Q2 2021 Bausch Health Companies Inc Earnings Call
Good morning, and welcome to the Bausch Health second quarter 2021 earnings call.
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And I like to turn the conference over to Art, Shannon Senior Vice President and head of Investor Relations and Global Communications. Please go ahead Sir.
Thank you Rocco good morning, everyone and welcome to our second quarter 2021, and financial results Conference call participating on today's call are chairman and Chief Executive Officer, Mr. Joe Papa and Chief Financial Officer, Mr. Stan <unk>.
Chairman and CEO, Tom <unk> and CEO of.
Scott Hirsch and addition to this live webcast a copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section.
To begin we'd like to remind you that our presentation. Today contains forward looking information you would ask and you take a moment, so reasonable and looking statement legend at the beginning of our presentation that contain important information on.
This presentation contains non-GAAP financial measures more information about these measures. Please refer to slide 2 of the presentation and non-GAAP reconciliations can be found on the appendix for the presentation posted on our website finally financial guidance and this reputation as effective as of today only it is our policy to generally not update guidance for the following quarter and not to us.
Date on deferred guidance other than through broadly disseminated public Cisco with that it's my pleasure to turn the call over to Joe.
Yeah.
Thank you art and thank you everyone for joining us today I will start by briefly covering the second quarter highlights before turning the call for Sam <unk>, Our CFO to review the financial results in detail and discuss our 2021 guidance well.
I will then review the segment results and recovery finally, we'll provide an update on the spin off of Bausch and Lomb before opening the line for question, but before I address these topics I would like to comment on this morning's announcement that we have decided to pursue and IPO of our sulfur medical business over the last few months, we completed a thorough review of the strategic.
<unk> alternatives for Solta, According and audited the financial performance growth drivers and future revenue opportunities. We believe a solta IPO will help us accomplished 2 important objectives for.
And we intend to use the proceeds of the proposed IPO to pay down debt, which will help effectuate the previously announced spinoff about chelan.
We believe and IPO Solta medical will help unlock the value of a high growth business that would compare very favorably to peer medical aesthetic companies in terms of valuations, while maintaining and future.
Optionality simply stated we believe that the actions we've announced will result, and accretion of 3 attractive focused companies Bausch and lomb, a pure play integrated eye Health company Bausch pharma, a global diversified pharmaceuticals business and Solta medical a leading global provider and the medical aesthetics.
Market moving now to slide 4 and while there are some pockets of variability due to new COVID-19 variance our overall recovery from the impact of the pandemic remains in progress over the second quarter.
And Q2.2021 total company revenue grew by 26% on a reported basis and by 23% organically driven by strong year over year recovery across the business units. This strong growth was offset by the impact of a recall of and international consumer product due to a quality issue at a third party.
Fire and I will discuss in more detail, let me cover the global consumer business importantly, our business generated strong cash flows from operations of $395 million on a GAAP basis, and an adjusted cash from operations of $425 million and the second quarter, we continue to see strong performance, including bar.
Share gains and recovery from leading brands and fact, Rubify achieved a record sales of $29 million and the second quarter and we expect it now to be a $100 million grant on an annualized basis.
We also delivered near term R&D catalyst during the quarter, including we completed the enrollment of the phase III trial for Novo 3 we obtained FDA approval for and launched clear risk and we are submitting an NDA for <unk> with a <unk> date of October 32021 debt.
Net repayment remains a priority as we continue to focus on accelerating strategic alternatives to unlock shareholder value, we repaid $300 million of debt and the second quarter of 2021 using cash generated from operations year to date as of August 3rd we have reduced debt by 1.25 billion.
Which includes a $600 million and connection with the Moon divestiture, which we announced the closing of yesterday.
And today, we announced that we plan to redeem and additional $350 million of bond, which when completed will bring our aggregate debt reduction for the year to $1.6 billion.
Finally, I want to mention that we have settled another legacy legal matter that relates back to 8.2.
<unk> 2012 patent settlement agreement on and <unk> as will be disclosed in our 10-Q filing we have now reached agreement in principle to resolve the claims of the class and the non class plaintiffs to summarize our second quarter results demonstrate that recovery remains in progress our business is generating strong cash flow.
Some operations, which has enabled us to make great progress paying down our debt and we are taking action to accelerate strategic alternatives process and unlock shareholder value with that I'll turn it over to Sam to cover the financial results in more detail. Thank you. Joe. We're pleased here for a second quarter revenue of $2.1 billion up 26% reported busy on 'twenty.
3% organically moving on to our second quarter 2021, and year to day performance, we're seeing a nice recovery and all of our businesses and more importantly, very nice sequential growth in 2020..1 as you recall last year, COVID-19, and had a negative impact on our business, where second quarter for 2020 being most impacted and therefore, it's important to point out that this current quarter benefits from.
This comparison.
And as the market stabilized and our teams continue to execute on our strategy, we're seeing a steady progress towards a recovery I want to spend a minute addressing a recovery similar to last year debt recovery values by type of business and by country did this despite the emergence of the Delta Brian and.
COVID-19, and the U S and general life on Commerce appears to be trending back towards normal for outside the U S. Stern countries continues to face COVID-19 challenges and other restrictions that are impacting the pace of market recovery in order to give you a sense of a recovery I thought it might be helpful. During my comments today to provide you with some color on how our Q2.
2021 performance compares to Q2, 2019, which we believe to be a good reference for our pre pandemic levels.
If you turn to slide 5 starting with the P&L segment second quarter revenue of $934 million was up 33% organically all our businesses went and WNS segment contributed to the growth for this quarter now turning to the global vision care business second quarter revenue of 260 million was up 50% organically. The U S. It was up 100 cheaper.
And internationally, 38% the growth and the use demonstrates the overall steady recovery and the U S market with growth coming from buy through 1 day and ultra brand coupled with the success of our recently launched do you at least say, hi, Atlanta, and fuse, which was a key contributor and the quarter.
And national vision care organic growth and 38% reflects the recovery and the market that we participate and <unk>.
And on parts of Europe by 2.1 day ultra and the software and his family were all key contributors to the growth and the second quarter for international vision care.
While we're pleased with the growth of our international vision care business. This quarter, it's important to note debt, where not all the way back to pre COVID-19 levels with some countries continuing to face COVID-19 challenges and are imposing new levels of restrictions, we do expect to gradually return to pre pandemic growth rates.
Moving onto our global surgical business second quarter revenue for 185, and then it was up 97% organically with the U S, 92% and international hub for 100%.
The growth and our surgical business reflect the stadium market recovery for the year.
U S and the international surgical growth were driven by strength in debt and tiered disposables with recovery and all regions led by Asia and Europe.
To provide you with a point of reference regarding on recovery. The current quarter. Our performance was up 1% organically as compared to the second quarter of 2019 performance.
Turning to our global consumer second quarter revenue of $341 million was up 9% organically.
U S consumer business up 20% and international consumer business down, 2% the growth and the U S. Consumer business was driven by growth and our eye vitamins occupies and present vision, coupled with the strong <unk> performance for them.
Very pleased with our strong commercial execution and the U S consumer business for the current quarter and year to date. The U S consumer business demonstrated solid growth against a strong first half of 2020, which was favorably impacted by pantry loading.
International and consumer was down 2% organically, mainly driven by the product recall and Europe, excluding the impact of the prior free called the international consumer business growth was in line with the U S consumer business growth.
Overall, the global consumer and business continues to perform well gaining market share with a healthy growth trajectory.
<unk> the impact of the product recall the current core performance was roughly 6% organically as compared to the second quarter of 2000 and key performance.
Finally for P&L Davita Rx business second quarter revenue of 192 million was up 27% organically versus second quarter of 2020, the current quarter benefited from a comparison to a soft quarter last year due to ice or just being at this point due to COVID-19, the growth and the second quarter of 2020, 1 was driven by higher volumes and our key per warrant brands.
For Linda as events, Florida, Max SM everybody's Solta.
We've been making steady progress and expanding access and med D coverage for by Delta and low Remax SM. Although this increases the level of rebates and the improved access will position both by Solta and low to Max SM to continue impressive T Rx growth trajectories.
And the current quarter of <unk>, 31% year Rx growth versus second quarter of 2020.
And finally Elouise continues to be a drag on our U S. After Rx portfolio continuing to erosion from low lower Max gel was a big factor versus the prior year quarter and versus Q2, 2019, which was down 13%.
Now turning to Salix.
Second quarter revenue of $560 million was up 28% from Q2.2020 performance was mainly driven by the day facts and that was up 28%.
<unk> was up 23% and true Alliance was up 65% net 28% increase and as Dave touched on was all due to volume with a quarter of the volume increase as a result of increased and consumption and then the remainder of the increase was due to the non recurrence of the Q2.2020 of wholesale and retail inventory driven and that we experienced last year due to COVID-19.
Right.
And if the end of Q2.2021 or inventory levels were in line with our expectation and historical trends.
It's a fact that the Rx trends are certainly moving in the right direction as we discussed on prior quarters COVID-19 has negatively impacted our access and the long term care setting while we're pleased with the recovery trend and sequential growth for the day packs and prescriptions overall prescriptions within the long term care channel have not fully recovered to pre COVID-19 levels.
This lag we expect that long term care business will rebound.
The 6.5% increasing through alliance was mainly driven by volume if you recall about a year ago, we secured several meaningful mascara and wins for <unk>, which helped us drive Rx and volume growth.
Overall, we feel good about the growth trajectory and the recovery trends to pre COVID-19 levels within our Salix business to provide you with a point of reference the current core performance was up 1% as compared to the second quarter of 2019.
Despite the impact of a priest on users Louise excluding day low impacts the base Salix business grew organically, 9% and the current quarter as compared to Q2 of 2019.
Now turning to the international Rx segment.
Go on revenue of $313 million up 17% organically driven by higher volumes of <unk> 19 per cent, partially offset by lower net realized pricing.
For Europe, and maybe Paul and led the growth for the International Rx segment moving.
Moving on to Ortho Derm segment second quarter revenue of 137 million was up 14% organically the global Solta business delivered another strong quarter with growth of 64% organically for March F. L. X continues to demonstrate and impressive growth trend, mainly in China and the U S than men.
Medical Derm business was down 15% organically, mainly driven by declining low assets and lower net realized pricing for.
Finally, our diversified segment second quarter revenue of 200 million was down 7% organically, our neuro business was down 4%. The decline was due to low assets, partially offset by growth and advent and net planted.
Our generics business was down 48% organically with the biggest factor being the natural erosion on volumes and net pricing as additional competitors enter the market of our generic products. Finally, dentistry posted a strong 225% growth organically driven by restaurant and it rebounded from prior year COVID-19 impacts.
Turning now to the core P&L on slide 6 we already covered revenue. So I'll start with the gross profit gross profit margin was favorable by 60 basis points versus Q2.2020, all of our businesses contributed to the improvement in gross margin, which is coming from favorable manufacturing variances as a result of higher sales volume with a favorable year over year comparison.
We continue to identify and implement operating efficiencies within all of our global supply chain, which enabled us to absorb COVID-19, and factors and other mix impacts no debt and our guidance for the full year 2021 gross margin is expected to be roughly 71%.
Within operating expenses on an adjusted basis SG&A costs were unfavorable by $118 million versus Q2, 2020. This represents our efforts to redeploy our sales promotional resources as the market recovers to support our growth trajectory in 2020, 1 and beyond if you recall second quarter of 2020 per parcel was negative.
Impacted by Covid, 19 restrictions, which requires to dramatically reduce our opex spend last year.
That said, we're reducing our expectation for SG&A for the full year 2021 from roughly $2.5 billion to roughly 2.4 and $5 billion to reflect our expectation of the full year spend trend.
R&D increased by 6% as compared to Q2, 2020. As we graduated continues to return to a more normalized run rate and supporting our future pipeline and key projects. We do expect debt spend trajectory will increase and the second half of 2020.1.
That said, we're up day, our expectation for R&D for the full year from roughly 525 million to roughly $500 million.
Adjusted EBITDA of 826 million for the quarter up 28% on a constant currency basis from Q2, 2020 keep in mind that the current quarter adjusted EBITDA was negatively impacted by the product free call and our.
Consumer business, our adjusted EBITDA margin and the current quarter is 39% excluding the impact of the recall our adjusted EBITDA margin would have been in line with our normal run rate of 40% looking forward to the full year, we do expect our adjusted EBITDA margin to be approximately 40%.
Turning to slide 7 during the quarter, we generated $395 million of cash from operations and on a GAAP basis adjusted for the tomo legacy legal liabilities and <unk>.
Moving divesture and separation related costs, the cash generated from operations was $425 million.
We are very pleased with the strong cash generation and the quarter and the year to date and therefore, we're updating our guidance for adjusted cash generation for the full year from roughly $1.5 billion for roughly $1.6 billion.
Turning to slide 8 we continue to make very nice progress and our debt paydown during the second quarter, we repaid $300 million of debt with cash from operations, bringing our year to date debt repayment and $2.500 million.
Our focus and commitment to reducing our debt combined with our strong recovery from Q2 of last year has drove our net leverage ratio to decline a whole half a turn from 7 times last quarter to 6.5 times and Q2.
We're very proud of this accomplishment continuing our progress on debt repayment after the quarter close we repaid $150 million of debt with cash from operations and effective today, we will have repaid an additional 600 million and connection with that moving divesture, bringing our year to date towards debt repayment as of today too.
125 billion. Furthermore, we today announced the planned redemption on $350 million of bonds on September <unk> 2021, using cash on hand, and cash from operation, bringing year to date aggregate debt reduction to $1.6 billion.
On page keep in mind, while we're very pleased with our progress on our debt pay down so far looking forward, we don't expect to see such a rapid decline and our leverage ratio and the second half of 2021. If you recall Q2.2020, you had an exceptionally low EBITDA due to the negative impact from COVID-19, and we began to recover and the second half of 2020.1 so.
Using our op expenses as such the strong EBITDA from Q3, and Q4.2020, coupled with the anticipated legal settlement will impact our second half 2021 leverage ratios and debt pay down.
And for the remainder of 2021, we expect our net leverage to remain flat or slightly increased versus our $6.5 times leverage we have today.
On slide 9 we continued to make a nice progress with our debt maturities.
And as of today, we don't have any debt maturities or mandatory amortization payments until 2025.
Now turning to our guidance on slides 11 and 12.
Today, we revised our guidance for revenue for full year 2021 by 200 million to new guidance in the range of $8.4 billion to $8.6 billion.
And this change is the result of 3 factors first which reflect a loss of $120 million and wound revenue. Following the July 26th closing.
It reflects unfavorable currency movement relative to our may guidance for $30 million third it reflects the impact of the product recall of roughly $50 million.
We're also updating our adjusted EBITDA guidance to reflect the EBITDA contribution from revenue and a $40 million and unfavorable currency movement of $10 million.
Our revised guidance for adjusted EBITDA is in the range of 335 billion to $3.5 billion, even after absorbing the roughly $50 million impact of the product recall. In addition, we also updated a number of our key guidance assumptions on slide 11, now back to you Joe.
Thank you Sam let's begin with <unk> on Slide 14 Global vision care saw strong organic revenue growth both in the U S and internationally.
Organic revenue growth was driven by a rebound in the Asia Pacific region, and the strong performance of <unk> daily lenses, and Japan, which saw revenue growth of 114% versus the second quarter of 2020.
Global consumer organic revenue growth of 9% was driven by occupied present vision and luma fight.
As I previously mentioned, we initiated a recall of the multipurpose solution product based on a quality issue and a third party supplier that provides sterilization services for our lens care solution bottles and caps for our Milan, Italy facility based on our internal analysis. It was determined that this.
Issue did not.
<unk> safety and performance of the product however out of abundance of caution we conducted a recall down to the consumer level on a limited number of affected lots and.
Importantly, this issue has been addressed and them on facility has now returned to full production capacity approximately $30 million of the expected $50 million total impact from the recall is reflected in our second quarter results.
Finally, and global Ophthalmology prescription business <unk> grew by 31% compared to the second quarter of 2020, and we've received statistically significant topline results from the first phase III trial for Novo 3.
The charts on slide 15 showed the recovery trends in key areas across this segment, all of which point to a recovery and progress for the BNS business.
Turning now to slide 16 for an update on Salix organic revenue demonstrates the recovery and progress up 28% compared to the second quarter of 2020, <unk> revenue grew by 28% and the quarter and overall, new Rx market share grew to an all time high of 87, 1% and the second quarter of 2021.
Julian for <unk> grew by 27, 8% and the second quarter versus last year compared to a market growth of approximately 5% and Trs market share grew.
<unk> grew 2.7% and the second quarter compared to 5.9% last year finally, relistor and <unk> grew by 12, 5% and the second quarter versus last year compared to a market growth of about 1 point for the chart on slide 17 demonstrates positive Salix Trs trends, we are seeing for our key promoted product which are either recover.
And from the impact on the Pam and make such as and the cases by fax or continuing to perform well on the case of Trulia and Relistor.
Moving to slide 18, and the International Rx segment grew organically by 17% compared to the prior year quarter driven by ongoing business recovery. This segment has a broad and diverse portfolio of RF product and we've shown on the strong track record of quarterly organic growth for this segment going back to the first quarter of 2019 and the <unk>.
On the top left I'd like to take a moment now to talk about our Solta medical business and the proposed IPO that we announced this morning. The key terms are outlined on slide 20, we are pursuing and IPO of Solta medical a leading global provider and the medical aesthetics market post IPO, we expect the company would have a tax rate and the <unk>.
<unk> will be domiciled in Canada, and we intend to file the list Solta on the NASDAQ <unk>.
Total medical had $253 million of revenue and 2020, a revenue CAGR of 32% from 2017 to 2020 and.
And adjusted EBITDA margin of 53% and and gross margin of 75% and with me today is Scott <unk>, who will lead the Solta business as CEO effective September 1.2021, Scott joined Bausch Health and 2016 and currently serves as the president of Ortho Dermatologic and our pharma and our Chief strategy Officer and addition, Paul Heritage.
We will serve as the chairman of the Solta Medical post IPO I'll turn it over to Scott now to give us some additional background on Solta why we think this business is poised for continued growth.
Thank you Joe and good morning, everyone first let me start by saying how incredibly excited I am about this opportunity with the south and medical business and.
And let me express our collective appreciation to the Solta team, especially Tom Hart and the management, but really the entire Solta team, which has made and continues to make solta such an exciting growth business.
Global Solta generated 48% organic revenue growth and 95% adjusted EBITDA growth during the first half of 2021 versus the first half of 2020 anchored by our <unk> franchise organic growth of 36% as Joe mentioned Solta has some of the strongest operating margins within the bausch.
Health branded businesses.
Moving to slide 21 by way of background Solta was founded and 1995 launched its first commercial product in 2002 and was acquired by Bausch Health and 2014.
It has a track record of pioneering technologies and the non surgical skin tightening and skin resurfacing categories, along with body contouring Solta.
Solta medical energy based medical devices are sold and dermatologists and plastic surgeons and physicians and medical spa practitioners around the world.
So all of those key products, including <unk> clear and brilliant fraxel and laser and slide 27 in the appendix contains more detail about each product.
Over the past several years Bausch health invested in R&D for Solta, we launched new products, including <unk> F L X and clear and brilliant touch and expanded the business is geographic footprint.
Furthermore, the business as a cash pay business has effectively no reimbursement risk.
Moving on to slide 22 the.
And the growth drivers of the business include exposure to the strengthening underlying market dynamics and the aesthetic industry, along with geographic expansion and product portfolio advancements. The business is today, primarily centered in Asia, and the United States and and the early stages of a broader European expansion with Latin America.
And the next potential market for systematically enter.
Here, we provide the historical financials for Solta, where you can see from the chart on the left that Solta has demonstrated consistent double digit revenue growth for the past 3 years with a revenue CAGR of 32% from 2017 through 2020.
Strong sales performance has resulted in significant operating leverage and the business had an adjusted EBITDA CAGR of approximately 87% from 2017 through 2020.
I will note that we do expect salted to have approximately $30 million of standup costs and with the law of large numbers. We do expect these extraordinary growth rates to moderate as the business scales, but we continue to believe solta medical can generate greater than mid teens revenue growth, while leveraging the bottomline.
And finally, I will point you to additional information about the portfolio and the peer group on slide 27, and 28 and the appendix to help you develop your contextual reference for the business I will now turn it back over to you Joe.
Thank you Scott we are looking forward to work on Paul and Scott as we continue to grow and unlock the value of the Solta business.
Moving to slide 24, we have identified the key members for the team that will lead both farmer post separation and please know that upon completion of the IPO, Tom <unk> will serve as CEO of Biopharma, Tom joined the company from Bausch and Lomb in 2013 and has been serving as our president and co heads Bausch and Lomb International businesses Augie.
And of 2018.
In addition, we are announcing that Bob's burgers and currently the president of Salix Pharmaceuticals will be the president and Biopharma and U S business finally, Bob powers, 1 of our current directors, who will serve as chairman of the board about pharma upon completion of the separation I would like to invite Tom happy to say a few words.
Thank you, Joe it's an honor and a privilege to lead Bausch and pharma at this important point and its history. We see many opportunities ahead for our global diversified pharmaceutical business with leading positions and gastroenterology dermatology neurology and international Pharmaceuticals.
The teams have been working hard to complete all of the internal objectives necessary to separate the businesses and I am looking forward to working with Bob power and Bob spur and the rest of the management team to build and deliver value for Bausch and pharma shareholders.
I will turn the call back over to Joe now thank.
Thank you, Tom and look forward and working closely with you as we transition and to your new role turning to slide number 25, we are dedicated to unlocking the value for our shareholders and and we are making good progress on the planned spinoff of Bausch and Lomb, we've completed the Bausch and Lomb financial segmentation, we've named key members of Bausch and Lomb and.
<unk> pharma and leadership team and are on track to complete by October 1 our internal objectives necessary for the spin of being health beauty.
<unk> filed a S..1 for batch and align with the SEC and we are now working to achieve the leverage ratio targets and financial objectives that we previously outlined we are actively pursuing all opportunities to expedite leverage improvement and deliver shareholder value, including using cash from divestitures to help delever accessing.
Equity capital markets through the Ipos with Optionality organic deleveraging and improving working capital efficiency.
The proposed IPO of Solta medical is a key part of this effort.
And we have selected the chairman and CEO, we have hired Morgan Stanley and Goldman Sachs to advise us on the strategic alternatives.
Anticipate submitting a first S..1 for Solta medical and the third quarter of 2021 and believe that the proposed IPO of Solta medical can be completed by the fourth quarter of 2021 or the first half of 2022, we remained committed to unlocking shareholder value across our 3 attractive businesses as soon as possible and today's announced.
And it represents a step forward and that process to summarize the steps we are taking will enable us to pay down debt by accessing the equity capital markets with <unk> and the Solta ipos by unlocking the value of these attractive assets that have been undervalued as part of and aggregated company. Our goal is to create 3 distinct and.
And focused businesses Bausch and lomb, a pure play integrated eye Health company Bausch pharma, a global diversified pharmaceutical business and Solta medical a leading global provider and the medical aesthetics market.
With that operator, I'd like to open up the line for questions. Please thank.
Thank you and we will now begin the question and answer session. If you'd like to ask a question. Please press Star then 1 on your Touchtone phone for us.
On the speaker phone and we ask you. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2.
Today's first question comes from Chris Schott with Jpmorgan. Please go ahead.
Hey, guys I appreciate the questions.
And 2 probably centered around the same topic trying to get at what the Solta IPO implies for the timing of our P&L separation. So maybe first on the Solta IPO with the plans be for a smaller kind of let say 20% spent on the business then distribute the shares to shareholders or do you look to do a larger capital raised.
And I'm just trying to my hands around just how much the solta IPL could help address the debt load obviously, it seems like a really nice value unlock but just maybe specifically on the on the debt load and then on my second question, which I guess, it's really the hardest is what's what's a reasonable timeline to think about our P and L. IPO and separation at this point I guess with the Solta IPO later this year early next.
Should we assume a b and L separation would occur after that event or could these processes can be done and relatively similar timeframes, assuming that the financials are where they need to be thanks. So much.
Thank you Chris I'll take that question.
First of all good question on our expectations on the Solta IPO is that we would look to.
Register somewhere in that 20% to 30% of and equity sale of Solta medical somewhere in that range and normal type of IPO to help address our debt.
We do believe that we can do and as early as the end of 2021. So we'll look to try to do it and the fourth quarter, but obviously it could go longer on <unk>.
And obviously market conditions as the question on the P&L spin I go back to what we've said previously.
Our view on the P&L spin as we will complete all the necessary internal objectives to be ready for being out spin. After October 1.2021, however, as you appropriately pointed out we do need to.
Through the debt issues in front of us to get to the debt targets that we've previously talked about and our view is that the solta IPO will unlock the value of Solta.
Compare it with some of the other peer companies and the space I think youll see that opportunity, but we clearly will use that to help us to pay down the debt opportunity for our company. So that's the that's the plan I'm not going to give a specific timing for the <unk> other than saying we will be ready after October 1.2021.
We just need to solve all the debt question, obviously you saw it today.
Great progress and what we paid down already this year based on the sale of moving business based on the EBITDA based on the cash generation, we had based on improving working capital efficiency. All the things that we've talked about before are all helping us to unlock this value.
Okay.
Operator next question please.
Absolutely and our next question today comes from Doug and me with RBC capital markets. Please go ahead.
Yes, good morning, and just.
And I'll go back to the expected cash flow I know that we reported just shy of 400 million for this quarter, but can you talk about the puts and takes that you are expecting Sam.
Over the next several quarters should we be using the 400 or something a bit lower than that and can you explain to me how the legal settlement and is going to impact.
And I'll walk on a ongoing basis. Thank you.
Sure Doug and good question. So so far we've been very pleased with the cash generation as I mentioned is 425, adjusted and this quarter and what job brings a really a good number for year to date.
As you look forward I think we have to step back and think about couple of factors here. We've made very nice progress on our working capital and initiatives and I think we've had our inventory starting from last year into this year come down to a probably I'll call. It the lowest levels that we've seen and a wild about roughly just shy of $1 billion.
And literally over $1 billion.
And I think we've made very nice progress on all other elements of working capital so with that strength on the working capital.
And that's where you see debenture into cash flow generation year to date, I don't expect a working capital and inventory specifically to be coming down much further as we look into the second half and Thats why when you start thinking about the second half, we will see benefit still coming from working capital, but it's not going to be at the same levels that we've seen and the first half.
That's why we're upping our guidance from 1.5 to 1.6 in terms of the legal.
Expansion that will be a call on debt cash we do expect debt, we will pay a certain element of.
Legal expenditure and the second half of the year, the terms and the timing still not 100% certain and determined but we do have and our plan and thats factored into our $1.6 billion.
Okay. Thank you.
And operator next question absolutely.
Absolutely and our next question comes from Annabel <unk> with Stifel. Please go ahead.
Hi, Thanks for taking my question so.
The Salto, Inc.
Clearly a high growth component of term.
And and the last several years.
<unk> leverage this ortho term platform I guess somehow.
To help the growth there how much are you going to have to build in terms of on infrastructure.
Can keep the company growing as it is and is there already and tremendous amount of leverage and that you have there.
And then just secondly bigger picture.
And noticing a net as a pattern here with other valuable component for Dash health.
And do you have any intention of doing this with salix as well because what you're left with is cash.
5 on which is that revenue.
Diversified company debt.
And we've already spoken about how pure play companies such as say a.
On Gi company could unlock greater value. So are there any further intention to share with pharma.
Pharma.
Sure Let me, let me try and take them in order here first of all and on the Solta business. We are really excited.
Any business that you can see the kind of company and the growth that we've seen in terms of revenue with Solta 30, plus percent revenue growth 80, plus percent compound annual growth on the EBITDA side, obviously speaks to that high growth capability for this business and importantly.
And opportunity, we think to unlock some significant value.
And and go after that IPO. So we're really excited about that in terms of the infrastructure we have.
As for.
Fourth day.
Our belief on exactly what's there today.
Scott made a comment that it will take approximately standup costs and the ballpark of $30 million to do that but with the growth and the overall solta business, we feel that that focus that we can put on it will only allow us to continue to accelerate the opportunity with our solta business going into the future. So we do think that Thats, a great opportunity and then mean.
Time, what we've been doing with the rest of the medical derm as we've been managing that business.
Increase the profitability and to be smart about where we're going with the promotions and the medical derm. So we're going to continue that approach as we think about the future.
And we've cut for the question about any attention to do anything further.
Salix or any of our other businesses I think and answer is that as a company.
And we knew going back to 2016, we had too much debt I think at that time, we had over $32 billion of debt, we paid down over 90, plus $95 billion of debt since that time.
But we knew we had too much and we've been working very diligent to reduce net debt. We also had to clean up some of the legacy legal issues and I think if you sum all that up it's somewhere in the $2.5 range. So we've had a cleanup by say somewhere close to $12 billion of some of the challenges we found ourselves and going back 5 years, having said that.
We're going to continue to look to try to unlock shareholder value and all of our businesses. We think we've done a really good job of putting incremental sales promotion resources behind the Salix business done incredibly well.
<unk> is starting to bounce back as we've seen in the quarter. So all those things are part of our plans for the future, but I don't want to make any specific comment about and IPO or spin with the Salix business I think I'll just leave it with excited to unlock what we think are 3 great businesses.
Pure play Health company.
Bausch pharma global business and then obviously now the announcement today the Solta aesthetics business. So I think we'll leave it at that in terms of our strategic alternatives in terms of where we're going.
Operator next question. Please thank.
Thank you. Our next question today comes from Manuel for fog.
With Evercore. Please go ahead.
Hi, Thanks, so much for taking my question I had.
And I had 3 if I may 1st Joe I wanted to say congratulations to Tom to Bob for Scott and Paul and.
And my question really was.
The leadership team across the P&L across Solta as well as across the <unk> pharma.
It is a very capable leadership team however.
And if you had asked a group of investors, where each of which business. Each of this leadership team will be spearheading that.
On the current presentation is not what they would've guessed for example, Tom's background and <unk>, but he is heading the non P&L business and vice versa. So I'm just trying to understand how board thought about all of this and was this 1 on the reasons with value act departure or not and secondly.
On Solta I'm trying to understand how youre thinking about structuring the debt Sam how much are you how much leverage are you willing to put on that.
And more importantly, what about the legal liability how installed on shielded from that or not.
And then finally.
And Scott did you ever get a real offer from a strategic on solta for more than $2 billion.
Okay. So I'll start and then I'll turn it over and Sam for the second question and and.
And between Scott and I will answer that last credit.
Question So leadership.
We conducted.
Search as we thought about Bausch pharma, we look internally and externally and the board was very involved with the search and <unk>.
He went through research, we felt that the best person to head up the Bausch pharma business with Tom <unk> and therefore, we made that decision for with top.
I'd also say that as we thought about the opportunity to create value for our shareholders as we thought about solta and.
Given the Scott has that business today has done a good job on that business and importantly.
Obviously, we believe Paul has done a great job as well we thought the combination of call as chairman Scott as CEO, another great opportunity to taking advantage of some of the great resources, we have within the team. So it's a process that the board is very involved with them.
On internal external searches and had conversations with candidate we felt though to be clear that Tom was the best for the the Biopharma business and Scott was the best for taking on the Solta CEO roles and in terms of going forward. So that's probably the best way I can answer that question.
I believe that value has this has nothing to do value and I think Rob Hale has stated and as he agrees with our strategy.
Part of the company and importantly, still as a significant shareholder and our business. So really no no. It has no impact on on value Act and their decision to depart board and was really just a time management issue for for Rob Hale and what he was taking on some incremental.
For it positions and you want to take the Solta leverage and legacy legal pleas sure and it's a.
Good question Omar so let.
Let me start by saying that our main objective here is to unlock that value.
Unlike the value for Solta and if you look at the slides that we went through and what Scott covered it as a business they have a very strong EBITDA as.
As we think about it is probably maybe for modeling purposes, you could probably assume maybe a 1 time type of debt on it. So it's really going to be and the structure, where you would want to make sure that you actually unlock that value and position that business to be continues that growth that they have and to continue sort of the trajectory that you have from a growth perspective.
And unlocking the value in terms of a legal liability or legal legacy liabilities. There is no direct liability associated.
Seated with Solta. So there will be theres, nothing really there for foreign exposure for our Solta perspective.
So the other thing I'm going to add to it would seem that because I think it is an important comment to also say if you think about what we've been trying to solve is trying to solve this debt issue for the company I think everybody realizes that we've had a debt issue. What we think we can do with the solta IPO as well as the <unk> IPO is too.
Leverage our position and to highly attractive businesses and.
<unk> raised equity not at the total Bausch health care level, but as the level of these individual attractive businesses.
And I'll, let the market tell me, where but certainly.
Probably a significantly higher multiple than what we would expect with the overall Bausch health companies. So book It appears of BNS business, where the Alcon.
Trades on the Cooper trades and I think that gives you some sense of being now and I don't want to make any comments specifically on solta, but you all know the peers and you can make your judgments on things like that so.
That's the concept of what we're trying to do there Scott do you want to talk about the Solta businesses.
Thanks, and I won't.
Directly answer your question, but I will say there has been a great deal of interest and the business and I'll leave it to you to do a deep dive on peer valuations, but needless to say, adding solta remains at the early stages of its growth and that's because of its geographic expansion as well of it as well as it is.
Enhancement profile and and also the exposure to this market that is growing exponentially.
And the IPO enables bausch health to participate and that forward growth and evaluation accretion over time, and so thats really the logic behind it but I will say, yes, theres been great interest and the business and I have high confidence and your ability to do a deep dive on valuation.
Okay. Operator next question. Please and our next question today comes from David I'm, sorry on with Piper Sandler. Please go ahead.
Thanks, So just a couple 1 on Solta and 1 on medical dermatology, So just on Solta.
And maybe sort of a.
A little bit of a different angle and I realize this could be a backward looking question, but and.
And as you certainly know and the medical aesthetics space.
M&A has been.
Historically, a real theme here so.
How should we interpret your decision.
To go the IPO route regarding Solta.
In terms of what that could imply regarding strategic interest on potential buyers.
And again, realizing that's a backward looking question, but I'm, just trying to get a little bit of background on you know.
How you got to this particular decision as opposed to the M&A route.
That's number 1.
Number 2 is and in terms of medical dermatology, Joe you certainly historically have had high hopes for new launches there.
Haven't quite panned out the way you might have hoped.
And thinking of the significant 7 and so once the spin is effectuate. It can you talk about <unk>.
Investment and medical dermatology and how should we think about that in terms of it being a core business.
And as part of a broader pharma business. Thanks.
Sure Good question.
And on the Solta camera angle I think you said in terms of thinking about it from a and M&A portfolio.
To be very quick.
Over the last several months a lot of time thinking at all the different iterations, we could think about for Solta as Scott said, we did receive.
And several inbound interest expressions of interest and the business.
As we thought about what do we do we look at the financial performance and I think if you look at the financial performance that we outlined and Scott walked through in terms of that.
Historical growth CAGR as we think that that was clearly 1 part of it what you probably haven't seen until today is we wanted to also provide you some understanding of the business that our shareholders own today in terms of the EBITDA generation of this business with 80 plus percent.
Compound annual growth rate for the EBITDA.
We wanted to make sure our shareholders understood that but importantly, as we thought about what does that mean for value creation of Solta there.
And obviously, it's a couple of different ways, we could've done and if we sold the business.
It would simply compensated the value of that business.
Whenever price it was today and what we said is that by going forward with and IPO. It gives us an opportunity to raise additional funds to allow us to help expedite the BNS spin, which is 1 thing we wanted to do but it also allows the company and Bausch pharma.
<unk> health to also remain for.
For the Optionality of that business going forward.
Our belief a good opportunity to realize that upside value rather than cap the value at whatever the price of today and when do you have a business growing and 87% compound and a growth rate on the revenue side, we felt that that was important and and I certainly know as you look at the peer companies Youll make your judgment as to.
And relative value and I'll, let each 1 of you think about that as you go through it on the question on Med Derm absolutely correct.
<unk> looked at the medical term several times over and what we've made decisions on his let's promote the product that will get the return on investment our business is all about looking at ROI for our business. We did attempt to launch a number of product. We've had some positive some negative but we certainly have looked at all the opportunities and mentor.
And we've decided the best way to approach that business is with a a very critical eye on return on investment for where we can go with this business and.
And launch products and make sure that we get and appropriate return on investment for our shareholders and we still think there is some opportunity there as we're continuing to be for with some of our med derm.
And products that are and the R&D portfolio and we'll still continue to move those forward, but we're going to approach it with a clear return on investment approach.
Operator next question please.
Our next question comes from Ken Cacciatore with Cowen and company. Please go ahead.
Thanks, so much thanks, Joe and team just going back to the kind of the scene here I think we can all agree that the public markets will give bumps and Lam and solta better value I think we can kind of correspondingly. They will agree that maybe private equity of private markets would give the diversified businesses are better value kind of given the growth profile.
Can you talk about the parallel process that might still be going on here.
We think through the eventual and stage of of the spins as it is an active would you call it or.
Is is there any kind of nuance you can give us around what might be happening behind the scenes.
Sure well I think Vince I arrive and Paul arrived I think we've sold somewhere in the range of $4.5 billion.
Proceeds accounting now the Amun business for included in that and we're always going to look to opportunities to get an appropriate return for our shareholders and optimize the value for our shareholders. The businesses that we've sold to date the average.
EBITDA multiple we received is somewhere in that range of about 11 times.
Based on how much EBITDA, we've sold for for those businesses and we think that's been the right decision here to for as we continue to go for it we're going to always listen to strategic alternatives, but we do think that the as you stated.
Public markets and the IPO for <unk>, the IPO for Salto and clearly we think will be the best way to unlock the value of both of those businesses and in fact, we will create as I said before 3 great businesses. The P&L pure play I health, the Solta aesthetics medical aesthetic company and of course, our Bausch pharma business, which we think it would be a very good.
Diversified business, which has had a good track record of growth. If you. If you look at what we've been able to do with that business. As you look at the international pharma business and Thats, a business that Tom led and he's done a really nice job of continuing to show growth with that international pharma business. So I think on balance we are going to be open.
And to other considerations, we've done that and the past will continue to do that but I clearly believe the right now the best way. We can proceed as street. These 3 great businesses.
Thanks for the next question please.
Absolutely. Our next question today comes from velocity Brassard with Barclays. Please go ahead.
Hello, and velocity and the queue is you're on mute perhaps.
On mute.
Hi, Marni and Thanks next question just going back to the IPO on Salto again lots of for clarification on that.
And any point of time do you do consider keeping salto and the.
And I care business are confidential and together, we had the same dynamics <unk> lagged and cash pay and bus mined and.
And maybe you and iterations on the management team being trained on this thanks.
Okay.
So.
Very fair question, we do recognize that there have been some very successful companies out there with a combination of aesthetic business with an eye care business. So it is something we evaluate we felt the best way to unlock value and this market and going forward for the future is to create the pure play companies that pure play I Health company, which we will be.
And al and then a pure play medical and aesthetic company with Solta and there are some synergies.
And as fair there are some synergies, but we felt the pure play allow us to focus on these individual business was the approach that would realize the best value for our Bausch health.
Shareholders.
Thanks, So just a follow up also on yes on the recent headlines around for $3 billion claim and the implications for the spinoff bolt and <unk>.
And alarm on charter.
Yes, we are.
Obviously, you have seen it we.
We don't agree.
We think theres, some mischaracterizations and misrepresentations by the plaintiffs.
In terms of that that claim against us in terms of the recent Bloomberg story.
We believe that the bausch and lomb.
Spin off has no connection to the pending litigation and we think that we announced to be and El spinoff going back now a year ago. So we don't think theres any any misrepresentation. We think they've made misrepresentations. We think we're going to be able to continue to move for with our programs and we don't think there's any legal basis basis for the concerns raised.
By the plaintiffs and we believe it is merely a litigation tactics that they are employing to go forward with this we obviously have already settled with the class and we believe that we've taken care of certainly the majority of this and to suggest that 3 billion numbers. We would just leave that for them to try to rationalize why they suggest that but we.
Certainly think misrepresentation mis characterizations of what they've stated.
Okay, Let me take.
And maybe for 1 more question. Please absolutely and our final question comes from Tom and just 1 Goldman Sachs. Please go ahead and.
Hi, This is Dan on for Terence Thanks for taking our question just 1 on the U S contact lens market I was wondering if you could provide a little more commentary on the debt on the dynamics youre seeing within the Si Hy daily space and then what Youre seeing in terms of recovery from the pandemic and whether you think the upcoming back to school season will be somewhat normalized.
Sure I was actually just with our U S Si Hy daily and actually entire vision care team.
For about 2 weeks ago, and they are really excited about what they're seeing and the marketplace. They shared with me and some of their data obviously, Tim went through the data in terms of their share growth in the quarter, albeit off of.
Covid impacted 2020 quarter has been outstanding but we are really pleased with what we're seeing in terms of the uptake of our Si Hy daily product. We believe that we have found a very important opportunity with our Si Hy daily product.
And known in the United States is infused ultra 1 day outside of the United States, we have and opportunities truly.
Health those patients who are facing the difficulty of wearing their product for a full 16 hours a day and that opportunity where we've infused.
And the infuse product concludes and auto protected intellectual life is something that we think is really important to the patient, allowing the patient to have greater comfort through the entire day and we've got great data and the team is seeing great data in terms of where they are able to talk to the doctors about the opportunity with the product to date the.
Any of the product that we are receiving new patients is coming from other players in this space. So we're cannibalizing other companies not our own business, which obviously, we think helps us to continue to pick up market share for the future. So we do think they sign and market today, and the United States and somewhere in the let's call it mid teens level, but we.
Do expect back.
To see that continue to grow as a percentage of the overall alright.
Vision care business, we will see a high daily growth from the mid teens to beyond that.
A real significant future growth potential for us and the United States, but also around the world. So very pleased team is really motivated they've been out working and just coming off and new sales meeting so really excited about what it's going to mean for the future.
Well. Thank you everyone for joining us today very much appreciate your interest and as a company look forward to talking to and the future.
Thank you everybody and thank you Sir This concludes today's conference. We thank you all for attending today's presentation and you may now disconnect your lines and have a wonderful day.