Bausch Health Companies Inc. (BHC) Earnings Call Transcript & Summary

Greetings, and welcome to the Bausch Health Third Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. [Operator Instructions] It is now my pleasure to introduce Garen Sarafian, Head of Investor Relations. Please go ahead.

Good afternoon, and welcome to Bausch Health's Third 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 Saday, 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, and you should not place undue reliance on them. Please also refer to our SEC filings and our filings with the Canadian Securities Administrators for a 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 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, October 28, 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, Tom Appio. Tom?

Thank you, Garen, and thank you to everyone joining us today. Before I discuss our third quarter results, I want to briefly address my recent appointment as Interim CEO of Bausch + Lomb. I am honored and energized to serve as Interim CEO. Having spent a good part of my career with the company, I have developed a deep understanding of their business, markets, products and most importantly, the exceptional global team who drive their success. Having said that, I want to reiterate that I remain fully committed to Bausch Health and all its stakeholders. I am proud of our 7,000 colleagues around the world and all that we continue to achieve together. Both companies have experienced teams and well-defined operating priorities, allowing us to remain focused on execution across each business. Turning now to Bausch Health. We delivered another solid quarter, extending our record to 14 consecutive quarters of year-over-year revenue and adjusted EBITDA growth for Bausch Health, excluding Bausch + Lomb. For the first time, we exceeded $1 billion in quarterly adjusted EBITDA, marking another important milestone for our company. We generated one of our highest adjusted quarterly cash flow from operations since the IPO of Bausch + Lomb. Building on the progress achieved during the first half of the year, this cash generation enabled us to reduce our net debt by more than $0.5 billion. Our execution through the first 9 months gives us the confidence to again raise our full year 2026 guidance for revenue, adjusted EBITDA and adjusted cash flow from operations. More importantly, the consistency of our performance continues to demonstrate the strength of our strategy, the discipline of our operations and the accountability that we have built throughout the organization. Let me start with a few highlights from the quarter. Within Salix, revenue increased 16%, driven by net realized pricing and increased Xifaxan volume within the channels we serve today. This is the 17th consecutive quarter of growth for Salix. Our international business grew mid-single digit on both a reported and organic basis. Canada achieved 6% growth with continued momentum in promoted products. EMEA delivered its 15th consecutive quarter of organic revenue growth, supported by several markets, including Poland and Hungary. Latin America also delivered positive underlying growth in both established brands and new products. Finally, Solta delivered another quarter of double-digit reported revenue growth, supported by its leading aesthetics portfolio and the successful integration of our China distributor. This quarter, Thermage FLX grew 21% globally, while Fraxel, FTX and Clear and Brilliant Touch grew 52% and 49%, respectively, off more modest basis. These results demonstrate the breadth of our global organization and the progress across multiple segments, markets and products. While we are pleased with our third quarter results, the greater achievement is our ability to sustain this level of performance over time. We have greater discipline, accountability and consistency in our execution across the organization. The result is 14 consecutive quarters of revenue and adjusted EBITDA growth across a diverse portfolio of businesses and markets. This performance reflects a consistent set of management principles that guide how we operate the business every day. The first principle is profitable revenue growth with the objective of delivering long-term value creation. Our last 12 months revenue provides a good measure of that progress. The metric has grown every quarter since year-end 2023, resulting in approximately 24% growth cumulatively over that period. Throughout our businesses, we are optimizing the operating levers available to us. Within Salix, we are maximizing performance throughout the product life cycle, supported by customer insights engine and strong commercial capabilities. At Solta, we are improving commercial execution while investing in innovation and R&D to support future growth. In international, we are strengthening the portfolio through targeted product launches, including important markets such as Mexico and Poland. For all our businesses, the objective is the same: disciplined commercial focus that drives sustainable profitable growth. The second principle is disciplined resource allocation and operating leverage. We make targeted strategic investments where we see the potential for attractive long-term returns. At the same time, we continuously evaluate our infrastructure and pursue productivity opportunities throughout the organization. This combination of profitable growth and resource discipline has contributed to approximately 740 basis points of last 12 months adjusted EBITDA margin expansion compared with 2023. The third principle is cash generation. Our operating performance has translated into growing cash flow from our existing businesses. This has supported a reduction in net debt every quarter since the fourth quarter of 2023, with this quarter representing one of the largest quarterly net debt reductions since the IPO of Bausch + Lomb. These core principles continue to guide our actions and priorities across the organization. Our third quarter performance is further evidence that consistent execution can create sustainable value across the business. With that, I will turn the call over to JJ for a more detailed review of our financial results and updated guidance. JJ?

Thank you, Tom. Let's start with our consolidated non-GAAP financial results for the third quarter, which you will find starting on Page 12. Revenues were $2.941 billion, a 10% increase on a reported basis and 8% on an organic basis compared to the same period a year ago. Adjusted gross margin was 75%, which was 230 basis points higher year-over-year. Adjusted EBITDA was $1.305 billion, an increase of $319 million or 32% year-over-year. Finally, adjusted cash flow from operations was $782 million, an increase of $274 million or 54% year-over-year. Moving now to the performance of Bausch Health, excluding Bausch + Lomb for the third quarter, starting on Page 14. As Tom indicated earlier, we had an outstanding third quarter. The highlights for the quarter were as follows: revenues were $1.566 billion, a 12% increase when compared to the third quarter of 2025. Adjusted EBITDA was $1.022 billion, our strongest quarterly performance since the IPO of B+L. Finally, adjusted cash flow from operations was $539 million, an increase of $192 million year-over-year. These results reflect broad-based operating performance across the whole portfolio. While the largest drivers of growth remain Salix, all segments grew revenue and segment profit in the quarter, a rare feat we are very proud of. Moving now to our third quarter performance by segment, starting with Salix on Page 15. Salix had another quarter of double-digit growth for both revenue and segment profit. Revenues were $831 million, an increase of $115 million. This outstanding performance was primarily driven by Xifaxan, which grew 16% year-over-year, thanks to favorable net realized pricing and continued solid demand as evidenced by total retail prescriptions, excluding Medicaid, which grew 1.8%. Separately, our quarterly new-to-brand patients grew by 1,800 sequentially, reflecting the continued vitality of Xifaxan today. Please note that volume growth in Q3 was also boosted by an increase in channel inventory. Now moving to the International segment. Revenues in the third quarter were $299 million, which was up 4% on an organic basis compared to the third quarter of last year. Growth was supported by contribution from all major geographies, reflecting the broad-based performance of our international portfolio. Here are a few highlights by region. EMEA continued its streak in sales growth, up 3% organically, now delivering a remarkable 15th consecutive quarter of organic revenue growth. Special mentions go to Poland and Hungary, which grew, respectively, 7% and 32%. LatAm continued its return to growth, fueled by our top 10 products growing 18% organically, thanks to an outstanding performance of our largest brand, Bedoyecta, which was up 28% on an organic basis. Canada also returned to growth with organic revenue up 7% and Promoted Pe delivering another quarter of double-digit gains led by Ryaltris and Cabtreo. Now moving to Page 17 for a review of our Solta Medical segment. Solta delivered solid revenue in the quarter of $165 million, an increase year-over-year of 18% on a reported basis. Asia Pacific continued to lead in reported growth with China and Taiwan increasing 66% and 23%, respectively. Korea was relatively flat despite continued growth to its consumables, which were up 18% year-over-year. Organic revenue declined 4% in the quarter, reflecting a different revenue phasing for the first 9 months versus what we experienced in 2025, which was much more uneven and driven by the volatility of tariffs on U.S. import to China. On a year-to-date basis, Solta has grown revenues 34% on a reported basis and 8% on an organic basis, which we believe is a more accurate representation of the strong performance we have consistently seen from Solta in 2026. Turning now to our diversified segments, which you will find on Page 18. Revenues were $271 million, an increase of 5% compared to the same period a year ago. Revenue growth was primarily driven by double-digit growth in dermatology, thanks to favorable net realized pricing. Finally, Bausch + Lomb revenue were $1.375 billion, up 7% on an organic basis compared to the same period last year. Now turning our focus to our cash flow and balance sheet. Our cash flow performance continues to be above expectations, primarily thanks to our adjusted EBITDA growth, which is tracking well ahead of plan and external guidance. Consequently, we were able to reduce our net debt by $521 million during the quarter. Since the beginning of the year, we have reduced our net debt by more than $1 billion, which has been great progress. We now have $2 billion of cash on hand and are looking at ways for optimizing our capital allocation, which will include early redemptions of our 2027 notes and up to $100 million of open market repurchases of some of our public debt. Separately, we are announcing a $50 million share repurchase program, primarily aimed at offsetting the dilution coming from the anticipated vesting of management equity awards in 2027. Before I hand it over to Tom, let me close with our full year guidance, which you will find on Page 22. Not surprisingly, the strength of our results in Q3 is allowing us to raise our 2026 full year guidance across all metrics for the second quarter in a row. More specifically, we are increasing the midpoint of our full year guidance by $150 million for revenue, approximately $190 million for adjusted EBITDA and $200 million for adjusted cash flow from operations. The new full year guidance stands now as follows: Revenue is expected to be between $5.525 billion and $5.625 billion. The midpoint of that range translates to an 8% increase year-over-year. Adjusted EBITDA is now expected to be between $3.225 billion and $3.275 billion. The midpoint of that range represents a 13% increase versus 2025. Finally, we now anticipate adjusted cash flow from operations to be between $1.6 billion and $1.675 billion. The midpoint of that range translates to a 29% increase year-over-year. Even with this new guidance, we will face headwinds in Q4 as performance is expected to be impacted by 2 primary drivers. First and foremost, as we have communicated consistently, we will need to adjust the gross to net accrual associated with our channel inventory in anticipation of the new Xifaxan price to Medicare taking effect on the 1st of January 2027. This element alone represents 800 basis points of revenue growth reduction and 1,400 basis points of adjusted EBITDA growth reductions for the quarter. Second, we have assumed in our revised guidance some normalization of the Xifaxan channel inventory. That driver could represent at least another 300 basis points of growth reduction in Q4 and 500 basis points of adjusted EBITDA for the quarter. In summary, Q3 was another outstanding quarter of performance across all segments, following an equally impressive first half. We are raising our full year guidance for the second time this year and look forward to closing out the year operationally on a strong note. I will now hand it back to Tom.

Thank you, JJ. As JJ. outlined, we delivered strong results through the first 9 months of 2026, with revenue and adjusted EBITDA increasing by 14% and 26%, respectively. Looking ahead, our business priorities remain clear: first, drive peak performance across our portfolio; second, enhance the value of our portfolio through consistent organic growth and operational excellence initiatives; third, build a sustainable pipeline of future growth opportunities organically and inorganically through business development; and fourth, maximize the value of Bausch + Lomb for shareholders. These priorities provide a clear framework for how we intend to create value, maximize the performance of the assets we have today, strengthen those businesses through disciplined execution and use our capabilities to create new avenues for growth. That opportunity extends across our portfolio. Beyond Xifaxan, we have established businesses with many of the capabilities to support continued growth. Let me highlight several examples. EMEA is approaching 4 consecutive years of quarterly organic revenue growth. It is a branded generics business serving hospital and retail channels with no single product representing more than 8% of revenue. Our established commercial infrastructure, particularly in Poland, is well positioned to support additional assets, including those sourced through business development. In Latin America, our business consists predominantly of a branded generics with no meaningful loss of exclusivity exposure. Mexico remains our largest market with reach across 10 additional Central American countries. We see additional potential within the cardiometabolic therapies, while Bedoyectaremains a leading and highly trusted brand in the region. In Canada, our promoted portfolio continues to grow at double-digit rate, supported by established commercial capabilities. This infrastructure provides a scalable foundation for future pipeline opportunities across the country. In the United States, our dermatology franchise is expected to strengthen as a result of optimizing our commercial deployment. Finally, Solta gives us a differentiated global medical aesthetics platform with premium brands, a broad global portfolio and recurring revenue from consumables across its installed base. Each of these businesses is different, but they share a common foundation, established platforms, commercial capabilities and local expertise that can support organic growth as well as additional assets over time. Together, these businesses demonstrate the breadth of our portfolio, the value of our commercial infrastructure and the opportunities available to us through operational excellence. They also provide capabilities we can build upon as we invest in the future. A key part of that investment is building our pipeline. We are pursuing this in 2 ways: advancing innovation internally and selectively adding opportunities through business development. Within R&D, our Phase III program for larsucosterol in alcohol-associated hepatitis continues to progress well and remain on track toward our goal of approval in 2029, subject to the successful completion of clinical development and regulatory review. At the same time, we continue to look externally for opportunities to strengthen our pipeline. Business development remains a high priority, and we are actively evaluating opportunities where our existing expertise and commercial capabilities can add value. particularly across hepatology, gastroenterology, dermatology and neuroscience. Our approach remains disciplined and strategic. We are focused on opportunities that complement our existing businesses, leverage capabilities and have the potential to contribute to sustainable growth over time while remaining thoughtful about how these investments fit with our capital structure. In closing, 2026 is shaping up to be another strong year for Bausch Health. Our third quarter results build on the progress achieved during the first half. Based on that performance, we are again raising our full year guidance for revenue, adjusted EBITDA and adjusted cash flow from operations. Our priorities are well defined. We remain focused on operational excellence across our businesses, making targeted investments in our portfolio and pursuing opportunities that can create sustainable long-term value. Following the strong performance of the past 9 months, I want to take this opportunity to recognize and thank our colleagues around the world. Their continued dedication, accountability and commitment has made a difference in our relentless drive to create better health outcomes for patients. We are entering the fourth quarter with solid momentum and confidence in the path ahead. 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 is from Umer Raffat with Evercore ISI.

A couple of points, if I may. Perhaps first, as I think about sort of the overall strategy going forward now, it seems increasingly that perhaps there may be possibly the 2 companies coming together, perhaps all under one roof, which technically is already the case, but maybe perhaps more formally, could you speak to that, Tom, and sort of the general direction you see going forward? I just think that would be very, very helpful. And then also, JJ, could you clarify, I know you mentioned some points around Xifaxan's impact from IRA on top line. You mentioned it in basis points growth. Could you just say it in dollars, what's the dollar impact on revenue and the dollar impact on margin next year? And then finally, is there any -- as you think about the powering for the Phase III trial you structured in alcohol-associated hepatitis, is there any possibility of an interim analysis that could come early, which may not necessarily be in the Street expectations?

Umer, thanks for the question. I'll take the first part, then JJ can take the second part, and then Jonathan can take the third part of your question. When we look at overall, from a BAC perspective, so nothing has changed in the past all options. What I would say is I believe and we believe that talented team -- so the way I see it.

Hi, Umer, so let me break down the impact of the new price of CMS into 2 components. The first component is the gross to net accrual I was referring to in my prepared remarks that is anticipation of the price reduction happening in 2027. That amount is in excess of $100 million, which provided some growth rate impact that I think you can back into. The second part of your question is really the impact of that reduction following the IRA rebate. We haven't provided any specific details. Suffice to say that this information is public. So when you look at the impact of that CMS rebate, you have to factor in 2 things. Number one, kind of the price increase, which is the starting point. And then the second part is the rebate down to a fixed price that was negotiated in September of 2024. What I think you can infer from the implicit guidance we provided for 2027, which is about $2.7 billion is that the net impact of all the puts and takes is around $400 million to $500 million year-over-year, which is a good order of magnitude to consider when looking at the CMS impact.

And I'll take the third question about looking at the study -- at the Phase III study to do an interim analysis. I think it's a good question. There's a few situations where we may want to do it. One is if we're looking for futility, and we think that's not the case here. We feel pretty confident about the data from Phase II, and we think we've powered the study appropriately. The second, if you want to stop, I think that's what you're referring to, stop early and submit early. We think that's not really a possibility. We're only doing one study in this indication. It's a fairly short one. It's only a 6-month treatment period. So we think we're on track to deliver complete the enrollment data and submit an approval with -- assuming results will be replicated in Phase II in 2029. We feel pretty confident about it and don't see really a need to do any interim analysis.