- Full year 2021 revenue was $4,765 million, an increase of 46
percent, including $1,311 million of incremental revenue from Bayer
Animal Health products in 2021. Full year 2021 earnings per share
(EPS) was $(0.97) (reported), or $1.05 (adjusted).
- Fourth quarter 2021 revenue was $1,113 million, a decline of
2 percent. Excluding the unfavorable impact of $60 million of
previously disclosed items that benefited the fourth quarter of
2020 and the unfavorable impact of foreign exchange rates, fourth
quarter 2021 revenue increased 4 percent. Fourth quarter 2021 EPS
was $(0.20) (reported), or $0.21 (adjusted), an increase of 70
percent as reported and 75 percent on an adjusted basis.
- Providing financial guidance for the full year 2022 with
revenue of $4,745 to $4,800 million, representing growth on a
reported basis at the midpoint and 2 to 3 percent growth on a
constant currency basis, and diluted EPS of $0.01 to $0.07 on a
reported basis, or $1.18 to $1.24 on an adjusted basis.
- Significant innovation progress in 2022: Innovation revenue
expected to contribute $120 to $160 million; expect 7 approvals and
launches and 5 to 7 regulatory submissions in major markets,
including up to two differentiated pet health potential
blockbusters.
- Providing financial guidance for the first quarter 2022 with
revenue of $1,200 to $1,230 million, and diluted EPS of $0.01 to
$0.07 on a reported basis, or $0.33 to $0.38 on an adjusted
basis.
Elanco Animal Health Incorporated (NYSE: ELAN) today reported
its financial results for the fourth quarter and full year 2021,
and provided initial guidance both for the first quarter and full
year 2022.
“2021 was a historic year for Elanco as we completed our
independent company standup, continued our integration of Bayer
Animal Health and recorded our highest revenue and adjusted EBITDA
levels as a public company. We grew revenue 7 percent compared to
our 2020 pro forma combined company estimates, including 10 percent
in Pet Health and 6 percent in Farm Animal,” said Jeff Simmons,
president and CEO of Elanco. “The fourth quarter of 2021 represents
our 5th consecutive quarter of outperforming our expectations. Our
diverse portfolio delivered across the business – growing in all
three regions and in four out of five species, demonstrating the
durable growth profile of our business. None of this would be
possible without the dedicated customers we serve and the
commitment and ownership mindset of our global Elanco team. The
resiliency they demonstrated and their disciplined focus on
execution was central to where we are today. We carry this momentum
into 2022, anticipating 2 to 3 percent revenue growth on a constant
currency basis and 10 percent adjusted EBITDA and 15 percent
adjusted EPS growth at the midpoint of our guidance, with seven new
product approvals and launches and 5 to 7 new product submissions
expected.”
Fourth Quarter Results
(dollars in millions, except per share
amounts)
2021
2020
Change ($)
Change (%)
Revenue
$1,113
$1,140
($27)
(2)%
Reported Net Loss
$(97)
$(323)
$226
70%
Adjusted EBITDA
$212
$176
$36
20%
Reported EPS
$(0.20)
$(0.66)
$0.46
70%
Adjusted EPS
$0.21
$0.12
$0.09
75%
Full Year Results
(dollars in millions, except per share
amounts)
2021
2020
Change ($)
Change (%)
Revenue
$4,765
$3,273
$1,492
46%
Reported Net Loss
$(472)
$(560)
$88
16%
Adjusted EBITDA
$1,057
$529
$528
100%
Reported EPS
$(0.97)
$(1.27)
$0.30
24%
Adjusted EPS
$1.05
$0.47
$0.58
123%
Highlights Since Last Earnings
Call:
Innovation
- Innovation-related revenue in 2021 was $72 million, within the
most recent guidance range of $65 million to $85 million, driven by
Credelio Plus and Increxxa.
- Received FDA approval for ZorbiumTM, a long-acting transdermal
medication to control post-operative pain associated with surgical
procedures in cats.
Portfolio
- Announced Rajeev (Bobby) Modi, as the new Executive Vice
President of U.S. Pet Health and Global Digital Transformation,
effective March 14.
- Galliprant®, a product for canine osteoarthritis pain and
inflammation, became Elanco's 10th blockbuster brand, registering
over $100 million in revenue in 2021.
- As a part of Elanco's value beyond product strategy in Farm
Animal, introduced UpLookTM, an insights engine designed to predict
greenhouse gas emissions and identify key drivers of an operation's
carbon footprint and became a founding member of the Greener Cattle
Initiative, which will focus on reducing enteric methane
emissions.
Productivity
- Announced restructuring actions to streamline and simplify
organizational structure across marketing, international commercial
operations and R&D, including the elimination of approximately
380 positions, with expected savings of approximately $60 million
in 2022 and $70 million once fully annualized.
- Increased expected synergy target from $300 million to $345
million by 2023 and announced an additional $50 million to $60
million of expected savings in 2024 and beyond from the integration
of the legacy Bayer Animal Health business into the Elanco ERP
system and the streamlining of business processes.
- Completed the sale of our manufacturing facility in Speke,
United Kingdom.
Fourth Quarter Reported
Results:
In the fourth quarter of 2021, revenue was $1,113 million, a
decrease of 2 percent, compared with the fourth quarter of 2020.
Revenue growth was unfavorably impacted by approximately $60
million of previously disclosed items that benefited the fourth
quarter of 2020, including a purchasing shift by a large U.S. pet
health customer, a short-term competitor stock-out benefiting our
U.S. cattle vaccines and implants business, the exit of certain
products and reduced contract manufacturing from the sale of the
Shawnee, KS manufacturing facility and discontinued production of
human growth hormone for Eli Lilly and Company, our former parent
company, at the end of 2020. The business grew in pet health,
poultry and aqua, and from innovation-related sales, partially
offset by pressure in the China swine business.
Pet Health revenue decreased 1 percent for the quarter
and was flat when excluding the unfavorable impact from foreign
exchange rates. Price growth across the portfolio and volume growth
in a number of brands including Credelio®, Galliprant®, Advocate®,
vaccines and the addition of innovation products, was more than
offset by the impact of competitive pressure on older generation
parasiticides and the impact of an approximate $10 million
purchasing pattern shift by a large U.S. customer into the fourth
quarter of 2020 from the first quarter of 2021. Seresto® and the
Advantage® family of products contributed $60 million and $104
million of revenue in the quarter, respectively.
Farm Animal revenue decreased 1 percent for the quarter
and was flat excluding the unfavorable impact from foreign exchange
rates. Performance was driven by growth in global poultry and aqua
as a result of improved conditions related to the COVID-19 pandemic
and the addition of innovation products, which was more than offset
by a decline in the China swine business from pressured producer
profitability and the unfavorable impact of exiting certain
products since the fourth quarter of 2020 and from a short-term
competitor stock-out benefiting our U.S. cattle vaccines and
implant business in the fourth quarter of 2020.
Contract Manufacturing represents contract manufacturing
relationships which are not long-term value drivers for the
company. Contract Manufacturing represented 1 percent of total
revenue in the quarter and decreased 48 percent compared to the
fourth quarter of 2020. The decrease is primarily driven by the
impact from the sale of the Shawnee, KS manufacturing site and
discontinued production of human growth hormone for Eli Lilly and
Company, our former parent company, at the end of 2020.
Gross profit was $601 million, or 54.0 percent of
revenue, in the fourth quarter of 2021 compared with $544 million,
or 47.7 percent, for the fourth quarter of 2020. Gross margin
increased 630 basis points, with 500 basis points attributable to
the negative impact of the amortization of inventory fair value
adjustments recorded from the acquisition of Bayer Animal Health in
the fourth quarter of 2020. Further improvement was driven by
continued benefits from manufacturing productivity, and improved
price and mix, partially offset by increased costs due to
inflation.
Total operating expense was $421 million, a decrease of
$66 million, or 14 percent, compared with the fourth quarter of
2020. Marketing, selling and administrative expenses decreased $45
million to $329 million and research and development expenses
decreased $21 million to $92 million, from the realization of
synergies associated with restructurings and disciplined cost
management.
Amortization of intangibles decreased $25 million to $139
million in the fourth quarter of 2021 as compared with the fourth
quarter of 2020, primarily from a measurement period adjustment in
the first quarter of 2021 that decreased the fair value of
intangible assets recorded from the acquisition of Bayer Animal
Health. Asset impairment, restructuring, and other special charges
decreased to $110 million in the fourth quarter of 2021 from $167
million in the fourth quarter of 2020, primarily due to decreases
in integration and acquisition costs and asset impairment and
write-down charges, partially offset by an increase in severance
costs.
Net interest expense was $55 million in the fourth quarter of
2021, compared with $60 million in the fourth quarter of 2020. Tax
benefit was $24 million in the fourth quarter of 2021. The fourth
quarter of 2021 included a valuation allowance against $40 million
of deferred tax assets.
Net loss for the fourth quarter of 2021 was $97 million and
$0.20 per diluted share, compared with a net loss of $323 million
for the same period in 2020.
Fourth Quarter Non-GAAP
Results:
For the fourth quarter of 2021, adjusted gross margin increased
130 basis points to 54.0 percent of revenue, driven by continued
improvements in manufacturing productivity, and improved price and
mix, partially offset by increased costs due to inflation. Adjusted
net income for the fourth quarter increased to $105 million, which
excludes the net impact of $202 million of asset impairment,
restructuring and other special charges, the amortization of
intangible assets and other adjusting items, net of the impact from
taxes (including the valuation allowance applied to deferred tax
assets). Our adjusted effective tax rate for the fourth quarter was
14.6 percent driven by certain favorable return to provision
results. Adjusted EPS in the quarter was $0.21 per share, an
increase of 75 percent as compared to the fourth quarter of 2020.
Adjusted EBITDA was $212 million in the fourth quarter of 2021, an
increase of 20 percent compared to the fourth quarter of 2020.
Adjusted EBITDA as a percent of revenue was 19.0 percent compared
with 15.4 percent for the fourth quarter of 2020, an improvement of
360 basis points.
Full Year Reported
Results:
For the full year 2021, total revenue was $4,765 million, or an
increase of 46 percent over the previous year, including an
additional $1,311 million of Bayer Animal Health product revenue in
the full year 2021 compared to the full year 2020.
Pet Health delivered revenue of $2,351 million, including
an additional $855 million of Bayer Animal Health product revenue
in the full year 2021 compared to the full year 2020. Results
exceeded the company's expectations as many key brands experienced
double-digit growth including Credelio, Interceptor® Plus,
Advocate, vaccines, and Galliprant, which became a blockbuster in
2021. In parasiticides, the international business delivered strong
growth driven by Seresto, Advocate and the Credelio franchise,
while the U.S. was impacted by competitive pressures, primarily
impacting older generation products.
Farm Animal delivered revenue of $2,332 million,
including an additional $417 million of Bayer Animal Health product
revenue in the full year 2021 compared to the full year 2020.
Rumensin® continued to fare better than initial expectations
regarding market share despite nearly 2.5 years of generic
competition. In the second half of 2021, global poultry and aqua
markets benefited from improving economic conditions as the
COVID-19 pandemic eased in many markets. These tailwinds were
partially offset by pressured producer profitability in the China
swine market and the impact of a short-term competitor stock-out
benefiting our U.S. cattle vaccines and implant business in the
fourth quarter 2020.
Contract Manufacturing represented 2 percent of total
revenue for the full year 2021 and increased 3 percent compared to
the full year 2020. The increase was driven by the addition of $39
million from Bayer Animal Health, offset by the impact of the sale
of the Shawnee, KS manufacturing site and discontinued production
of human growth hormone for Lilly at the end of 2020.
Gross profit was $2,631 million, 55.2 percent of revenue,
for the full year 2021, an increase of 610 basis points compared to
the full year 2020, primarily due to the benefit from inclusion of
the legacy Bayer Animal Health portfolio for the full year,
continued improvements in manufacturing productivity, improved
price and mix, as well as a favorable comparison to 2020, which was
impacted by $26 million higher amortization of inventory fair value
adjustments recorded from the acquisition of Bayer Animal Health,
partially offset by increased costs due to inflation.
Amortization of intangibles increased $196 million to $556
million in 2021 as compared with the full year 2020, primarily due
to the inclusion of a full year of amortization of intangible
assets recorded from the acquisition of Bayer Animal Health.
Asset impairment, restructuring, and other special charges was
$628 million in 2021 compared to $623 million in 2020. Charges
recorded in 2021 primarily included asset write-downs related to
the Shawnee, KS and Speke, United Kingdom manufacturing site sales,
costs related to previously announced restructuring activities,
transaction costs related to acquisitions, including our
acquisition of KindredBio, costs associated with our integration
efforts for acquired businesses, including Bayer Animal Health, and
asset impairment charges.
Tax benefit was $95 million in 2021. Tax benefit in 2021
included a valuation allowance against $42 million of deferred tax
assets.
Reported net loss and loss per share were $472 million and
$0.97, respectively.
Full Year Consolidated Non-GAAP
Results:
For the full year 2021, adjusted gross margin increased 460
basis points to 56.6 percent of revenue primarily due to the
benefit from inclusion of the legacy Bayer Animal Health portfolio
for the full year, continued improvements in manufacturing
productivity, and improved price and mix, partially offset by
higher inflation costs. Net income and earnings per share, on a
non-GAAP basis, were $514 million and $1.05 per share,
respectively. The full year non-GAAP effective tax rate was 22.9
percent for 2021.
Adjusted EBITDA was $1,057 million for the full year 2021, which
represents 22.2 percent of total revenue compared with 16.1 percent
for the full year 2020.
Working Capital and Balance
Sheet
In the fourth quarter, days sales outstanding improved
sequentially to 73 days from 81 days in the third quarter of 2021,
reflecting improved execution on collections globally. Operating
cash flow was $223 million in the fourth quarter of 2021 and $483
million for the full year 2021.
As of December 31, 2021, cash and cash equivalents were $638
million, with gross debt of $6,401 million, resulting in net debt
of $5,763 million. As of the end of 2021, the company achieved its
expected net leverage ratio of 5.5x adjusted EBITDA, while also
funding the $444 million purchase price for KindredBio. The company
expects to end 2022 with a net leverage ratio of 4.75x adjusted
EBITDA.
For further detail of non-GAAP measures, see the Reconciliation
of GAAP Reported to Selected Non-GAAP Adjusted Information tables
later in this press release.
FINANCIAL GUIDANCE
Elanco is providing financial guidance for the full year 2022,
summarized in the following table:
2022 Full Year
(dollars in millions, except per share
amounts)
Guidance
Revenue
$4,745
to
$4,800
Reported Net Income
$4
to
$27
Adjusted EBITDA
$1,140
to
$1,180
Reported Earnings per Share
$0.01
to
$0.07
Adjusted Earnings per Share
$1.18
to
$1.24
The company anticipates revenue between $4,745 million and
$4,800 million, with a headwind of approximately $95 million from
the unfavorable impact for foreign exchange rates this year. Growth
is expected to be driven by newly launched innovation products,
increased price across the portfolio, and growth in key focus
brands, partially offset by lower revenue as a result of
competitive pressure in the U.S. pet health parasiticides market,
headwinds in the China swine business and the reduction of contract
manufacturing revenue.
Additionally, Elanco is providing financial guidance for the
first quarter of 2022, summarized in the following table:
2022 First Quarter
(dollars in millions, except per share
amounts)
Guidance
Revenue
$1,200
to
$1,230
Reported Net Income
$7
to
$33
Adjusted EBITDA
$310
to
$340
Reported Earnings per Share
$0.01
to
$0.07
Adjusted Earnings per Share
$0.33
to
$0.38
The company expects revenue between $1,200 million and $1,230
million. Growth is expected to be driven by key focus brands and
innovation products, offset by continued headwinds in the China
swine business and the reduction of contract manufacturing
revenue.
The financial guidance reflects foreign exchange rates as of the
beginning of February. 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
fourth quarter and full year 2021 financial and operational
results, provide financial guidance for the full year and first
quarter of 2022, 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™ Sustainability/ESG framework –
all to advance the health of animals, people and the planet. Learn
more at www.elanco.com.
Cautionary Statement Regarding
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 , including,
without limitation, statements concerning expected synergies and
cost savings, product launches and revenue from such products, cost
savings and expenses relating to restructuring actions, the impact
of the COVID-19 pandemic and related disruptions on our business,
our 2022 full year and first quarter guidance and long-term
expectations, our expectations regarding debt levels, 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 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:
- heightened competition, including from generics;
- the impact of disruptive innovations and advances in veterinary
medical practices, animal health technologies and alternatives to
animal-derived protein;
- changes in regulatory restrictions on the use of antibiotics in
farm animals;
- our ability to implement our business strategies or achieve
targeted cost efficiencies and gross margin improvements;
- consolidation of our customers and distributors;
- an outbreak of infectious disease carried by farm animals;
- the impact on our operations, the supply chain, customer
demand, and our liquidity as a result of the COVID-19 global health
pandemic;
- the success of our R&D and licensing efforts;
- 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;
- fluctuations in our business results due to seasonality and
other factors;
- the impact of weather conditions and the availability of
natural resources;
- risks related to the modification of foreign trade policy;
- risks related to currency rate fluctuations;
- our dependence on the success of our top products;
- the impact of customer exposure to rising costs and reduced
customer income and the lack of availability or significant
increases in the cost of raw materials;
- use of alternative distribution channels and the impact of
increased or decreased sales to our channel distributors resulting
in fluctuation in our revenues;
- risks related to the write down of goodwill or identifiable
intangible assets;
- risks related to the evaluation of animals;
- manufacturing problems and capacity imbalances;
- the impact of litigation, regulatory investigations, and other
legal matters and the risk that our insurance policies may be
insufficient to protect us from the impact of such matters;
- actions by regulatory bodies, including as a result of their
interpretation of studies on product safety;
- risks related to tax expense or exposure;
- risks related to environmental, health and safety laws and
regulations;
- risks related to our presence in foreign markets;
- challenges to our intellectual property rights or our alleged
violation of rights of others;
- our dependence on sophisticated information technology and
infrastructure and impact of breaches of our information technology
systems;
- the impact of increased regulation or decreased financial
support related to farm animals;
- adverse effects of labor disputes, strikes, work stoppages, and
the loss of key personnel or highly skilled employees;
- risks related to underfunded pension plan liabilities;
- our ability to complete acquisitions and successfully integrate
the businesses we acquire, including KindredBio and the animal
health business of Bayer (Bayer Animal Health);
- the effect of our substantial indebtedness on our business,
including restrictions in our debt agreements that will limit our
operating flexibility; and
- risks related to certain governance provisions in our
constituent documents.
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
subsequent 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, adjusted constant
currency revenue growth, EBITDA, EBITDA margin, adjusted EBITDA,
adjusted EBITDA margin, adjusted net (income) loss, adjusted EPS,
adjusted gross profit and adjusted gross margin 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 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
U.S. 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
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 U.S. GAAP
reported measures. We encourage investors to review our unaudited
condensed consolidated and combined financial statements in their
entirety and caution investors to use U.S. 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.
Elanco Animal Health
Incorporated
Unaudited Consolidated
Statements of Operations
(Dollars and shares in
millions, except per share data)
Three Months Ended December
31,
For the year Ended December
31,
2021
2020
2021
2020
Revenue
$
1,113
$
1,140
$
4,765
$
3,273
Costs, expenses, and other:
Cost of sales
512
596
2,134
1,667
Research and development
92
113
369
327
Marketing, selling, and administrative
329
374
1,404
996
Amortization of intangible assets
139
164
556
360
Asset impairment, restructuring, and other
special charges
110
167
628
623
Interest expense, net of capitalized
interest
55
60
236
150
Other (income) expense, net
(3
)
(16
)
5
(178
)
Loss before income taxes
$
(121
)
$
(318
)
$
(567
)
$
(672
)
Income tax expense (benefit)
(24
)
5
(95
)
(112
)
Net Loss
$
(97
)
$
(323
)
$
(472
)
$
(560
)
Loss per share:
Basic
$
(0.20
)
$
(0.66
)
$
(0.97
)
$
(1.27
)
Diluted
$
(0.20
)
$
(0.66
)
$
(0.97
)
$
(1.27
)
Weighted average shares outstanding:
Basic
487.4
486.2
487.2
441.4
Diluted
487.4
486.2
487.2
441.4
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 (loss) excluding
amortization of intangible assets, purchase accounting adjustments
to inventory, integration costs of acquisitions, severance, asset
impairment, gain on sale of assets, 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 (loss) adjusted for
interest expense (income), income tax expense (benefit), tax
valuation allowances, and depreciation and amortization, further
adjusted to exclude purchase accounting adjustments to inventory,
integration costs of acquisitions, severance, asset impairment,
gain on sale of assets, facility exit costs 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 EPS as adjusted net income divided by the
number of weighted average shares outstanding as of December 31,
2021 and 2020.
We define net debt as gross debt less cash and cash equivalents
on the balance sheet. 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 the net leverage ratio
as gross debt less cash and cash equivalents divided by adjusted
EBITDA. This calculation does not include Term Loan B
covenant-related adjustments that reduce this leverage ratio.
The following is a reconciliation of
revenue growth for the fourth quarter of 2021:
Change (%)
Reported Revenue Growth (Decline)
(2)%
Impact of previously disclosed items
affecting comparability (1)
5 %
Impact of foreign exchange rates
1 %
Adjusted Constant Currency Growth
4 %
(1)
Previously disclosed items affecting
comparability include $10 million from a purchasing shift by a
large U.S. pet health customer, $10 million from a short-term
competitor stock-out benefiting our U.S. cattle vaccines and
implants business, $20 million from the exit of certain products
and $20 million from reduced contract manufacturing from the sale
of the Shawnee, KS manufacturing facility and discontinued
production of human growth hormone for Eli Lilly and Company, our
former parent company, at the end of 2020.
The following is a reconciliation of GAAP
reported for the three months ended December 31, 2021 and 2020 to
selected non-GAAP adjusted information:
2021
2020
GAAP Reported
Adjusted Items (b)
Non- GAAP (a)
GAAP Reported
Adjusted Items (b)
Non- GAAP (a)
Cost of sales (1)
$
512
$
—
$
512
$
596
$
57
$
539
Amortization of intangible assets
$
139
$
139
$
—
$
164
164
$
—
Asset impairment, restructuring and other
special charges (2) (3)
$
110
$
110
$
—
$
167
$
167
$
—
Other (income) expense, net (4) (5)
$
(3
)
$
(5
)
$
2
$
(16
)
$
(2
)
$
(14
)
Income (loss) before taxes
$
(121
)
$
244
$
123
$
(318
)
$
386
$
68
Provision for taxes (6) (7)
$
(24
)
$
(42
)
$
18
$
5
$
(6
)
$
11
Net income (loss)
$
(97
)
$
202
$
105
$
(323
)
$
380
$
57
Earnings (loss) per share:
basic
$
(0.20
)
$
0.41
$
0.22
$
(0.66
)
$
0.78
$
0.12
diluted
$
(0.20
)
$
0.41
$
0.21
$
(0.66
)
$
0.78
$
0.12
Adjusted weighted average shares
outstanding:
basic
487.4
487.4
487.4
486.2
486.2
486.2
diluted (8)
487.4
489.8
489.8
486.2
488.2
488.2
Numbers may not add due to rounding.
The table above reflects only line items
with non-GAAP adjustments.
(a)
The company uses non-GAAP financial measures that differ from
financial statements reported in conformity with U.S. generally
accepted accounting principles (GAAP). The company believes that
these non-GAAP measures provide useful information to investors.
Among other things, they may help investors evaluate the company’s
ongoing operations. They can 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 December 31, 2021 and 2020 include the following:
(1)
2020 excludes amortization of
inventory fair value adjustments recorded from the acquisition of
Bayer Animal Health ($57 million).
(2)
2021 excludes charges associated
with integration efforts and external costs related to the
acquisitions of Bayer Animal Health and KindredBio ($21 million),
severance ($85 million), asset impairments ($3 million), and asset
write-downs ($2 million), and the settlement of a legal matter ($2
million), partially offset by curtailment gains recognized due to
the remeasurement our pension benefit obligations resulting from
workforce reductions associated with our recent restructuring
programs ($2 million).
(3)
2020 excludes charges associated
with integration efforts and external costs related to the
acquisition of businesses, including the acquisition of the animal
health business of Bayer, and charges primarily related to
independent stand-up costs and other related activities ($106
million), severance ($24 million), asset impairments ($14 million),
facility exit costs and asset write-downs ($12 million), a one-time
expense associated with our agreement to build a new corporate
headquarters ($9 million), registration fees for Elanco common
shares sold by Bayer AG during the quarter ($1 million), and a
payment for acquired IPR&D from a collaboration arrangement ($1
million).
(4)
2021 excludes the gain recorded
on the sale of certain equine assets ($4 million) and the impact of
a decrease in the fair value of the Prevtec contingent
consideration ($1 million).
(5)
2020 excludes the impact of a
decrease in the fair value of the Prevtec contingent consideration
($2 million).
(6)
2021 represents the income tax
expense associated with the adjusted items, partially offset by the
impact of the valuation allowance recorded against our deferred tax
assets during the period ($40 million).
(7)
2020 represents the income tax
expense associated with the adjusted items, partially offset by the
impact of the valuation allowance recorded against our U.S.
deferred tax assets during the period ($75 million).
(8)
During the three months ended
December 31, 2021 and 2020, we reported a GAAP net loss and thus
potential dilutive common shares were not assumed to have been
issued since their effect is anti-dilutive. During the same period,
we reported non-GAAP net income. As a result, potential dilutive
common shares would not have an anti-dilutive effect, and diluted
weighted average shares outstanding for purposes of calculating
Adjusted EPS include 2.4 million and 2.0 million, respectively, of
common stock equivalents.
Q4
2021
Q4
2020
As Reported EPS
$
(0.20
)
$
(0.66
)
Cost of sales
—
0.12
Amortization of intangible assets
0.28
0.34
Asset impairment, restructuring and other
special charges
0.22
0.34
Other (income) expense, net
(0.01
)
0.00
Subtotal
0.50
0.79
Tax Impact of Adjustments (1) (2)
(0.09
)
(0.01
)
Total Adjustments to EPS
$
0.41
$
0.78
Adjusted EPS (3)
$
0.21
$
0.12
Numbers may not add due to rounding.
(1)
2021 includes the favorable adjustment
relating to the valuation allowance recorded against our deferred
tax assets during the fourth quarter of 2021 (impact of $0.08 per
share).
(2)
2020 includes the favorable adjustment
relating to the valuation allowance recorded against our U.S.
deferred tax assets during the fourth quarter of 2020 (impact of
$0.15 per share).
(3)
Adjusted EPS is calculated as the sum of
As Reported EPS and Total Adjustments to EPS.
The following is a reconciliation of GAAP
Reported for the year ended December 31, 2021 and 2020 to Selected
Non-GAAP Adjusted information:
2021
2020
GAAP Reported
Adjusted Items (b)
Non- GAAP (a)
GAAP Reported
Adjusted Items (b)
Non- GAAP (a)
Cost of sales (1) (2)
$
2,134
$
64
$
2,070
$
1,667
$
96
$
1,571
Amortization of intangible assets
$
556
$
556
$
—
$
360
$
360
$
—
Asset impairment, restructuring and other
special charges (3) (4)
$
628
$
628
$
—
$
623
$
623
$
—
Interest expense, net of capitalized
interest (5)
$
236
$
—
$
236
$
150
$
3
$
147
Other (income) expense, net (6) (7)
$
5
$
(14
)
$
19
$
(178
)
$
(168
)
$
(10
)
Income (loss) before taxes
$
(567
)
$
1,234
$
667
$
(672
)
$
914
$
242
Provision for taxes (8) (9)
$
(95
)
$
(248
)
$
153
$
(112
)
$
(147
)
$
35
Net income (loss)
$
(472
)
$
986
$
514
$
(560
)
$
767
$
207
Earnings (loss) per share:
basic
$
(0.97
)
$
2.02
$
1.06
$
(1.27
)
$
1.74
$
0.47
diluted
$
(0.97
)
$
2.02
$
1.05
$
(1.27
)
$
1.74
$
0.47
Adjusted weighted average shares
outstanding:
basic
487.2
487.2
487.2
441.4
441.4
441.4
diluted (10)
487.2
488.9
488.9
441.4
442.6
442.6
Numbers may not add due to rounding.
The table above reflects only line items
with non-GAAP adjustments.
(a)
The company uses non-GAAP
financial measures that differ from financial statements reported
in conformity with U.S. generally accepted accounting principles
(GAAP). The company believes that these non-GAAP measures provide
useful information to investors. Among other things, they may help
investors evaluate the company’s ongoing operations. They can
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 year ended December 31, 2021 and 2020
include the following:
(1)
2021 excludes amortization of inventory
fair value adjustments recorded from the acquisition of Bayer
Animal Health ($64 million).
(2)
2020 excludes amortization of inventory
fair value adjustments recorded from the acquisition of Bayer
Animal Health ($90 million), charges associated with the write-off
of marketing inventory recorded from the acquisition of Bayer
Animal Health ($2 million), and a one-time payment to settle
outstanding obligations to a contract manufacturing organization in
connection with a divestiture ($4 million).
(3)
2021 excludes charges associated with
integration efforts and external costs related to the acquisitions
of Bayer Animal Health and KindredBio, and charges primarily
related to independent stand-up costs and other related activities
($162 million), a charge associated with the settlement of a
liability for future royalty and milestone payments triggered in
connection with our acquisition of KindredBio ($26 million), costs
associated with the sale of our manufacturing sites in Shawnee,
Kansas and Speke, U.K. and other business development transactions
($5 million), severance accruals net of reversals ($110 million),
asset impairments ($66 million), asset write-downs ($278 million),
and the settlement of legal matters ($10 million), partially offset
by curtailment gains recognized due to the remeasurement our
pension benefit obligations resulting from workforce reductions
associated with our recent restructuring programs ($29
million).
(4)
2020 excludes charges associated with
integration efforts and external costs related to the acquisition
of businesses, including the acquisition of the animal health
business of Bayer, and charges primarily related to independent
stand-up costs and other related activities ($424 million),
severance accruals net of reversals ($155 million), asset
impairments ($17 million), facility exit costs and asset
write-downs ($17 million), a one-time payment associated with our
agreement to build a new corporate headquarters ($9 million), the
settlement of a legal matter ($3 million), registration fees for
Elanco common shares sold by Bayer AG during the quarter ($1
million), and a payment for acquired IPR&D from a collaboration
arrangement ($1 million), partially offset by adjustments to
write-downs of assets held for sale ($1 million) and the gain on
the sale of our R&D facility in Prince Edward Island, Canada
($4 million).
(5)
2020 excludes the debt extinguishment
losses recorded in connection with the repayments of our existing
term loan facilities ($3 million).
(6)
2021 excludes up-front payments received
and equity issued to us in relation to license and asset assignment
agreements ($9 million), the gain recorded on the sale of certain
equine assets ($4 million), and the impact of a decrease in the
fair value of the Prevtec contingent consideration ($1
million).
(7)
2020 excludes the gains recorded in
relation to the divestiture of several products as required as a
result of the acquisition of the animal health business of Bayer
($157 million), a hedging gain related to the closing of the
acquisition of the animal health business of Bayer ($6 million),
the gain on our sale of land and buildings in New South Wales,
Australia ($45 million) and the impact of a decrease in the fair
value of the Prevtec contingent consideration ($4 million),
partially offset by financing commitment and advisory fees
associated with the Bayer Animal Health acquisition ($36 million)
and a loss recorded in relation to the divestiture of products ($7
million).
(8)
2021 represents the income tax expense
associated with the adjusted items, partially offset by a net
increase in the valuation allowance recorded against our deferred
tax assets during the period ($42 million).
(9)
2020 represents the income tax expense
associated with the adjusted items, partially offset by the impact
of the valuation allowance recorded against our U.S. deferred tax
assets during the period ($75 million).
(10)
During the year ended December 31, 2021
and 2020, we reported a GAAP net loss and thus potential dilutive
common shares were not assumed to have been issued since their
effect is anti-dilutive. During the same period, we reported
non-GAAP net income. As a result, potential dilutive common shares
would not have an anti-dilutive effect, and diluted weighted
average shares outstanding for purposes of calculating Adjusted EPS
include 1.7 million and 1.2 million, respectively, of common stock
equivalents.
Year-to-date
2021
2020
As Reported EPS
$
(0.97
)
$
(1.27
)
Cost of sales
0.13
0.22
Amortization of intangible assets
1.14
0.82
Asset impairment, restructuring and other
special charges
1.28
1.41
Interest expense, net of capitalized
interest
—
0.01
Other (income) expense, net
(0.03
)
(0.38
)
Subtotal
$
2.52
$
2.07
Tax Impact of Adjustments (1) (2)
(0.51
)
(0.33
)
Total Adjustments to EPS
$
2.02
$
1.74
Adjusted EPS (3)
$
1.05
$
0.47
Numbers may not add due to rounding.
(1)
2021 includes the favorable adjustment
relating to the valuation allowance recorded against our deferred
tax assets during the fourth quarter of 2021 (impact of $0.09 per
share).
(2)
2020 includes the favorable adjustment
relating to the valuation allowance recorded against our U.S.
deferred tax assets during the fourth quarter of 2020 (impact of
$0.17 per share).
(3)
Adjusted EPS is calculated as the sum of
As Reported EPS and Total Adjustments to 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 U.S. GAAP and its
reconciliation to net income, 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 U.S. GAAP Net Income for
the three months ended and for the year ended December 31, 2021 and
2020 to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, which
is Adjusted EBITDA divided by total Revenue, for the respective
periods:
Three Months Ended December
31,
Year Ended December 31,
2021
2020
2021
2020
Reported net loss
$
(97
)
$
(323
)
$
(472
)
$
(560
)
Net interest expense
55
60
236
150
Income tax expense (benefit)
(24
)
5
(95
)
(112
)
Depreciation and amortization
174
222
716
517
EBITDA
$
108
$
(36
)
$
385
$
(5
)
Non-GAAP Adjustments:
Cost of sales
$
—
$
57
$
64
$
96
Asset impairment, restructuring and other
special charges
110
167
628
623
Accelerated depreciation(1)
(1
)
(11
)
(6
)
(17
)
Other income, net
(5
)
(2
)
(14
)
(168
)
Adjusted EBITDA
$
212
$
176
$
1,057
$
529
Adjusted EBITDA Margin
19.0
%
15.4
%
22.2
%
16.1
%
Numbers may not add due to rounding.
(1)
Represents depreciation of certain assets
that was accelerated during the periods presented. This amount must
be added back to arrive at Adjusted EBITDA because it is included
in Asset impairment, restructuring, and other special charges but
it has already been excluded from EBITDA in the "Depreciation and
amortization" row above.
The following is a reconciliation of gross debt to net debt for the
year ended December 31, 2021:
Long-term debt
$
6,258
Current portion of long-term debt
61
Less: Unamortized debt issuance costs
(82
)
Total gross debt
6,401
Less: Cash and cash equivalents
638
Net Debt
$
5,763
Elanco Animal Health
Incorporated
2022 Full Year and First
Quarter Guidance
Reconciliation of 2022 full year reported
EPS guidance to 2022 adjusted EPS guidance is as follows:
Full Year 2022 Guidance
Reported Earnings per Share
$0.01
to
$0.07
Amortization of Intangible Assets
$1.11
Asset Impairment, Restructuring, and Other
Special Charges(1)
$0.39
to
$0.43
Subtotal
$1.50
to
$1.54
Tax Impact of Adjustments
$(0.33)
to
$(0.37)
Total Adjustments to Earnings per
Share
$1.17
Adjusted Earnings per Share(2)
$1.18
to
$1.24
Numbers may not add due to rounding.
(1)
Asset impairment, restructuring, and other
special charges adjustments primarily relate to integration efforts
of acquired businesses, including the animal health business of
Bayer, and other related activities.
(2)
Adjusted EPS is calculated as the sum of
reported ESP and total adjustments to EPS.
Reconciliation of 2022 reported net income
(loss) to 2022 adjusted EBITDA guidance is as follows:
$ millions
Full Year 2022 Guidance
Reported Net Income
$4
to
$27
Net Interest Expense
Approx. $220
Income Tax Expense
$4
to
$26
Depreciation and Amortization
Approx. $735
EBITDA
$953
to
$1,012
Non-GAAP Adjustments
Asset Impairment, Restructuring, and Other
Special Charges
Approx. $205
Accelerated Depreciation & Other
Special Charges
Approx. $(30)
Adjusted EBITDA
$1,140
to
$1,180
Adjusted EBITDA Margin
24.0%
to
24.6%
Numbers may not add due to rounding.
Reconciliation of 2022 first quarter
reported EPS guidance to 2022 first quarter adjusted EPS guidance
is as follows:
First Quarter 2022 Guidance
Reported Earnings per Share
$0.01
to
$0.07
Amortization of Intangible Assets
$0.28
Asset Impairment, Restructuring, and Other
Special Charges(1)
$0.09
to
$0.12
Subtotal
$0.36
to
$0.40
Tax Impact of Adjustments
$(0.05)
to
$(0.09)
Total Adjustments to Earnings per
Share
$0.31
to
$0.32
Adjusted Earnings per Share(2)
$0.33
to
$0.38
Numbers may not add due to rounding.
(1)
Asset impairment, restructuring, and other
special charges adjustments primarily relate to integration efforts
of acquired businesses, including the animal health business of
Bayer, and other related activities.
(2)
Adjusted EPS is calculated as the sum of
reported ESP and total adjustments to EPS.
Reconciliation of 2022 first quarter
reported net income (loss) to 2022 first quarter adjusted EBITDA
guidance is as follows:
$ millions
First Quarter 2022 Guidance
Reported Net Income
$7
to
$33
Net Interest Expense
Approx. $55
Income Tax Expense
$7
to
$32
Depreciation and Amortization
Approx. $185
EBITDA
$255
to
$305
Non-GAAP Adjustments
Asset Impairment, Restructuring, and Other
Special Charges
Approx. $55
Accelerated Depreciation & Other
Special Charges
Approx. $(7)
Adjusted EBITDA
$310
to
$340
Adjusted EBITDA Margin
26.0%
to
27.7%
Numbers may not add due to rounding.
The table below provides a breakdown of
revenue by species and the respective percent of total revenue for
the same period (in millions, except percentages):
Three Months Ended December 31,
2021
Year Ended December 31, 2021
Pet Health
$
494
44
%
$
2,351
49
%
Farm Animal
Cattle
254
23
%
1,008
21
%
Poultry
199
18
%
716
15
%
Swine
118
11
%
464
10
%
Aqua
33
3
%
144
3
%
Total Farm Animal
$
604
54
%
$
2,332
49
%
Revenue Subtotal
$
1,098
$
4,683
Contract Manufacturing
15
1
%
82
2
%
Total Revenue
$
1,113
100
%
$
4,765
100
%
Numbers may not add due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220224005414/en/
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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