Bausch Health Companies Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results are presented in U.S. dollars. Bausch Health operates across Salix, International, Diversified Products, Solta Medical and Bausch + Lomb; it completed Bausch + Lomb’s IPO in May while retaining approximately 88.7% ownership at quarter-end.
Financial performance and liquidity
| Metric | Q2 2022 | Six months 2022 | Prior comparable period |
|---|---|---|---|
| Revenue | $1.967 billion | $3.885 billion | Q2: $2.100 billion; H1: $4.127 billion |
| Operating income (loss) | $161 million | $446 million | Q2: $(270) million; H1: $(491) million |
| Net loss attributable to Bausch Health | $(145) million | $(214) million | Q2: $(595) million; H1: $(1.205) billion |
| Loss per share | $(0.40) | $(0.59) | Q2: $(1.66); H1: $(3.37) |
| Operating cash flow | Not separately presented here | $60 million | H1 2021: $838 million |
- Q2 revenue fell 6% year over year; first-half revenue also declined 6%. H1 decreases reflected the Amoun divestiture, unfavorable currency effects and lower volumes, partly offset by higher realized pricing.
- Operating results improved substantially from the prior-year losses, but comparisons include significant unusual items: 2021 litigation expense and goodwill/asset impairments, and a 2022 $113 million gain on debt extinguishment. Q2 2022 also included an $83 million goodwill impairment.
- Cost of goods sold was 29.3% of product sales in Q2 and 28.9% in H1, implying product gross margins of approximately 70.7% and 71.1%, respectively. The filing cites inflation-related manufacturing costs as a headwind.
- Segment revenue was mixed: H1 Bausch + Lomb grew 1% to $1.830 billion; Salix declined 2% to $965 million; International declined 23% to $477 million; Diversified Products declined 14% to $484 million; and Solta declined 11% to $129 million. Segment profits fell across all five segments.
- At June 30, cash and cash equivalents were $659 million; restricted cash and settlement deposits were $1.220 billion. Current assets were $5.417 billion and current liabilities $4.997 billion. Much of the restricted balance—$1.210 billion—is associated with the U.S. securities litigation settlement and is not ordinary operating liquidity.
- Long-term debt, net of discounts and issuance costs, was $21.814 billion; contractual principal was $22.056 billion. The weighted-average stated interest rate was 6.34%. H1 operating cash flow was sharply lower, partly because of legal-settlement payments and separation-related costs. Capital expenditures were $98 million.
Material changes, outlook and risks
- Debt transactions: The company refinanced facilities into 2027-maturity arrangements, issued $1.0 billion of 2027 secured notes, and Bausch + Lomb obtained a $2.5 billion term loan facility plus a $500 million revolver. Bausch Health’s revolver had $425 million drawn at June 30; Bausch + Lomb’s revolver was undrawn. Bausch + Lomb cash and borrowing capacity generally are not available to the parent absent a dividend.
- Separation plans: Management remained committed to separating Bausch + Lomb, subject to lock-up expiry, targeted leverage, approvals and other conditions. The Solta IPO was suspended in June due to market conditions; Solta remains part of Bausch Health. No completion date or assurance of either transaction was provided.
- Xifaxan litigation: On July 28, 2022, after quarter-end, the court indicated it would find certain patents protecting Xifaxan use for hepatic encephalopathy valid and infringed, but patents concerning composition and IBS-D use invalid. The company said it would appeal. Xifaxan represented about 80% of Salix H1 revenue ($775 million); the decision could affect sales, intangible-asset values, goodwill and the Bausch + Lomb separation. Xifaxan-related intangible assets had a $2.963 billion carrying value.
- Credit and liquidity: Management expected to meet debt service needs and remain covenant-compliant for at least 12 months after issuance, but the company had substantial debt, floating-rate exposure and limited parent access to Bausch + Lomb resources. Rating agencies downgraded ratings in late July and early August following the Norwich decision. A 100-basis-point rate increase was estimated to add about $54 million to annual pre-tax interest expense.
- Legal and tax exposures: Accrued current loss contingencies were $1.536 billion. The U.S. securities settlement remains subject to an appeal, with $1.210 billion in escrow. The company also disclosed significant pending litigation and investigations. An IRS challenge to a 2017 capital loss could, in a worst-case scenario, result in up to $2.1 billion of additional income taxes, excluding penalties and interest; no provision was recorded.
- Other headwinds: China lockdowns reduced demand, particularly for consumer eye-care, contact lens and Solta products. The company cited inflation, foreign exchange, Russia-Ukraine disruption, generic competition, pricing and reimbursement pressure, and supply-chain risks. No specific consolidated revenue or earnings guidance for 2022 is stated in the provided filing text.
Most important facts for investors to verify
- Developments in the Norwich appeal and implications for Xifaxan revenue, patent protection, impairment risk and the planned Bausch + Lomb separation.
- How much of reported cash is unrestricted and accessible to the parent, and the timing and resolution of the $1.210 billion escrowed settlement.
- Debt maturities, interest costs, covenant headroom and the effect of subsequent credit-rating downgrades on refinancing and separation plans.
- Whether declining segment profits and operating cash flow stabilize, including the effects of currency, inflation, China conditions and generic competition.
- Progress, costs, approvals and conditions for the Bausch + Lomb separation; whether Solta separation plans resume.
- Changes in legal accruals, IRS tax exposure and other material contingencies.