retailer market as we move into Q4. Contact lens revenue growth was 12%, with strong performance across modalities, key brands and geographies. In Q3, we saw solid growth in both the daily and frequent replacement portfolios. We are continuing to see strong momentum with Daily SiHy, which grew 79% in the quarter. We also saw growth across key franchises, including Biotrue, which was up 4% in the quarter and ULTRA, which was up 6%. Contact lens revenue growth was broad-based across markets, with the U.S. up 13% in the quarter and international up 11%. Outside the U.S., we saw solid performance across all of the regions with growth in China leading the way at 16% in the quarter. As Brent will discuss further, we're investing in building our direct-to-consumer channel in contact lenses. We are seeing positive early results from the direct-to-consumer initiative in China, which we launched at the end of last year. Moving now to the Surgical segment. Third quarter revenue was $206 million, an increase of 12%. In Q3, we saw growth in each of our 3 Surgical product categories. Consumables, our largest product category, grew in the quarter by 14%. Revenue from equipment was up 6%, mainly driven by Stellaris system sales and implantables was up 13% in the quarter, with our standard IOLs up 7% and our premium IOLs up 23%. Our enVista IOL platform is continuing to perform well with the enVista Aspire lens making a strong early market entry. We expect the cadence of IOL launches to continue. Our strategy in the Surgical business remains the same. We are delivering growth by: first, focusing on consistent supply of products to our customers; and second, continuing to deliver innovation and launch premium products with higher margins. The FDA's approval of the enVista Envy trifocal IOL that Brent referred to is a case in point. Lastly, revenue in the Pharma segment was $306 million for the quarter, which represents growth of 76% and organic growth of 25%. Miebo delivered $49 million in revenue in the quarter and has continued its exceptional launch performance. As we've said before, we remain committed to making investments to drive the strong growth, including the recent direct-to-consumer campaign and continuing to expand market access, which Brent will discuss in more detail. Xiidra delivered $92 million in revenue in the third quarter. We continue to make steady progress in executing our strategy with investments in direct-to-consumer marketing campaigns and the field force realignment earlier in the year. TRx trends continue to move in a positive direction. Xiidra has reached approximately 22,000 TRxs in the past 4 weeks. As we have highlighted in the past, we're excited about our overall dry eye platform. Xiidra and Miebo together have positioned us as a leader in dry eye disease and strengthened the dry eye franchises in our consumer and Surgical businesses. Beyond Miebo and Xiidra, we also saw strong growth across other parts of the Pharma business. For example, International Pharma grew by 11%. As expected and as previously mentioned, PROLENSA declined compared to Q3 of 2023 due to a generic entry in Q1 of this year. Now let me walk through some of the key non-GAAP line items on Slide 8. Adjusted gross margin for the third quarter was 63%, which was up 170 basis points compared to Q3 of 2023. The increase in adjusted gross margin was mainly driven by product mix as we continue to execute our strategy to transition to higher-margin products. In the third quarter, we invested $84 million in adjusted R&D or about 7% of revenue. As we discussed before, we anticipated entering into collaboration agreements with external partners to drive pipeline innovation, which would result in onetime IP R&D investments. In the third quarter, we made onetime investments of approximately $15 million of IP R&D related to such agreements. Third quarter adjusted EBITDA, excluding acquired IP R&D was $227 million, which represents 21% growth versus the third quarter of 2023. Including the IP R&D investments, adjusted EBITDA was $212 million. As I mentioned before, these IP R&D investments are not reflected in our full year 2024 guidance. Net interest expense for the quarter was $96 million. Adjusted EPS, excluding acquired IP R&D was $0.17 for the quarter. Including the IP R&D investments, adjusted EPS was $0.13. For the quarter, CapEx was $60 million. As Brent referenced, we've been focused on driving our cash flow performance. Adjusted cash flow from operations was $159 million in the third quarter and $231 million year-to-date. We're continuing to make progress on various cash flow initiatives, including working capital management. Turning now to our 2024 guidance on Slide 11. We are raising our full year revenue guidance to a range of $4.725 billion to $4.825 billion, up from $4.7 billion to $4.8 billion. We continue to expect full year constant currency growth of approximately 16% to 18%. Our increased full year revenue guidance reflects strong Miebo performance as well as lower expected currency headwinds. In our dry eye portfolio, we are raising our full year guidance for Miebo revenue from a range of $150 million to $160 million to a range of $165 million to $170 million. We're also encouraged by the positive TRx growth in Xiidra as we progress towards our guidance of $355 million to $365 million. As we head into 2025, there are 2 factors on Xiidra that we continue to watch closely, which I flagged last quarter. The first is the potential headwind impact of the Inflation Reduction Act. And the second is balancing our strategy to drive TRx growth while ensuring we have access to coverage through health plans for as many patients as possible. For the full year, we expect currency headwinds of approximately $75 million to revenue, down from $90 million. Our adjusted EBITDA guidance, excluding acquired IP R&D is at a range of $850 million to $900 million, consistent with our adjusted EBITDA guidance last quarter, which did not include acquired IP R&D. In Q3, IP R&D was $15 million and $18 million year-to-date. In terms of the other key assumptions underlying our guidance, as noted last quarter, we expect adjusted gross margin to be 62.5%, which is at the high end of our previous guidance range. And we continue to expect investments in R&D to be about 7% to 8% of revenue. We continue to expect interest expense to be approximately $385 million for the full year, and we expect our adjusted tax rate to be roughly 15% and full year CapEx is expected to be approximately $250 million. To summarize, we're very pleased with the solid execution and strong performance in the quarter. We continue to make investments across our portfolio and in our innovative product launches, and that strategy is paying off. We expect our ongoing momentum to continue to drive revenue growth and future margin expansion. And now I'll turn the call back to Brent.

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 a room full of 300 prominent eye care professionals, we took over the Sphere, the world's largest LED screen. Dry eye symptoms were overlaid on a real human eye, and we drove traffic to knowyourdryeye.com, our unbranded dry eye education website. Sometimes you have to go big when there's a big opportunity. As more people around the world become dry eye curious, thanks to our own efforts, changing habits and environmental factors, this first step is often an OTC treatment. Let's look at 2 examples of how we're winning in that space. After acquiring Blink from Johnson & Johnson Vision in July 2023, we reinvented the brand at all levels. Our Work Play Blink Relief direct-to-consumer campaign, which also targets a younger demographic, featured one of the highest-rated Bausch + Lomb ads ever and provided an immediate sales lift. We also made Blink a focal point of optometry meetings and events, highlighting data and hosting symposia for eye care professionals, whose recommendations of OTC eye drops carry significant weight. Our methodical approach to reinvention and bringing in new audience is paying dividends with 35% reported revenue growth for the Blink franchise in the third quarter. That growth is even more impressive when you consider that the overall U.S. OTC dry eye market grew 8% in Q3. Efforts are underway to bring Blink to more countries, which would complement Artelac, a steady and perhaps unsung performer that continues to expand in Europe and Middle East. Artelac saw a healthy 19% reported revenue growth in Q3. Like Blink, we're touting the science behind Artelac to influence the influencers. In fact, the Tear Film & Ocular Surface Society annual meeting is currently underway in Venice, which we are using as an opportunity to highlight the latest Artelac findings. Opal, our new digital e-commerce marketplace, was in beta testing for much of the third quarter with an official launch on October 1. If the premise sounds simple, that's because it is. Opal provides a streamlined ordering process for Bausch + Lomb contact lenses. Why is that important? Because we're making life significantly easier for eye care professionals and their patients. Opal is a complementary offering to eye care practices that is accessible to their patients and features order tracking and history, appointment reminders and automated prescription reminders. All orders made through Opal are delivered with free shipping directly to patients' homes or to the practice, and each patient purchase earns points towards the Bausch + Lomb Horizon Rewards loyalty program. By offering an all-in-one digital platform that offers faster, more convenient ordering of our products, we're helping to save staff time, boost patient loyalty and reduce the administrative burden for participating eye care practices. That matters in an industry where long-term relationships portend long-term success. We expect that Opal will evolve over time to mirror our ongoing investment in digital capabilities. In fact, later this year, we plan to start offering select OTC products, including LUMIFY and Blink eye drops. Excitement about Opal is real and not just from the early adopters. Our Opal demo has consistently been one of the most popular features at trade shows as we put our digital embrace on full display. We highlighted milestones in our premium IOL journey every quarter and for good reason, these are high-margin products, and we have a rich pipeline. Earlier, I mentioned the recent FDA approval for enVista Envy, and we already have significant momentum. In the first 5 days, there were more than 100 implants by 70 surgeons. We saw 13% constant currency revenue growth for implantables in the third quarter with 23% constant currency revenue growth for premium IOLs. But I'd like to take a step back and remind everyone that IOLs are one leg of our Surgical stool. We now have 3 quarters in a row of growth across the 3 Surgical categories with 6% constant currency revenue growth in equipment and 14% constant currency revenue growth in consumables, which makes up approximately half of Surgical sales. At the risk of stating the obvious, Surgical is an interconnected business. Continued strength in each area means strength as a whole, and that doesn't go unnoticed by ophthalmic surgeons. When taking in our launch slide, it's important to consider launch cycles. We live in an era of hot takes where opinions are formed almost instantaneously. For new market entries, this means some will attempt to determine a product's viability based on a limited performance window. In reality, launch cycles last 2 or 3 years. Here's why that bodes well for our future. We're in the middle of multidimensional launch cycles around the world, covering all of our businesses and targeting all of our audiences. Product launches aren't box checking exercises. They're living, breathing commitments that present new opportunities for growth at every turn. When you look at our top 10 products by revenue, new products, including products new to us, feature prominently. Others shown here are knocking out the door. Continued growth from our Daily SiHy franchise has it landing at #11 on the revenue ranking and some like PreserVision and LUMIFY are being enhanced over time to appeal to an even broader customer base. When considering our freshness index, especially in a compressed time frame, we're delivering on our innovation goals. That's why we continue to be excited about our trajectory. None of this would be possible without the ongoing commitment of 13,000 colleagues around the globe who impress me every day. Operator, let's open the line for questions.

[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 portfolio and in many markets, not all markets yet, a full portfolio. So the U.S. INFUSE now has the spherical, the multifocal and the toric. And we're looking at over the next year or 2, launching all the modalities in other markets around the world. So that cycle is really in early days as we continue to focus on driving the new products while maintaining growth in the existing portfolio. And you can do that in Surgical and Pharma and consumer as well. And so I think we feel really good about where we are today. And I think as you look at that launch slide that I had in the prepared presentation, I said this in the remarks, we're at the early stages of many of these launches, and we continue to invest in early innovation that will then continue this robust cycle of new product launches, hopefully, over the next decade and beyond. So again, to summarize, probably the biggest factor is just a relentless focus on execution across the world. In terms of investing in the launch cycles, it's always a balancing act. Obviously, we are very committed to both gross margin expansion and EBITDA margin expansion over time. But we also can't shortchange the important launch investment that you need to make. And Miebo is a great example of that, where we are really continuing to heavily invest to change the curve of that launch because that's a product we expect to have for a decade or more. And getting that early first 2 years or 3 years right is critical to creating a long-term profitable product for the company. Other products include INFUSE or the Daily SiHys, other Blink, enVista Envy, enVista Aspire. And so we do balance it across the portfolio. And Sam and I look at ROI and continuous investment almost on a daily, weekly, monthly basis with all of our key business leaders. So hopefully, that answers your 2 questions.

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% constant currency. There, you see a lot of destocking at retailers, really working down inventory. I think the drug channel trade is probably a call out that probably experienced the most destocking. And as we know, those companies are dealing with their own issues, a lot of store closures. We saw a bankruptcy from Rite Aid as well. And all you have to do is go into one of those stores, and you see a lot of product behind glass really making the shopper experience a little bit more challenging there. And so over time, we'll see those consumers continue to find other outlets to shop that are more convenient perhaps or maybe the drug channel will reinvest in the consumer experience. But the real important number that we track, probably the most important is consumption. And there, we're seeing very, very strong consumption still in the third quarter. And frankly, almost a month into the fourth quarter, we're seeing really nice consumption numbers for our key brands. And so I would say I'm very cautiously optimistic. Obviously, we continue to watch consumer sentiment around the world. But for right now, our consumption numbers, which are really the most critical number to track, remain very strong.

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.