Bausch Health Companies Inc. quarterly report, Q3 FY2023

Bausch Health Companies Inc. — Q3 2023 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results are in U.S. dollars; amounts below are in millions unless noted. Bausch Health is a diversified pharmaceutical and medical-device company and owned approximately 89% of Bausch + Lomb at quarter-end.

Key financial metrics

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Revenue	$2,238	$2,046	$6,349	$5,931
Operating income	$14	$244	$601	$690
Net income (loss) attributable to Bausch Health	$(378)	$399	$(553)	$185
Diluted EPS	$(1.03)	$1.10	$(1.52)	$0.51
Operating cash flow	Not separately presented for the quarter	$642	$(1,203)

Revenue grew 9% in Q3 and 7% for the nine-month period. Nine-month organic revenue growth, a non-GAAP measure, was 8%.
Operating margin was approximately 0.6% in Q3 versus 11.9% a year earlier, and 9.5% for nine months versus 11.6%. Goodwill impairment charges were $402 in Q3 2023 and $119 in Q3 2022; the 2023 charge comprised $151 for Dermatology and $251 for Neurology.
Q3 revenue gains reflected improved net pricing, higher volumes in Salix, Bausch + Lomb and Solta Medical, acquisition contributions and favorable currency. Nine-month growth also reflected higher volumes and pricing, partly offset by currency, divestitures and lower Diversified revenue.
Nine-month operating cash flow improved by $1,845 year over year, primarily because 2022 included substantial legal-settlement payments and 2023 included insurance recoveries. Working capital used $412 of cash, including increases in receivables ($176) and inventories ($222).
Cash used in investing was $1,997, including $1,887 for acquisitions and other investments; cash provided by financing was $1,554. Capital expenditures were $117 for the nine months.
At September 30, cash and cash equivalents were $760, restricted cash $20, current assets $5,048 and current liabilities $4,224. Total liabilities were $27,299, exceeding total assets of $27,064; total equity was a deficit of $235.
Long-term debt and other, net of premiums, discounts and issuance costs, was $22,430; contractual principal was $20,952. The weighted-average stated interest rate was 8.05%. Some contractual interest on the 2022 exchange-offer notes reduces recorded premiums rather than reported interest expense, so reported interest expense understates contractual interest cost.
Debt principal maturities include $2,794 in 2025, $6,648 in 2027 and $7,218 in 2028. Bausch Health reported covenant compliance and expects to meet debt service obligations and remain compliant for at least 12 months after filing; these are management expectations, not a guarantee.

Material changes and notable developments

Bausch + Lomb acquired XIIDRA and related ophthalmology assets from Novartis on September 29 for $1,750 upfront, funded principally with $1,400 of 8.375% secured notes and a $500 term loan. The deal also includes potential future milestone payments of up to $750. Acquisition results through quarter-end were not material.
Bausch + Lomb also acquired the Blink eye-drop product line for $107 in July and AcuFocus for an upfront $35 in January.
In Q3, Salix revenue rose 13% to $614, Bausch + Lomb rose 7% to $1,007, Solta Medical rose 15% to $83, International rose 10% to $275, and Diversified rose 9% to $259. For nine months, Diversified revenue declined 5% to $684, while its segment profit fell 7% to $417.
Interest expense fell year over year, but the company says this was primarily due to the accounting treatment of exchange-offer notes, not a comparable reduction in contractual borrowing costs. The prior-year periods included debt-extinguishment gains of $570 in Q3 and $683 for nine months; there were none in 2023.

Outlook, risks and contingencies

The filing provides no consolidated numerical revenue or earnings guidance. Management says available liquidity sources should cover needs for at least 12 months after filing. It expected approximately $481 of debt repayments and interest, $105 of capital expenditures and $55 of contingent-consideration payments in Q4 2023.
The planned Bausch + Lomb separation remains conditional on targeted debt leverage ratios and required approvals. Its timing and completion are uncertain; the filing cites the Norwich litigation and other legal, tax, market and execution factors. Bausch Health generally cannot use Bausch + Lomb cash or revolving-credit proceeds unless Bausch + Lomb declares a dividend.
Xifaxan is a major concentration: it represented about 80% of Salix revenue. The Norwich patent decision invalidated certain IBS-D patents, although FDA final approval of Norwich’s ANDA remained enjoined until October 2029 at the filing date. Appeals and related proceedings continued, creating potential revenue, impairment and separation risks.
Generic competition is affecting products including Uceris Foam; the company recorded a $37 intangible impairment after a generic entered the market. Goodwill tests also identified further impairment exposure in Dermatology and Neurology, with valuations sensitive to forecasts, discount rates and growth assumptions.
Accrued current legal loss contingencies were $348; outcomes and payment timing for other proceedings could not be reliably estimated. The company disclosed numerous ongoing securities, antitrust, product-liability, intellectual-property and regulatory matters.
Tax exposures include $924 of unrecognized tax benefits. A worst-case estimate for a disputed U.S. capital-loss deduction was up to $2.1 billion in additional taxes, excluding penalties and interest; the company reported a tentative IRS settlement subject to review and approval. A separate Luxembourg assessment was €272 million, which the company is contesting without a recorded reserve.
Credit ratings were speculative grade, with negative outlooks for Bausch Health from Moody’s and S&P; Fitch had lowered its senior unsecured rating to C in October. A 100-basis-point increase in rates was estimated to add approximately $58 annually to pretax expense on variable-rate debt.
Other disclosed risks include pricing and reimbursement pressure, foreign-exchange and inflation exposure, the Russia-Ukraine conflict, product recalls, regulatory oversight and the ability to realize acquisition benefits. A voluntary Emerade auto-injector recall generated approximately $14 in inventory, returns and other costs during the nine months; additional costs are possible.

Investor verification priorities

Track Xifaxan litigation, generic-entry timing and any resulting effects on Salix cash flows, impairment assessments and the Bausch + Lomb separation.
Assess debt principal, maturities, actual cash interest and covenant headroom, distinguishing Bausch Health obligations from Bausch + Lomb debt and liquidity.
Review whether operating cash generation can support debt service, working-capital needs and separation-related costs after acquisition spending.
Monitor the performance and integration of XIIDRA and Blink, including milestone obligations and whether expected dry-eye and OTC growth materializes.
Follow Dermatology and Neurology results, goodwill assumptions and impairment sensitivity, as well as the effect of generic competition on other products.
Check developments in major litigation and tax matters, including potential cash outflows beyond amounts accrued or reserved.