Bausch Health(BHC) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Bausch Health Companies Inc. for the periods ended June 30, 2019, detailing financial position, performance, and cash flows with accompanying notes Consolidated Financial Statements (Unaudited) For the six months ended June 30, 2019, the company reported revenues of $4.17 billion, a slight increase from $4.12 billion in the prior year period. The net loss significantly narrowed to $218 million from $3.45 billion, primarily due to a $2.21 billion goodwill impairment charge in 2018 that did not recur. Total assets slightly decreased to $32.35 billion. Net cash provided by operating activities increased to $752 million from $660 million year-over-year Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $4,467 | $4,211 | | Total Assets | $32,354 | $32,492 | | Total Current Liabilities | $3,705 | $3,836 | | Total Liabilities | $29,666 | $29,677 | | Total Equity | $2,688 | $2,815 | Consolidated Statement of Operations Highlights (in millions, except EPS) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,152 | $2,128 | $4,168 | $4,123 | | Operating Income (Loss) | $257 | $(245) | $544 | $(2,526) | | Net Loss Attributable to BHC | $(171) | $(873) | $(223) | $(3,454) | | Diluted Loss Per Share | $(0.49) | $(2.49) | $(0.63) | $(9.84) | Consolidated Statement of Cash Flows Highlights (Six Months Ended June 30, in millions) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $752 | $660 | | Net Cash Used in Investing Activities | $(261) | $(139) | | Net Cash Used in Financing Activities | $(338) | $(465) | Notes to the Consolidated Financial Statements The notes provide critical details behind the financial statements, including the acquisition of Synergy Pharmaceuticals' assets for approximately $180 million, a significant decrease in asset and goodwill impairments, ongoing debt management through refinancing, and details on four reportable segments with Salix showing strong growth - On March 6, 2019, the Company acquired certain assets of Synergy Pharmaceuticals Inc. for a cash purchase price of approximately $180 million, including the worldwide rights to the Trulance® product[47] - Asset impairments for H1 2019 were $16 million, a significant reduction from $345 million in H1 2018. Goodwill impairments were $0 in H1 2019 compared to $2.21 billion in H1 2018, which were related to the Salix and Ortho Dermatologics reporting units[67][68][80] - The estimated useful life of Xifaxan®-related intangible assets was extended to January 1, 2028, resulting in a $235 million decrease to Net loss for the six months ended June 30, 2019, due to lower amortization expense[73] - The company is subject to ongoing investigations by the U.S. Attorney's Offices for Massachusetts and the Southern District of New York, the SEC, and Canada's AMF, related to past practices including patient assistance programs, pricing, and its former relationship with Philidor[163][164][165] Major Customer Revenue Concentration (Six Months Ended June 30) | Customer | 2019 | 2018 | | :--- | :--- | :--- | | McKesson Corporation | 17% | 17% | | AmerisourceBergen Corporation | 16% | 18% | | Cardinal Health, Inc. | 14% | 13% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, strategic initiatives, and liquidity, highlighting improved Q2 2019 operating income, focus on core businesses and 'Significant Seven' products, and aggressive debt management through refinancing Overview and Business Strategy The company's strategy focuses on core therapeutic areas, promoting 'Significant Seven' growth products, investing in R&D, improving capital structure through debt management, and enhancing patient access while navigating generic competition - The company's strategy is focused on three core therapeutic areas: eye-health (Bausch + Lomb), gastroenterology (Salix), and dermatology (Ortho Dermatologics)[224] - A key focus is the promotion of the "Significant Seven" products: Duobrii™, Bryhali™, Lumify®, SiHy Daily AQUALOXTM, Siliq®, Vyzulta®, and Relistor®[236] - Since the beginning of 2016, the company has repaid over $7.2 billion of long-term debt (net of borrowings) through divestitures of non-core assets and cash from operations[278] - In February 2019, the company launched Dermatology.com, a cash-pay prescription program to provide patients with direct access to certain branded dermatology products[295] Results of Operations Q2 2019 revenues increased 1% to $2.15 billion, with operating income improving to $257 million due to lower amortization and asset impairments, while H1 2019 operating income swung to $544 million primarily from the non-recurrence of a $2.21 billion goodwill impairment Comparison of Operating Results (in millions) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,152 | $2,128 | $4,168 | $4,123 | | Operating Income (Loss) | $257 | $(245) | $544 | $(2,526) | | Amortization of Intangible Assets | $488 | $741 | $977 | $1,484 | | Goodwill Impairments | $0 | $0 | $0 | $2,213 | | Asset Impairments | $13 | $301 | $16 | $345 | - The decrease in total provisions as a percentage of gross product sales (38.9% in Q2 2019 vs. 42.1% in Q2 2018) was mainly driven by lower rebates and returns provisions[365][366] Reportable Segment Analysis In Q2 2019, the Salix segment drove growth with a 15% revenue increase to $509 million, while Bausch + Lomb/International showed 4% organic growth, and Ortho Dermatologics and Diversified Products segments declined due to generic competition Q2 2019 Segment Revenue Performance (in millions) | Segment | Q2 2019 Revenue | YoY Change | Organic Growth (Non-GAAP) | | :--- | :--- | :--- | :--- | | Bausch + Lomb/International | $1,208 | 0% | +4% | | Salix | $509 | +15% | +12% | | Ortho Dermatologics | $122 | -13% | -13% | | Diversified Products | $313 | -7% | -7% | Q2 2019 Segment Profit Performance (in millions) | Segment | Q2 2019 Profit | YoY Change | | :--- | :--- | :--- | | Bausch + Lomb/International | $337 | -4% | | Salix | $332 | +14% | | Ortho Dermatologics | $41 | -29% | | Diversified Products | $232 | -10% | Liquidity and Capital Resources The company's liquidity is supported by $752 million in H1 2019 operating cash flow and $906 million available credit, with total net debt at $24.08 billion after refinancing $3.0 billion of maturities to 2027-2029 - Net cash provided by operating activities increased to $752 million for H1 2019, compared to $660 million for H1 2018[461] - As of June 30, 2019, total long-term debt (net of unamortized costs) was $24.08 billion, a slight decrease from $24.31 billion at year-end 2018[472] - In March and May 2019, the company completed refinancing transactions extending approximately $3.0 billion of debt maturities previously due 2021-2023 out to 2027-2029[474] - As of June 30, 2019, the company had $906 million of remaining availability under its 2023 Revolving Credit Facility[481] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $5.7 billion variable-rate debt, where a 100 basis-point increase would result in an annualized pre-tax negative impact of approximately $57 million - The company is subject to interest rate risk on its $5.7 billion of variable rate debt[529] - A 100 basis-point increase in interest rates would have an annualized pre-tax effect of approximately $57 million on the Consolidated Statements of Operations and Cash Flows[529] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2019, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[530] - No changes occurred during Q2 2019 that materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[531] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 19 of the consolidated financial statements for detailed information regarding the company's ongoing legal proceedings - Information concerning legal proceedings is detailed in Note 19 of the notes to the unaudited interim Consolidated Financial Statements[533] Item 1A. Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes to the risk factors as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[534] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no purchases of its equity securities during the three months ended June 30, 2019 - There were no purchases of equity securities by the Company during the three months ended June 30, 2019[534] Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities - None[534] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including an indenture related to a May 2019 debt issuance, CEO and CFO certifications as required by the Sarbanes-Oxley Act, and XBRL data files - Exhibits filed include the Indenture dated May 23, 2019, CEO/CFO certifications (Sections 302 and 906), and XBRL interactive data files[538][542]