Bausch Health Companies Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results are in U.S. dollars. Bausch Health develops and sells pharmaceuticals, OTC products and medical devices across eye health, gastroenterology, dermatology and other areas, operating through five reportable segments: Bausch + Lomb, Salix, International, Solta Medical and Diversified Products.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1.918 billion | $2.027 billion | Down $109 million, or 5% |
| Operating income (loss) | $285 million | $(221) million | Improved $506 million |
| Net loss attributable to Bausch Health | $(69) million | $(610) million | Improved $541 million |
| Basic and diluted loss per share | $(0.19) | $(1.71) | Improved $1.52 |
| Cash used in operating activities | $(63) million | $443 million provided | Down $506 million |
| Capital expenditures | $46 million | $66 million | Down $20 million |
| Long-term debt, net | $23.168 billion | $22.654 billion at Dec. 31, 2021 | Up $514 million |
Revenue declined mainly due to the Amoun divestiture, lower volumes in Diversified Products and Salix, and unfavorable foreign exchange; higher realized pricing partially offset these factors. Organic revenue was essentially flat year over year, a non-GAAP measure reported by the company.
Operating results benefited substantially from the absence of the prior-year $469 million goodwill impairment and lower asset impairments and amortization. Q1 2022 still included $310 million of intangible amortization, $8 million of asset impairments and $362 million of interest expense. Cost of goods sold was 28.6% of product sales, versus 28.2% a year earlier. Total segment profit was $812 million, or 42% of revenue, compared with $916 million, or 45%.
Segment performance
| Segment | Revenue, Q1 2022 | Year-over-year revenue | Segment profit |
|---|---|---|---|
| Bausch + Lomb | $889 million | Up 1% | $206 million; margin 23%, down from 27% |
| Salix | $464 million | Down 2% | $322 million; margin 69%, unchanged |
| International | $244 million | Down 20% | $91 million; margin 37%, up from 36% |
| Solta Medical | $72 million | Flat | $35 million; margin 49%, down from 57% |
| Diversified Products | $249 million | Down 16% | $158 million; margin 63%, down from 68% |
Liquidity, debt and financial position
- Cash and cash equivalents were $1.249 billion at quarter-end. Restricted cash and settlement deposits were another $1.211 billion, including funds held in escrow for the U.S. securities litigation settlement and not freely available for general liquidity.
- Current assets were $5.836 billion and current liabilities were $4.774 billion. Total liabilities of $29.231 billion exceeded total assets of $29.090 billion; total shareholders’ deficit was $141 million.
- Operating cash flow was negative $63 million, principally reflecting legal settlement payments, including payments related to Glumetza antitrust litigation and a RICO class action. Financing provided $468 million net, including $986 million from issuance of secured notes, partly offset by $485 million of debt repayments.
- Debt’s weighted-average stated interest rate was 5.97% at March 31. The company reported $1.171 billion of remaining availability under its then-existing revolving facility and said it was in covenant compliance and expected to meet debt service and covenant requirements for at least the next 12 months.
- Management estimated approximately $1.15 billion of interest payments and $75 million of mandatory amortization for April–December 2022, based on the debt portfolio as of May 10. It also expected about $230 million of capital expenditures during that period.
Material changes, outlook and unusual items
- Bausch + Lomb IPO and refinancing, subsequent to quarter-end: The IPO became effective May 5, 2022; trading began May 6. On May 10, the company sold 35 million shares at $18 each and received approximately $560 million net. It retained approximately 90% ownership at closing. The company completed debt refinancing and Bausch + Lomb entered into new credit facilities, including approximately $2.5 billion of term loans and a $500 million revolver. The parent also established a $2.5 billion 2027 term loan and a $975 million revolving facility, of which $350 million was drawn as of May 10, and discharged its April 2025 unsecured notes. These events were not reflected in March 31 balances.
- The company expects to separate Bausch + Lomb after customary IPO lockups expire and targeted leverage ratios are achieved, subject to approvals and other conditions. A Solta IPO is planned when market conditions are favorable; no definitive timetable was provided for either transaction, and completion is not assured.
- Management said it believes available liquidity is sufficient for at least 12 months. No numerical full-year 2022 revenue or earnings guidance is provided in the supplied filing text.
- Goodwill testing found the Ortho Dermatologics reporting unit’s fair value less than 2% above carrying value, using a 1% long-term growth rate and 9% discount rate. Management warned that deterioration in assumptions or execution could lead to a potentially material future impairment.
- Legal accruals for probable and estimable matters were $1.530 billion. The $1.210 billion U.S. securities settlement remained in escrow pending resolution of an appeal; the filing also describes continuing U.S. and Canadian investor opt-out litigation and a challenge alleging that a future asset transfer to Bausch + Lomb could be voidable.
- The IRS proposed disallowing a 2017 capital loss. The company intends to contest the matter and recorded no provision; it estimated worst-case additional tax, excluding penalties and interest, of up to $2.1 billion if unsuccessful.
- Management cited China COVID-related restrictions, inflation and manufacturing cost pressures, foreign exchange, Russia-Ukraine-related supply, demand and collection risks, generic competition, pricing and reimbursement changes, and interest-rate exposure. A 100-basis-point increase in rates was estimated to add about $36 million to annual pretax expense on variable-rate debt.
Important facts for investors to verify
- How much of the reported cash is unrestricted and available after settlement escrow requirements and the post-quarter financing transactions.
- The resulting debt, interest burden, leverage, covenant headroom and debt allocation between Bausch Health and Bausch + Lomb after the May 2022 refinancing and any later separation.
- Whether Bausch + Lomb separation conditions and approvals are met, and whether or when the proposed Solta IPO proceeds.
- Developments in the U.S. securities settlement appeal, opt-out actions, separation-related challenge and other litigation; also monitor the timing and cash impact of accrued legal obligations.
- Resolution of the IRS capital-loss dispute, the narrowly positive Ortho Dermatologics goodwill headroom, and the performance of declining-revenue segments amid generic competition, China restrictions and inflation.