Full Press Release Details
Investor Contact: Jim Greffet (317) 383-9935 or greffet_james_f@elanco.com
Media Contact: Colleen Parr Dekker (317) 989-7011 or colleen_parr_dekker@elanco.com
Elanco Animal Health Reports 2019 Fourth
Quarter and Full Year Results
GREENFIELD, IN (February 19, 2020) - Elanco
Animal Health Incorporated (NYSE: ELAN) today reported its financial results for the fourth quarter and full year of 2019, the
first full year as an independent company. The full year 2019 results reflect the durability and agility of a fit-for-purpose dedicated
animal health company driving growth in our Core business, excluding Strategic Exits, and improved profitability through execution
of the company's productivity agenda.
"In our first full year as an independent, public company,
Elanco advanced our fit-for-purpose model, allowing us to move with speed and agility like never before in our history. We are
advancing our pipeline, executing across a diverse portfolio and improving profitability through a robust productivity agenda,"
said Jeff Simmons, president and chief executive officer at Elanco. "We remain confident in the underlying fundamentals in
our base business, with core revenue growing 3 percent at constant currency and our disciplined execution generating 220 basis
points of improvement in adjusted gross margin for the full year. We continue to execute a robust productivity agenda to drive
Executing on the IPP strategy:
Bayer Animal Health Acquisition:
We have made significant progress with
the Bayer Animal Health transaction since our last earnings call:
"Holistically, the Bayer Animal Health transaction is developing
better than we expected when we announced in August of 2019," Simmons said. "We are encouraged by the progress from
a regulatory, financing and integration planning perspective, as well as, Bayer's underlying market positioning and performance.
We continue to look toward a mid-2020 close."
Fourth Quarter Reported Results:
In the fourth quarter of 2019, total revenue
was $787.0 million, a decrease of 2 percent, or a decrease of 1 percent without the impact of foreign exchange rates, compared
with the fourth quarter of 2018. Revenue, excluding strategic exits, was $775.7 million; an increase of 1 percent without the impact
of foreign exchange rates. Gross margin, as a percent of revenue, was 47.9 percent, a decline of 50 basis points as compared with
the fourth quarter of 2018. Total operating expense was $253.2 million, an increase of 3 percent compared with the fourth quarter
of 2018. Tax expense was $5.2 million in the fourth quarter of 2019. Net loss for the fourth quarter of 2019 was $9.5 million,
or $0.03 per diluted share, compared with net income of $16.4 million for the same period in 2018.
Companion Animal Disease Prevention
revenue decreased 15 percent for the quarter, driven by decreased volume and to a lesser extent decreased price and an unfavorable
impact from foreign exchange rates. Without the impact of foreign exchange rates, the category decreased 14 percent. The revenue
decrease was a result of several unfavorable comparisons to the fourth quarter of 2018. In the fourth quarter of 2018, vaccines
benefited from initial stocking of a new customer agreement, customers purchased higher than normal levels of parasiticides and
vaccines to achieve desired incentive levels across companion animal and all remaining inventory for Parastar was sold prior
to rationalizing the product - all contributing to an unfavorable comparison in the fourth quarter. The revenue decrease
was also driven by declines in older generation parasiticides, partially offset by the continued uptake and growth of Credelio
and Interceptor Plus.
Companion Animal Therapeutics revenue
increased 33 percent for the quarter, driven by increased volume and to a lesser extent price, partially offset by an unfavorable
impact from foreign exchange rates. Without the impact of foreign exchange rates, the category grew 34 percent. The revenue increase
was driven by continued uptake of Galliprant and a favorable comparison to the previous period due to a stock out of the product
in late 2018. Additionally, the inclusion of sales for Entyce and Nocita , as a result of the acquisition of Aratana Therapeutics, Inc.
(Aratana), contributed to growth.
Food Animal Future Protein & Health revenue
increased 1 percent for the quarter, driven by increased price, partially offset by a decrease in volume and an unfavorable impact
from foreign exchange rates. Without the impact of foreign exchange rates, the category grew 2 percent. Growth was driven by the
continued uptake of our Aqua portfolio, poultry vaccines and Nutritional products, partially offset by the impact of changing policies
in Asia and poultry producer rotation out of Elanco products in the fourth quarter.
Food Animal Ruminants & Swine revenue increased
2 percent for the quarter, driven by increased volume and price, offset by an unfavorable impact from foreign exchange rates. Without
the impact of foreign exchange rates, the category grew 3 percent. The growth is primarily driven by contribution from Posilac
and the return of sales for sterile injectable products in the quarter, notably Micotil , which also experienced a stock outage
in the previous period, creating a favorable comparison. Growth was partially offset by the continued impact of African Swine Fever
in Asia, changing U.S. producer use of Paylean , and, to a lesser extent, decreased Rumensin sales.
Strategic Exits are businesses Elanco has exited or has
made the decision to exit. Revenue from Strategic Exits decreased 54 percent for the quarter, and represented 1 percent of total
Gross profit was $376.9 million, or 47.9
percent of revenue, in the fourth quarter of 2019 compared with $386.8 million, or 48.4 percent, for the fourth quarter of 2018.
Gross margin declined 50 basis points, primarily due to unfavorable product mix and the impact of foreign exchange rates, partially
offset by continued improvements in manufacturing productivity and price.
Total operating expenses increased 3 percent
in the fourth quarter of 2019. Marketing, selling and administrative expenses increased less than 1 percent to $185.9 million,
reflecting additional costs from acquired businesses in the current year, primarily Aratana, and incremental expenses as a result
of operating as a public company, offset by strong expense management. Research and development expenses increased 10 percent to
$67.3 million, or 9 percent of revenue, reflecting additional costs from acquired businesses within the current year, including
Aratana and Prevtec, investments in the expanded pipeline and increased cost from R&D infrastructure investments.
Amortization of intangibles increased $1.3 million
to $51.4 million in the fourth quarter of 2019 as compared with the fourth quarter of 2018, as a result of the acquisitions of
Aratana and Prevtec. Asset impairments, restructuring, and other special charges increased to $51.6 million in the fourth quarter
of 2019 from $46.0 million in the fourth quarter of 2018. Charges recorded in the fourth quarter of 2019 include costs primarily
related to our integration efforts, as well as external costs related to acquiring businesses, costs necessary to stand up our
organization as an independent company and charges related to previously announced restructuring activities, which are partially
offset by a favorable adjustment from reversals for severance programs that are no longer active.
Net interest expense was $18.7 million
in the fourth quarter of 2019, compared with $21.0 million in the fourth quarter of 2018. Other-net expense of $6.3 million
was incurred in the fourth quarter of 2019, compared with expense of $25.7 million in the fourth quarter of 2018. Other-net
expense in the quarter primarily consisted of foreign exchange losses. Other-net expense in the fourth quarter of 2018 primarily
consisted an increase in the Aratana contingent consideration.
Full Year Reported Results:
For the full year 2019, total revenue was
$3,071 million, or flat with the previous year. Core revenue was $2,991 million, representing growth of 1 percent or 3 percent,
when excluding the impact of foreign exchange rates. For the full year 2019, gross margin increased 340 basis points to 52.1 percent
of revenue driven by continued implementation of our productivity agenda, price growth and a favorable comparison to the prior
year as a result of charges related Imrestor and the closure of Larchwood, Iowa facility in the fourth quarter of 2018, partially
offset by unfavorable product mix. Reported net income and earnings per share were $67.9 million and $0.18, respectively.
Fourth Quarter Consolidated non-GAAP Results:
Adjusted net income for the fourth quarter
decreased 17 percent to $87.8 million, which excludes the net impact of $97.3 million of asset impairments, restructuring and other
special charges and the amortization of intangible assets, net of the impact from taxes. The decline in adjusted net income reflects
decreased revenue and gross profit and increased operating expenses. Adjusted EPS in the quarter was $0.23 per share. Adjusted
EBITDA was $146.3 million in the fourth quarter of 2019, which represents 18.6 percent of total revenue compared with 20.9 percent
for the fourth quarter of 2018.
Full Year Consolidated non-GAAP Results:
For the full year 2019, adjusted gross
margin increased 220 basis points to 52.1 percent of revenue, driven by continued implementation of our productivity agenda and
price growth, partially offset by unfavorable product mix. Net income and earnings per share, on an adjusted non-GAAP basis, were
$394.0 million and $1.06 per share, respectively. Adjusted EBITDA was $662.8 million for the full year 2019, which represents 21.6