Full Press Release Details
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
Elanco Animal Health Reports Second Quarter
2023 Results and Raises Full Year Guidance
| Revenue of $1,057 million, impacted by an estimated $90-$110 million of revenue related to customer purchasing shifted from the second quarter into the first as a result of ERP system commercial ordering blackout period for legacy Bayer Animal Health products in April | ||
| Reported Net Loss of $(97) million, Adjusted Net Income of $90 million | ||
| Adjusted EBITDA of $222 million or 21.0% of Revenue | ||
| Reported EPS of $(0.20), Adjusted EPS of $0.18 | ||
| Net leverage ratio of 5.9x Adjusted EBITDA |
| Revenue of $4,350 to $4,410 million | ||
| Reported Net Loss of $127 to $170 million, Reported diluted EPS of $(0.34) to $(0.26) | ||
| Adjusted EPS of $0.80 to $0.89, Adjusted EBITDA of $950 to $1,010 million | ||
| Net leverage ratio expected at 5.5x to 5.8x Adjusted EBITDA at year-end 2023 |
GREENFIELD, Ind (August 7, 2023)
- Elanco Animal Health Incorporated (NYSE: ELAN) today reported financial results for the second quarter of 2023, provided guidance for
the third quarter of 2023, and raised guidance for the full year 2023.
"Elanco exceeded expectations for the second
quarter and first half of 2023, putting us on track to return to revenue growth in the second half and raise full year guidance for revenue,
adjusted EBITDA and adjusted EPS. Excluding the estimated impact of the successful ERP integration in the second quarter, we delivered
sequential improvement in topline performance driven by strong performance in our U.S. Pet Health and International Farm Animal businesses,
and contributions from new products and price," said Jeff Simmons, Elanco president and CEO. "In addition to our improving
business performance, Elanco advanced key drivers of our strategic Innovation, Pipeline, and Portfolio framework. I am very pleased with
the positive EPA resolution on Seresto and proud that we have launched our Canine Parvovirus Monoclonal Antibody treatment, providing
veterinarians with a breakthrough lifesaving product for infected dogs."
"We also made significant progress on our
late-stage pipeline - advancing strategic programs and enhancing our confidence in our differentiation and launch revenue plans.
By the end of August, we expect the FDA will have all data necessary to approve our differentiated JAK inhibitor for canine dermatology,
our differentiated broad spectrum parasiticide for dogs, and Bovaer, a novel product for methane reduction in cattle, supporting our timeline
for a path to approval in the first half of 2024 for these potential blockbusters. We are very encouraged by this progress and are intently
focused on our launch preparation strategies."
Financial Highlights
| Second Quarter Results (dollars in millions, except per share amounts) | 2023 | 2022 | Change (%) | CC Change (1) (%) | ||||||||||||
| Pet Health | $ | 518 | $ | 610 | (15 | )% | (14 | )% | ||||||||
| Farm Animal | $ | 527 | $ | 553 | (5 | )% | (3 | )% | ||||||||
| Cattle | $ | 210 | $ | 248 | (15 | )% | (13 | )% | ||||||||
| Poultry | $ | 178 | $ | 174 | 2 | % | 5 | % | ||||||||
| Swine | $ | 89 | $ | 89 | 0 | % | 1 | % | ||||||||
| Aqua | $ | 50 | $ | 42 | 19 | % | 17 | % | ||||||||
| Contract Manufacturing | $ | 12 | $ | 12 | 0 | % | 1 | % | ||||||||
| Total Revenue | $ | 1,057 | $ | 1,175 | (10 | )% | (9 | )% | ||||||||
| Reported Net Loss | $ | (97 | ) | $ | (10 | ) | 870 | % | ||||||||
| Adjusted EBITDA | $ | 222 | $ | 304 | (27 | )% | ||||||||||
| Reported EPS | $ | (0.20 | ) | $ | (0.02 | ) | (900 | )% | ||||||||
| Adjusted EPS | $ | 0.18 | $ | 0.39 | (54 | )% |
(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 2023, revenue was $1,057
million, a decrease of 10% on a reported basis, or a decrease of 9% excluding the unfavorable impact from foreign exchange rates, compared
to the second quarter of 2022. Revenue in the period was unfavorably impacted by customer purchases of legacy Bayer Animal Health products
that the company believes were shifted from the second quarter of 2023 into the first quarter as a result of the communicated commercial
shipping blackout period in April resulting from the company's ERP system integration (the "ERP Blackout"). Aligned
with estimates communicated with first quarter financial results, the company estimates $90 million to $110 million of revenue detriment
to the second quarter, or an estimated 8 to 9 percentage point reduction in growth, as a result of the ERP Blackout. The system integration
was executed in line with the company's expectations. Beyond the negative impact of the ERP Blackout in the second quarter, estimated
year over year revenue performance improved sequentially for the second straight quarter.
The following table summarizes the estimated impact
from the ERP Blackout on Pet Health and Farm Animal revenue:
| Second Quarter Results (dollars in millions) | 2023 | CC Change (1) (%) | Estimated ERP Blackout Impact (%) | Estimated ERP Blackout Impact ($) | ||||||||||||
| Pet Health | $ | 518 | (14 | )% | (11)% to (13)% | $(65) to $(80) | ||||||||||
| Farm Animal | $ | 527 | (3 | )% | (5 | )% | $(25) to $(30) | |||||||||
| Contract Manufacturing | $ | 12 | 1 | % | 0 | % | 0 | % | ||||||||
| Total Revenue | $ | 1,057 | (9 | )% | (8)% to (9)% | $(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.
Pet Health revenue was $518 million, a
15% decrease on a reported basis or a decrease of 14% excluding the unfavorable impact from foreign exchange rates, with a 4% increase
from price, compared to the second quarter of 2022. Excluding the estimated ERP Blackout impact, the year over year constant currency
decline in the second quarter was primarily driven by declines in demand for retail parasiticide products in Spain and continued competitive
pressure on certain parasiticide products in the U.S., partially offset by improved price, higher demand for pain products in the U.S.,
revenue from new products and increased demand for U.S. OTC products, including a shift of approximately $10 million related to retailer
promotion events that the company expected to occur in the third quarter of 2023.
Farm Animal revenue was $527 million, a
5% decrease on a reported basis or a decrease of 3% excluding the unfavorable impact from foreign exchange rates, with a 3% increase from
price compared to the second quarter of 2022. Excluding the estimated ERP Blackout impact, the year over year constant currency growth
in the second quarter was primarily driven by revenue from new products, led by Experior, strength in European poultry, and aqua demand,
partially offset by supply constraints for cattle vaccines in the U.S. and a weaker sheep season.
Contract Manufacturing revenue was $12
million, flat on a reported basis or an increase of 1% excluding the unfavorable impact from foreign exchange rates, driven primarily
by disruptions in supply from the company's vaccine manufacturing facility.
Reported and adjusted gross profit was $623 million,
or 58.9% of revenue, in the second quarter of 2023. Reported and adjusted gross profit as a percent of revenue increased 10 basis points,
primarily driven by improved price, the impact of favorable foreign exchange rates across our European manufacturing footprint, partially
offset by the ERP Blackout and inflation. The company believes gross profit as a percent of revenue was negatively impacted by an estimated
150 to 180 basis points from the ERP Blackout, as the average gross margin of those products is greater than Elanco's overall average
Total operating expense was $434 million for the
second quarter of 2023. Marketing, selling and administrative expenses increased 3% to $353 million, and research and development expenses
decreased 1% to $81 million. The increase in total operating expenses was primarily driven by higher employee related expenses and increased
promotional spend, primarily supporting the U.S. Pet Health business, partially offset by the favorable impact from foreign exchange rates.
Asset impairment, restructuring and other special
charges were $35 million in the second quarter of 2023 compared to $86 million in the second quarter of 2022. Charges recorded in the
second quarter of 2023 primarily related to costs associated with the implementation of new systems, programs and processes due to the
integration of Bayer Animal Health. The ERP system go-live was completed in April 2023, with continued performance optimization expected
over the next several quarters.
Reported and adjusted net interest expense was
$74 million in the second quarter of 2023, an increase of $7 million on a reported basis and $24 million on an adjusted basis,
compared to the second quarter of 2022. The increase was driven by the impact of rate increases on variable rate debt and rate increases
on our Senior Notes driven by credit downgrades. On a reported basis, the increase was partially offset by a $17 million debt extinguishment
charge in the second quarter of 2022.
Other expense was $23 million in the second quarter
of 2023, compared with income of $6 million in the second quarter of 2022. Other expense recorded in the second quarter of 2023 primarily
consisted of an accrual for a potential settlement related to the Seresto class action lawsuits and to a lesser extent the impact of hyperinflationary
accounting in Turkey and Argentina. Other income recorded in the second quarter of 2022 primarily related to a gain on the disposal of
the microbiome R&D platform.
The reported effective tax rate decreased to (23.0)%
in the second quarter of 2023 compared to 28.6% in the second quarter of 2022, primarily driven by the jurisdictional mix of Elanco earnings and a benefit from a cash interest rate swap settlement in the second quarter of 2022. The adjusted effective tax rate increased
to 19.9% in the second quarter of 2023 compared to 13.2% in the second quarter of 2022, primarily driven by the jurisdictional mix of Elanco earnings and certain favorable return to provision adjustments that impacted the second quarter of 2022.
Net loss for the second quarter of 2023 was $97
million and $0.20 per diluted share on a reported basis, compared with net loss of $10 million and $0.02 per diluted share for the same
period in 2022. On an adjusted basis, net income for the second quarter of 2023 was $90 million, or $0.18 per diluted share, a 54% decrease
compared with the same period in 2022. The company estimates adjusted EPS in the second quarter includes a $0.11 to $0.14 detriment from
the ERP Blackout, assuming a corporate consolidated tax rate of 21.9%, aligned with the first quarter of 2023.
Adjusted EBITDA was $222 million in the second
quarter of 2023, a 27% decrease compared to the second quarter of 2022. Adjusted EBITDA as a percent of revenue was 21.0% compared with
25.9% for the second quarter of 2022, a decrease of 490 basis points. The company estimates adjusted EBITDA in the second quarter includes
a $70 million to $90 million detriment from the ERP Blackout, or a 450 to 540 basis point detriment in adjusted EBITDA as a percent of
The following table summarizes the estimated impact
from the ERP Blackout on adjusted EBITDA and adjusted EPS:
| Second Quarter Results (dollars in millions, except per share amounts) | 2023 | Change (%) | Estimated ERP Blackout Impact | |||||||
| Adjusted EBITDA | $ | 222 | (27 | )% | $(70) to $(90) | |||||
| Adjusted EPS | $ | 0.18 | (54 | )% | $(0.11) to $(0.14) |
Working Capital and Balance Sheet
Cash provided by operations was $61 million
in the second quarter of 2023 compared to cash provided by operations of $312 million in the second quarter of 2022. The decrease