Bausch & Lomb Corp quarterly report, Q1 FY2022

Bausch + Lomb Corporation — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022; amounts are in U.S. dollars. Bausch + Lomb is a global eye-health company operating in Vision Care, Ophthalmic Pharmaceuticals and Surgical. The statements reflect the business being transferred from Bausch Health Companies Inc. (BHC) in preparation for separation; historical results were prepared on a standalone basis using BHC records and include allocated corporate costs.

Financial performance and liquidity

Metric	Q1 2022	Q1 2021
Revenue	$889 million	$881 million
Operating income	$54 million	$85 million
Net income	$23 million	$30 million
Net income attributable to Bausch + Lomb	$20 million; $0.06 per share	$27 million; $0.08 per share
Net cash from operating activities	$3 million	$188 million
Capital expenditures	$42 million	$45 million

Revenue increased 1%; reported growth included $47 million of aggregate volume growth, offset by $29 million of unfavorable foreign exchange, $7 million of lower realized pricing and $3 million from divestitures and discontinuations. Organic revenue growth was 5% (non-GAAP).
Operating margin was approximately 6.1%, versus 9.6% a year earlier. Cost of goods sold was 39.2% of product sales, up from 37.9%.
At March 31, cash and cash equivalents were $190 million; current assets were $1.719 billion and current liabilities $1.092 billion. Total liabilities were $3.691 billion and equity $7.216 billion.
The balance sheet included $2.220 billion of BHC Purchase Debt, issued in January. It bore 3.625% interest and was repaid in full on May 10, 2022. Operating cash flow fell sharply, primarily reflecting deferred tax asset movements, timing of intercompany settlements and ordinary-course payments, and weaker operating results.
Segment revenue and profit: Vision Care $560 million and $159 million; Ophthalmic Pharmaceuticals $155 million and $40 million; Surgical $174 million and $15 million. Segment profit margins were 28%, 26% and 9%, respectively.

Changes versus the prior comparable period

Operating income declined $31 million as SG&A rose $25 million, R&D rose $10 million, and cost of goods sold rose $15 million; lower intangible amortization partly offset these increases.
Pre-tax income decreased $48 million to $29 million, including $20 million of interest on the BHC Purchase Debt. Lower income-tax provision ($6 million versus $47 million) partly offset the decline in pre-tax income.
Vision Care revenue rose 1%, while segment profit fell 4%; Ophthalmic Pharmaceuticals revenue fell 5% and segment profit fell 29%; Surgical revenue rose 7% while segment profit fell 6%.
Sales deductions increased to 26.6% of gross product sales from 24.7%, primarily due to higher chargebacks. Chargebacks rose to $92 million from $69 million.

Outlook, transactions and key risks

The filing provides no formal revenue or earnings guidance. Management expected inflation-related manufacturing variances and standalone SG&A costs to remain higher; separation-related dis-synergies and costs could be material.
Management expected China COVID-19 restrictions to weigh on Q2 2022 activity, with China revenue expected to normalize in the second half, subject to uncertainty. China revenue was $82 million, down from $89 million. The company also cited possible further supply, demand and collection disruptions from the Russia-Ukraine conflict.
After quarter-end, Bausch + Lomb completed an IPO in which BHC sold shares; Bausch + Lomb received none of the IPO proceeds. Following the partial over-allotment sale, BHC retained approximately 88.7% ownership. The proposed separation remained conditional on lock-up expiry, targeted debt leverage, approvals and other conditions.
On May 10, 2022, the company entered into approximately $2.5 billion of five-year term loans and a $500 million revolving facility, undrawn as of June 8. The term loans bear floating-rate interest and are secured by substantially all company assets and certain subsidiary assets. The company also returned $229 million of capital to BHC using financing proceeds and cash on hand.
Management said liquidity sources were expected to cover needs for the next 12 months, but noted uncertainty. Expected April–December 2022 cash requirements included approximately $88 million of term-loan interest, $13 million of mandatory amortization, $183 million of capital expenditures, $10 million of contingent consideration and $9 million of benefit payments.
Key risks include generic competition and loss of exclusivity, pricing and sales deductions, foreign exchange and floating-rate debt exposure, inflation and supply constraints, COVID-19 effects, product and regulatory matters, and litigation. The filing reports $1 million of accrued current legal contingencies; outcomes and potential losses for other matters generally could not be estimated. Certain litigation and indemnification arrangements involve BHC and other affiliates.
Management identified immaterial prior-period accounting misstatements and recorded out-of-period corrections. It concluded disclosure controls were effective as of March 31, 2022 and reported no material changes in internal control over financial reporting during the quarter.

Important facts for investors to verify

Track the timing, terms and conditions of the proposed BHC separation, including BHC’s continued control and any related approvals or tax consequences.
Reconcile post-IPO debt, interest expense, required amortization and covenant restrictions; assess exposure to floating interest rates and credit-rating changes.
Monitor whether revenue growth converts to profit and cash flow, especially given Q1’s lower margins, weak operating cash flow and higher sales deductions.
Assess the duration and financial impact of China restrictions, foreign-exchange movements, inflation, supply disruption and Russia-Ukraine-related risks.
Review generic-entry and patent litigation developments, other legal contingencies, and the extent of indemnification or cost-sharing with BHC and third parties.