Bausch Health Companies Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Unaudited consolidated financial statements are presented in U.S. dollars. Bausch Health develops and sells pharmaceutical, OTC and medical-device products, principally in eye health, gastroenterology and dermatology. The company also plans to separate its Bausch + Lomb eye-health business.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $2.027 billion | $2.012 billion |
| Operating income (loss) | $(221) million | $248 million |
| Net income (loss) attributable to Bausch Health | $(610) million | $(152) million |
| Basic and diluted loss per share | $(1.71) | $(0.43) |
| Cash provided by operating activities | $443 million | $261 million |
| Cash used in investing activities | $(56) million | $(40) million |
| Cash used in financing activities | $(243) million | $(1.521) billion |
| Long-term debt, net of discounts and costs | $23.738 billion | $23.925 billion at Dec. 31, 2020 |
- Product sales were $2.003 billion; other revenue was $24 million. Cost of goods sold was 28.2% of product sales, compared with 25.4% a year earlier.
- At March 31, cash and cash equivalents were $679 million and restricted cash was $1.214 billion. Restricted cash included $1.210 billion in escrow for the U.S. securities litigation settlement and is not ordinary available cash.
- Current assets were $5.392 billion and current liabilities $4.898 billion. Total liabilities were $30.321 billion, exceeding total assets of $30.197 billion; total equity was a deficit of $124 million.
- Debt principal was $23.985 billion. The company reported no revolver borrowings, $101 million in letters of credit and $1.124 billion of remaining availability under its $1.225 billion revolving facility. It reported compliance with its financial maintenance covenant.
- Interest expense was $368 million; the weighted average stated debt rate was 6.00%. Approximately 80% of debt was fixed-rate. The company reported no debt maturities or mandatory amortization until 2024; scheduled principal payments include $2.091 billion in 2024 and $10.632 billion in 2025.
Changes versus the prior comparable period
- Revenue increased $15 million, or 1%. Favorable foreign exchange ($33 million) and higher net realized pricing ($10 million) were partly offset by lower volumes ($18 million) and divestitures and discontinuations ($10 million). Organic revenue was essentially flat, declining less than 1%.
- Operating results deteriorated by $469 million, chiefly because of a $469 million goodwill impairment in Ortho Dermatologics and $134 million more in asset impairments. These were partly offset by lower SG&A, R&D and amortization expense.
- Operating cash flow rose $182 million. Management attributed the increase mainly to working-capital movements and timing of payments; cash generated before changes in operating assets and liabilities declined $86 million.
- Financing cash use was substantially lower than in Q1 2020, when debt repayments were $1.459 billion. Q1 2021 included a $200 million repayment of 7.00% secured notes.
Segments and notable items
- Revenue and segment profit: Bausch + Lomb $881 million and $239 million; Salix $472 million and $327 million; International Rx $306 million and $109 million; Ortho Dermatologics $141 million and $70 million; Diversified Products $227 million and $171 million. Segment results are management measures and exclude specified corporate and other costs.
- The Ortho Dermatologics goodwill impairment followed weaker-than-forecast product launches and continued U.S. insurance-coverage pressures limiting access to topical acne and psoriasis products. The company also recorded $71 million of product-line impairments and a $68 million additional Amoun held-for-sale loss.
- Amoun was classified as held for sale. The agreed gross sale consideration is approximately $740 million, subject to adjustments and closing conditions; management expected closing in the first half of 2021 and planned to use net proceeds to repay debt.
- The $1.210 billion U.S. securities class-action settlement received final court approval in January 2021 but remained subject to two appeals. The related funds were in escrow at quarter-end. Accrued current loss contingencies for matters considered probable and reasonably estimable totaled $1.554 billion.
- Other unusual items included a $25 million gain tied to a product milestone, $20 million of separation-related SG&A costs, and $9 million of direct separation costs. The company stated future separation costs could be material and could not yet be reasonably estimated.
Outlook, management commentary and risks
- Management expected a gradual recovery and said revenue would likely return to pre-pandemic levels in 2021, conditional on vaccine availability and effectiveness and no material resurgence or renewed restrictions. This is a conditional outlook, not a quantified full-year revenue or earnings forecast.
- The company said it expects liquidity to meet needs for at least 12 months after filing and expects to meet debt service obligations and remain covenant-compliant over that period. It expected approximately $1.088 billion of interest payments during the remainder of 2021.
- Management expected operating expenses in 2021 to exceed 2020 levels if recovery continued, as selling and promotional investment resumed. Ortho Dermatologics was refocusing R&D, marketing and costs; further impairment charges remain possible if forecasts or market conditions worsen.
- For the planned eye-health separation, the company was developing organizational structure and considering transaction form and capitalization. It targeted completing internal organizational design by the end of Q3 2021 but gave no assured transaction completion date; approvals, board action and other conditions could delay or prevent it.
- Principal risks include substantial debt and interest obligations, litigation and regulatory proceedings, generic competition and patent challenges, pricing and reimbursement pressures, COVID-19 effects on demand and clinical development, supply-chain interruptions, foreign-exchange and interest-rate exposure, and execution and costs of the separation and divestiture plans.
- Q1 2021 included $49 million of net tax provision for discrete items, including $46 million related to potential and recognized withholding tax on intercompany dividends. Unrecognized tax benefits were $1.042 billion; management said approximately $203 million could decrease over the next 12 months through audit resolutions and other events.
Most important facts for investors to verify
- Whether the Amoun sale closed on expected terms and how much net cash was applied to debt.
- Whether operating performance and cash generation support the company’s conditional 2021 recovery outlook, particularly in Ortho Dermatologics and Bausch + Lomb.
- Whether the $1.210 billion securities settlement becomes final after appeals, and how remaining legal exposures compare with the $1.554 billion accrued liability.
- Progress, final structure, capitalization, costs and timing of the proposed Bausch + Lomb separation.
- Debt-service capacity, covenant compliance, revolver access and refinancing needs—especially the large scheduled 2025 principal payments.
- Future impairment assumptions and outcomes, and the impact of generic entry, pricing, reimbursement and product-pipeline developments on key brands.