On May 8, 2018 Valeant Pharmaceuticals International, Inc. (NYSE/TSX: VRX) ("Valeant" or the "Company" or "we") reported its first-quarter 2018 financial results (Press release, Valeant, MAY 8, 2018, http://ir.valeant.com/news-releases/2018/05-08-2018-120156169 [SID1234526270]).

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"Our first-quarter 2018 results demonstrate that we are making significant progress in our turnaround. For the first time since 2015, the Company delivered overall organic revenue growth2 that tracked above expectations and was driven by our Branded Rx and Bausch + Lomb/International segments," said Joseph C. Papa, chairman and CEO, Valeant. "As a result, we are raising our full-year revenue and Adjusted EBITDA (non-GAAP) guidance ranges to reflect our strong performance in the first quarter."

Company Highlights

Executing on Core Businesses and Advancing Pipeline

Reported revenue in the Bausch + Lomb/International segment decreased by 3% compared to the first quarter of 2017 primarily due to divestitures and discontinuations; revenue in this segment grew organically2 by 2% compared to the first quarter of 2017
Grew revenue in the Global Vision Care business by 15% compared to the first quarter of 2017; revenue in this business grew organically2 by 9% compared to the first quarter of 2017
Grew revenue in the aggregate in China by 24% compared to the first quarter of 2017; revenue in this business grew organically2 by 15% compared to the first quarter of 2017
Launches underway for additional two of the "Significant Seven" products, including:
VYZULTA, a treatment option for glaucoma
LUMIFY, the only over-the-counter eye drop with low-dose brimonidine for the treatment of eye redness
Reported revenue in the Branded Rx segment decreased by 6% compared to the first quarter of 2017 primarily due to divestitures and discontinuations, and declines in the Ortho Dermatologics business; revenue in this segment grew organically2 by 8% compared to the first quarter of 2017
Grew revenue in the Salix business by 40% compared to the first quarter of 2017
XIFAXAN revenue increased by 49% compared to the first quarter of 2017
RELISTOR franchise revenue increased by 54% compared to the first quarter of 2017
APRISO revenue increased by 31% compared to the first quarter of 2017
UCERIS franchise revenue increased by 27% compared to the first quarter of 2017
The U.S. Food and Drug Administration (FDA) approved PLENVU, a 1-liter bowel cleansing preparation for colonoscopies, which is expected to be available in the third quarter of 2018
Continued to stabilize the Ortho Dermatologics business
Increased dermatology sales force by approximately 25% in January 2018
Expanded the SILIQ launch after executing REMS certifications for more than 2,500 physicians, which includes more than 50% of the target prescribers
Launched RETIN-A MICRO 0.06% topical treatment for acne in January 2018 with sales tracking above the Company’s expectations
The FDA accepted New Drug Applications for:
ALTRENO3 (IDP-121), an acne treatment in lotion form; PDUFA action date of Aug. 27, 2018
BRYHALI3 (IDP-122), a topical treatment for plaque psoriasis; PDUFA action date of Oct. 5, 2018
Pivotal efficacy and safety data for DUOBRII3 (IDP-118), a topical treatment for plaque psoriasis, was published in The Journal of the American Academy of Dermatology
Completed Phase 2 studies for IDP-120, a topical treatment for acne that contains a fixed dose combination of tretinoin and benzoyl peroxide gel; Phase 3 studies are expected to begin in the second half of 2018
Entered into an exclusive licensing agreement with Kaken Pharmaceutical Co., Ltd. to develop and commercialize products containing a new chemical entity that, if approved, would represent a novel drug with an alternate mechanism of action in the topical treatment of psoriasis
Reducing Debt and Extending Maturities

Repaid approximately $280 million of debt with cash on hand in the first quarter of 2018
Repaid $200 million of the Company’s senior secured term loans, using cash on hand, in January 2018
Redeemed remaining $71 million aggregate principal amount of our outstanding 7.000% Senior Unsecured Notes due 2020, using cash on hand, on March 30, 2018
Issued $1.5 billion aggregate principal amount of 9.250% senior notes due 2026 on March 26, 2018
Used net proceeds, along with cash on hand, to repurchase, through cash tender offers, approximately $1.45 billion aggregate principal amount of outstanding Senior Notes due 2020 and 2021, and to pay fees and expenses
Resolving Legal Issues

Achieved dismissals or other positive outcomes in resolving and managing litigation and investigations in approximately 20 matters since Jan. 1, 2018
The UCERISarbitration was decided in favor of Valeant with the Arbitral Tribunal issuing a ruling that rejected the other party’s claims and ordering that they pay the entirety of Valeant’s legal costs
Agreed to resolve the SOLODYNantitrust litigations, with the class settlement ($58 million) being subject to final court approval
Agreed to resolve California Department of Insurance matter relating to Philidor, with no finding of admission or liability by Valeant
Summary judgment granted that upheld validity of RELISTOR Injection patent, U.S. Patent No. 8,552,025, preventing generic competition until 2024
First-Quarter 2018 Revenue Performance
Total reported revenues were $1.995 billion for the first quarter of 2018, as compared to $2.109 billion in the first quarter of 2017, a decrease of $114 million, or 5%. Excluding the impact of the 2017 divestitures and discontinuations of $214 million and the favorable impact of foreign exchange of $66 million, revenue grew organically2 by 2% compared to the first quarter of 2017, primarily driven by growth in the Salix business and the Bausch + Lomb/International segment. Organic2 revenue growth was partially offset by declines in the Ortho Dermatologics business and lower volumes in the U.S. Diversified Products segment, attributed to the previously reported loss of exclusivity for a basket of products.

Bausch + Lomb/International Segment
Bausch + Lomb/International segment revenues were $1.103 billion for the first quarter of 2018, as compared to $1.134 billion for the first quarter of 2017, a decrease of $31 million, or 3%. Excluding the impact of divestitures and discontinuations of $113 million, and the favorable impact of foreign exchange of $65 million, the Bausch + Lomb/International segment grew organically2 by approximately 2% compared to the first quarter of 2017.

Branded Rx Segment
Branded Rx segment revenues were $593 million for the first quarter of 2018, as compared to $629 million for the first quarter of 2017, a decrease of $36 million, or 6%. Excluding the impact of divestitures and discontinuations of $83 million and the favorable impact of foreign exchange of $1 million, the Branded Rx segment grew organically2 by approximately 8% compared to the first quarter of 2017. Compared to the first quarter of 2017, the Salix business grew revenue by 40%, largely driven by sales growth in XIFAXAN and other promoted products.

U.S. Diversified Products Segment
U.S. Diversified Products segment revenues were $299 million for the first quarter of 2018, as compared to $346 million for the first quarter of 2017, a decrease of $47 million, or 14%. The decline was primarily driven by decreases attributed to the previously reported loss of exclusivity for a basket of products and by the impact of the 2017 divestitures and discontinuations of $18 million.

Operating Loss
Operating loss was $2.281 billion for the first quarter of 2018, as compared to an operating income of $211 million for the first quarter of 2017, a decrease of $2.492 billion. The decrease in operating results for the first quarter of 2018 primarily reflects goodwill impairment charges of $2.213 billion related to the Salix and Ortho Dermatologics businesses. These charges were recognized when the Company adopted new accounting guidance from the Financial Accounting Standards Board in January 2018.

Net Loss
Net loss for the three months ended March 31, 2018 was $2.693 billion, as compared to net income of $628 million for the same period in 2017, a decrease of $3.321 billion. The decrease in net income is primarily attributed to a decrease in the benefit from income taxes and the goodwill impairment charges recorded in the first quarter of 2018. Net income in the first quarter of 2017 included an income tax benefit of $908 million from a non-cash internal restructuring in that quarter.

Adjusted net income (non-GAAP) for the first quarter of 2018 was $312 million, as compared to $273 million for the first quarter of 2017, an increase of 14%.

Operating Cash
The Company delivered $438 million in operating cash in the first quarter of 2018, which was above expectations due to reductions in working capital and despite settlement payments of $170 million that were made in the first quarter for certain legacy legal matters, including the SOLODYN Antitrust Class Actions and Allergan Shareholder Class Actions.

Cash flow in the first quarter of 2018 decreased by $516 million, as compared to $954 million in the first quarter of 2017. The first quarter of 2017 included a one-time cash receipt attributed to our fulfillment agreement with Walgreens.

EPS
GAAP Earnings Per Share (EPS) Diluted for the first quarter of 2018 was $(7.68), as compared to $1.79 for the first quarter of 2017.

Adjusted EBITDA(non-GAAP)
Adjusted EBITDA (non-GAAP) was $832 million for the first quarter of 2018, as compared to $861 million for the first quarter of 2017, a decrease of $29 million, primarily driven by the impact of the 2017 divestitures of $75 million, offset by growth in the Salix business.

2018 Financial Outlook
Valeant has raised guidance for the full year of 2018 and has not changed anticipated dates for products losing exclusivity (LOE) later this year:

Full-Year Revenues in the range of $8.15 – $8.35 billion from $8.10 – $8.30 billion
Full-Year Adjusted EBITDA (non-GAAP) in the range of $3.15 – $3.30 billion from $3.05 – $3.20 billion
Other than with respect to GAAP Revenues, the Company only provides guidance on a non-GAAP basis. The Company does not provide a reconciliation of forward-looking Adjusted EBITDA (non-GAAP) to GAAP net income (loss), due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. In periods where significant acquisitions or divestitures are not expected, the Company believes it might have a basis for forecasting the GAAP equivalent for certain costs, such as amortization, which would otherwise be treated as non-GAAP to calculate projected GAAP net income (loss). However, because other deductions (such as restructuring, gain or loss on extinguishment of debt and litigation and other matters) used to calculate projected net income (loss) vary dramatically based on actual events, the Company is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income (loss) at this time. The amount of these deductions may be material and, therefore, could result in projected GAAP net income (loss) being materially less than projected Adjusted EBITDA (non-GAAP). The guidance provided in this section represents forward-looking information, and actual results may vary. Please see the risks and assumptions referred to in the Forward-looking Statements section of this news release.

Additional Highlights

Valeant’s cash and cash equivalents were $909 million at March 31, 2018
The Company’s availability under the Revolving Credit Facility was approximately $1.1 billion at March 31, 2018
Conference Call Details

Date:

Tuesday, May 8, 2018

Time:

8:00 a.m. EDT

Web cast:

http://ir.valeant.com/events-and-presentations

Participant Event Dial-in:

(844) 428-3520 (North America)

(409) 767-8386 (International)

Participant Passcode:

6185877

Replay Dial-in:

(855) 859-2056 (North America)

(404) 537-3406 (International)

Replay Passcode:

6185877 (replay available until July 8, 2018)