Elanco Animal Health Incorporated : First Quarter 2025 Earnings Presentation

Published: 2025-05-07 06:31:18 ET ELAN

Published on 05/07/2025 at 06:31

May 7, 2025

Jeff Simmons

Elanco Animal Health

President and

Chief Executive Officer

Todd Young

Elanco Animal Health Executive Vice President, Chief Financial Officer

Q1 2025 vs

Guidance1

Revenue +$25M Adj. EBITDA2 +$26M Adj. EPS2 +$0.05

1Results compared to the midpoint of the company's first quarter guidance

provided February 25, 2025. 2Non-GAAP financial measures. See Appendix to this presentation for more information, including GAAP to non-GAAP reconciliations.

3Constant currency (CC) is a non-GAAP financial measure, representing revenue growth excluding the impact of foreign exchange rates. Organic excludes the aqua business, which was divested July 9, 2024.

Strong Q1 Exceeding Expectations

Revenue, Adj. EBITDA, and Adj. EPS all above guidance ranges; 4% organic CC3 revenue growth

Innovation Tracking Above Expectations

Q1 innovation revenue contribution of $198M; raising 2025 target to $660-

$740M driven by our six potential blockbusters

Deleveraging Faster Than Planned

2025 year-end net leverage ratio target improved to 3.9-4.3x, enabled by

disciplined working capital management, more favorable FX, and lotilaner

U.S. royalty monetization; expect $450-$500M of 2025 gross debt paydown

Neutralizing the Potential Tariff Impact

Estimated tariff net impact of $16-$20M offset by Q1 execution; risks balanced by intervention actions and FX tailwind

Raising 2025 Revenue Guidance for FX Tailwind; Maintaining 2025 Adj. EBITDA & Adj. EPS Guidance

Continuing to expect organic CC revenue growth to accelerate to 4%-6% with Adj. EBITDA $830-$870M and Adj. EPS $0.80-$0.86; incorporates current estimate for tariff net impact and dynamic macro backdrop, offset by strong Q1 and FX tailwind; top-line accelerating into March/April

Ability to Maintain Adj. EBITDA Guidance With or Without Pharma Exemption

Intervention Actions, FX & Business Execution Mitigating Potential Tariff Impacts

Mitigating Actions

Current State

2025 full-year estimated impact of net tariffs (~$16-$20M) offset by Q1 outperformance (+$26M vs. guidance midpoint)

Expect ~$16-$20M impact to Adj. EBITDA primarily from bilateral U.S. and China tariffs as of May 5th, 2025

Potential Risk Scenarios

Pharma exemption

revoked and 5%-25% tariff on

U.S. in-bound products

implemented (~$10-$30M)

Further tariff escalation

Moderate economic slowdown

Farm trade disruption

Being Implemented

Supply chain optimization

Inventory management

Tactical pricing in select geographies

Strategic API sourcing

Not including FX benefit of

~$25M to Adj. EBITDA in guidance

No change to 2025 Adj. EBITDA guidance: Incorporates estimated tariff impact; potential

risk scenarios expected to be covered by mitigating actions and prudent outlook

Q1 2024 to Q1 2025 Revenue Bridge

Revenue

$ millions

$1,205

Q1 2024

Actual

$(31)

Aqua Divestiture

$(25)

VET: 0% reported; +8% excl. Bayer stocking comparison

RETAIL: (6)%

Jan-Feb (21)% | Mar +13%

FX Rates & CMO

Decline

Growth

Int'l

Growth1

17%

Growth

Growth1

Int'l

$1,193

Q1 2025

Actual

Numbers may not add due to rounding. All growth rates noted are constant currency, a non-GAAP financial measure, representing revenue growth excluding the impact of foreign exchange rates. 1Represents organic growth which excludes the estimated impact of the aqua business, which was divested July 9, 2024.

Pet Health Farm Animal

2025 Innovation Sales Target Raised: Now Expected to Deliver an Incremental

Pet Health

$275M

$72M

$133M

Farm

Animal

$660-$740 Mi lion

$461M

Q4 Actuals

$140M

$660-$740M

Q1 Actuals

$198M

2021

Actual

2022

Actual

2023

Actual

2024

Actual

2025 FY

Expectation

Note: Expected innovation revenue of $660-$740 million is incremental in reference to 2020 sales

and does not include the expected impact of cannibalization on the base portfolio.

2025 | Q1 Earnings

Big 6 Innovation early in launch curve with portfolio exceeding the corporate gross margin average

Achieved use in ~11,000 U.S. clinics, representing penetration of over 35%, with full adoption in ~8,000 vs. ~6,000 in late February

Reorder rate of ~70%, improving from above 60% in late February

$600-$700M international market size; performing ahead of expectations in Brazil, Canada, Japan; EU, UK, Australia approvals on track for 2025

Achieved ~10% dollar share of the broad-

spectrum sales into U.S. vet clinics in Q11

Share capture favorable to expectations; switches from competition and new starts representing over two-thirds of sales

Increasing DTC investment in Q2 due to strong early performance

Growth is accelerating, with Q1 sales doubling year over year

Increasing DTC investment in Q2 due to strong performance and ROI

Approved and launched in the UK, a key market, in April 2025

Focus on increasing access to this life-saving treatment, especially with shelters

Pursuing interventions on pricing to address the cost of the treatment

International expansion after 2030 driving blockbuster potential

Q1 U.S. sales increased 200% year over year

Potential annual U.S. and Canada market size of $350M+

Heifer clearance expected to continue market expansion opportunity

Strong demand from farmers and CPGs; cows on Bovaer doubled since February

Data submitted for expanded claim, enhancing value and user flexibility

1Per Animalytix Q1 data

Deliver Consistent, High-Impact Innovation

Credelio Quattro Strong early performance; market share and portfolio lift ahead of expectations

Experior

Fast adoption from heifer clearance continuing

AdTab

Growth accelerating; approved and launched in the UK in April 2025

Innovation,

Optimize Our Diverse Portfolio to Grow Share

Portfolio, Productivity

Recent Highlights

Customer

Veterinarian Farmer

Pet Owner

Share Gains

In U.S. Pet Health markets: para, NSAIDs, derm, and vaccines

International

Broad-based growth continuing in many key markets and in both pet and farm

Pradalex

Fast-growing BRD treatment bolstering our portfolio

of solutions

Continuously Improve Productivity & Cash Flow

Lotilaner U.S. Royalties Accelerating debt

Consistent Progress Across Our Strategic Priorities

paydown with non-core asset monetization

Capex Investments Elwood, Kansas and Ft. Dodge, Iowa expansions on track

Manufacturing

GM expansion with strong management of absorption, losses, and expenses

Financial Results

First Quarter 2025

$ Millions

Revenue

Price

FX Rate

Organic1

Volume

Aqua

Volume

Total

Organic CC2

Change

Pet Health

$635

(2)%

(1)%

Cattle

$272

(3)%

11%

14%

Poultry

$189

(4)%

Swine

$85

(2)%

Aqua

(100)%

Farm Animal

$546

(3)%

(6)%

(2)%

Contract Mfg. / Other

$12

20%

Total Elanco

$1,193

(2)%

(3)%

(1)%

Reported revenue in millions. Numbers may not add due to rounding.

1Organic excludes the aqua business, which was divested July 9, 2024.

2Constant currency (CC) is a non-GAAP financial measure, representing revenue growth excluding the impact of foreign exchange rates. 11

First Quarter 2025

$ Millions

2025

2024

Change (%)

Organic CC1 Change (%)

US Pet Health

$323

$333

(3)%

Int'l Pet Health

$312

$306

Total Pet Health

$635

$639

(1)%

US Farm Animal

$230

$197

17%

Int'l Farm Animal1

$316

$360

(12)%

Total Farm Animal1

$546

$556

(2)%

Contract Mfg. / Other

$12

$10

20%

Total Elanco1

$1,193

$1,205

(1)%

Reported revenue in millions. Numbers may not add due to rounding.

1Organic CC Change = Representing revenue change excluding revenue from the aqua business, which was divested July 9,

2024, and the impact of foreign exchange rates.

Including Impact from Aqua Divestiture

$ millions, except per share values

2025

2024

Change ($)2

Change (%)2

Revenue

$1,193

$1,205

$(12)

(1)%

Cost of Sales

$508

$515

$(7)

(1)%

Adjusted Gross Profit

$685

$690

$(5)

(1)%

Adjusted Gross Margin

57.4%

57.3%

+10 bps

Operating Expense

$435

$424

$11

Interest Expense, Net

$40

$66

$(26)

(39)%

Other Expense

75%

Effective Tax Rate

9.2%

15.0%

Adjusted Net Income

$184

$167

$17

10%

Adjusted Earnings Per Share Diluted

$0.37

$0.34

$0.03

Adjusted EBITDA

$276

$294

$(18)

(6)%

Adjusted EBITDA Margin

23.1%

24.4%

(120) bps

Note: Numbers may not add due to rounding.

1Non-GAAP financial measures. See Appendix to this presentation for more information, including GAAP to non-GAAP reconciliations.

2Comparisons have not been adjusted for the unfavorable impact of the aqua divestiture which was completed on July 9, 2024.

Q1 Adjusted EBITDA

$ millions

+$8

vs. Prior Year

Excluding Aqua & FX

~$(14)

$294

~$(11)

$276

Q1 2024

Actual

Aqua Divestiture

Q1 2025

Actual

Operating Expenses & Other

Gross

Profit

Q1 Adjusted EPS

$0.02

$0.04

$0.37

~$(0.03)

$0.34

~$(0.02) $0.02

Q1 2024

Actual

Aqua FX

Divestiture

EBITDA

Flow Through

Interest Expense

Tax

Q1 2025

Actual

Note: Numbers may not add due to rounding and ranges. 14

Debt Balances as of March 31, 2025

$ millions

Operating Cash Flow (OCF) of $(4)M

Cash usage reflects typical seasonality

Days Sales Outstanding2 at 75 days Year over year decrease of 3 days reflects improved working capital management

Q1 Net Leverage Ratio3 4.4x

Gross debt increased by $74M to fund short-term working capital needs; expect $450-

$500M of 2025 gross debt paydown

Note: Numbers may not add due to rounding.

1Net debt is a non-GAAP measure calculated as gross debt less cash and cash equivalents on our balance sheet. Gross debt is the sum of current portion of long-term debt and longterm debt and excludes unamortized debt issuance costs. 2DSO calculated as the trailing 12-month average. 3Net leverage ratio calculated as gross debt less cash and cash equivalents

on our balance sheet divided by adjusted EBITDA. 15

Financial Guidance

Second Quarter and Full Year 2025

2025 Full Year

February

May

Comments

Revenue

Reported Net (Loss) Income

$4,445 - $4,510

$(25) - $7

$4,510 - $4,580

$(35) - $(7)

Revenue raise driven by FX

Adjusted EBITDA1

$830 - $870

Unchanged from prior guide

Reported Diluted EPS

$(0.05) - $0.01

$(0.07) - $(0.01)

Adjusted Diluted EPS1

$0.80 - $0.86

Unchanged from prior guide

$ millions, except per share values

FX Headwinds

Reduced by $65-$70M from February guide, leading to increased reported revenue guidance

Adjusted EBITDA Cadence H1 weighting less than prior years, reflecting strategic investments in launches and innovation revenue ramp

Net Leverage Ratio

Year-end target improved to 3.9-4.3x with disciplined working capital management, more favorable FX, and lotilaner U.S. royalty monetization

1Non-GAAP financial measure. See Appendix to this presentation for more information, including GAAP to non-GAAP reconciliations.

February Guidance to May Guidance Bridge

2025 Adj. EBITDA 2025 Adj. EPS

~Flat

~$0.01

$0.80-

$0.86

~$(0.01)

$0.80-

$0.86

~$25-30 ~$25

~$16-$20

$830-

$870

~$10

~$25

$830-

$870

February

Guidance

Business Performance

Tariffs

Royalty FX Monetization

Macro Uncertainty

May

Guidance

February

Guidance

Adj EBITDA

Flow Through

Interest Expense

Tax

May

Guidance

Note: Numbers may not add due to rounding and ranges. Dollars in millions, except per share amounts.

Second Quarter 2025

Q2 Guidance

Comments

Revenue

$1,175 - $1,195

Expect 4%-6% organic CC2 growth

Reported Net Loss

$(22) - $(3)

Adjusted EBITDA1

$200 - $220

Includes operating expenses up ~11% CC

Reported Diluted EPS

$(0.04) - $(0.01)

Adjusted Diluted EPS1

$0.17 - $0.21

Tax rate expected 25%-27%

$ millions, except per share values

FX Headwind

Expected headwind vs. prior year of ~$5M to revenue

Pet Health Investments Supporting key innovation product launches, primarily in the U.S. and for AdTab

Additional Q2 Assumptions

Interest expense of ~$45M;

~$150M of cash taxes related to the 2024 aqua divestiture expected to be paid

1Non-GAAP financial measure. See Appendix to this presentation for more information, including GAAP to non-GAAP reconciliations.

2Organic CC Growth = Representing revenue growth excluding revenue from the aqua business, which was divested July 9, 2024, and the impact of foreign exchange rates.

Balanced Mix & Increased Scale

2019-2021

2018-2020

2021-2024

Innovation Delivered & Enhanced Capabilities

Late-stage pipeline delivered; Strategy

2025 & Beyond

Poised for Sustainable

Revenue Growth

Multiple potential blockbusters in market and a stabilizing base to drive growth

Accelerating contribution from innovation, majority already

Established Foundation Focused on Animal Health

Acquisitions for portfolio diversity; Spin-out of

Eli Lilly with 2018 IPO; Dedicated sites & systems

Portfolio diversifying acquisition of Bayer Animal Health increased global scale, with productivity focus

streamlined; Launch efforts re-imagined

approved, and a stabilizing base

business expected to drive sustainable growth. Leveraging the existing cost base allows for expected margin expansion in 2026 and beyond

Reference slides and GAAP reported to non-GAAP adjusted reconciliations

Customer

Asset

Market Focus

Species

Approval1

Launch2

Peak Sales Opportunity3

Commentary

Experior

Ammonia Reduction

U.S. Beef Feedlot (Rx)

First-in-class; Combo clearance approval to drive expanded use in heifers; blockbuster in U.S. alone

Canine Parvovirus Monoclonal AB (CPMA)

U.S. Vet (Rx)

Q2 2023 conditional

Q3 2023

First-in-class; Elanco's first monoclonal antibody; pursuing full approval via USDA

AdTab

Oral Flea/Tick

EU Retail (OTC)

Q2 2023

Establishes Elanco presence in emerging EU OTC oral F/T;

Bovaer®

Methane Reduction

U.S. Dairy

Q2 2024

QQ33 22002244

First-in-class

Zenrelia™

Dermatology

Global Vet (Rx)

Q3 2024

Differentiated efficacy and convenience; Int'l approvals to date: Brazil, Japan, Canada

Credelio Quattro™

Endecto Parasiticide

U.S. Vet (Rx)

Q4 2024

Q1 2025

Differentiated coverage launching into fast growing endecto market segment

IL-31 SA Antibody

Dermatology

Global Vet (Rx)

Q4 2025

H1 2026

Differentiated monoclonal antibody pending USDA approval

1Expected approval timing is subject to regulatory agency outcomes. 2Expected launch timing is based on regulatory agency outcomes and internal estimates and could change as programs evolve. 3Potential peak sales represent the level of annual sales expected for a product on a global basis at its peak.

Full Year 2025

Financial Guidance & Additional Assumptions

$ millions, except per share values

February May

Adjusted Gross Margin1

53.9% - 54.6%

54.2% - 54.7%

Operating Expenses

$1,700 - $1,720

$1,735 - $1,750

Adjusted EBITDA1

$830 - $870

Adjusted EBITDA Margin1

18.7% - 19.3%

18.4% - 19.0%

Adjusted Interest Expense, Net

Approx. $200

Approx. $190

Tax Rate

21% - 22%

21% - 23%

Adjusted Earnings per Share1

$0.80 - $0.86

Weighted Average Diluted Share Count

Approx. 500 million

Capital Expenditures

$225 - $255

Cash Taxes

Approx. $240

Approx. $230

Cash Interest

Approx. $240

Approx. $225

Total Revenue $4,445 - $4,510 $4,510 - $4,580

1Non-GAAP financial measure. See Appendix to this presentation for more information, including GAAP to non-GAAP reconciliations.

First Quarter 2025

Adjusted

EBITDA

Reconciliation

$ millions

2025

2024

Reported Net Income

$67

$32

Net Interest Expense

$40

$66

Income Tax Benefit

$(7)

$(20)

Depreciation and Amortization

$161

$165

EBITDA

$261

$243

Non-GAAP Adjustments

Cost of Sales

Asset Impairment, Restructuring, and Other Special Charges

$46

Other Expense, Net

Adjusted EBITDA

$276

$294

Adjusted EBITDA Margin

23.1%

24.4%

Numbers may not add due to rounding.

First Quarter 2025

Reconciliation of GAAP Reported to Non-GAAP

Adjusted Income Statement Items

$ millions, except per share values

2025

2024

GAAP

Reported

Adjusted

Items

Non-GAAP

GAAP

Reported

Adjusted

Items

Non-GAAP

Cost of Sales

$509

$508

$515

Amortization of Intangible Assets

$128

$133

Asset Impairment, Restructuring and Other Special Charges1

$46

Other Expense, Net2

$12

Income Before Taxes

$60

$143

$203

$12

$184

$196

Income Tax (Benefit) Expense3

$(7)

$(26)

$19

$(20)

$(49)

$29

Net Income

$67

$117

$184

$32

$135

$167

Earnings per Share Diluted

$0.13

$0.24

$0.37

$0.06

$0.28

$0.34

Adjusted Weighted Average Shares Outstanding Diluted

499.1

496.0

Numbers may not add due to rounding.

See slide 26 for details of adjustments to certain GAAP reported measures.

First Quarter 2025

Details of Adjustments to Certain GAAP Reported Measures

For the three months ended March 31, 2025 and 2024:

Adjustments of $9 million for the three months ended March 31, 2025, included $7 million of upfront payments made in relation to new licensing arrangements. Adjustments of $46 million for the three months ended March 31, 2024, consisted of $39 million of restructuring costs and $7 million of divestiture-related charges preceding the July 2024 divestiture of our aqua business.

Adjustments of $5 million for the three months ended March 31, 2025, related to mark-to-market adjustments of our equity investments and the impact of hyperinflationary accounting in Turkey. Adjustments of $5 million for the three months ended March 31, 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.

Adjustments of $26 million and $49 million for the three months ended March 31, 2025 and March 31, 2024, respectively, primarily represented the income tax expense associated with the adjusted items discussed above. The adjustments for the three months ended March 31, 2025, also reflect a $35 million benefit related to a discrete tax item recognized during the quarter. The adjustments for the three months ended March 31, 2024, also included $14 million related to the partial release of a valuation allowance attributable to the anticipated sale of our aqua business.

Full Year 2025

EBITDA

Guidance

Reported Net Loss $(35) - $(7)

Approx. $210 w/

Reconciliation

Net Interest Expense

Royalty Monetization

$ millions

Income Tax Benefit $(22) - $(4)

Depreciation and Amortization Approx. $650

EBITDA $803 - $852

Non-GAAP Adjustments

Cost of Sales Approx. $2

Asset Impairment, Restructuring, and Other Special Charges Approx. $15 Other Expense, Net Approx. $12

Royalty Monetization Approx. $(10)

Adjusted EBITDA $830 - $870

Adjusted EBITDA Margin 18.4% - 19.0%

Note: Numbers may not add due to rounding.

Full Year 2025

EPS Guidance Reconciliation

Cost of Sales

Approx. $0.00

Amortization of Intangible Assets

Approx. $1.04

Asset Impairment, Restructuring, and Other Special Charges

$0.03 - $0.05

Other Expense, Net

$0.02 - $0.03

Royalty Monetization

Approx. $0.01

Subtotal

$1.12 - $1.13

Tax Impact of Adjustments

$(0.26) - $(0.24)

Total Adjustments to Earnings per Share

$0.87 - $0.88

Adjusted Earnings per Share1

$0.80 - $0.86

Reported Loss per Share $(0.07) - $(0.01)

Note: Numbers may not add due to rounding.

1Adjusted EPS is calculated as the sum of reported EPS and total adjustments to EPS. 28

Second Quarter 2025

EBITDA

Guidance Reconciliation

$ millions

Reported Net Loss $(22) - $(3)

Net Interest Expense Approx. $50

Income Tax Expense $(0) - $7

Depreciation and Amortization Approx. $165

EBITDA $193 - $218

Non-GAAP Adjustments

Asset Impairment, Restructuring, and Other Special Charges Approx. $5

Other Expense, Net Approx. $5

Royalty Monetization EBITDA Approx. $(3)

Adjusted EBITDA $200 - $220

Adjusted EBITDA Margin 17.0% - 18.4%

Note: Numbers may not add due to rounding.

Second Quarter 2025

EPS Guidance Reconciliation

Reported Loss per Share $(0.04) - $(0.01)

Amortization of Intangible Assets Approx. $0.26 Asset Impairment, Restructuring, and Other Special Charges $0.00 - $0.01 Other Expense, Net Approx. $0.01

Royalty Monetization Approx. $0.00

Subtotal $0.28 - $0.29

Tax Impact of Adjustments $(0.07) - $(0.06)

Total Adjustments to Earnings per Share Approx. $0.22 Adjusted Earnings per Share1$0.17 - $0.21

Note: Numbers may not add due to rounding.

1Adjusted EPS is calculated as the sum of reported EPS and total adjustments to EPS.

Disclaimer

Elanco Animal Health Inc. published this content on May 07, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 07, 2025 at 10:30 UTC.