Bausch Health Companies Inc. (BHC) Q2 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to the Bausch Health Second Quarter 2021 Earnings Call. [Operator Instructions]. As a reminder, this call is being recorded. I'd now like to turn the conference over to Art Shannon, Senior Vice President, Head of Investor Relations and Global Communications. Please go ahead, sir.

Thank you, Rocco. Good morning, everyone, and welcome to our second quarter 2021 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer, Mr. Joe Papa; and Chief Financial Officer, Mr. Sam Eldessouky; Bausch former CEO, Tom Appio; and CEO of Solta, Scott Hirsch. In 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. Before we begin, we'd like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as they contain important information. This presentation contains non-GAAP financial measures. For more information about these measures, please refer to Slide 2 of the presentation. Non-GAAP reconciliations can be found in the appendix of the presentation posted on our website. Finally, financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure. With that, it is my pleasure to turn the call over to Joe.

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 over to Sam Eldessouky, our CFO, to review the financial results in detail and discuss our 2021 guidance. We'll then review the segment results and recovery. Finally, we'll provide an update on the spin-off of Bausch & Lomb before opening the line for questions. But before I address these topics, I would like to comment on this morning's announcement that we have decided to pursue an IPO of our Solta Medical business. Over the last few months, we completed a thorough review of the strategic alternatives for Solta, including audit, the financial performance, growth drivers and future revenue opportunities. We believe a Solta IPO will help us accomplish 2 important objectives. First, we intend to use the proceeds of the proposed IPO to pay down debt, which will help effectuate the previously announced spin-off of Bausch & Lomb. Second, we believe an IPO of 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 future optionality. Simply stated, we believe that the actions we've announced will result in the creation of 3 attractive, focused companies: Bausch & Lomb, a pure-play integrated eye health company; Bausch Pharma, a global diversified pharmaceuticals business; and Solta Medical, a leading global provider in the medical aesthetics market. Moving now to Slide 4. While there are some pockets of variability due to new COVID variants, our overall recovery from the impact of the pandemic remains in progress over the second quarter. In 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 an international consumer product due to a quality issue at a third-party supplier that I will discuss in more detail when we 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 in the second quarter. We continue to see strong performance, including market share gains and recovery from leading brands. In fact, LUMIFY achieved a record sales of $29 million in the second quarter, and we expect it now to be a $100 million brand on an annualized basis. We also delivered near-term R&D catalysts during the quarter, including we completed the enrollment of a Phase III trial for NOV03. We obtained FDA approval for and launched ClearVisc, and we are submitting an NDA for XIPERE with a PDUFA date of October 30, 2021. Debt repayment remains a priority as we continue to focus on accelerating strategic alternatives to unlock shareholder value. We repaid $300 million of debt in the second quarter of 2021 using cash generated from operations. Year-to-date, as of August 3, we have reduced debt by $1.25 billion, which includes a $600 million in connection with the Amoun divestiture, which we announced the closing of yesterday. And today, we announced that we plan to redeem an additional $350 million of bonds, 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 a 2012 patent settlement agreement on Glumetza. As we disclosed in our 10-Q filing, we have now reached agreements 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 from 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 to report second quarter revenue of $2.1 billion, up 26% on a reported basis and 23% organically. Looking at our second quarter 2021 and year-to-date performance, we're seeing a nice recovery in all our businesses, and more importantly, very nice sequential growth in 2021. As you recall, last year, COVID-19 had a negative impact on our business with second quarter 2020 being most impacted. Therefore, it's important to point out that this current quarter benefits from this comparison. As the market stabilize and our teams continue to execute on our strategy, we're seeing a steady progress towards recovery. I want to spend a minute addressing our recovery. Similar to last year, the recovery varies by type of business and by country. To date, despite the emergence of the delta variant and -- of COVID-19 in the U.S., in general, life and commerce appears to be trending back towards normal. But outside the U.S., certain countries continue to face COVID-19 challenges and others that are impacting the pace of market recovery. In order to give you a sense of our 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 pre-pandemic levels. If we turn to Slide 5, starting with the B&L segment. Second quarter revenue of $934 million was up 33% organically. All our businesses within the B&L segment contributed to the growth this quarter. Now turning to the Global Vision Care business. Second quarter revenue of $216 million was up 50% organically. The U.S. was up 102% and international up 38%. The growth in the U.S. demonstrates the overall steady recovery in the U.S. market, with growth coming from Biotrue ONEday and ULTRA brand, coupled with the success of our recently launched SiHy INFUSE, which was a key contributor in the quarter. International Vision Care organic growth of 38% reflects the recovery in the market that we participate in mainly in Asia and parts of Europe. Biotrue ONEday, ULTRA and the SofLens family were all key contributors to the growth in 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 that we're not all the way back to pre-COVID 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 on to our Global Surgical business. Second quarter revenue of $185 million was up 97% organically, with the U.S. 92% and international up 100%. The growth in our surgical business reflects a steady market recovery. Both the U.S. and international surgical growth were driven by strength in the interior disposables with recovery in all regions led by Asia and Europe. To provide you with a point of reference regarding our recovery, the current quarter performance was up 1% organically as compared to second quarter 2019 performance. Turning to our Global Consumer. Second quarter revenue of $341 million was up 9% organically with a U.S. consumer business up 20% and international consumer business down 2%. The growth in the U.S. consumer business was driven growth in our eye vitamins, Ocuvite and PreserVision, coupled with the strong LUMIFY performance. We're very pleased with the strong commercial execution in 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 consumer was down 2% organically, mainly driven by the product recall in Europe. Excluding the impact of the product recall, the international consumer business growth was in line with the U.S. consumer business growth. Overall, the global consumer business continued to perform well, gaining market share with a healthy growth trajectory. Excluding the impact of the product recall, the current quarter performance was roughly 6% organically as compared to second quarter 2019 performance. Finally, for B&L, the Ophtho Rx business second quarter revenue of $192 million was up 27% organically versus second quarter 2020. The current quarter benefited from a comparison to a soft quarter last year due to eye surgeries being postponed due to COVID-19. The growth in the second quarter of 2021 was driven by higher volumes in our key promoted brands, PROLENSA, Besivance, LOTEMAX SM and VYZULTA. We've been making steady progress in expanding access and MedD coverage for VYZULTA and LOTEMAX SM. Although this increases the level of rebates, the improved access will position both VYZULTA and LOTEMAX SM to continue impressive TRx growth trajectories. In the current quarter VYZULTA saw a 31% TRx growth versus second quarter 2020. Finally, LOEs continue to be a drag on our U.S Ophtho Rx portfolio, continued erosion from LOE of LOTEMAX 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 $516 million was up 28% from Q2 2020. Performance was mainly driven by XIFAXAN, that was up 28%; RELISTOR was up 23% and TRULANCE was up 65%. The 28% increase in XIFAXAN was all due to volume, with a 1/4 of the volume increase as a result of the increased end consumption and then the remainder of the increase was due to the nonrecurrence of the Q2 2020 wholesale and retail inventory drain that we experienced last year due to COVID. As of the end of Q2 2021, our inventory levels were in line with our expectation and historical trends. XIFAXAN TRx trends are certainly moving in the right direction. As we discussed in prior quarters, COVID-19 has negatively impacted Rxs in the long-term care setting. While we're pleased with the recovery trend and sequential growth for the XIFAXAN prescriptions overall, prescriptions within the long-term care channel have not fully recovered to pre-COVID-19 levels. Despite this lag, we expect the long-term care business will rebound. The 65% increase in TRULANCE was mainly driven by volume. If you recall, about a year ago, we secured several meaningful mass care wins for TRULANCE, which helped us drive Rx and volume growth. Overall, we feel good about the growth trajectory and the recovery trends to pre-COVID levels within our Salix business. To provide you with a point of reference, the current core performance was up 1% as compared to second quarter 2019 despite the impact of Apriso and Uceris LOEs. Excluding the LOE impacts, the base Salix business grew organically 9% in the current quarter as compared to Q2 of 2019. Now turning to the International Rx segment. Second quarter revenue of $313 million was up 17% organically, driven by higher volumes of 19%, partially offset by lower net realized pricing. Europe and mainly Poland led the growth for the International Rx segment. Moving 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. Thermage FLX continues to demonstrate an impressive growth trend mainly in China and the U.S. The medical derm business was down 15% organically, mainly driven by declining LOE assets on lower net realized pricing. 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 LOE assets partially offset by growth in Ativan and Aplenzin. Our generics business was down 40% organically with the biggest factor being the natural erosion of volumes and net pricing as additional competitors entered the market of our generic products. Finally, dentistry posted strong 225% growth organically driven by ARESTIN as it rebounds from prior year COVID-19 impacts. Turning now to the core P&L on Slide 6. We already covered revenues, so I'll start with the gross profit. Gross profit margin was favorable by 60 basis points versus Q2 2020. All our businesses contributed to the improvement in gross margin, which is coming from favorable manufacturing variance as a result of higher sales volume with a favorable year-over-year comparison. We continue to identify and implement operating efficiencies within our global supply chain, which enabled us to absorb COVID-19 factors and other mix impacts. Note that in 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 2021 and beyond. If you recall, second quarter of 2020 performance was negatively impacted by COVID-19 restrictions, which required us 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 $2.45 billion to reflect our expectation of the full year spend trend. R&D increased by 6% as compared to Q2 2020 as we gradually continued to return to a more normalized run rate in supporting our future pipeline and key projects. We do expect that spend trajectory will increase in the second half of 2021. That said, we're updating 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 recall in our consumer business. Our adjusted EBITDA margin in 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 on a GAAP basis. Adjusted for the sum of legacy legal liabilities, Amoun divestiture and separation-related costs, the cash generated from operations was $425 million. We are very pleased with the strong cash generation in the quarter and the year-to-date. Therefore, we're updating our guidance for adjusted cash generation for the full year from roughly $1.5 billion to roughly $1.6 billion. Turning to Slide 8. We continue to make very nice progress in our debt paydown. During the second quarter, we repaid $300 million of debt with cash from operations, bringing our year-to-date debt repayment to $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 0.5 turn from 7x last quarter to 6.5x in 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 in connection with the Amoun divestiture, bringing our year-to-date total debt repayment as of today to $1.25 billion. Furthermore, we today announced a planned redemption of $350 million of bonds on September 2, 2021, using cash on hand and cash from operations, bringing year-to-date aggregate debt reduction to $1.6 billion. Something to 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 in our leverage ratio in the second half of 2021. Recall, Q2 2020 had an exceptionally low EBITDA due to the negative impact from COVID-19, and we began to recover in the second half of 2020 while still reducing our OpEx spend. 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. For the remainder of 2021, we expect our net leverage to remain flat or slightly increase versus our 6.5x leverage we have today. On Slide 9, we continue to make 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. This change is the result of 3 factors: First, it reflects a loss of $120 million of Amoun revenue following the July 26 closing; second, it reflects unfavorable currency movements relative to our May guidance of $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 Amoun of $40 million and the unfavorable currency movement of $10 million. Our revised guidance for adjusted EBITDA is in the range of $3.35 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 B&L on Slide 14. Global Vision Care saw a strong organic revenue growth, both in the U.S. and internationally, where organic revenue growth was driven by a rebound in the Asia Pacific region and the strong performance of AQUALOX daily lenses. In Japan, we saw revenue growth of 114% versus the second quarter of 2020. Global Consumer organic revenue growth of 9% was driven by Ocuvite, PreserVision and LUMIFY. But as I previously mentioned, we initiated a recall of the multipurpose solution product based on a quality issue at 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 affect 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. Importantly, this issue has been addressed, and the Milan 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, in global ophthalmology prescription business, VYZULTA TRxs grew by 31% compared to the second quarter of 2020, and we received statistically significant top line results from the first Phase III trial for NOV03. The charts on Slide 15 show the recovery trends in key areas across this segment, all of which point to a recovery in progress for the B&L business. Turning now to Slide 16 for an update on Salix. Organic revenue demonstrates a recovery in progress of 28% compared to the second quarter of 2020. XIFAXAN revenue grew by 28% in the quarter and overall new Rx market share grew to an all-time high of 87.1% in the second quarter of 2021. TRULANCE TRxs grew by 27.8% in the second quarter versus last year compared to a market growth of approximately 5%, and TRx market share grew to 7% in the second quarter compared to 5.9% last year. Finally, RELISTOR TRxs grew by 12.5% in the second quarter versus last year compared to a market growth of about 1.4%. The charts on Slide 17 demonstrates the positive Salix TRx trends we are seeing for our key promoted products, which are either recovering from the impact of the pandemic, such as in the case of XIFAXAN or continuing to perform well in the case of TRULANCE and RELISTOR. Moving to Slide 18. 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 Rx products. And we've shown the strong track record of quarterly organic growth for this segment going back to the first quarter of 2019 and the chart 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 an IPO of Solta Medical, a leading global provider in the medical aesthetics market. Post IPO, we expect the company would have a tax rate in the mid-teens, would be domiciled in Canada, and we intend to finally list Solta on the NASDAQ. Solta Medical had $253 million of revenue in 2020, a revenue CAGR of 32% from 2017 to 2020, an adjusted EBITDA margin of 53% and a gross margin of 75%. With me today is Scott Hirsch, who will lead the Solta business as CEO effective September 1, 2021. Scott joined Bausch Health in 2016 and currently serving as the President of Ortho Dermalogics and OraPharma and our Chief Strategy Officer. In addition, Paul Herendeen 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 and 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 Solta Medical business. 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 Thermage 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 in 1995, launched its first commercial product in 2002 and was acquired by Bausch Health in 2014. It has a track record of pioneering technologies in the nonsurgical skin tightening and skin resurfacing categories, along with body contouring. Solta Medical's energy-based medical devices are sold to dermatologists, plastic surgeons, physicians and medical spa practitioners around the world. Solta's key products include Thermage, Clear + Brilliant, Fraxel and VASER, 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 Thermage FLX and Clear + Brilliant Touch and expanded the business' geographic footprint. Furthermore, the business as a cash pay business has effectively no reimbursement risk. Moving on to Slide 22. The growth drivers of the business include exposure to the strengthening underlying market dynamics in the aesthetic industry, along with geographic expansion and product portfolio advancements. The business is today primarily centered in Asia and the United States and in the early stages of a broader European expansion with Latin America as the next potential market to systematically enter. Here, we provide the historical financial 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 Solta to have approximately $30 million of stand-up 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 bottom line. Finally, I will point you to additional information about the portfolio and the peer group on Slides 27 and 28 in the appendix to help you develop your contextual reference for the business. I'll now turn it back over to you, Joe.

Thank you, Scott. We are looking forward to working with 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 of the team that will lead Bausch Pharma post separation. I'm pleased to note that upon completion of the IPO, Tom Appio will serve as CEO of a Bausch Pharma. Tom joined the company from Bausch & Lomb in 2013, has been serving as our President and Co-Head Bausch & Lomb International business since August of 2018. In addition, we are announcing that Bob Spurr, who's currently the President of Salix Pharmaceuticals, will be the President of Bausch Pharma's U.S. business. Finally, Bob Power is one of our current directors, who will serve as Chairman of the Board of Bausch Pharma upon completion of the separation. I'd like to invite Tom Appio to say a few words.

Thank you, Joe. It's an honor and privilege to lead Bausch Pharma at this important point in its history. We see many opportunities ahead for a global diversified pharmaceutical business with leading positions in 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'm looking forward to working with Bob Power and Bob Spurr and the rest of the management team to build and deliver value for Bausch Pharma's shareholders. I will turn the call back over to Joe now.

Thank you, Tom, and look forward to working closely with you as you transition into your new role. Turning to Slide #25. We are dedicated to unlocking the value for our shareholders, and we are making good progress on the planned spin-off of Bausch & Lomb. We have completed the Bausch & Lomb financial segmentation. We have named key members of Bausch & Lomb and the Bausch Pharma leadership team and are on track to complete by October 1 our internal objectives necessary for the spin of B&L to be achieved. We have filed an S-1 for Bausch & Lomb 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. We anticipate submitting a first S-1 for Solta Medical in 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 remain committed to unlocking shareholder value across our 3 attractive businesses as soon as possible, and today's announcement represents a step forward in that process. To summarize, the steps we are taking will enable us to pay down debt by accessing the equity capital markets with B&L and the Solta IPOs by unlocking the value of these attractive assets that have been undervalued as part of an aggregated company. Our goal is to create 3 distinct and focused businesses: Bausch & Lomb, a pure-play integrated eye health company; Bausch Pharma, a global diversified pharmaceutical business; and Solta Medical, a leading global provider in the medical aesthetics market. With that, operator, I'd like to open up the line for questions, please.

[Operator Instructions]. Today's first question comes from Chris Schott with JPMorgan.

I appreciate the questions. I just had two probably centered around the same topic, trying to get at what the Solta IPO implies for the timing of a B&L separation. So maybe first on the Solta IPO. Would the plan be for a smaller kind of, let's say, 20% spin of the business then distribute these shares to shareholders? Or do you look to do a larger capital raise? I'm just trying to get my hands around just how much the Solta IPO could help address the debt load. Obviously, it seems like a really nice value unlock, but just maybe specifically on the debt load. And then my second question, which I guess is really the heart is what's a reasonable time line to think about a B&L IPO and separation at this point? I guess, with the Solta IPO later this year, early next, should we assume a B&L separation would occur after that event? Or could these processes be done in relatively similar time frames, assuming that the financials are where they need to be?

Thank you, Chris. I'll take that question. First of all, good question. Our expectations on the Solta IPO is that we would look to register somewhere in that 20% to 30% of an equity sale of Solta Medical, somewhere in that range of a normal type of IPO to help address our debt. We do believe that we can do it as early as the end of 2021. So we'll look to try to do it in the fourth quarter, but obviously, it could go longer. It depends on, obviously, market conditions. The question on the B&L spin. I go back to what we said previously. Our view on the B&L spin is we will complete all of the necessary internal objectives to be ready for B&L spin after October 1, 2021. However, as you appropriately point out, we do need to sort 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 value of Solta. If you compare it with some of the other peer companies in the space, I think you'll 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 plan. I'm not going to give a specific timing for the B&L other than saying we will be ready after October 1, 2021. We just need to solve all the debt question. Obviously, you saw today, we've made great progress in what we paid down already this year based on the sale of the Amoun business, based on the EBITDA, based on the cash generation we've had, based on improving working capital efficiency, all the things that we've talked about before are all helping us to unlock this value.

Our next question today comes from Doug Miehm with RBC Capital Markets.

I just want to 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're expecting, Sam, over the next several quarters? Like should we be using a $400 million or something a bit lower than that? And can you explain to me how the legal settlement is going to impact that outlook on an ongoing basis?

Sure, Doug. And good question. So far we've been very pleased with the cash generation. As I mentioned, it's $425 million adjusted in this quarter and which brings really a good number for year-to-date. As you look forward, I think we have to step back and think about a couple of factors here. We've made a very nice progress on our working capital initiatives. And I think we've had our inventories starting from last year into this year come down to probably, I'll call it, the lowest level that we've seen in a while about roughly just shy of $1 billion. So it's a little 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, that's where you see the inventory and the cash flow generation year-to-date. I don't expect the working capital and the inventory specifically to be coming down much further as we look into the second half. And that's why when you start thinking about the second half, we will see benefits still coming from working capital, but it's not going to be at the same levels that we've seen in the first half. That's why we're upping our guidance from $1.5 billion to $1.6 billion. In terms of the legal expenditure, that will be a column to cash. We do expect that we will pay certain elements of legal expenditure in the second half of the year. The terms and the timing is still not 100% certain and determined, but we do have in our plan, and that's factored into our $1.6 billion.

Our next question comes from Annabel Samimy with Stifel.

So Solta is clearly a high-growth component of derm. And in the last several years, you'd leverage this Ortho Derm platform, I guess, to help the growth there. How much are you going to have to build in terms of infrastructure to keep the company growing as it is? Or is there already a tremendous amount of leverage that you have there? And then just secondly, bigger picture, noticing a bit of a pattern here with all the valuable components of Bausch Health? Do you have any intention of doing this with Salix as well because what you're left with is Bausch Pharma, which is a relatively diversified company, but we've always spoken about how pure-play companies such as, say, a GI company could unlock greater value. So are there any further intentions here with Bausch Pharma?

Sure. Let me try to take them in order here. First of all, on the Solta business, we are really excited. I mean, any business that you can see that kind of compounding the growth that we've seen in terms of revenue with Solta 30-plus percent revenue growth, 80-plus percent compounded annual growth on the EBITDA side, obviously, it speaks to that high-growth capability for this business. And importantly, an opportunity, we think, to unlock some significant value and go after that IPO. So we're really excited about that. In terms of the infrastructure, we have put forth our belief on exactly what's there today. Scott made a comment that it will take approximately standup cost in the ballpark of $30 million to do that. But with the growth in the overall Solta business, we feel that, that focus that we could 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 that's a great opportunity. And in the meantime, what we've been doing with the rest of the medical derm is we've been managing that business to increase the profitability and to be smart about where we're going with the promotions in the medical derm. So we're going to continue that approach as we think about the future. The question about any intention to do anything further with Salix or any of our other businesses, I think the way I'd answer it is that as a company, 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 9 plus -- $9.5 billion of debt since that time. But we knew we had too much, and we've been working very diligent to reduce that 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 billion range. So we've had to clean up, I'd say, somewhere close to $12 billion of some of the challenges we found ourselves in going back 5 years. Having said that, we're going to continue to look to try to unlock shareholder value in all of our businesses. We think we've done a really good job of putting incremental sales promotion resources behind the Salix business. They've done incredibly well. The XIFAXAN 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 an 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, the B&L pure-play eye health company, the 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.

Our next question today comes from Umer Raffat with Evercore.

I had three, if I may. First, Joe, I want to say congratulations to Tom, to Bob Spurr, to Scott and Paul. And my question really was, the leadership team across B&L, across Solta as well as across the Bausch Pharma, it's a very capable leadership team. However, if you had asked a group of investors where each of this -- which business, each of this leadership team will be spearheading, the current presentation is not what they would have guessed. For example, Tom's background is in B&L, but he's heading the non-B&L business and vice versa. So I'm just trying to understand how Board thought about all of this? And was this one of the reasons with ValueAct departure or not? Secondly, on Solta, I'm trying to understand how you're 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 -- is Solta shielded from that or not? And then finally, 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 to Sam for the second question. And between Scott and I will answer that last part of your question. So leadership. We conducted a search. As we thought about Bausch Pharma, we looked internally and externally. And the Board was very involved with the search. And as we went through the search, we felt that the best person to head up the Bausch Pharma business was Tom Appio, and therefore, we made that decision for -- with Tom. I'd also say that as we thought about the opportunity to create value for our shareholders as we thought about Solta, given Scott has that business today, he's done a great job with that business. And importantly, obviously, we believe Paul has done a great job as well. We thought the combination of Paul as Chairman, Scott as CEO, another great opportunity to take advantage of some of the great resources we have within the team. So it's a process that the Board was very involved with. We've done internal-external searches and had conversations with candidates. We felt, though, to be clear that Tom was the best for the Bausch Pharma business, and Scott was the best for taking on the Solta CEO roles in terms of going forward. So -- that's probably the best way I can answer that question. I believe that ValueAct has -- this has nothing to do with ValueAct. I think Rob Hale has stated as he agrees with our strategy as he departed the company and importantly still is a significant shareholder in our business. So really no -- this has no impact on ValueAct and their decision to depart the Board. That was really just a time management issue for Rob Hale and what he was taking on some incremental Board positions. Sam, do you want to take the Solta leverage and legacy -- legal, please?

Sure. And it's a good question, Umer. So let me start by saying that our main objective here is to unlock the value and unlock the value for Solta. And if you look at the slides that we went through and what Scott covered, it's a business that have a very strong EBITDA. As we think about it, it's probably maybe for modeling purpose, you probably assume maybe a onetime type of debt on it. So it's really going to be in the structure where you would want to make sure that you actually unlock the value and position that business to be, continue that growth that they have and to continue sort of the trajectory that we have from a growth perspective and unlocking the value. In terms of the legal liability or legal legacy liability, there's no direct liability that's associated with Solta. So there will be -- there's nothing really therefore an exposure from a Solta perspective.

So the only thing I'm going to add to what Sam said because I think it's an important comment to also say, if you think about what we've been trying to solve is we've been 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 B&L IPO is to leverage our position in 2 highly attractive businesses and to raise equity, not at the total Bausch Healthcare level, but at the level of the individual attractive businesses, which I'll let the market tell me where, but certainly, at a -- probably at a significantly higher multiple than what we would expect with the overall Bausch Health company. So look at the peers of B&L business where the Alcon trades or the Cooper trades, and I think that gives you some sense of B&L. And I don't want to make any comment 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 business.

Yes. Umer, thanks. I won't directly answer your question, but I will say there's been a great deal of interest in the business, and I'll leave it to you to do a deep dive on peer valuations. But needless to say, I think Solta remains at the early stages of its growth, and that's because of its geographic expansion as well as its product enhancement profile and also the exposure to this market that's growing exponentially. And the IPO enables Bausch Health to participate in that forward growth and the valuation accretion over time. And so there's really the logic behind it. But I will say, yes, there's been great interest in the business, and I have high confidence in your ability to do a deep dive on valuation.

And our next question today comes from David Amsellem with Piper Sandler.

So just a couple, one on Solta and one on medical dermatology. So just on Solta, maybe sort of a little bit of a different angle, and I realize this could be a backward-looking question. But as you certainly know in 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 and potential buyers? And again, realizing that's a backward-looking question, but I'm just trying to get a little bit of background on how you got to this particular decision as opposed to the M&A route. That's number one. Number two is 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. I'm thinking of the significant 7. So once the spin is effectuated, can you talk about investment in medical dermatology and how should we think about that in terms of it being a core business as part of the broader pharma business?

Sure. Good questions. So on the Solta kind of angle, I think you said in terms of thinking about it from an M&A portfolio. I want to be very clear. We have spent 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 several inbound interest -- expressions of interest in 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 the historical growth CAGRs, we think that, that was clearly one 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 an 80-plus percent compound growth rate for the EBITDA, we wanted to make sure our current shareholders understood that. But importantly, as we thought about what does that mean for value creation of Solta, there's -- obviously, it's a couple of different ways we could have done it. If we sold the business, it would have simply capitated the value of that business at whatever price it was today. And what we said is that by going forward with an IPO, it gives us an opportunity to raise additional funds to allow us to help expedite the B&L spin, which is one thing we wanted to do. But it also allows the company in Bausch Pharma -- Bausch Health to also remain for the optionality of that business going forward. That's our belief, a good opportunity to realize that upside value rather than cap the value at whatever the price is today. And when you have a business growing at 87% compounding growth rate on the revenue side, we felt that, that was important. And I certainly know as you look at the peer companies, you'll make your judgment as to relative value, and I'll let each one of you think about that as you go through it. On the question of med derm, absolutely correct. I mean we have looked at the medical derm several times over. And what we've made decisions on is let's promote the products that we'll get the return on investment. Our business is all about looking at ROIs for our business. We did attempt to launch a number of products. We've had some positives, some negatives, but we certainly have looked at all the opportunities in med derm. And we've decided the best way to approach that business is with a very critical eye on return on investment for where we can go with this business and launch products and make sure that we get an appropriate return on investment for our shareholders. We still think there is some opportunity there as we're continuing to move forward some of our med derm products that are in 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.

And our next question comes from Ken Cacciatore with Cowen and Company.

Just going back to the kind of the theme here. I think we can all agree that the public markets will give Bausch & Lomb and Solta a better value. I think we can kind of correspondingly though agree that maybe private equity or private markets would give the diversified businesses a better value kind of given the no growth profile. So can you talk about the parallel process that might still be going on here as we think through the eventual end stage of the spins. Is it active, would you call it? Or is there any kind of nuance you can give us around what might be happening behind the scenes?

Sure. Well, I think since I arrived and Paul arrived, I think we've sold somewhere in the range of $4.5 billion of proceeds accounting now the Amoun business 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 11x. That's based on how much EBITDA we've sold for those businesses. We think that's been the right decision here before. As we continue to go forward, we're going to always listen to strategic alternatives, but we do think that the -- as you stated, the public markets, the IPO for B&L, the IPO for Solta, clearly, we think, will be the best way to unlock the value of both of those businesses. And in fact, it will create, as I said before, 3 great businesses: the B&L pure-play eye health; the Solta aesthetic -- medical aesthetic company; and of course, our Bausch Pharma business, which we think will be a very good diversified business which they have a good track record of growth. If you look at what we've been able to do with that business as you look at the international pharma business, and that's a business that Tom Appio led, he's done a really nice job of continuing to show growth with that international pharma business. So I think on balance, we're going to be open to other considerations. We've done that in the past. We'll continue to do that, but I clearly believe that right now, the best way we can proceed is create these three great businesses.

Our next question today comes from Balaji Prasad with Barclays.

Just going back to the IPO on Solta, again, lots of clarifications that at any point of time, did you consider keeping Solta and the eye care business or components of it together, where you have the same dynamics, same aesthetics appeal and cash reimbursement and maybe iterations of the management team being together on this.

So it's a 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 in this market and going forward for the future is to create the pure-play companies. The pure-play eye health company, which we will with B&L, and then a pure-play medical aesthetic company with Solta. There are some synergy -- your comment is 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.

Just a follow-up also on -- yes, on the recent headlines around the $3 billion claim and the implications for the spin-off, both Bausch & Lomb and Solta?

Yes. We obviously have seen it. We don't agree with the -- we think there's some mischaracterizations and misrepresentations by the plaintiffs in terms of that claim against us in terms of the recent Bloomberg story. We believe that the Bausch & Lomb spin-off has no connection to the pending litigation, and we think that we announced the B&L spin-off going back now a year ago. So we don't think there's any misrepresentation. We think they've made misrepresentations. We think we're going to be able to continue to move forward with our programs. And we don't think there's any legal basis for the concerns raised by the plaintiffs. And we believe it is merely a litigation tactic 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'll just leave that for them to try to rationalize why they suggest that. But we certainly think misrepresentation, mischaracterizations of what they've stated. Okay. Let me take -- we have maybe for one more question, please.

And our final question comes from Terence Flynn at Goldman Sachs.

This is Dan on for Terence. Just one on the U.S. contact lens market. I was wondering if you could provide a little more commentary on the dynamics you're seeing within the SiHy daily space? And then what you're 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. SiHy daily -- actually entire Vision Care team about 2 weeks ago. And they are really excited about what they're seeing in the marketplace. They shared with me some of their data. Obviously, Sam went through the data in terms of their growth in the quarter, albeit off of a COVID-impacted 2020 quarter had been outstanding. But we are really pleased with what we are seeing in terms of the uptake of our SiHy daily product. We believe that we have found a very important opportunity with our SiHy daily product be known in the United States as Infuse ULTRA ONE day outside the United States where we have an opportunity to truly help those patients who are facing the difficulty of wearing their products for a full 16 hours a day. And that opportunity where we've infused the INFUSE product includes an ocular protect -- an electrolyte 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 has seen great data in terms of where they're able to talk to the doctors about the opportunity with the product. To date, the majority of the product that we are receiving new patients is coming from other players in the 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 the SiHy market today in the United States is somewhere in the, let's call it, mid-teens level, but we do expect to see that continue to grow as a percentage of the overall eye care Vision Care business, we'll see SiHy Daily growth from the mid-teens to beyond that and a real significant future growth potential for us in the United States, but also around the world. So very pleased, team is really motivated. They've been out working and just coming off a new sales meeting. So really excited about what it's going to mean for the future. Well, thank you, everyone, for joining us today. We very much appreciate your interest in the company. Look forward to talking in the future. Thank you very much.

Thank you. So this concludes today's conference. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.