Raises Full Year Revenue and Maintains
Adjusted EBITDA Guidance Excluding Aqua Divestiture
- Second Quarter 2024 Financial
Results
- Revenue of $1,184
million
- Reported Net Loss of $50
million, Adjusted Net Income of $147
million
- Adjusted EBITDA of $275
million, or 23.2% of Revenue
- Reported EPS of $(0.10),
Adjusted EPS of $0.30
- Net leverage ratio of 5.6x Adjusted EBITDA
- Year over year growth rates are meaningfully impacted by
a shift in customer purchasing related to the ERP Blackout in 2023,
with an estimated $90 to $110 million of revenue shift from the second
quarter of 2023 into the first quarter of 2023
- Updating full year 2024 financial guidance to reflect
aqua divestiture and expected contribution from Bovaer and
Zenrelia:
- Revenue of $4,410 to
$4,460 million, with organic constant
currency growth raised to 3% to 4%
- Reported Net Income of $314
to $352 million; Reported EPS of
$0.63 to $0.71
- Adjusted EBITDA of $900 to
$940 million; Adjusted EPS of
$0.88 to $0.96
- Completed sale of aqua business in July, resulting in
$1.2 billion of debt paydown in the
third quarter of 2024
- Zenrelia, a JAK inhibitor targeting control of pruritus
and atopic dermatitis in dogs, has been submitted to the FDA,
initiating the final 60-day administrative review period with
approval expected in late September
GREENFIELD, Ind., Aug. 8, 2024
/PRNewswire/ -- Elanco Animal Health Incorporated (NYSE: ELAN)
today reported financial results for the second quarter of 2024,
provided guidance for the third quarter of 2024, and updated
guidance for the full year 2024.
"Elanco made significant progress on the three strategic
outcomes of our IPP strategy in the second quarter – grow revenue,
deliver innovation and improve cash. The second quarter represents
our fourth consecutive quarter of underlying constant currency
revenue growth, with 4% year-to-date growth driven by both pet
health and farm animal. Our portfolio continues to strengthen with
contributions from new products as a key factor in our base
stabilization and overall growth, led by Experior, Adtab and
Credelio Plus. Our first half results have allowed us to raise our
full year revenue guidance and maintain our adjusted EBITDA
guidance, excluding aqua, and maintain adjusted EPS guidance with
lower interest and tax expense fully offsetting aqua," said
Jeff Simmons, Elanco President and
CEO. "We are pleased with the meaningful progress to reduce our
leverage following the completion of the aqua transaction. We are
encouraged by our late-stage pipeline progress, including the
completion of the FDA review of Bovaer and the final FDA submission
for Zenrelia, keeping us on track towards the expected $600 to $700
million of revenue contribution in 2025. Looking forward, we
remain confident in the blockbuster potential of Bovaer, Zenrelia
and Credelio Quattro, and expect their contribution will improve
profitability and operating cash flow to drive continued
deleveraging and increased value creation over time."
Select Business Highlights Since the Last Earnings
Call
- Innovation revenue was $209
million in the first half of 2024 and the company now
expects $400 to $450 million from this group of products for the
full year 2024, as updated in late June.
- For Bovaer, a first-in-class methane reducing feed
ingredient for dairy cattle, the U.S. Food and Drug Administration
(FDA) completed its comprehensive, multi-year review in
May 2024. Commercial activities are
underway, and we expect producers to begin feeding the product in
the third quarter.
- For Zenrelia, a JAK inhibitor targeting control of
pruritus and atopic dermatitis in dogs, the company confirmed in
its late June update that it received confirmation from the FDA
that all major technical sections (Effectiveness, Safety and
Chemistry, Manufacturing, and Controls (CMC)) were complete and
shared expectations of a box warning in the label. As of late July,
all minor sections including Labeling, are complete with the FDA
and the final 60-day administrative window is underway. The company
expects to receive final FDA approval late in September, with
launch in early October. Additionally, the company received
approval in Brazil in the second
quarter, with expected launch in the fourth quarter of 2024.
- For Credelio Quattro, a broad spectrum oral parasiticide
targeting control of fleas, ticks and internal parasites, the
company confirmed in its late June update that two of the three
major technical sections, Effectiveness and Safety, were complete.
Final FDA approval is expected in the fourth quarter of 2024, with
product launch in the first quarter of 2025.
- The company completed the sale of its aqua business on
July 9, 2024. Proceeds from the sale
and year to date operating cash flow have allowed the company to
pay down approximately $1.3B in gross
debt through August 8, 2024.
- The company released its 2023 Environmental, Social and
Governance Report, demonstrating progress in the sustainability of
its internal operations and customer collaborations.
Financial Results
In April 2023, the company
completed the successful integration of the legacy Bayer Animal
Health business into Elanco's ERP system and shared service center
network. As a result of the integration, the company communicated
commercial shipping blackout periods impacting April 2023 (the "ERP Blackout"). As reported last
year, the company believes the first quarter of 2023 benefited from
approximately $90 to $110 million of customer purchases of legacy
Bayer Animal Health products that were shifted from the second
quarter of 2023. This estimated shift meaningfully impacted the
reported growth rates for the second quarter of 2024.
Second Quarter Results
(dollars in
millions, except per share amounts)
|
2024
|
2023
|
Change
(%)
|
CC
Change1
(%)
|
|
|
|
|
|
Pet
Health
|
$579
|
$518
|
12 %
|
13 %
|
Farm
Animal
|
$594
|
$527
|
13 %
|
14 %
|
Cattle
|
$257
|
$210
|
22 %
|
22 %
|
Poultry
|
$198
|
$178
|
11 %
|
14 %
|
Swine
|
$90
|
$89
|
1 %
|
2 %
|
Aqua
|
$49
|
$50
|
(2) %
|
0 %
|
Contract
Manufacturing
|
$11
|
$12
|
(8) %
|
(8) %
|
Total
Revenue
|
$1,184
|
$1,057
|
12 %
|
13 %
|
Reported Net
Loss
|
$(50)
|
$(97)
|
(48) %
|
|
Adjusted
EBITDA
|
$275
|
$222
|
24 %
|
|
Reported
EPS
|
$(0.10)
|
$(0.20)
|
(50) %
|
|
Adjusted
EPS
|
$0.30
|
$0.18
|
67 %
|
|
|
1 CC =
Constant Currency, representing the growth rate excluding the
impact of foreign exchange rates.
|
Numbers may not add due
to rounding.
|
The following table summarizes the estimated impact on year over
year growth rates from the ERP Blackout on revenue:
Second Quarter Results
(dollars in
millions)
|
2024
|
CC
Change1
(%)
|
Estimated ERP
Blackout Impact to
Q2 2024 Growth (%)
|
Estimated ERP
Blackout Impact to
Q2 2023 ($)
|
|
|
|
|
|
Pet Health
|
$579
|
13 %
|
13% to 14%
|
$(65) to
$(80)
|
Farm Animal
|
$594
|
14 %
|
Approx. 5%
|
$(25) to
$(30)
|
Contract
Manufacturing
|
$11
|
(8) %
|
|
|
Total
Revenue
|
$1,184
|
13 %
|
9% to
10%
|
$(90) to
$(110)
|
|
1 CC =
Constant Currency, representing the growth rate excluding the
impact of foreign exchange rates.
|
Numbers may not add due
to rounding.
|
In the second quarter of 2024, revenue was $1,184 million, an increase of 12% on a reported
basis, or 13% when excluding the unfavorable impact of foreign
exchange rates compared to the second quarter of 2023. The ERP
Blackout positively impacted growth by an estimated 9% to 10%.
Pet Health revenue was $579
million, an increase of 12% on a reported basis, or 13% when
excluding the unfavorable impact of foreign exchange rates, with a
3% increase from price, compared to the second quarter of 2023.
Excluding the estimated 13 to 14 percentage point tailwind from the
ERP Blackout, year over year decline in the second quarter was
primarily driven by continued competitive pressure on certain
products in the U.S. veterinary channel and purchasing patterns of
U.S. retailers impacting over-the-counter products, partially
offset by sales of new products and improved demand for retail
parasiticide products in certain European markets, including
Spain.
The Advantage® Family of products, inclusive of
AdTab, contributed $131 million, an
increase of 29% excluding the impact from foreign exchange rates,
with an estimated 27 percentage point tailwind from the ERP
Blackout. Seresto® revenue was $103 million, an increase of 51% excluding the
impact from foreign exchange rates, with an estimated 53 percentage
point tailwind from the ERP Blackout.
Farm Animal revenue was $594
million, an increase of 13% on a reported basis, or 14% when
excluding the unfavorable impact of foreign exchange rates, with a
4% increase from price, compared to the second quarter of 2023.
Excluding the estimated 5 percentage point tailwind from the ERP
Blackout, the year over year growth in the second quarter was
primarily driven by strength in U.S. cattle, led by Experior and
resupply of vaccines, and poultry sales globally, partially offset
by declines in certain aqua products.
Gross profit was $689 million, or
58.2% of revenue in the second quarter of 2024 with a 70-basis
point decline in gross profit as a percent of revenue compared to
the second quarter of 2023. The decline was primarily driven by
planned reduced throughput at certain manufacturing sites to reduce
balance sheet inventory and improve operating cash flow, sales mix,
and inflation, partially offset by the impact of the ERP Blackout
and increased pricing. The company estimates the change in gross
profit as a percent of revenue was positively impacted by 150 to
220 basis points from the ERP Blackout compared to the second
quarter of 2023.
Total operating expenses were $443
million for the second quarter of 2024. Marketing, selling
and administrative expenses were flat at $354 million, as savings associated with the
completion of the ERP system implementation in the second quarter
of 2023 were offset by higher employee related expenses and
marketing and promotional expenses supporting our European pet
health business. Research and development expenses increased 10% to
$89 million, primarily driven by
higher employee-related expenses and timing of project
expenses.
Asset impairment, restructuring and other special charges were
$80 million in the second quarter of
2024 compared to $35 million in the
second quarter of 2023. Charges recorded in the second quarter of
2024 primarily related to an impairment charge related to a pet
health IPR&D asset (IL-4R) for which management terminated
future R&D activities due to concerns about the asset's future
commercial viability and transaction costs associated with the sale
of our aqua business. Charges recorded in the second quarter of
2023 primarily related to costs associated with integration efforts
and external costs related to the acquisition of Bayer Animal
Health.
Net interest expense was $65
million in the second quarter of 2024, a decrease of
$9 million compared to the second quarter of 2023. The
decrease was driven by lower debt.
The reported effective tax rate was (61.3)% in the second
quarter of 2024, compared to (23.0)% in the second quarter of 2023.
The adjusted effective tax rate decreased to 16.9% in the second
quarter of 2024 compared to 19.9% in the second quarter of 2023,
primarily driven by the benefit of certain state income tax credits
and the jurisdictional location of Elanco profits.
The following table summarizes the estimated impact on year over
year growth rates from the ERP Blackout on adjusted EBITDA and
adjusted EPS:
Second Quarter Results
(dollars in
millions, except per share amounts)
|
2024
|
Change
(%)
|
Estimated ERP
Blackout Impact to
Q2 2024 Growth (%)
|
Estimated ERP
Blackout Impact to
Q2 2023 ($)
|
|
|
|
|
|
Adjusted
EBITDA
|
$275
|
24 %
|
30% to
36%
|
$(70) to
$(90)
|
Adjusted
EPS
|
$0.30
|
67 %
|
63% to
73%
|
$(0.11) to
$(0.14)
|
Net loss for the second quarter of 2024 was $50 million and $0.10 per diluted share on a reported basis,
compared with net loss of $97 million
and $0.20 per diluted share for the
same period in 2023. On an adjusted basis, net income for the
second quarter of 2024 was $147
million, or $0.30 per diluted
share, a 67% increase compared with the same period in 2023.
Adjusted EBITDA was $275 million in
the second quarter of 2024, a 24% increase compared to the second
quarter of 2023. Adjusted EBITDA as a percent of revenue was 23.2%
compared with 21.0% for the second quarter of 2023, an increase of
220 basis points.
Working Capital and Balance Sheet
Cash provided by operations was $200 million in the second
quarter of 2024 compared to $61 million in the second quarter
of 2023. The $139 million increase in
cash from operations year over year reflects improved working
capital, primarily related to inventory and lower project
spend.
As of June 30, 2024, Elanco's net
leverage ratio was 5.6x adjusted EBITDA, flat compared to
December 31, 2023. The company
expects to end the year with a net leverage ratio in the mid-4x
range.
First Half
Results
(dollars in
millions, except per share amounts)
|
2024
|
2023
|
Change
(%)
|
CC
Change1
(%)
|
|
|
|
|
|
Pet
Health
|
$1,218
|
$1,193
|
2 %
|
2 %
|
Farm
Animal
|
$1,150
|
$1,100
|
5 %
|
5 %
|
Cattle
|
$501
|
$458
|
9 %
|
9 %
|
Poultry
|
$395
|
$361
|
9 %
|
11 %
|
Swine
|
$174
|
$191
|
(9) %
|
(8) %
|
Aqua
|
$80
|
$90
|
(11) %
|
(9) %
|
Contract
Manufacturing
|
$21
|
$21
|
0 %
|
1 %
|
Total
Revenue
|
$2,389
|
$2,314
|
3 %
|
4 %
|
Reported Net (Loss)
Income
|
$(18)
|
$6
|
(400) %
|
|
Adjusted
EBITDA
|
$569
|
$601
|
(5) %
|
|
Reported
EPS
|
$(0.04)
|
$0.01
|
(500) %
|
|
Adjusted
EPS
|
$0.63
|
$0.63
|
0 %
|
|
|
1 CC =
Constant Currency, representing the growth rate excluding the
impact of foreign exchange rates.
|
Numbers may not add due
to rounding
|
In the first half of 2024, revenue was $2,389 million, an increase of 3% on a reported
basis, or 4% excluding the unfavorable impact from foreign exchange
rates, compared to the first half of 2023.
Pet Health revenue was $1,218
million, a 2% increase on a reported and constant currency
basis, with a 3% increase from price, compared to the first half of
2023.
The Advantage® Family of products contributed $258 million, flat excluding the unfavorable
impact from foreign exchange rates compared to the first half of
2023. Seresto revenue was $264
million, an increase of 6% excluding the unfavorable impact
from foreign exchange rates, compared to the first half of 2023.
Both products grew outside the U.S. but declined in the U.S.
compared to the first half of 2023, primarily related to year over
year purchasing patterns of several U.S. retailers.
Farm Animal revenue was $1,150
million, a 5% increase on a reported and constant currency
basis, with a 2% increase from price compared to the first half of
2023.
Financial Guidance
Elanco is updating financial guidance for the full year 2024,
summarized in the following table.
2024
Full Year
(dollars in
millions, except per share amounts)
|
|
May
Guidance
|
|
August
Guidance
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$4,460
|
to
|
$4,515
|
|
$4,410
|
to
|
$4,460
|
Reported Net (Loss)
Income
|
|
$(45)
|
to
|
$(3)
|
|
$314
|
to
|
$352
|
Adjusted
EBITDA
|
|
$960
|
to
|
$1,000
|
|
$900
|
to
|
$940
|
Reported (Loss)
Earnings per Share
|
|
$(0.09)
|
to
|
$(0.01)
|
|
$0.63
|
to
|
$0.71
|
Adjusted Earnings per
Share
|
|
$0.88
|
to
|
$0.96
|
|
$0.88
|
to
|
$0.96
|
The company is updating 2024 financial guidance to reflect the
second quarter overperformance and updated expectations for the
second half of the year, including the expected contribution from
Bovaer and Zenrelia and the removal of the aqua business. Removing
the expectations for the aqua business drove a guidance reduction
of $107 million of revenue,
$60 million of adjusted EBITDA, and
$0.08 of adjusted EPS.
The company now anticipates revenue between $4.41 billion and $4.46
billion, with a headwind of approximately $30 million from the unfavorable impact of
foreign exchange rates compared to the prior year. Excluding
further contributions from the aqua business, the updated guidance
reflects expected organic constant currency revenue growth of 3% to
4%, up from 2% to 3% in May, with improved expectations from new
products compared to the May guidance.
The company now anticipates adjusted EBITDA of $900 million to $940
million, maintaining guidance from May excluding the aqua
business. The organic business includes second half contribution
from Bovaer and Zenrelia, offset by expected higher manufacturing
losses and increased investment in product launches in the second
half of the year compared to the May guidance.
The company now anticipates adjusted EPS of $0.88 to $0.96,
reflecting the divestiture of the aqua business, and lower interest
expense (approximately $0.06) as a
result of debt paydown from the aqua sale proceeds and a lower tax
rate.
"Our efforts to improve operating cash flow and focus on
deleveraging are being realized. In early July, we successfully
closed the sale of our aqua business as expected. With cash flow
from operations and transaction proceeds subsequent to the end of
the second quarter we have paid down approximately $1.3 billion of debt this year, with gross debt
down to $4.5 billion," said
Todd Young, Executive Vice President
and CFO of Elanco Animal Health. "I am proud of the
cross-functional approach we have taken to diagnose, evaluate and
deliver solutions to improve processes, reduce balance sheet
inventory, and positively impact cash flow. Additionally, with the
completion of our stand-up and integration phase, we are positioned
to make additional progress to reduce leverage."
The company is providing guidance for the third quarter of 2024,
as summarized in the following table:
2024 Third
Quarter
(dollars in
millions, except per share amounts)
|
|
Guidance
|
|
|
|
|
|
Revenue
|
|
$1,020
|
to
|
$1,050
|
Reported Net
Income
|
|
$368
|
to
|
$396
|
Adjusted
EBITDA
|
|
$140
|
to
|
$170
|
Reported Earnings per
Share
|
|
$0.74
|
to
|
$0.80
|
Adjusted Earnings per
Share
|
|
$0.09
|
to
|
$0.14
|
For the third quarter of 2024, the company anticipates revenue
between $1.02 billion and
$1.05 billion, with a headwind of
approximately $20 million from the
unfavorable impact of foreign exchange rates compared to the prior
year. The company expects organic constant currency revenue growth
of 1% to 3%.
The financial guidance reflects foreign currency exchange rates
as of the beginning of August. Further details on guidance,
including GAAP reported to non-GAAP adjusted reconciliations, are
included in the financial tables of this press release and will be
discussed on the company's conference call this morning.
WEBCAST & CONFERENCE CALL DETAILS
Elanco will host a webcast and conference call at 8:00 a.m. Eastern time today, during which
company executives will review second quarter financial and
operational results, discuss third quarter and full year 2024
financial guidance, and respond to questions from analysts.
Investors, analysts, members of the media and the public may access
the live webcast and accompanying slides by visiting the Elanco
website at https://investor.elanco.com and selecting Events and
Presentations. A replay of the webcast will be archived and made
available a few hours after the event on the company's website, at
https://investor.elanco.com/events-and-presentations/default.aspx#module-event-upcoming.
ABOUT ELANCO
Elanco Animal Health Incorporated (NYSE: ELAN) is a global
leader in animal health dedicated to innovating and delivering
products and services to prevent and treat disease in farm animals
and pets, creating value for farmers, pet owners, veterinarians,
stakeholders and society as a whole. With nearly 70 years of animal
health heritage, we are committed to helping our customers improve
the health of animals in their care, while also making a meaningful
impact on our local and global communities. At Elanco, we are
driven by our vision of Food and Companionship Enriching Life and
our Elanco Healthy Purpose™ – all to advance the health of animals,
people, the planet and our enterprise. Learn more at
www.elanco.com.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains forward-looking statements within
the meaning of the federal securities laws, including, without
limitation, statements concerning product launches and revenue from
such products, our 2024 full year and third quarter guidance and
long-term expectations, our expectations regarding debt levels, and
expectations regarding our industry and our operations, performance
and financial condition, and including, in particular, statements
relating to our business, growth strategies, distribution
strategies, product development efforts and future expenses.
Forward-looking statements are based on our current expectations
and assumptions regarding our business, the economy and other
future conditions. Because forward-looking statements relate to the
future, by their nature, they are subject to inherent
uncertainties, risks and changes in circumstances that are
difficult to predict. As a result, our actual results may differ
materially from those contemplated by the forward-looking
statements. Important risk factors that could cause actual results
to differ materially from those in the forward-looking statements
include regional, national or global political, economic, business,
competitive, market and regulatory conditions, including but not
limited to the following:
- operating in a highly competitive industry;
- the success of our research and development (R&D) and
licensing efforts;
- the impact of disruptive innovations and advances in veterinary
medical practices, animal health technologies and alternatives to
animal-derived protein;
- competition from generic products that may be viewed as more
cost-effective;
- changes in regulatory restrictions on the use of antibiotics in
farm animals;
- an outbreak of infectious disease carried by farm animals;
- risks related to the evaluation of animals;
- consolidation of our customers and distributors;
- the impact of increased or decreased sales into our
distribution channels resulting in fluctuations in our
revenues;
- our dependence on the success of our top products;
- our ability to complete acquisitions and divestitures and to
successfully integrate the businesses we acquire;
- our ability to implement our business strategies or achieve
targeted cost efficiencies and gross margin improvements;
- manufacturing problems and capacity imbalances;
- fluctuations in inventory levels in our distribution
channels;
- risks related to the use of artificial intelligence (AI) in our
business;
- our dependence on sophisticated information technology systems
and infrastructure, including the use of third-party, cloud-based
technologies, and the impact of outages or breaches of the
information technology systems and infrastructure we rely on;
- the impact of weather conditions, including those related to
climate change, and the availability of natural resources;
- demand, supply and operational challenges associated with the
effects of a human disease outbreak, epidemic, pandemic or other
widespread public health concern;
- the loss of key personnel or highly skilled employees;
- adverse effects of labor disputes, strikes and/or work
stoppages;
- the effect of our substantial indebtedness on our business,
including restrictions in our debt agreements that limit our
operating flexibility, changes in our credit ratings that lead to
higher borrowing expenses and may restrict access to credit and
changes in interest rates that may adversely affect our earnings
and cash flows;
- changes in interest rates;
- risks related to the write-down of goodwill or identifiable
intangible assets;
- the lack of availability or significant increases in the cost
of raw materials;
- risks related to our presence in foreign markets;
- risks related to currency rate fluctuations;
- risks related to underfunded pension plan liabilities;
- our current plans not to pay dividends and restrictions on our
ability to pay dividends;
- the potential impact that actions by activist shareholders
could have on the pursuit of our business strategies;
- risks related to tax expense or exposure;
- actions by regulatory bodies, including as a result of their
interpretation of studies on product safety;
- the possible slowing or cessation of acceptance and/or adoption
of our farm animal sustainability initiatives;
- the impact of increased regulation or decreased governmental
financial support related to the raising, processing or consumption
of farm animals;
- risks related to the modification of foreign trade policy;
- the impact of litigation, regulatory investigations, and other
legal matters, including the risk to our reputation and the risk
that our insurance policies may be insufficient to protect us from
the impact of such matters;
- challenges to our intellectual property rights or our
alleged violation of rights of others;
- misuse, off-label or counterfeiting use of our products;
- unanticipated safety, quality or efficacy concerns and the
impact of identified concerns associated with our products;
- insufficient insurance coverage against hazards and
claims;
- compliance with privacy laws and security of information;
and
- risks related to environmental, health and safety laws and
regulations.
For additional information about the factors that could cause
actual results to differ materially from forward-looking
statements, please see the company's latest Form 10-K and Form
10-Qs filed with the Securities and Exchange Commission. Although
we have attempted to identify important risk factors, there may be
other risk factors not presently known to us or that we presently
believe are not material that could cause actual results and
developments to differ materially from those made in or suggested
by the forward-looking statements contained in this press release.
If any of these risks materialize, or if any of the above
assumptions underlying forward-looking statements prove incorrect,
actual results and developments may differ materially from those
made in or suggested by the forward-looking statements contained in
this press release. We caution you against relying on any
forward-looking statements, which should also be read in
conjunction with the other cautionary statements that are included
elsewhere in this press release. Any forward-looking statement made
by us in this press release speaks only as of the date thereof.
Factors or events that could cause our actual results to differ may
emerge from time to time, and it is not possible for us to predict
all of them. We undertake no obligation to publicly update or to
revise any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as may be
required by law. Comparisons of results for current and any prior
periods are not intended to express any future trends or
indications of future performance, unless specifically expressed as
such, and should be viewed as historical data.
Use of Non-GAAP Financial Measures:
We use non-GAAP financial measures, such as revenue excluding
the impact of foreign exchange rate effects, EBITDA, EBITDA margin,
adjusted EBITDA, adjusted EBITDA margin, adjusted net income
(loss), adjusted EPS, adjusted gross profit, adjusted gross margin,
net debt and net debt leverage to assess and analyze our
operational results and trends as explained in more detail in the
reconciliation tables later in this release.
We believe these non-GAAP financial measures are useful to
investors because they provide greater transparency regarding our
operating performance. Reconciliation of non-GAAP financial
measures and reported U.S. generally accepted accounting principles
(GAAP) financial measures are included in the tables accompanying
this press release and are posted on our website at www.elanco.com.
The primary material limitations associated with the use of such
non-GAAP measures as compared to GAAP results include the
following: (i) they may not be comparable to similarly titled
measures used by other companies, including those in our industry,
(ii) they exclude financial information and events, such as the
effects of an acquisition or divestiture or amortization of
intangible assets, that some may consider important in evaluating
our performance, value or prospects for the future, (iii) they
exclude items or types of items that may continue to occur from
period to period in the future and (iv) they may not exclude all
unusual or non-recurring items, which could increase or decrease
these measures, which investors may consider to be unrelated to our
long-term operations. These non-GAAP measures are not, and should
not, be viewed as substitutes for GAAP reported measures. We
encourage investors to review our unaudited consolidated financial
statements in their entirety and caution investors to use GAAP
measures as the primary means of evaluating our performance, value
and prospects for the future, and non-GAAP measures as supplemental
measures.
Availability of Certain Information
We use our website to disclose important company information to
investors, customers, employees and others interested in Elanco. We
encourage investors to consult our website regularly for important
information about Elanco, including an Investor Overview
presentation containing a general overview of the business, which
can be found in the Events and Presentations page of our
website.
Additional Information
We define innovation revenue as revenue from new products,
lifecycle management and certain geographic expansions and business
development transactions that is incremental in reference to
product revenue in 2020 and does not include the expected impact of
cannibalization on the base portfolio.
We define organic revenue growth as revenue growth excluding
prior year revenue from the aqua business, which we divested
July 9, 2024.
We define project spend as cash costs associated with the
independent company stand-up, Bayer business integration and Bayer
ERP system integration.
Elanco Animal
Health Incorporated
|
Unaudited Condensed
Consolidated Statements of Operations
|
(Dollars and shares
in millions, except per share data)
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2024
|
|
2023
|
|
2024
|
|
2023
|
Revenue
|
$
1,184
|
|
$
1,057
|
|
$
2,389
|
|
$
2,314
|
Costs, expenses and
other:
|
|
|
|
|
|
|
|
Cost of
sales
|
495
|
|
434
|
|
1,010
|
|
928
|
Research and
development
|
89
|
|
81
|
|
176
|
|
162
|
Marketing, selling and
administrative
|
354
|
|
353
|
|
691
|
|
680
|
Amortization of
intangible assets
|
131
|
|
136
|
|
264
|
|
270
|
Asset impairment,
restructuring and other special
charges
|
80
|
|
35
|
|
126
|
|
75
|
Interest expense, net
of capitalized interest
|
65
|
|
74
|
|
131
|
|
138
|
Other expense,
net
|
2
|
|
23
|
|
11
|
|
32
|
(Loss) income before
income taxes
|
$
(32)
|
|
$
(79)
|
|
$
(20)
|
|
$
29
|
Income tax expense
(benefit)
|
18
|
|
18
|
|
(2)
|
|
23
|
Net (loss)
income
|
$
(50)
|
|
$
(97)
|
|
$
(18)
|
|
$
6
|
(Loss) earnings per
share:
|
|
|
|
|
|
|
|
Basic
|
$
(0.10)
|
|
$
(0.20)
|
|
$
(0.04)
|
|
$
0.01
|
Diluted
|
$
(0.10)
|
|
$
(0.20)
|
|
$
(0.04)
|
|
$
0.01
|
Weighted-average shares
outstanding:
|
|
|
|
|
|
|
|
Basic
|
494.2
|
|
492.6
|
|
493.7
|
|
491.8
|
Diluted
|
494.2
|
|
492.6
|
|
493.7
|
|
492.7
|
Elanco Animal Health
Incorporated
Reconciliation of GAAP Reported to Selected
Non-GAAP Adjusted
Information
(Unaudited)
(Dollars and shares in
millions, except per share data)
We define adjusted gross profit as total revenue less adjusted
cost of sales and adjusted gross margin as adjusted gross profit
divided by total revenue.
We define adjusted net income as net income excluding
amortization of intangible assets, purchase accounting adjustments
to inventory, acquisition and divestiture-related charges,
including integration and separation costs, severance, goodwill and
other asset impairments, gains on sale of assets and related costs,
facility exit costs, tax valuation allowances and other specified
significant items, such as unusual or non-recurring items that are
unrelated to our long-term operations adjusted for income tax
expense associated with the excluded financial items.
We define adjusted EBITDA as net income adjusted for interest
expense (income), which includes debt extinguishment losses, income
tax expense (benefit) and depreciation and amortization, further
adjusted to exclude purchase accounting adjustments to inventory,
acquisition and divestiture-related charges, including integration
and separation costs, severance, goodwill and other asset
impairments, gains on sale of assets and related costs, facility
exit costs and other specified significant items, such as unusual
or non-recurring items that are unrelated to our long-term
operations.
We define adjusted EPS as adjusted net income divided by the
number of weighted-average shares outstanding for the periods ended
June 30, 2024 and 2023.
We define gross debt as the sum of the current portion of
long-term debt and long-term debt excluding unamortized debt
issuance costs. We define net debt as gross debt less cash and cash
equivalents on the balance sheet. We define the net leverage ratio
as net debt divided by trailing twelve month adjusted EBITDA. This
calculation does not include Term Loan B covenant-related
adjustments that reduce this leverage ratio.
The following is a reconciliation of GAAP Reported for the three
months ended June 30, 2024 and 2023,
to selected Non-GAAP adjusted information:
|
Three months ended
June 30, 2024
|
|
Three months ended
June 30, 2023
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
Amortization of
intangible assets
|
131
|
|
131
|
|
—
|
|
136
|
|
136
|
|
—
|
Asset impairment,
restructuring and
other special charges (1)
|
80
|
|
80
|
|
—
|
|
35
|
|
35
|
|
—
|
Other expense, net
(2)
|
2
|
|
(2)
|
|
4
|
|
23
|
|
21
|
|
2
|
(Loss) income before
taxes
|
(32)
|
|
209
|
|
177
|
|
(79)
|
|
192
|
|
113
|
Income tax expense
(3)
|
18
|
|
(12)
|
|
30
|
|
18
|
|
(5)
|
|
23
|
Net (loss)
income
|
$
(50)
|
|
$
197
|
|
$
147
|
|
$
(97)
|
|
$
187
|
|
$
90
|
(Loss) earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
$ (0.10)
|
|
$ 0.40
|
|
$ 0.30
|
|
$ (0.20)
|
|
$ 0.38
|
|
$ 0.18
|
diluted
|
$ (0.10)
|
|
$ 0.40
|
|
$ 0.30
|
|
$ (0.20)
|
|
$ 0.38
|
|
$ 0.18
|
Adjusted weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
494.2
|
|
494.2
|
|
494.2
|
|
492.6
|
|
492.6
|
|
492.6
|
diluted
|
494.2
|
|
497.1
|
|
497.1
|
|
492.6
|
|
492.6
|
|
492.6
|
|
Numbers may not add due
to rounding.
|
The table above
reflects only line items with non-GAAP adjustments.
|
|
|
(a)
|
The company uses
adjusted (i.e., "non-GAAP") financial measures that differ from
financial statements reported in conformity with GAAP. The company
believes these non-GAAP measures provide useful information to
investors. Among other things, they may help investors evaluate the
company's ongoing operations. They can also assist in making
meaningful period-over-period comparisons and in identifying
operating trends that would otherwise be masked or distorted by the
items subject to the adjustments. Management uses these non-GAAP
measures internally to evaluate the performance of the business,
including to allocate resources. Investors should consider these
non-GAAP measures in addition to, not as a substitute for or
superior to, measures of financial performance prepared in
accordance with GAAP.
|
|
|
(b)
|
Adjustments to certain
GAAP reported measures for the three months ended June 30, 2024 and
2023, include the following:
|
|
|
|
|
(1)
|
Adjustments of $80
million for the three months ended June 30, 2024, principally
included a $53 million impairment charge related to a pet health
IPR&D asset (IL-4R) for which management terminated future
R&D activities due to concerns about the asset's future
commercial viability and $10 million of transaction costs
associated with the sale of our aqua business. Adjustments of $35
million for the three months ended June 30, 2023, related to
charges associated with integration efforts and external costs
related to the acquisition of Bayer Animal Health.
|
|
|
|
|
(2)
|
Adjustments of $2
million for the three months ended June 30, 2024, related to a gain
on the divestiture of a non-material product line, partially offset
by the impact of hyperinflationary accounting in Turkey.
Adjustments of $21 million for the three months ended June 30,
2023, primarily related to an accrual of $15 million for a
potential settlement of the Seresto class action lawsuits, as well
as the impact of hyperinflationary accounting related to
Turkey.
|
|
|
|
|
(3)
|
Adjustments of $12
million for the three months ended June 30, 2024, represented the
income tax expense associated with the adjusted items discussed
above. Adjustments of $5 million for the three months ended June
30, 2023, represented the income tax expense associated with the
adjusted items discussed above, partially offset by an increase in
the valuation allowance recorded against our deferred tax assets
during the period ($8 million).
|
|
Three Months Ended
June 30,
|
|
2024
|
|
2023
|
As reported diluted
EPS
|
$
(0.10)
|
|
$
(0.20)
|
Amortization of
intangible assets
|
0.26
|
|
0.28
|
Asset impairment,
restructuring and other special charges
|
0.16
|
|
0.07
|
Other expense,
net
|
0.00
|
|
0.04
|
Subtotal
|
0.42
|
|
0.39
|
Tax impact of
adjustments (1)
|
(0.02)
|
|
(0.01)
|
Total adjustments to
diluted EPS
|
$
0.40
|
|
$
0.38
|
|
|
|
|
Adjusted diluted EPS
(2)
|
$
0.30
|
|
$
0.18
|
|
Numbers may not add due
to rounding.
|
|
|
|
|
(1)
|
2023 includes a
favorable adjustment relating to the increase in the valuation
allowance recorded against our deferred tax assets (impact of $0.01
per share).
|
|
|
|
|
(2)
|
Adjusted diluted EPS is
calculated as the sum of as reported diluted EPS and total
adjustments to diluted EPS.
|
The following is a reconciliation of GAAP Reported for the six
months ended June 30, 2024 and 2023,
to Selected Non-GAAP Adjusted information:
|
Six Months Ended
June 30, 2024
|
|
Six Months Ended
June 30, 2023
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
Cost of sales
(1)
|
$ 1,010
|
|
$
—
|
|
$ 1,010
|
|
$
928
|
|
$
1
|
|
$
927
|
Amortization of
intangible assets
|
264
|
|
264
|
|
—
|
|
270
|
|
270
|
|
—
|
Asset impairment,
restructuring
and other special charges (2)
|
126
|
|
126
|
|
—
|
|
75
|
|
75
|
|
—
|
Other expense, net
(3)
|
11
|
|
3
|
|
8
|
|
32
|
|
19
|
|
13
|
(Loss) income before
taxes
|
(20)
|
|
393
|
|
373
|
|
29
|
|
365
|
|
394
|
Income tax (benefit)
expense (4)
|
(2)
|
|
(61)
|
|
59
|
|
23
|
|
(61)
|
|
84
|
Net (loss)
income
|
$
(18)
|
|
$
332
|
|
$
314
|
|
$
6
|
|
$
304
|
|
$
310
|
(Loss) earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
$ (0.04)
|
|
$
0.68
|
|
$
0.64
|
|
$
0.01
|
|
$
0.62
|
|
$
0.63
|
diluted
|
$ (0.04)
|
|
$
0.67
|
|
$
0.63
|
|
$
0.01
|
|
$
0.62
|
|
$
0.63
|
Adjusted
weighted-average shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
493.7
|
|
493.7
|
|
493.7
|
|
491.8
|
|
491.8
|
|
491.8
|
diluted
|
493.7
|
|
496.5
|
|
496.5
|
|
492.7
|
|
492.7
|
|
492.7
|
|
Numbers may not add due
to rounding.
|
The table above
reflects only line items with non-GAAP adjustments.
|
|
|
|
(a)
|
The company uses
adjusted (i.e., "non-GAAP") financial measures that differ from
financial statements reported in conformity with GAAP. The company
believes these non-GAAP measures provide useful information to
investors. Among other things, they may help investors evaluate the
company's ongoing operations. They can also assist in making
meaningful period-over-period comparisons and in identifying
operating trends that would otherwise be masked or distorted by the
items subject to the adjustments. Management uses these non-GAAP
measures internally to evaluate the performance of the business,
including to allocate resources. Investors should consider these
non-GAAP measures in addition to, not as a substitute for or
superior to, measures of financial performance prepared in
accordance with GAAP.
|
|
|
(b)
|
Adjustments to certain
GAAP reported measures for the six months ended June 30, 2024 and
2023, include the following:
|
|
|
|
|
(1)
|
Adjustments of $1
million for the six months ended June 30, 2023, primarily related
to amortization of inventory fair value adjustments recorded from
the acquisition of certain assets of NutriQuest.
|
|
|
|
|
(2)
|
Adjustments of $126
million for the six months ended June 30, 2024, principally
included the above noted $53 million IPR&D asset impairment
charge, $43 million of costs associated with our restructuring
plan announced in February 2024 and $17 million of transaction
costs related to the sale of our aqua business. Adjustments of $75
million for the six months ended June 30, 2023, related to charges
associated with the integration efforts and external costs related
to the acquisition of Bayer Animal Health.
|
|
|
|
|
(3)
|
Adjustments of $3
million for the six months ended June 30, 2024, primarily related
to the impact of hyperinflationary accounting in Turkey and an
increase in our accrual related to a possible resolution or
settlement relating to our previously disclosed matter with the
SEC, partially offset by a gain on the divestiture of a
non-material product line. Adjustments of $19 million for the six
months ended June 30, 2023, primarily related to an accrual of $15
million for a potential settlement of the Seresto class action
lawsuits, as well as the impact of hyperinflationary accounting in
Turkey.
|
|
|
|
|
(4)
|
Adjustments of $61
million for the six months ended June 30, 2024, represented the
income tax expense associated with the adjusted items discussed
above and $13 million related to the partial release of a valuation
allowance attributable to the anticipated sale of our aqua
business. Adjustments of $61 million for the six months ended June
30, 2023, represented the income tax expense associated with the
adjusted items discussed above, partially offset by an increase in
the valuation allowance recorded against our deferred tax assets
during the period ($12 million).
|
|
Six Months Ended
June 30,
|
|
2024
|
|
2023
|
As reported diluted
EPS
|
$
(0.04)
|
|
$
0.01
|
Amortization of
intangible assets
|
0.53
|
|
0.55
|
Asset impairment,
restructuring and other special charges
|
0.25
|
|
0.15
|
Other expense,
net
|
0.01
|
|
0.04
|
Subtotal
|
0.79
|
|
0.74
|
Tax impact of
adjustments (1)
|
(0.12)
|
|
(0.12)
|
Total Adjustments to
diluted EPS
|
$
0.67
|
|
$
0.62
|
|
|
|
|
Adjusted diluted EPS
(2)
|
$
0.63
|
|
$
0.63
|
|
Numbers may not add due
to rounding.
|
|
|
(1)
|
2023 includes a
favorable adjustment relating to the increase in the valuation
allowance recorded against our deferred tax assets (impact of $0.02
per share).
|
|
|
(2)
|
Adjusted diluted EPS is
calculated as the sum of as reported diluted EPS and total
adjustments to diluted EPS.
|
For the periods presented, we have not made adjustments for all
items that may be considered unrelated to our long-term operations.
We believe adjusted EBITDA, when used in conjunction with our
results presented in accordance with GAAP and its reconciliation to
net income (loss), enhances investors' understanding of our
performance, valuation and prospects for the future. We also
believe adjusted EBITDA is a measure used in the animal health
industry by analysts as a valuable performance metric for
investors. The following is a reconciliation of GAAP net income
(loss) for the three and six months ended June 30, 2024 and 2023, to EBITDA, adjusted
EBITDA and adjusted EBITDA Margin, which is adjusted EBITDA divided
by total revenue, for the respective periods:
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2024
|
|
2023
|
|
2024
|
|
2023
|
Reported net (loss)
income
|
$ (50)
|
|
$ (97)
|
|
$ (18)
|
|
$
6
|
Net interest
expense
|
65
|
|
74
|
|
131
|
|
138
|
Income tax expense
(benefit)
|
18
|
|
18
|
|
(2)
|
|
23
|
Depreciation and
amortization
|
164
|
|
177
|
|
329
|
|
350
|
EBITDA
|
$ 197
|
|
$ 171
|
|
$ 440
|
|
$ 516
|
Non-GAAP
adjustments:
|
|
|
|
|
|
|
|
Cost of
sales
|
$
—
|
|
$
—
|
|
$
—
|
|
$
1
|
Asset impairment,
restructuring and other special charges
|
80
|
|
35
|
|
126
|
|
75
|
Other expense,
net
|
(2)
|
|
21
|
|
3
|
|
19
|
Accelerated
depreciation and amortization (1)
|
—
|
|
(5)
|
|
—
|
|
(10)
|
Adjusted
EBITDA
|
$ 275
|
|
$ 222
|
|
$ 569
|
|
$ 601
|
Adjusted EBITDA margin
|
23.2 %
|
|
21.0 %
|
|
23.8 %
|
|
26.0 %
|
|
Numbers may not add due
to rounding.
|
|
|
(1)
|
Represents depreciation
and amortization of certain assets that was accelerated during the
three and six months ended June 30, 2023. These assets became fully
depreciated and amortized during the second quarter of 2023. This
amount must be added back to arrive at adjusted EBITDA because it
is included in asset impairment, restructuring and other special
charges but has already been excluded from EBITDA in the
"Depreciation and amortization" row above.
|
The following is a reconciliation of gross debt to net debt as
of June 30, 2024:
Long-term
debt
|
|
$
5,463
|
Current portion of
long-term debt
|
|
213
|
Less: Unamortized debt
issuance costs
|
|
(43)
|
Total gross
debt
|
|
5,719
|
Less: Cash and cash
equivalents
|
|
416
|
Net Debt
|
|
$
5,303
|
Elanco Animal Health
Incorporated
Guidance
Reconciliation of 2024 full year reported EPS guidance to 2024
adjusted EPS guidance is as follows:
|
Full Year 2024
Guidance
|
Reported earnings per
share
|
$0.63
|
to
|
$0.71
|
Amortization of
intangible assets
|
Approx.
$1.05
|
Asset impairment,
restructuring and other special charges(1)
|
$0.28
|
to
|
$0.32
|
Gain on
divestiture
|
Approx.
$(1.31)
|
Other expense,
net
|
Approx.
$0.03
|
Subtotal
|
$0.06
|
to
|
$0.10
|
Tax impact of
adjustments
|
$0.16
|
to
|
$0.19
|
Total adjustments to
EPS
|
Approx.
$0.25
|
Adjusted earnings per
share(2)
|
$0.88
|
to
|
$0.96
|
|
Numbers may not add due
to rounding.
|
|
|
(1)
|
Asset impairment,
restructuring and other special charges adjustments primarily
relate to a pet health IPR&D asset (IL-4R) impairment charge
recorded during the second quarter of 2024, charges related to the
restructuring plan announced in February 2024 and acquisition
integration and divestiture-related costs.
|
|
|
(2)
|
Adjusted EPS is
calculated as the sum of reported EPS and total adjustments to
EPS.
|
Reconciliation of 2024 full year reported net loss to 2024
adjusted EBITDA guidance is as follows:
$
millions
|
Full Year 2024
Guidance
|
Reported net
income
|
$314
|
to
|
$352
|
Net interest
expense
|
Approx. $245
|
Income tax
benefit
|
$179
|
to
|
$201
|
Depreciation and
amortization
|
Approx. $655
|
EBITDA
|
$1,390
|
to
|
$1,449
|
Non-GAAP
adjustments
|
|
|
|
Asset impairment,
restructuring and other special charges
|
Approx. $150
|
Gain on
divestiture
|
Approx.
$(650)
|
Other income,
net
|
Approx. $3
|
Adjusted
EBITDA
|
$900
|
to
|
$940
|
Adjusted EBITDA
margin
|
20.4 %
|
to
|
21.1 %
|
Reconciliation of 2024 third quarter reported EPS guidance to
2024 third quarter adjusted EPS guidance is as follows:
|
Third Quarter 2024
Guidance
|
Reported earnings per
share
|
$0.74
|
to
|
$0.80
|
Amortization of
intangible assets
|
Approx.
$0.26
|
Asset impairment,
restructuring and other special charges (1)
|
$0.02
|
to
|
$0.04
|
Gain on
divestiture
|
Approx.
$(1.31)
|
Other expense,
net
|
Approx.
$0.03
|
Subtotal
|
$(1.00)
|
to
|
$(0.98)
|
Tax impact of
adjustments
|
$0.34
|
to
|
$0.35
|
Total adjustments to
EPS
|
$(0.66)
|
to
|
$(0.65)
|
Adjusted earnings per
share (2)
|
$0.09
|
to
|
$0.14
|
|
Numbers may not add due
to rounding.
|
|
|
(1)
|
Asset impairment,
restructuring and other special charges adjustments primarily
relate to costs associated with the divestiture of our aqua
business and charges related to the restructuring plan announced in
February 2024.
|
|
|
(2)
|
Adjusted EPS is
calculated as the sum of reported EPS and total adjustments to
EPS.
|
Reconciliation of 2024 third quarter reported net loss to
Reconciliation of 2024 third quarter adjusted EBITDA guidance is as
follows:
$
millions
|
Third Quarter 2024
Guidance
|
Reported net
income
|
$368
|
to
|
$396
|
Net interest
expense
|
Approx. $60
|
Income tax
provision
|
$180
|
to
|
$192
|
Depreciation and
amortization
|
Approx. $165
|
EBITDA
|
$772
|
to
|
$812
|
Non-GAAP
adjustments
|
|
|
|
Asset impairment,
restructuring and other special charges
|
Approx. $10
|
Gain on
divestiture
|
Approx.
$(650)
|
Adjusted
EBITDA
|
$140
|
to
|
$170
|
Adjusted EBITDA
margin
|
13.7 %
|
to
|
16.2 %
|
Investor Contact: Kathryn Grissom
(317) 273-9284 or kathryn.grissom@elancoah.com
Media Contact: Colleen Parr Dekker
(317) 989-7011 or colleen.dekker@elancoah.com
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SOURCE Elanco Animal Health