- First Quarter 2024 Financial
Results
- Revenue of $1,205
million
- Reported Net income of $32
million, Adjusted Net income of $167
million
- Adjusted EBITDA of $294
million, or 24.4% of Revenue
- Reported EPS of $0.06,
Adjusted EPS of $0.34
- Net leverage ratio of 6.1x 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
first quarter outperformance offset by expected unfavorable impact
of foreign exchange rates:
- Revenue of $4,460 to
$4,515 million, constant currency
growth improves to 2% to 3%
- Reported Net Loss of $(3)
to $(45) million; Reported EPS of
$(0.01) to $(0.09)
- Adjusted EBITDA of $960 to
$1,000 million; Adjusted EPS of
$0.88 to $0.96
GREENFIELD, Ind., May 8, 2024
/PRNewswire/ -- Elanco Animal Health Incorporated (NYSE: ELAN)
today reported financial results for the first quarter of 2024,
provided guidance for the second quarter of 2024, and updated
guidance for the full year 2024.
"Elanco's strong business momentum continued in the first
quarter, reinforced by the diversity of our portfolio and balanced
geographic presence. We delivered estimated revenue growth of 3% to
5% in the first quarter, excluding the impact of the ERP blackout
from last year, and exceeded the top end of our guidance range for
revenue, adjusted EBITDA and adjusted EPS in the quarter. These
results follow the 5% revenue growth we delivered in the last two
quarters of 2023. We are increasing our new product sales
expectations, led by Experior® and AdTab®,
and our innovation is enhancing the durability of our base
portfolio with customers, allowing us to raise our full year
constant currency revenue growth range to 2% to 3%," said
Jeff Simmons, Elanco President and
CEO. "Additionally, we improved operating cash flow by nearly
$150 million year over year in the
first quarter as a result of our disciplined focus on improving net
working capital and the benefit of completing our ERP system
integration."
Simmons continued, "We are encouraged by the strong progress of
our late-stage pipeline, which has advanced significantly over the
last several months. Based on our dialogue with the FDA and the
status of packages submitted, we have increased certainty in the
expected approval timing for Bovaer®, Zenrelia™ and
Credelio Quattro™. We continue to expect to bring differentiated
products to the market, with revenue contribution expected from all
three new products in the second half of 2024."
Innovation Highlights
- Innovation revenue was $100
million in the first quarter and the company is updating its
expectations for the full year to $375 to $410
million from this group of products.
- Bovaer, a first-in-class methane reducing feed
ingredient for cattle, is in the final stage of review with the
U.S. Food and Drug Administration (FDA), with completion expected
before the end of May.
- For Zenrelia, a JAK Inhibitor targeting control of
pruritus and atopic dermatitis in dogs, the company believes the
FDA has all data necessary to complete its review. All technical
sections, including the label, are expected to be approved before
the end of June. Full approval is expected in the third quarter
after an expected 60-day administrative review period.
Additionally, Zenrelia has been submitted in nine additional
markets, including the EU, UK, Australia, Canada and Japan, with international approvals expected
to begin in late 2024.
- For Credelio Quattro, a broad spectrum oral parasiticide
covering fleas, ticks and internal parasites, the company believes
the FDA has all data necessary to complete its review. All
technical sections, including the label, are expected to be
approved before the end of June. Full approval is expected in the
third quarter after an expected 60-day administrative review
period.
- For Experior, a medicated feed additive indicated to
reduce ammonia gas emissions from cattle, the company submitted
combination clearance requests to the FDA for Experior (and other
Elanco feed additives) with MGA (melengestrol acetate). Upon
approval the combination clearance would open up an additional
addressable market with feedlot heifers, which currently comprise
nearly 40% of feedlot cattle in the U.S. This clearance, along with
continued adoption in the U.S. and Canada gives the company increased confidence
that the product will approach blockbuster status (greater than
$100 million of annual sales) in
2024.
- Received FDA approval for Pradalex, a prescription-only
single-injection antimicrobial for the treatment of certain
respiratory diseases in cattle and swine. This is the first new
molecule and injectable antibiotic treatment to be approved in more
than a decade. This product underscores Elanco's commitment to farm
animal innovation and further differentiates our strong livestock
portfolio in the U.S.
Financial Results
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 first quarter of 2024.
First Quarter Results
(dollars in
millions, except per share amounts)
|
2024
|
2023
|
Change
(%)
|
CC
Change1
(%)
|
|
|
|
|
|
Pet
Health
|
$639
|
$675
|
(5) %
|
(5) %
|
Farm
Animal
|
$556
|
$573
|
(3) %
|
(3) %
|
Cattle
|
$244
|
$248
|
(2) %
|
(2) %
|
Poultry
|
$197
|
$183
|
8 %
|
8 %
|
Swine
|
$84
|
$102
|
(18) %
|
(17) %
|
Aqua
|
$31
|
$40
|
(23) %
|
(20) %
|
Contract
Manufacturing
|
$10
|
$9
|
11 %
|
12 %
|
Total
Revenue
|
$1,205
|
$1,257
|
(4) %
|
(4) %
|
Reported Net
Income
|
$32
|
$103
|
(69) %
|
|
Adjusted
EBITDA
|
$294
|
$379
|
(22) %
|
|
Reported
EPS
|
$0.06
|
$0.21
|
(71) %
|
|
Adjusted
EPS
|
$0.34
|
$0.45
|
(24) %
|
|
1 CC =
Constant Currency, representing the growth rate excluding the
impact of foreign exchange rates.
|
Numbers may not add due
to rounding.
|
The following table summarizes the estimated impact on year over
year growth rates from the ERP Blackout on revenue:
First Quarter Results
(dollars in
millions)
|
2024
|
CC
Change1
(%)
|
Estimated
ERP
Blackout Impact
to
Q1 2024 Growth
(%)
|
Estimated
ERP
Blackout Impact
to
Q1 2023
($)
|
|
|
|
|
|
Pet Health
|
$639
|
(5) %
|
(10)% to
(13)%
|
$65 to $80
|
Farm Animal
|
$556
|
(3) %
|
(4)% to (5)%
|
$25 to $30
|
Contract
Manufacturing
|
$10
|
12 %
|
0 %
|
$—
|
Total
Revenue
|
$1,205
|
(4) %
|
(7)% 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.
|
In the first quarter of 2024, revenue was $1,205 million, a decrease of 4% on a reported
and constant currency basis compared to the first quarter of 2023.
The ERP Blackout negatively impacted growth by an estimated 7% to
9%.
Pet Health revenue was $639
million, a 5% decrease on both a reported and constant
currency basis, with a 3% increase from price, compared to the
first quarter of 2023. Excluding the estimated 10 to 13 percentage
point headwind from the ERP Blackout, year over year growth in the
first quarter was primarily driven by improved supply of certain
vaccines, sales of new products, led by AdTab, improved demand for
retail parasiticide products in certain European markets, including
Spain, the impact of initial
stocking of certain legacy Bayer Animal Health products into the
U.S. distribution channel and increased pricing, partially offset
by the slow start to the U.S. OTC parasiticide season and continued
competitive pressure on certain products in the U.S. veterinary
channel.
The Advantage® Family of products, inclusive of AdTab,
contributed $128 million, a decrease
of 19% excluding the impact from foreign exchange rates, with an
estimated 16 percentage point headwind from the ERP Blackout.
Seresto® revenue was $160 million, a
decrease of 11% excluding the impact from foreign exchange rates,
with an estimated 23 percentage point headwind from the ERP
Blackout.
Farm Animal revenue was $556
million, a 3% decrease on both a reported basis and constant
currency basis compared to the first quarter of 2023. Excluding the
estimated 4 to 5 percentage point headwind from the ERP Blackout,
the year over year growth in the first quarter was primarily driven
by strength in poultry sales globally and sales of new products,
led by Experior, partially offset by market weakness impacting the
swine business in China.
Gross profit was $690 million, or
57.3% of revenue on both a reported and adjusted basis in the first
quarter of 2024. Gross profit as a percent of revenue decreased 340
and 350 basis points on a reported and adjusted basis,
respectively, primarily driven by the ERP Blackout, planned reduced
throughput at certain manufacturing sites to reduce balance sheet
inventory and improve cash conversion, and inflation, partially
offset by increased pricing. The company estimates gross profit as
a percent of revenue growth was negatively impacted by 130 to 200
basis points from the ERP Blackout.
Total operating expenses were $424
million for the first quarter of 2024. Marketing, selling
and administrative expenses increased 3% to $337 million, primarily driven by higher
marketing and promotional expenses supporting our global pet health
business and employee related expenses, partially offset by savings
associated with the completion of the ERP system implementation in
the second quarter of 2023. Research and development expenses
increased 7% to $87 million,
primarily driven by higher employee related expenses and timing of
project expenses.
Asset impairment, restructuring and other special charges were
$46 million in the first quarter of
2024 compared to $40 million in the
first quarter of 2023. Charges recorded in the first quarter of
2024 consist of $39 million of costs associated with the
restructuring plan we announced in February
2024 and $7 million of acquisition integration and
divestiture-related costs. Charges recorded in the first 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.
Reported and adjusted net interest expense was $66 million
in the first quarter of 2024, an increase of $2 million
compared to the first quarter of 2023. The increase was driven by
the impact of higher interest rates partially offset by lower
debt.
Other expense was $9 million in the first quarter of 2024
on a reported basis, flat to last year. Adjusted other expense was
$4 million in the first quarter of
2024, compared to $11 million in the
first quarter of 2023. The decline was driven by lower currency
transaction losses, notably in our Argentina subsidiary.
The reported effective tax rate was (182.2)% in the first
quarter of 2024, compared to 4.4% in the first quarter of 2023. The
reported effective tax rate in the first quarter of 2024 was
impacted by the partial release of a valuation allowance
attributable to the anticipated sale of our aqua business and the
benefit of certain state tax credits. The adjusted effective tax
rate decreased to 15.0% in the first quarter of 2024 compared to
21.9% in the first quarter of 2023, primarily driven by the benefit
of certain refundable state income tax credits.
The following table summarizes the estimated impact on year over
year growth rates from the ERP Blackout on adjusted EBITDA and
adjusted EPS:
First Quarter Results
(dollars in
millions, except per share amounts)
|
2024
|
Change
(%)
|
Estimated
ERP
Blackout Impact
to
Q1 2024 Growth
(%)
|
Estimated
ERP
Blackout Impact
to
Q1 2023
($)
|
|
|
|
|
|
Adjusted
EBITDA
|
$294
|
(22) %
|
(17)% to
(24)%
|
$70 to
$90
|
Adjusted
EPS
|
$0.34
|
(24) %
|
(22)% to
(30)%
|
$0.11 to
$0.14
|
Net income for the first quarter of 2024 was $32 million and $0.06 per diluted share on a reported basis,
compared with net income of $103
million and $0.21 per diluted
share for the same period in 2023. On an adjusted basis, net income
for the first quarter of 2024 was $167
million, or $0.34 per diluted
share, a 24% decrease compared with the same period in 2023.
Adjusted EBITDA was $294 million in
the first quarter of 2024, a 22% decrease compared to the first
quarter of 2023. Adjusted EBITDA as a percent of revenue was 24.4%
compared with 30.2% for the first quarter of 2023, a decrease of
580 basis points.
Working Capital and Balance Sheet
Cash provided by operations was $2
million in the first quarter of 2024 compared to cash used
for operations of $145 million in the
first quarter of 2023. The $147
million increase in cash from operations year over year
reflects improved working capital, primarily related to
inventory.
As of March 31, 2024, Elanco's net
leverage ratio was 6.1x adjusted EBITDA, compared to 5.6x as
of December 31, 2023. The trailing twelve month (TTM) EBITDA
was negatively impacted by the ERP Blackout timing from 2023, which
drove an estimated 0.4x to 0.6x increase in the net leverage ratio
as of March 31, 2024.
Select Business Highlights Since the Last Earnings
Call
- The restructuring announced on February
26, 2024 is progressing as expected, with 40% of the
positions exited as of the end of April. The company continues to
expect savings between $20 to
$25 million, primarily in the second
half of 2024.
- The transaction to divest the company's aqua business as
announced on February 5, 2024 is
progressing as planned, with a closing expected around mid-year.
The company continues to expect after tax proceeds of $1.05 billion to $1.1
billion.
Financial Guidance
Elanco is updating financial guidance for the full year 2024,
summarized in the following table. Aligned with the company's
February guidance, the impact of the anticipated aqua divestiture
and contribution from late-stage innovation products are not
included in the May guidance.
2024
Full Year
(dollars in
millions, except per share amounts)
|
|
February
Guidance
|
|
May
Guidance
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$4,450
|
to
|
$4,540
|
|
$4,460
|
to
|
$4,515
|
Reported Net
Loss
|
|
$(62)
|
to
|
$(17)
|
|
$(45)
|
to
|
$(3)
|
Adjusted
EBITDA
|
|
$960
|
to
|
$1,010
|
|
$960
|
to
|
$1,000
|
Reported Loss per
Share
|
|
$(0.12)
|
to
|
$(0.03)
|
|
$(0.09)
|
to
|
$(0.01)
|
Adjusted Earnings per
Share
|
|
$0.87
|
to
|
$0.95
|
|
$0.88
|
to
|
$0.96
|
The company is updating 2024 financial guidance to reflect
expectations for improved operational performance and additional
unfavorable impact of foreign exchange rates compared to the
February guidance. The company now anticipates revenue between
$4,460 and $4,515 million, with an additional headwind of
approximately $30 million from the
unfavorable impact of foreign exchange rates compared to the
February guidance, reflecting a $35
million headwind compared to the prior year. The updated
guidance reflects expected constant currency revenue growth of 2%
to 3%, up from 1% to 3% in February, with improved expectations in
the U.S. farm animal and international pet health businesses,
offset by expectations for reduced sales of Kexxtone, a European
cattle product. Elanco has paused sales of Kexxtone while the
manufacturing process is under review by the EU Committee for
Veterinary Medicinal Products (CVMP), resulting in an expected
reduction of approximately $20
million in revenue and approximately $18 million in adjusted EBITDA, compared to the
February guidance.
The company now anticipates adjusted EBITDA of $960 million to $1
billion, reflecting expectations for improved operational
performance and partially offset by an additional $15 million unfavorable impact of foreign
exchange rates compared to the February guidance.
The company now anticipates adjusted EPS of $0.88 to $0.96,
reflecting expectations for improved operational performance, lower
interest expense and a lower tax rate, partially offset by an
additional $0.03 unfavorable impact
from foreign exchange rates compared to the February guidance.
"Strength in our U.S. farm animal and International pet health
business drove our revenue overperformance in the first quarter,
led by innovation products. We are updating our financial guidance
to reflect our increased expectations for business performance and
the impact of Kexxtone, as well as the increased strength of the
U.S. dollar since February," said Todd
Young, Executive Vice President and CFO of Elanco Animal
Health. "We remain confident in our expectation for debt paydown of
$280 to $320
million in 2024. This, paired with the anticipated proceeds
from the sale of the aqua business, is expected to reduce leverage
to the mid-4x range by the end of the year."
The company continues to expect the aqua divestiture to close
around mid-year 2024. In 2023, the aqua business contributed
$175 million in revenue,
approximately $92 million in adjusted
EBITDA, and approximately $0.14 in
adjusted EPS, excluding the allocation of corporate costs. The
expected debt payment with proceeds from the sale of the aqua
business is expected to result in reduced interest expense of
approximately $65 million, or
$0.11 of EPS, annually. The company
expects to update guidance to reflect the transaction on its
quarterly cadence once the transaction has closed.
Additionally, the company is providing guidance for the second
quarter of 2024, as summarized in the following table:
2024
Second Quarter
(dollars in
millions, except per share amounts)
|
|
Guidance
|
|
|
|
|
|
Revenue
|
|
$1,145
|
to
|
$1,170
|
Reported Net
Income
|
|
$0
|
to
|
$20
|
Adjusted
EBITDA
|
|
$240
|
to
|
$260
|
Reported Earnings per
Share
|
|
$0.00
|
to
|
$0.04
|
Adjusted Earnings per
Share
|
|
$0.23
|
to
|
$0.26
|
As previously reported in 2023, as a result of the ERP system
go-live in April 2023, the company
experienced sales order processing blackout periods on legacy Bayer
products in the second quarter of 2023. As a result, the company
reported a shift of approximately $90
to $110 million of revenue,
$70 million to $90 million of adjusted EBITDA and $0.11 to $0.14 of
adjusted EPS into the first quarter of 2023 that would otherwise
have been expected in the second quarter of 2023. This significant
shift in timing in 2023 impacts the growth rates implied from the
company's guidance for the second quarter of 2024.
For the second quarter of 2024, the company anticipates revenue
between $1,145 and $1,170 million, with a headwind of approximately
$20 million from the unfavorable
impact of foreign exchange rates compared to the prior year.
Excluding the estimated impact from the ERP Blackout, the company
expects constant currency revenue growth of 1% to 3%.
The financial guidance reflects foreign currency exchange rates
as of the beginning of May. 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 first quarter financial and
operational results, discuss second 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.
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™ – 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 second 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 fluctuation in our
revenues;
- our dependence on the success of our top products;
- our ability to complete acquisitions and divestitures
(including the proposed divestiture of our aqua business) 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 and
infrastructure and the impact of breaches of our information
technology systems;
- 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;
- risks related to currency rate fluctuations;
- risks related to underfunded pension plan liabilities;
- our current plans not to pay dividends and restrictions on our
ability to pay dividends;
- the potential impact that actions by activist shareholders
could have on the pursuit of our business strategies;
- risks related to certain governance provisions in our
constituent documents;
- risks related to tax expense or exposure;
- actions by regulatory bodies, including as a result of their
interpretation of studies on product safety;
- the possible slowing or cessation of acceptance and/or adoption
of our farm animal sustainability initiatives;
- the impact of increased regulation or decreased governmental
financial support related to the raising, processing or consumption
of farm animals;
- risks related to the modification of foreign trade policy;
- the impact of litigation, regulatory investigations, and other
legal matters, including the risk to our reputation and the risk
that our insurance policies may be insufficient to protect us from
the impact of such matters;
- challenges to our intellectual property rights or our alleged
violation of rights of others;
- 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;
- insufficient insurance coverage against hazards and
claims;
- compliance with privacy laws and security of information;
and
- risks related to environmental, health and safety laws and
regulations.
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 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, EBITDA, EBITDA margin,
adjusted EBITDA, adjusted EBITDA margin, adjusted net income
(loss), adjusted EPS, adjusted gross profit, 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 U.S. generally accepted accounting principles
(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 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 GAAP reported measures. We
encourage investors to review our unaudited consolidated financial
statements in their entirety and caution investors to use 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, including an Investor Overview
presentation containing a general overview of the business, which
can be found in the Events and Presentations page of our
website.
Additional Information
We define innovation revenue as revenue from new products,
lifecycle management and certain geographic expansions and business
development transactions that is incremental in reference to
product revenue in 2020 and does not include the expected impact of
cannibalization on the base portfolio.
Elanco Animal
Health Incorporated
Unaudited Condensed
Consolidated Statements of Operations
(Dollars and shares
in millions, except per share data)
|
|
|
Three Months Ended
March 31,
|
|
2024
|
|
2023
|
Revenue
|
$
1,205
|
|
$
1,257
|
Costs, expenses, and
other:
|
|
|
|
Cost of
sales
|
515
|
|
494
|
Research and
development
|
87
|
|
81
|
Marketing, selling,
and administrative
|
337
|
|
327
|
Amortization of
intangible assets
|
133
|
|
134
|
Asset impairment,
restructuring and other special charges
|
46
|
|
40
|
Interest expense, net
of capitalized interest
|
66
|
|
64
|
Other expense,
net
|
9
|
|
9
|
Income before income
taxes
|
$
12
|
|
$
108
|
Income tax (benefit)
expense
|
(20)
|
|
5
|
Net income
|
$
32
|
|
$
103
|
Earnings per
share:
|
|
|
|
Basic
|
$
0.06
|
|
$
0.21
|
Diluted
|
$
0.06
|
|
$
0.21
|
Weighted average shares
outstanding:
|
|
|
|
Basic
|
493.2
|
|
491.1
|
Diluted
|
496.0
|
|
492.8
|
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 excluding amortization of intangible assets,
purchase accounting adjustments to inventory, integration costs of
acquisitions, severance, goodwill and other asset impairments, gain
on sale of assets and related costs, 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 adjusted for interest expense (income), which
includes debt extinguishment losses, income tax expense (benefit),
and depreciation and amortization, further adjusted to exclude
purchase accounting adjustments to inventory, integration costs of
acquisitions, severance, goodwill and other asset impairments, gain
on sale of assets and related costs, facility exit costs and other
specified significant items, such as unusual or non-recurring items
that are unrelated to our long-term operations.
|
|
We define adjusted EPS
as adjusted net income divided by the number of weighted average
shares outstanding for the periods ended March 31, 2024 and
2023.
|
|
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 GAAP Reported for the three months ended March
31, 2024 and 2023 to Selected Non-GAAP Adjusted
information:
|
|
|
Three Months Ended
March 31, 2024
|
|
Three Months Ended
March 31, 2023
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
Cost of sales
(1)
|
$
515
|
|
$
—
|
|
$
515
|
|
$
494
|
|
$
1
|
|
$
493
|
Amortization of
intangible assets
|
133
|
|
133
|
|
—
|
|
134
|
|
134
|
|
—
|
Asset impairment,
restructuring
and other special
charges (2)
|
46
|
|
46
|
|
—
|
|
40
|
|
40
|
|
—
|
Other expense, net
(3)
|
9
|
|
5
|
|
4
|
|
9
|
|
(2)
|
|
11
|
Income before
taxes
|
12
|
|
184
|
|
196
|
|
108
|
|
173
|
|
281
|
Income tax expense
(benefit) (4)
|
(20)
|
|
(49)
|
|
29
|
|
5
|
|
(56)
|
|
61
|
Net income
|
$
32
|
|
$
135
|
|
$
167
|
|
$
103
|
|
$
117
|
|
$
220
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
$
0.06
|
|
$
0.28
|
|
$
0.34
|
|
$
0.21
|
|
$
0.24
|
|
$
0.45
|
diluted
|
$
0.06
|
|
$
0.28
|
|
$
0.34
|
|
$
0.21
|
|
$
0.24
|
|
$
0.45
|
Adjusted weighted
average shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
493.2
|
|
493.2
|
|
493.2
|
|
491.1
|
|
491.1
|
|
491.1
|
diluted
|
496.0
|
|
496.0
|
|
496.0
|
|
492.8
|
|
492.8
|
|
492.8
|
|
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 GAAP. The company believes these
non-GAAP measures provide useful information to investors. Among
other things, they may help investors evaluate the company's
ongoing operations. They can also 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 March 31, 2024
and 2023 include the following:
|
|
|
|
|
(1)
|
Adjustments of $1
million for the three months ended March 31, 2023, related to
amortization of an inventory fair value adjustment recorded from
the acquisition of certain assets of NutriQuest.
|
|
|
|
|
(2)
|
Adjustments of $46
million for the three months ended March 31, 2024, consisted of $39
million of costs associated with the restructuring plan we
announced in February 2024 and $7 million of acquisition
integration and divestiture-related costs. Adjustments of $40
million for the three months ended March 31, 2023, primarily
related to charges associated with integration efforts and external
costs related to the acquisition of Bayer Animal Health.
|
|
|
|
|
(3)
|
Adjustments of $5
million for the three months ended March 31, 2024, related to the
impact of hyperinflationary accounting in Turkey and an increase in
our accrual related to a possible resolution or settlement relating
to our previously disclosed matter with the SEC. Adjustments of $2
million for the three months ended March 31, 2023, related to the
impact of hyperinflationary accounting related to Turkey and a gain
recognized on our 2022 investment in BiomEdit.
|
|
|
|
|
(4)
|
Adjustments of $49
million for the three months ended March 31, 2024 primarily
represent the income tax expense associated with the adjusted items
discussed above and $14 million related to the partial release of a
valuation allowance attributable to the anticipated sale of our
aqua business. Adjustments of $56 million for the three months
ended March 31, 2023, represent the income tax expense associated
with the adjusted items discussed above, partially offset by a $4
million increase in the valuation allowance recorded against our
deferred tax assets during the period.
|
|
Three Months Ended
March 31,
|
|
2024
|
|
2023
|
As reported diluted
EPS
|
$
0.06
|
|
$
0.21
|
Amortization of
intangible assets
|
0.27
|
|
0.27
|
Asset impairment,
restructuring and other special charges
|
0.10
|
|
0.08
|
Other expense,
net
|
0.01
|
|
0.00
|
Subtotal
|
0.38
|
|
0.35
|
Tax impact of
adjustments
|
(0.10)
|
|
(0.11)
|
Total adjustments to
diluted EPS
|
$
0.28
|
|
$
0.24
|
|
|
|
|
Adjusted diluted EPS
(1)
|
$
0.34
|
|
$
0.45
|
|
Numbers may not add due
to rounding.
|
(1) Adjusted diluted EPS is calculated as the sum of as
reported diluted EPS and total adjustments to diluted
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 March 31, 2024 and 2023 to
EBITDA, adjusted EBITDA and adjusted EBITDA Margin, which is
adjusted EBITDA divided by total revenue, for the respective
periods:
|
|
|
Three Months Ended
March 31,
|
|
2024
|
|
2023
|
Reported net
income
|
$
32
|
|
$
103
|
Net interest
expense
|
66
|
|
64
|
Income tax expense
(benefit)
|
(20)
|
|
5
|
Depreciation and
amortization
|
165
|
|
173
|
EBITDA
|
$
243
|
|
$
344
|
Non-GAAP
adjustments:
|
|
|
|
Cost of
sales
|
$
—
|
|
$
1
|
Asset impairment,
restructuring and other special charges
|
46
|
|
40
|
Other expense
(income), net
|
5
|
|
(2)
|
Accelerated
depreciation and amortization (1)
|
—
|
|
(5)
|
Adjusted
EBITDA
|
$
294
|
|
$
379
|
Adjusted EBITDA margin
|
24.4 %
|
|
30.2 %
|
|
Numbers may not add due
to rounding.
|
(1) Represents
depreciation and amortization of certain assets that was
accelerated during the three months ended March 31, 2023. These
assets became fully depreciated and amortized during the second
quarter of 2023. 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 as of March 31,
2024:
|
|
Long-term
debt
|
|
$
5,727
|
Current portion of
long-term debt
|
|
38
|
Less: Unamortized debt
issuance costs
|
|
(46)
|
Total gross
debt
|
|
5,811
|
Less: Cash and cash
equivalents
|
|
345
|
Net
Debt
|
|
$
5,466
|
Elanco Animal
Health Incorporated
Guidance
|
|
Reconciliation of 2024
full year reported EPS guidance to 2024 adjusted EPS guidance is as
follows:
|
|
|
Full Year 2024
Guidance
|
Reported loss per
share
|
$(0.09)
|
to
|
$(0.01)
|
Amortization of
intangible assets
|
Approx.
$1.07
|
Asset impairment,
restructuring and other special charges(1)
|
$0.14
|
to
|
$0.12
|
Other expense,
net
|
Approx.
$0.01
|
Subtotal
|
$1.23
|
to
|
$1.21
|
Tax impact of
adjustments
|
$(0.26)
|
to
|
$(0.24)
|
Total adjustments to
EPS
|
Approx.
$0.97
|
Adjusted earnings
per share(2)
|
$0.88
|
to
|
$0.96
|
Numbers may not add due
to rounding.
|
(1) Asset impairment,
restructuring and other special charges adjustments primarily
relate to the restructuring plan announced in February 2024 and
acquisition integration and divestiture-related
costs.
|
(2) Adjusted EPS is
calculated as the sum of reported EPS and total adjustments to
EPS.
|
Reconciliation of 2024
full year reported net loss to 2024 adjusted EBITDA guidance is as
follows:
|
|
|
|
$
millions
|
Full Year 2024
Guidance
|
Reported net
loss
|
$(45)
|
to
|
$(3)
|
Net interest
expense
|
Approx. $275
|
Income tax
benefit
|
$(13)
|
to
|
$(1)
|
Depreciation and
amortization
|
Approx. $670
|
EBITDA
|
$883
|
to
|
$934
|
Non-GAAP
adjustments
|
|
|
|
Asset impairment,
restructuring and other special charges
|
Approx. $70
|
Other income,
net
|
Approx. $5
|
Adjusted
EBITDA
|
$960
|
to
|
$1,000
|
Adjusted EBITDA
margin
|
21.5 %
|
to
|
22.1 %
|
|
Reconciliation of 2024
second quarter reported EPS guidance to 2024 second quarter
adjusted EPS guidance is as follows:
|
|
|
Second Quarter 2024
Guidance
|
Reported earnings
per share
|
$0.00
|
to
|
$0.04
|
Amortization of
intangible assets
|
Approx.
$0.27
|
Asset impairment,
restructuring and other special charges (1)
|
$0.03
|
to
|
$0.02
|
Subtotal
|
$0.30
|
to
|
$0.27
|
Tax impact of
adjustments
|
Approx.
$(0.07)
|
Total adjustments to
EPS
|
$0.23
|
to
|
$0.22
|
Adjusted earnings
per share (2)
|
$0.23
|
to
|
$0.26
|
Numbers may not add due
to rounding.
|
(1) Asset impairment,
restructuring and other special charges adjustments primarily
relate to the restructuring plan announced in February 2024 and
acquisition integration and divestiture-related
costs.
|
(2) Adjusted EPS is
calculated as the sum of reported EPS and total adjustments to
EPS.
|
|
Reconciliation of 2024
second quarter reported net loss to Reconciliation of 2024 second
quarter adjusted EBITDA guidance is as follows:
|
|
$
millions
|
Second Quarter 2024
Guidance
|
Reported net
income
|
$0
|
to
|
$20
|
Net interest
expense
|
Approx. $70
|
Income tax
provision
|
$(9)
|
to
|
$(4)
|
Depreciation and
amortization
|
Approx. $170
|
EBITDA
|
$223
|
to
|
$248
|
Non-GAAP
adjustments
|
|
|
|
Asset impairment,
restructuring and other special charges
|
Approx. $10
|
Adjusted
EBITDA
|
$240
|
to
|
$260
|
Adjusted EBITDA
margin
|
21.0 %
|
to
|
22.2 %
|
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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SOURCE Elanco Animal Health