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 2024 Results
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 (August 8, 2024) - 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.
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 Change 1 (%) | ||
| 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 | $0.18 | 67 | % |
1 CC Constant Currency, representing the growth rate excluding the impact of foreign exchange rates.
Numbers may not add due to rounding.
The following table summarizes the estimated impact on year over year growth rates from the ERP Blackout on revenue
| Second Quarter Results (dollars in millions) | 2024 | CC Change 1 (%) | Estimated ERP Blackout Impact to Q2 2024 Growth (%) | Estimated ERP Blackout Impact to Q2 2023 ($) | |
| 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 Change 1 (%) | ||
| 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.
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.
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