Bausch Health Companies Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited U.S. GAAP results; amounts are U.S. dollars unless noted. Bausch Health operates specialty pharmaceutical and medical-device businesses across five segments and owned approximately 89% of Bausch + Lomb (B+L) at quarter-end.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $1.944 billion | $1.918 billion |
| Operating income | $175 million | $285 million |
| Net loss attributable to Bausch Health | $201 million | $69 million |
| Loss per share, basic and diluted | $0.55 | $0.19 |
| Cash from operating activities | $154 million | Used $63 million |
| Cash used in investing activities | $78 million | $56 million |
| Cash used in financing activities | $142 million | Cash provided $468 million |
- Revenue increased 1%; management attributed the increase mainly to volume growth, partly offset by foreign-exchange headwinds, lower realized pricing, and divestitures/discontinuations. Organic revenue growth was 4% (non-GAAP).
- Operating income fell $110 million. SG&A increased $103 million, R&D increased $16 million, and other expense rose $21 million; lower amortization partly offset these pressures. Operating margin was approximately 9.0%, versus 14.9% a year earlier.
- The $73 million income-tax provision, compared with a $16 million benefit in Q1 2022, included $86 million of net discrete tax expense. This included estimated tax-audit settlements, changes in uncertain tax positions, and a valuation allowance related to B+L’s Canadian parent.
- Operating cash flow improved year over year, partly because Q1 2022 included substantial Glumetza antitrust settlement payments. Q1 2023 working capital used $61 million, including a $128 million inventory increase, partly offset by $108 million collected from trade receivables.
Segments and balance sheet
- Segment revenue: B+L $931 million (+5%); Salix $496 million (+7%); International $247 million (+1%); Solta Medical $73 million (+1%); Diversified $197 million (-21%). Diversified segment profit declined 32% to $107 million; Salix segment profit fell 2% to $314 million. B+L segment profit rose 2% to $211 million.
- At March 31, cash and cash equivalents were $518 million; restricted cash was $13 million. Current assets were $4.237 billion and current liabilities $3.923 billion.
- Long-term debt carrying value was $20.653 billion; contractual principal was $19.097 billion. The weighted-average stated interest rate was 7.87%. Reported interest expense is not representative of contractual borrowing costs because of the accounting treatment for the 2022 debt exchange.
- The company was in compliance with its financial maintenance covenant and said it expected to meet covenant and debt-service obligations for at least the next 12 months. Management said available liquidity sources were expected to cover needs over that period. B+L held $358 million of cash, cash equivalents, and restricted cash; those funds are generally not available to other Bausch Health entities absent a B+L dividend.
Developments, outlook, and key risks
- B+L separation: Management continued to view separation as strategically beneficial, but completion remains conditional on targeted leverage ratios and required approvals. Timing and completion are uncertain; the Norwich litigation may affect the process.
- Debt and cash needs: Management reported expected April–December 2023 debt amortization and interest payments of approximately $1.189 billion, capital expenditures of approximately $230 million, and contingent-consideration payments of approximately $80 million. These include a potential $45 million NOV03 milestone payment upon FDA approval. These are disclosed expectations, not full-year earnings guidance.
- Xifaxan litigation and impairment exposure: Xifaxan represented about 80% of Salix revenue. The company appealed a court decision invalidating certain patents for the IBS-D use; it reported limited Salix goodwill headroom and warned that adverse developments could lead to material impairment. On April 28, 2023, Norwich delivered a new Paragraph IV notice challenging a subsequently issued Xifaxan patent. The company said it intended to defend its intellectual property.
- Other competition: The FDA approved a competitor’s generic Uceris Foam ANDA on April 12, 2023. The company reported $45 million of related intangible assets and said future impairment was possible. It also cited expected potential generic competition for several products during 2023–2027.
- Tax and legal contingencies: Accrued current legal loss contingencies were $326 million. A tentative IRS settlement concerning a 2017 capital loss remained subject to review and approval; the filing described a worst-case additional tax exposure of up to $2.1 billion if the deduction were disallowed. A Luxembourg tax assessment of €272 million was being contested, with no reserve recorded. Outcomes and payment timing for many matters could not be reliably estimated.
- Other items: Q1 included $13 million of asset impairments and $31 million of acquisition-related contingent-consideration expense. B+L acquired AcuFocus for an upfront $35 million, with $31 million paid in January. The company reported no material Q1 impact from the Russia-Ukraine war and said its Laval facility received a compliant Health Canada rating following a March 2023 inspection.
Investor verification priorities
- Track the Xifaxan patent appeal, Norwich’s ANDA-related actions, and the resulting effects on Salix forecasts, goodwill, and the planned B+L separation.
- Assess debt service, refinancing needs, covenant headroom, credit ratings, and the availability of cash held within B+L entities.
- Review the final outcome and cash/tax consequences of the IRS tentative settlement, the €272 million Luxembourg assessment, and other tax uncertainties.
- Monitor generic-entry effects, particularly Uceris Foam and products identified as facing potential loss of exclusivity, and test whether Diversified’s decline persists.
- Compare reported sales growth with sales deductions: provisions were 41.7% of gross product sales, up from 40.0% a year earlier.