Executive Summary / Key Takeaways

• Strategic Transformation Underway: Bausch + Lomb (BLCO) is executing a comprehensive roadmap focused on selling excellence, operational efficiency, disruptive innovation, and a newly introduced "financial excellence" pillar, aiming to drive sustained profitable growth and margin expansion.
• Robust Growth Across Segments: The company delivered strong Q3 2025 results with 6% constant currency revenue growth, fueled by its diversified portfolio, particularly in dry eye treatments (Miebo, Xiidra) and Daily SiHy contact lenses, which continue to outpace market averages.
• Innovation as a Core Driver: BLCO boasts a deep R&D pipeline, including a first-of-its-kind biomimetic contact lens, dual-action dry eye therapeutics, and neuroprotective glaucoma treatments, designed to disrupt categories and enhance the standard of eye care.
• Operational Resilience and Financial Discipline: Despite challenges like the enVista IOL recall and tariff uncertainties, BLCO demonstrated swift operational recovery and is committed to delevering, targeting investment-grade status, and optimizing cash flow, with positive free cash flow expected in 2025.
• Competitive Positioning: BLCO leverages its strong brand heritage, global footprint, and specialized product portfolio to compete effectively against larger, more diversified rivals, focusing on differentiated technology and customer loyalty in key growth areas.

A Legacy Reimagined: Bausch + Lomb's Strategic Resurgence

Bausch + Lomb Corporation, a venerable name in eye health since 1853, is undergoing a profound transformation, shedding its past as a subsidiary of Bausch Health Companies Inc. (BHC) to re-establish itself as an independent, innovation-driven leader. Following its initial public offering (IPO) in May 2022, the company embarked on a strategic roadmap centered on selling excellence, operational efficiency, and disruptive innovation. This foundational work, which included stabilizing supply chains and enhancing manufacturing quality, has paved the way for a renewed focus on growth and profitability. The recent introduction of a "financial excellence" pillar underscores management's commitment to disciplined execution and optimized resource allocation, aiming to deliver sustained profitable growth and meaningful margin expansion.

The global eye health market presents a fertile ground for Bausch + Lomb's ambitions. The contact lens market, for instance, is expanding at a mid-single-digit rate, while the dry eye treatment segment is experiencing robust growth exceeding 10% annually. An aging global population further fuels demand for surgical interventions like cataract procedures. Within this dynamic landscape, Bausch + Lomb's strategy is to capture market share by consistently introducing innovative products across its diversified portfolio and leveraging its extensive global footprint.

Technological Edge: Fueling Future Growth and Competitive Moats

Bausch + Lomb's strategic narrative is deeply intertwined with its commitment to technological differentiation and innovation, which forms a critical competitive moat. The company's R&D pipeline, comprising over 60 projects, is designed not merely for incremental improvements but for category disruption.

In Vision Care, a standout is the development of a biomimetic contact lens. This novel material design for daily disposable contact lenses aims to optimize oxygen permeability, mimicking the natural eye environment. A key benefit is its design for existing manufacturing infrastructure, which significantly minimizes future capital expenditures typically associated with new material development, positioning it as a high-margin product from inception. The company is also advancing a myopia control contact lens with a multi-year study underway, expecting a year-one interim report in 2026. The recent launch of Arise, a cloud-based lens-fitting system, streamlines OrthoK lens design, establishing a foundation in the fast-growing myopia control area. Furthermore, the Lumify Preservative Free eye drop, approved in April 2024 and launched in Q1 2025, offers the same fast-acting redness relief to those with sensitive eyes, expanding the reach of a wildly popular brand. A next-generation eye vitamin formulation, AREDS3, is anticipated for launch in 2026, aiming to expand the addressable market for age-related macular degeneration.

The Pharmaceuticals segment is poised for significant advancements. A dual-action lifitegrast is entering Phase 2 clinical studies, aiming to be the first therapeutic to address both evaporative and inflammatory dry eye disease, potentially changing the treatment paradigm. The company is also developing a first-in-class ocular surface pain medication, with a Phase 1 clinical study underway. In glaucoma, a neuroprotective glaucoma product has begun Phase 2 clinical studies. This therapy aims to lower intraocular pressure and improve visual function, building on previous clinical data that demonstrated positive results on low luminance visual acuity and microperimetry, addressing a critical unmet need where current treatments primarily focus on IOP lowering.

Within the Surgical segment, the ELIOS procedure, acquired in December 2024, represents a first clinically validated, minimally invasive glaucoma surgery using an excimer laser. While its U.S. submission is being planned, strong clinical outcomes in Europe are encouraging, with U.S. approval expected in early H2 2026. The enVista Beyond extended depth of focus (EDOF) intraocular lens (IOL) is anticipated for a U.S. launch in early 2027, further expanding the premium IOL portfolio. The LuxLife Trifocal IOL, with non-Toric and Toric options, is also in the process of a European launch. These innovations, coupled with upgrades to phaco machines like seeNOVA (expected end of 2026), aim to solidify Bausch + Lomb's position in high-margin surgical markets.

Beyond product-specific innovations, Bausch + Lomb is integrating artificial intelligence and machine learning across its operations. This includes leveraging AI for new drug candidate identification, enhancing surgical planning with Eyetelligence software, driving manufacturing yield gains at contact lens sites through a partnership with Arena AI, and optimizing sales engagement with Glimpse, a proprietary digital sales platform. These technological integrations are designed to improve efficiency, accelerate development, and enhance commercial effectiveness, contributing directly to the company's competitive advantage and financial performance.

Financial Performance and Operational Resilience

Bausch + Lomb's recent financial performance reflects its strategic execution and operational resilience, even in the face of unexpected challenges. For the three months ended September 30, 2025, the company reported revenues of $1.281 billion, a 7% increase year-over-year, with constant currency revenue growth of 6%. This growth was broad-based, driven by increased volumes from its Pharmaceuticals and Vision Care segments, favorable foreign currency impacts, and incremental sales from acquisitions. For the nine months ended September 30, 2025, revenues reached $3.696 billion, up 5% year-over-year.

Profitability metrics show a mixed picture, influenced by strategic investments and one-time events. The adjusted gross margin for Q3 2025 was 61.7%, a 130 basis point decrease year-over-year, primarily due to product mix and the one-time impact of the enVista IOL recall. However, Q3 adjusted EBITDA margin, excluding acquired in-process R&D, saw a significant sequential increase of 400 basis points to 19%. This improvement signals the early benefits of the "financial excellence" pillar, which focuses on disciplined execution and better resource allocation. Research and Development (R&D) expenses increased by 13% in Q3 2025 and 11% for the nine months, reflecting the company's prioritization of its robust pipeline.

Operational highlights include the swift recovery from the voluntary recall of certain enVista IOL products in March 2025. By Q3 2025, total enVista sales had recovered to 82% of pre-recall Q1 levels, with the Envy model reaching 91% and surpassing its Q1 average monthly sales in September. This rapid rebound underscores the strength of Bausch + Lomb's operational teams and its deep relationships with ophthalmic surgeons.

Liquidity and capital management remain a high priority. In June 2025, Bausch + Lomb successfully refinanced $3.1 billion of its debt, extending the majority of maturities to 2031 and optimizing its capital structure. As of September 30, 2025, the company had $762 million available under its June 2030 Revolving Credit Facility and was in compliance with all financial covenants. Adjusted cash flow from operations for Q3 2025 was $161 million, representing a strong 66% conversion to EBITDA. The company expects to achieve positive free cash flow in 2025, a significant improvement from negative free cash flow in 2024, and maintains a long-term target of achieving investment-grade credit ratings.

Competitive Landscape and Strategic Positioning

Bausch + Lomb operates in a highly competitive eye health market, vying with industry giants like Alcon (ALC), Johnson & Johnson (JNJ) through its Vision Care segment, EssilorLuxottica (ESLOY), and CooperCompanies (COO). Bausch + Lomb's competitive strategy centers on leveraging its specialized portfolio, strong brand heritage, and global distribution network to carve out leadership positions.

In the dry eye market, Bausch + Lomb holds a unique advantage with its comprehensive portfolio. Miebo, the only approved treatment for evaporative dry eye, and Xiidra, a best-in-class anti-inflammatory drug, address the two most prevalent etiologies of the disease. This "beachhead" makes it challenging for competitors. For instance, while Alcon's new entrant, TRYPTYR, stimulates tear production, it has shown slower symptom improvement in clinical data compared to Miebo, and its tolerability profile, with reported burning and stinging, may pose challenges for patient compliance. Bausch + Lomb's ability to offer a range of prescription and over-the-counter (OTC) options, combined with extensive direct-to-consumer campaigns, positions it as a one-stop shop for dry eye sufferers.

The contact lens market sees Bausch + Lomb outpacing industry growth, which is currently in the lower end of the mid-single digits. This is attributed to new product innovations like the Daily SiHy franchise (up 24% in Q3 2025) and strong execution that maintains growth in older products like ULTRA monthly contacts (up 4% in Q3 2025), avoiding the "leaky bucket syndrome." While competitors like CooperCompanies specialize in contact lens technology, Bausch + Lomb's diversified approach and investments in direct-to-consumer channels, such as Opal in the U.S. and its integrated e-commerce in China, enhance customer loyalty and distribution efficiency.

In the surgical segment, Bausch + Lomb is aggressively pushing into the high-margin premium intraocular lens (IOL) market. The rapid recovery of the enVista IOL platform post-recall demonstrates strong surgeon trust and product quality. While Alcon is known for its advanced surgical technologies, Bausch + Lomb's expanding premium IOL portfolio, including LuxLife and the upcoming enVista Beyond, along with innovations in minimally invasive glaucoma surgery (ELIOS), aims to capture significant market share. The company's focus on predictable, strong patient outcomes for premium IOLs is a key differentiator.

Bausch + Lomb's U.S. Generics business, while experiencing recent underperformance, is viewed opportunistically. Its "secret weapon" is manufacturing these generics in its U.S. facility in Tampa, providing a high-quality, reliable supply that could be advantageous amidst potential tariffs on imported pharmaceuticals and market disruptions. This contrasts with competitors who may rely more heavily on international manufacturing.

Overall, Bausch + Lomb's competitive advantages lie in its specialized expertise across eye health, its robust and strategically designed R&D pipeline, and its commitment to operational excellence and customer trust. While larger, more diversified competitors like JNJ and Alcon benefit from greater scale and R&D budgets, Bausch + Lomb's focused innovation and agile execution allow it to compete effectively, particularly in niche and high-growth segments.

Outlook and Risks

Bausch + Lomb's outlook for 2025 reflects continued momentum and strategic investments. The company maintained its full-year revenue guidance at $5.05 billion to $5.15 billion, representing constant currency growth of approximately 5% to 7%. Adjusted EBITDA guidance was raised to a range of $870 million to $910 million, driven by strong business performance. Key assumptions include an adjusted gross margin of approximately 61.5%, R&D investments at about 7.5% of revenue, and interest expense around $375 million. The adjusted tax rate is projected at 15%, with CapEx expected to be approximately $295 million. Management anticipates Q4 2025 to be the strongest quarter, driven by natural seasonality, the continued ramp-up of enVista sales, and improving performance in U.S. Generics.

Despite this positive outlook, several risks warrant investor attention. The enVista IOL recall had a one-time impact on 2025 financials, estimated at $55 million to revenue and $65 million to adjusted EBITDA. While the recovery has been swift, the full re-establishment of market share and consignment capabilities is an ongoing process. Tariff policies remain fluid, with potential for increased manufacturing and distribution costs, particularly from reciprocal tariffs with China. While Bausch + Lomb's updated guidance assumes it can offset these impacts in 2025 through strategic inventory management, leveraging its global manufacturing footprint, and optimizing pricing, the dynamic nature of trade policies presents an ongoing uncertainty.

Macroeconomic conditions, including heightened inflation and interest rates, could impact consumer spending on non-essential eye care products, though Bausch + Lomb's portfolio largely consists of essential healthcare items. Generic competition and loss of exclusivity (LOE) for certain products, such as PreserVision (method of use patent until 2026), pose a risk of revenue erosion, though the impact on OTC products is generally less severe than for branded pharmaceuticals. Finally, the separation from Bausch Health Companies Inc., which still holds 88% of Bausch + Lomb's shares, remains subject to achieving targeted debt leverage ratios and other approvals, creating potential for market uncertainty.

Conclusion

Bausch + Lomb is executing a well-defined strategy to solidify its position as a leading global eye health company. The company's commitment to innovation, exemplified by its robust pipeline of disruptive technologies in contact lenses, pharmaceuticals, and surgical devices, is a powerful engine for long-term growth. This technological leadership, coupled with a renewed focus on operational and financial excellence, is translating into strong revenue growth and improving profitability.

While challenges such as product recalls and evolving trade policies require vigilant management, Bausch + Lomb's demonstrated resilience and strategic agility position it favorably. The company's ability to drive market expansion in dry eye, outpace competitors in contact lenses, and aggressively enter the premium surgical market, all while optimizing its capital structure and aiming for investment-grade status, paints a compelling picture for investors seeking exposure to a transforming eye health leader. The ongoing execution of its Vision '27 roadmap, particularly the emphasis on financial discipline and the commercialization of its innovative pipeline, will be critical determinants of its continued success.