Bausch Health Companies Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023. Amounts are in U.S. dollars and millions unless otherwise noted. The company is a diversified specialty pharmaceutical and medical device business, including its approximately 88%-owned Bausch + Lomb eye-health business.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $2,153 | $1,944 | +$209; 11% |
| Operating income | $281 | $175 | +$106 |
| Operating margin | 13.1% | 9.0% | +4.1 percentage points |
| Interest expense | $355 | $307 | +$48 |
| Net loss attributable to Bausch Health | $(64) | $(201) | $137 improvement |
| Basic and diluted loss per share | $(0.17) | $(0.55) | $0.38 improvement |
| Cash provided by operating activities | $211 | $154 | +$57 |
| Capital expenditures | $82 | $47 | +$35 |
Revenue growth reflected higher volumes ($91), acquired sales ($88, primarily XIIDRA), and improved net pricing ($56), partly offset by divestitures and discontinuations ($18) and foreign exchange ($8). Organic revenue growth, a non-GAAP measure, was 8%. Operating income benefited from higher contribution and lower asset impairments and other expense; higher SG&A and R&D partly offset those gains. The reported net loss also improved with a lower income-tax provision than in Q1 2023.
- Segments: Bausch + Lomb revenue rose 18% to $1,099 and segment profit increased 15% to $242. Solta Medical revenue rose 21% to $88; International rose 7% to $265; Diversified rose 3% to $202; Salix was approximately flat at $499. Segment profit is a company-defined measure and excludes certain costs.
- Margins and sales deductions: Cost of goods sold was 29.5% of product sales, versus 29.8%. Gross-to-net sales provisions rose to 44.4% of gross product sales from 41.7%, chiefly reflecting higher rebates; net product sales were 55.6% of gross sales.
- Cash and liquidity: Cash and cash equivalents were $733 at quarter-end, versus $947 at year-end 2023; restricted cash was $22. Cash, cash equivalents and restricted cash totaled $755. Operating cash flow less capital expenditures was approximately $129, versus $107 in Q1 2023. The company states its liquidity sources are expected to meet needs for the next 12 months.
- Debt and equity: Debt carrying value, net of premiums, discounts and issuance costs, was $22,074; contractual principal was $20,717. The weighted-average stated interest rate was 8.02%. Total deficit was $174, including a $1,115 deficit attributable to Bausch Health shareholders. Cash held by Bausch + Lomb entities included $325 and is generally not available to fund other Bausch Health entities absent a dividend.
Material changes and management commentary
- January open-market repurchases retired notes with approximately $250 of par value for about $238, producing an $11 gain on debt extinguishment. The company repaid $390 of long-term debt and issued $75 of debt during the quarter.
- Interest expense increased 16%, mainly because of debt incurred by Bausch + Lomb to finance the XIIDRA acquisition. The company reported a $77 consolidated net loss and negative operating cash flow was avoided, but leverage and debt-service demands remain significant.
- The Bausch + Lomb separation remains under evaluation. Completion depends on targeted leverage ratios and shareholder and other approvals; management gave no completion date or assurance. Separation-related costs are expected to continue, and future amounts could be material.
- Management reported compliance with the financial maintenance covenant at March 31 and expects compliance and debt-service capacity for at least the next 12 months. The company reported no numerical revenue or earnings guidance in the supplied filing text. For April–December 2024, it anticipates approximately $1,423 of mandatory debt amortization and interest payments, $240 of capital expenditures and $40 of contingent consideration payments.
- Management cited product launches and pipeline investment as growth drivers, while noting exposure to pricing and reimbursement changes, competition and loss of exclusivity, foreign exchange, interest rates, inflation, and geopolitical disruption. U.S. and Puerto Rico revenue was $1,254; three major wholesalers accounted for 48% of revenue combined.
Risks, contingencies and unusual items
- Xifaxan: The Federal Circuit’s April 11, 2024 decision affirmed the ruling barring FDA approval of Norwich’s generic application until October 2029. Amneal litigation is also underway. The filing says future developments could reduce estimated cash flows or shorten useful lives of Xifaxan intangibles; either could materially affect results. Xifaxan represented approximately 80% of Salix segment revenue.
- Tax matters: The company disclosed a worst-case estimate of up to $2.1 billion in additional U.S. taxes, excluding penalties and interest, if its position regarding a 2017 capital loss is unsuccessful; a tentative settlement remained subject to review and approval. A Luxembourg tax assessment of €272 million is being contested without a recorded reserve. Unrecognized tax benefits totaled $880.
- Legal matters: Accrued current loss contingencies were $347. Major proceedings include U.S. securities opt-out cases, generic-pricing antitrust litigation, and other product, patent and commercial matters. The first securities opt-out trial was scheduled for September 2024; the Glumetza state-court trial was scheduled for December 2024. Outcomes and potential additional losses are uncertain.
- Impairment and restructuring: Q1 asset impairments were $1, versus $13 a year earlier. No interim goodwill impairment indicator was identified, but management continues to monitor Dermatology, Neurology and Generics; future impairment charges could be material. Additional cost-saving actions and separation charges may also be material.
- Debt and liquidity exposure: Contractual principal maturities include $2,675 in 2025, $6,773 in 2027 and $7,194 in 2028. A 100-basis-point increase in rates would have an estimated annualized pretax effect of about $59 on variable-rate debt. Bausch Health reported ratings in speculative-grade categories; ratings and outlooks varied by agency and issuer.
Investor verification priorities
- Reconcile contractual debt principal, debt carrying value and the company’s reported interest burden; review maturity, refinancing and covenant headroom.
- Assess accessible liquidity separately from Bausch + Lomb cash and facilities, and compare management’s 12-month liquidity assertion with scheduled debt service and other cash requirements.
- Track organic revenue, gross-to-net deductions and segment performance, particularly Xifaxan concentration and Bausch + Lomb growth excluding acquired sales.
- Monitor the Xifaxan patent and generic proceedings, intangible-asset assumptions, and any effect on the proposed Bausch + Lomb separation.
- Follow the IRS and Luxembourg tax matters, securities and antitrust cases, and changes in the $347 accrued legal-contingency balance.
- Confirm the timing, approvals, leverage conditions, costs and post-separation capitalization required for the Bausch + Lomb separation; verify any subsequent guidance or material developments.