Elanco Animal Health (ELAN) 21 Feb 232022 Q4 Earnings call transcript

Good morning, and welcome to Elanco Animal Health's Fourth Quarter and Full Year 2022 Earnings Call. All participants are in a listen-only mode. After the speakers presentation we will conduct the question and answer session. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Katy Grissom, Head of Investor Relations. you. Thank ahead. go Please

you and us call. full of Grissom, Thank Health's I'm Elanco fourth Head Relations. quarter year Investor for morning. for joining Animal Katy Good XXXX earnings

Simmons, me our Todd Joining our Officer; Relations. from Financial Scott Chief call today's are Young, President Chief Executive on and Officer; Purucker Investor and Jeff

expectations These section Today's discussion and will slides this are are call current elanco.com. The and based available on our forward-looking materially risks of that statements. statements our to referenced during the are on Investor results forecast. and Relations cause could subject include from to assumptions, uncertainties differ actual

For as SEC. not undertake more today's well our in latest any discussed any duty Form We do to XX-Q the statements. information, the risk update XX-K factors with as earnings press forward-looking release, and see filed

Our Reconciliations will your remarks, the in measures. our release. our of included questions. non-GAAP of After these the today's remarks financial in focus to take are and be happy slides press appendix measures today on earnings we'll non-GAAP prepared

I call Jeff. over the will to now turn

everyone. on Thanks, determination morning, grateful dedication the completing Elanco proud of Reflecting I Good our and for since X and the of our Katy. IPO, team. years am

integrated and an separated strong a fully cost have We base built largest independent the company. established acquisition, We've industry's and our reset leadership team.

macro due the innovation. our challenging our In to execute expectations financial of IPP positioning while and negatively pipeline innovation factors impacted advancing beyond. productivity and business XXXX, In driving XXXX to beyond across for significantly results and XXXX, continue areas company we strategy, acceleration competitive significant the gains all our our were in

look we Slide shown on we X. encouraged However, as are forward, as

the products the strengthening and towards to in and XXXX. Also, we potential And of a points blockbuster a macro for of year. we track, U.S. approval FDA, collaboration XXXX, first early half of adds for continue our by to confidence U.S. in we First, of after proof innovation remain our innovation announce pressures XXXX on late-stage another cattle. Elanco with anticipate late-stage now X our product guidance tailwinds is see today, in giving us to see methane to with XXXX launch half adds while confidence pleased suite beyond. and This importantly, first blockbuster the potential reducing a and our very and close Bovaer, we are approval path

In addition, we're this on operational our year, to complexity. plans executing reduce

integration, early live. the Our for final is an go systems on Bayer QX step in track the transition

step improve We better are well key to prepared a integration needs. efficiencies, cash customer a experience offer and and be reducing this will

Finally, with a historic front launch and launch excellence. of our us, enhancing commercial on window in we're focus

Tim experienced to Head Along new team, execute help leader, enhance welcome a of we and Beddington, seasoned as will Development, animal commercial lead with health Strategy shape, Tim us our this on are opportunity. Market and our pleased

Moving X. revenue, delivered revenue billion in $X.X just and decline Pet flat declining the to Slide In billion constant more in over in decline, adjusted with $X a XXXX, Animal currency delivered EBITDA. Despite than we Health Farm X%. Elanco X%

of margin EBITDA the an of X% year discipline basis tax full This cost adjusted adjusted to points. XX.X%, enabled operating contributed for expenses better-than-expected to growth of operating in rate reduction EPS improvement XX% $X.XX. The XX and

I'll a the this points flywheel this consistent productivity, innovation, proof to key of XXXX, a last years, Slide has continue on X. Elanco X maintained provide or and In momentum Over and IPP. strategy portfolio few of strengthen,

fee markets. dogs Advantage in and had innovation. product like a like First, Bexacat included as in approvals XD Zorbium, for geographic differentiated innovations X line expansions well as This with with year China. We productive important major Credelio

geographic cycle portfolio. life innovation regional management, expansions valuable the and delivered across organization the Additionally,

$XXX our million combined growth led Experior line We product and value offerings with incremental Pinpoint. our products this Uplook Plus or ZoaShield, the like revenue Overall, portfolio beyond integrate and quarter. the in and contributed Experior Credelio fee year year-over-year. grow continue demonstrating to $XX innovations of adoption an for fourth in million innovation momentum

submission our inhibitor the in pet Most era our broad-spectrum increase two health initial our importantly, Elanco's solid each potential in JAKX key blockbusters: innovation and of projects U.S. parasiticide dermatology. of growth. confidence differentiated progress late-stage our of continues we to made of The next

established contributed the the for of to competitive U.S. Moving Elanco in vet remains two growth across portfolio. price areas parasiticide portfolio. many of dynamics Despite our known an Globally, points market year. leader market, diverse percentage

parasiticide analysis while Galliprant In in And declined pressure Health, our global digits space overall. our retail this in global our OTC sales XXXX, category and leadership despite continued portfolio on our shows pain last year. Pet the grew double market

Aqua. two in in player feed over the In in market a player are Farm leading course Outside of U.S. remained in number top and and very we're we the poultry and share competitive medicated U.S., additive including two gained the the Animal, space, swine the XXXX.

and We cost mix pressure, for inflation despite of XXXX. in avoidance expansion in product slight margin productivity. delivered on gross savings significant Finally, a allowing

the synergies have our we date, Bayer adjusted in million $XXX To expectations. delivered exceeding from acquisition, cumulative approximately EBITDA

last Finally, to billion. billion allocation gross paydown $X.X from by we debt Debt reduced remains our capital priority. approximately year $XXX million key $X.X

that conversion. we IPP is up and growth next innovation, set with cash era improved our summary, proof delivering In believe foundational strategy of multiple value our points

to pivoting XXXX. Now

post-COVID continue a global remain to We a expect the at is persist industry the year. weaker The least continue environment the pace albeit for expect slower and resilient. we poised to Pet Animal this year, market of normalization a growing to portion Health economic as to Health at

expect geographic innovation, compliance to growth. this market While that product drive expansion e-commerce labor and expected stabilize and capacity constraints increased by enabled we are to year,

lower higher we animal from decline competition. in tailwinds protein be cattle rates continued industry and are continued Animal, the balanced Health. generic expect the Long-term than increase in global to Farm input growth cyclical Pet a In expected costs demand herd U.S. by

we interest same in economic X. business innovation, rising the continue Moving will slowdown, Slide our XXXX, many trends to faced XXXX, by impacted rates. competitive be of In overall to and

for contribute will year headwinds. strengthening challenging factors Elanco, partially specific macro these Elanco's we expect a to to drivers offset While

currency year what currency XXXX. an expected aggregate expect top we to of improve X.X% environmental from line experienced in the Outside expect FX, range in $XXX we last to headwinds similar X% of We be of magnitude in million to in factors constant million. decline to guidance trends $XXX midpoint from a at our modestly to decline constant XXXX the

retail in seeing to is the of are and we China, continue. products pressure While expected OTC signs dynamics improving supply of promising external chain impact on economic-driven recovery

our quarters of X% For in previous the grew consecutive from constant currency X China, quarter, decline. business reversal in a fourth

watch key leading indicators. in consumer confidence as this performance improved continue pork expect levels and We year China, prices to but

economic-driven points Regarding suggest on data to half retail encouraging compared and the we early Europe the but second OTC, U.S. category. expect trends continued in improving XXXX, the pressure of demand

performance larger a season, despite business in Elanco's notional headwind of to half we the the sequentially the trends. size the first of Hemisphere first parasiticide driven half anticipate Given improving the the year, Northern in by

Although some U.S. fourth XXXX not levels step down and meaningful retail the we from a partners inventory in in quarter, anticipate XXXX reduced do ending levels.

our physical for us will believe strategy help bring products the and in and us price category leadership strategically long our well availability we Importantly, maintain term. innovation position the expand to

sales specific I described accelerating innovation, continued be we drivers, manufacturing headwinds at of constraints supply reduction expect are of With more midpoint innovation contract $XX expected million by environmental partially approximately to The drivers and by offset Elanco-specific strengthening price internal continued our our the offset will just from pressure and regard to Elanco the partially tailwinds guidance. planned competitive in business.

incremental, pricing XXXX annualize more points majority early Innovation animal includes We of X $XX a acquisition our percentage of we closed of growth percentage growth expected be X certain to to to points January contribution bolt-on increases in $XXX with $XXX the as million approximately our deliver representing million to million expect $XXX medicated or taken. X This additive increases from markets, already price actions of than enhance implement revenue nearly nutritional we incremental million small in is contribution to million to and feed $XX to with portfolio million $XX farm products. from innovation.

and be our share us and accretive these to Animal growth U.S. antibiotic We enhance the alternatives globally. expect grow will mix, help Farm in

innovation and Elanco commercialise to continue $XXX revenue $XXX by to from We XXXX million by of price contribution expect beyond. in million XXXX

milestones On for timing the key we and Slide several expected late-stage assets. highlight X,

an into Pet our portfolio, getting on Health updates Bovaer. on provide update I'll Before

you cattle from As for we continue spring, blockbuster recall, for revenue DSM of product last we in-licensing of U.S. announced reducing methane the potential excess the $XXX and it believe market, has million. in the to

licensing meeting their with our Our development requirements great strides working close collaboration we product. have in to the Bovaer swiftly agreement. finalizing commercialize on been the Through team made since has FDA,

integrating beef first and this capacity, half our strategic the these parallel work sustainability launch. and to look forward into dairy We for developments to anticipate with customers. our Given portfolio finalize we our and approval offerings XXXX a of positive product contract manufacturing FDA

inhibitor first-in-class FDA more Shifting to near-term SGLTX December. for the our drivers. cats Pet gained approval Health in Bexacat,

are preorders We product and months. coming to taking in expect the ship

for parvovirus by monoclonal our The broader approval antibody for conditional to platform. important manufacturing USDA innovation, will continue For product our monoclonal followed milestone our of await be the we facility, an expected state antibody approval approvals.

supply capacity. interest as expect to we this over We expect and time for first-in-class expand ramp treatment strong

to addition to and we In OTC clinic our benefit retail vet pet from expect XXXX refreshes. advancing innovation, health innovations

relaunching expect the Advantage, that be preparing X Advantix, These In to original will formulation cost-conscious cats; KX of in parasiticides the tick are that launch preventative U.S., Europe products we're a we this coming as the flea preventative In value a positioned capture the we flea X the the of for year. and consumer. for dogs. OTC and offerings months, new and U.S.

the few expect retailers a subset the on products small We these next of over to be of months. shelves

Advantix products. note, KX XD move for our initiatives meet our products health our driving alongside and season, customers' are critical And teams our to excited on Northern we highest flea cats to and key and tick our availability Advantix, Advantage Advantage Advantage family and offerings of to the pet now retail the are and have refreshing brand Advantage needs, Hemisphere recognition It's important product physical Seresto of KX has of we're this as shelves that the driving family pet into to OTC X Advantage globally.

Now it on to guidance. more our to XXXX results Todd provide quarter pass I'll fourth and

and Thank morning, everyone. you, good Jeff,

today's XXXX and over XXXX relating information Asia a our we that release. additional were described go statements, financial the statements to affiliate made for want finalizing results, in our provide I some identified taxes our I for with earnings affected to connection XXXX GAAP cumulative that error allowance financials a about the Before financial valuation to XXXX. for In and our Southeast XXXX was revisions

that in quarter the to error a of XXXX air While immaterial revision correction to revisions additional impact that have could prior the otherwise prior by the been adjusted Once XXXX in a each had years, results. made XXXX for revenue results. on addressed then we immaterial not determine quarter. would None of material impact our revisions a affected creating be necessary, and periods the fourth cumulative to and immaterial XXXX without XXXX, an was we had on they

period first X the If of the of these in the months of an of million have been million revisions correct and been EBITDA. $X.X to increase originally, increase had an adjusted recorded net would impact income $X.X reporting of XXXX

consolidated income statements, our finalizing items timely. tax XX-K are Form expect We file and our to including our financial

press to the such change release are amounts on and and today's call subject finalization. in Accordingly, unaudited this presented pending

numbers presented change believe not that will the materially. we However, today

also to income effectiveness relating controls taxes. the evaluating are of our We

to adjusted my a changes description the focus refer release reported now comments measures, year-over-year quarter will full year in our so earnings for please results. detailed I fourth and of our today's on press

Starting a an our our for million, growing range XX% metrics. the fourth of currency Revenue key X%. $XXX the or with quarter, X% delivered midpoint near on In decline XX. constant in guidance Slide decline we was price

performance rates represented down the Slides or species and region. break volume an price, as the XX The million rate Foreign headwind revenue quarter and $XX by and as in quarter exchange X%. well XX in approximate our

by in we portfolio. parasiticides Health, our XX% the growth constant in pain partially portfolio, declines volume with offset For our Pet in quarter, declined currency in

parasiticides retail channel to Our declined vaccines. competition compared primarily and XX% to and pressure, certain supply U.S. year, challenges for last due business

in declined by driven international currency, X% constant Europe. business economic Our the slowdown primarily in

our as decline reduction felt remaining As approximately a across in retailer pressure November was discretionary of impact retail We by on Seresto in for broader and estimate our result the guidance, Advantage $XX channel. in consumer from well We million year-over-year products anticipated family million the channel. brands to a $XX business were decreasing as the these U.S. of believe innovation inventories. spending competitive vet impacted

cattle for swine demand U.S. currency. In cattle. X% outside in in farm fourth was business declines and the in international our strength Increased quarter, more than declined aqua by U.S. in and the animal products constant offset

in negatively and impacted cattle a business challenges vaccines for certain purchases. U.S. reduction by supply was Our distributor

X% increased down rotation mix. performance XX.X% inflation declined by product driven points statement, by the Continuing in income driven XX by X% partially was U.S. unfavorable primarily Poultry the our price sales. basis to reported in decline constant in timing and currency, the productivity, despite offset The and gross margin higher top line improvement

Operating decline points XX.X%, $X.XX favorable tax rate. year-over-year. expenses a including margin Adjusted EBITDA in quarter XXX $X.XX was was declined X% year-over-year quarter, basis fourth per quarter. in Adjusted of a a earnings share the benefit from the

the X% back just for few at full foreign our exchange bridge comments over $XXX on a revenue performance. a of decline from currency, billion I'll sales, or Referring constant provide X-year on $X.X in approximate accounting to impact the X, delivered We rates. million Slide decline XXXX year X%

in in disruptions an X.X and price COVID pressure pet chain primarily innovation business. and represented including estimated impacting contract factors, or percentage delivering of our reductions supply on the tailwinds, Environmental Elanco-specific on and drove point external sales, decline X.X drag other planned lockdown retail competitive Outside by $XXX percentage internal balanced million core, factors manufacturing point innovation China, of challenges. including effectively factors were economic supply with our health offset which implications

enabled points year. year On to and Continuing productivity XX inflation X% product by improvements, was last by Slides XX, revenue down partially line Gross This to continued an Slide P&L XX.X%, full additional the on breakdowns, XX. was of price provided top XX mix. affiliates. by growth offset top expansion basis margin of and we compared including unfavorable

point share adjusted the expense growth both XX operating for tax margin X% and declined with basis XXXX. adjusted interest the for as These to $X.XX, factors, EBITDA combined per in was reducing earnings XX%, expenses to by full year. expansion the contributed compared year of expense Adjusted

non-GAAP and decline the XX.X% in savings XXXX. location by in in to rate Brazil, productivity to a XXXX, Our quarter in Elanco year-over-year our XXXX tax XXXX ruling tax dropped profits. of on favorable driven from primarily This fourth XX% the in jurisdictional Related and into XXXX. have Slide was from million fourth cumulative delivered executed in expected $XXX savings synergy the progress. $XXX quarter XXXX we synergies, adjusted EBITDA our XXXX expectations We to approximately incremental million updated exceeding total previous our as and XX, through efficiently bringing restructuring accelerated we XXXX of

We tranche approximately than by $XXX EBITDA million synergy annualizes. business to the XXXX remain and integration committed our with deliver and We XXXX have expectations adjusted increased to million. in final our Bayer $XXX more associated ERP capture of synergy process as

moving cash on me on offer Slide capital and let XXXX few guidance, a our our working Before debt words to XX.

an for our quarter reflects between be working cash flow While to an decrease expect the million to by inventories. we fourth increase in driven increase million finalizing year operating results XXXX, for are for $XXX still in $XX year, $XXX between year-over-year in and million to capital, million quarter. we the The the full net fourth $XX

rate had third the quarter cost result in costs of restructuring interest million. on with $XXX ended net reduced the of $XXX $X.X We approximately our net floating and year debt. year billion gross debt a in fourth of cash interest XXXX higher the executed also quarters and second debt, we year-over-year full debt swap as the and as rising million the We for we

expectations a than leverage X.X ratio net as our at was year-end. lower times, cash above slightly previous of expected balances Our result

to flow XXXX our our debt improving going touch flows in this outlook the forward. on and for business. free moment, expectations for cash see We cash paydown continue a And in from durable I'll factors

guidance, move financial to let's starting our on Slide XX. Now XXXX

and to constant X% $X.XX or billion a between $X.X in flat decline billion be approximately to revenue currency. expect We

EBITDA, $XXX we For million billion. adjusted to expect $X

we of Finally, anticipate adjusted $X.XX. EPS $X.XX to

support the Slide your number a XX help efforts. appendix additional of in provides modeling assumptions to

XX, XXXX Slide review expectations. factors our we'll in underlying some the On of revenue

the $XX million headwind We expect rates exchange million full to the impact of be year. $XX for a foreign to

be However, half. will first from with February, rates expect we early headwinds tailwinds not the Utilizing second quarters. in consistent spot this in the across half

In improved Pet we expect performance. Health,

the continued and growth franchise global for Credelio expect growth accelerated from First, innovation. we

We return Pet in business to the normalize growth expect is as market a our midyear. China Health expected to by

the supply year-over-year. benefit dynamics improving family to products expect we U.S. in and the Advanced Finally, vaccines

with ongoing hand, U.S. competitive for of in we On entries to we new on and in other innovation parasiticides, have expect the XXXX. and from magnitude assumptions otitis. largely Collectively, pressure the incorporated pain pressures line competitive be expect volumes

once to in pressured of better but and On ticks tick less down be post enter to the with retail, U.S. appears the remains the likely cost consumer. lower and outlook to Europe of we Western of heavier month, starting U.S. options overall, heart flea consumers on European treatment time expect That economic as risk infestation given fleas next both and year. the season efficacious said, along we and this prevention to during less focus the again trade and the

believe also and position launch our competitive will increased XXXX. physical the enhance Advantage products of in family availability new our We

to driven and well Moving expect Farm products. as addition of conversion to Animal, be the the continued Experior several portfolio we growth enhancing uptake of as by bolt-on

we throughout the expect in year. improvement Additionally, China

will industry been prices temporary. be depressed Pork believe several this last months, the but have over analysts

on we generic time, same a expect products globally. we At continued continued aqua few expect the pressure in see globally. expect internal Finally, strength markets and supply to challenges

U.K. XXXX. a we favorable XXXX which conditions Finally, don't in season to Australia, in strong weather expect the in cheap led and repeat to

expected offset on base. adjusted the Slide EBITDA volumes to manufacturing reduced and XX. to increases inflation on Price our are Moving of impact

increase flat operating primarily wage key strategic We and global by Pet a increases modest in to expenses brands. driven expect in Health investments

incremental less expect savings we XXXX, into synergies XXXX. of contribution acceleration the With in

investments and were as we flat million approximately the After reduction year-over-year Ellen and R&D drive per forward. innovation team continue her $XX in generally our to expect be of R&D to XXXX, portfolio our our reprioritization quarter

on XX. adjusted Finally, EPS Slide

expense The the our decline. of debt XXXX, reduction of of year-over-year EBITDA and decline, to with additional primarily translates floating in adjusted $X.XX $X.XX rate $X.XX interest expectation tax to the increased rate in to $X.XX driving from an higher

a me the in impact think a and With the of we quarters. the let second about results live our split meaningful half. offer few between ERP we As the expect April, go financial our first year, phasing shape of system the in on on words first

cause bar that We will quarter for in late have their early second first certain into the products orders April and legacy accelerate from will sales the of periods affiliates blackout customers most expect to we March some quarter.

of for result guidance uncertainty, a we first of As providing this XXXX versus financial guidance. ordering are first the quarter half

expect to We in return quarterly for to the May. guidance quarter second

guidance. Slide XXXX we share On XX, half first our

We of $X.XX EBITDA $X.XX. billion $X.XX EPS of expect billion, to revenue $XXX and million million adjusted adjusted $X.XX to $XXX of to

expect to of X% exchange or million in rates a approximately We be foreign half. headwind first $XX about the

system While will interest impacted first line will across the integration tax of cadence be. not Bovaer by the top expense the the half, be and

our Finally, on sheet for expectations balance the year.

X.X to EBITDA a wide end We range. The times. this X.X sensitivity ratio the year net and to times reflected in between is adjusted expect with leverage

specific While in gross of guiding in we XXXX. August portion to change due senior we debt, aren't of a notes refinance our expect to a

in We flow. cash remain improved onetime service and minimal bring costs relentlessly and to cash as drive cash ability obligations future increasing generate EBITDA we costs. differentiated managing confident debt In XXXX our beyond, innovation to our and in our market we expect while operating the meaningful

ERP and business restructurings network, Elanco's service as primary business have Bayer standup Over transformed projects the shared integrated XX, up, and we integration. the have estimated Elanco significant infrastructure, of stood Bayer laid for systems years, cost the four our the cash and last center of and processes the On three uses independent own Slide the cash company. we had out has integration

the we completed integration standup company XXXX. cash business of their for Bayer will system in the complete and completed independent in the was XXXX. The Most was Bayer in integration XXXX,

million. associated $XXX XXXX, projects XXXX a step as expect we $XX While million down in these $XXX cash with in less moves expenses million substantial to there's than starting to

flow the approximately integrate our improve billion this up necessary substantially and Moving past free stand cash generation. to will $X company

Now I'll for Jeff it back hand comments. to closing

Thanks, Todd.

questions, like your have deep I'd in our view on why Elanco confidence the and our provide Before team belief to we take Board and future.

pipeline delivering and her De First, the are consistently research across from delivery. milestones Dr. portfolio to development. team late-stage Brabander, Ellen

advantage are and Advantage XD our OTC We as with KX pet for refreshing Advantix well health portfolio as cats.

the with ramping. Experior launching Bexacat, vet parvovirus and are Zorbium, clinic We in first-in-class innovation soon

In a JAKX half have KX first approval broad and to parasiticide, for the Bovaer, discussed earlier. IL-XX as path antibody the monoclonal U.S., the the of now spectrum we our by also our XXXX products, and I dermatology inhibitor

farmers' to monetize Bovaer excitement tangible progress efforts. Our enhanced environmental on by ability about sustainability

will complexity. we farmers, which strategy can focus farm the for investors that minted transition can from In confidence expect create proof on as for tangible a first next carbon value will XXXX, action is whole. be producers, society reducing credits animal sustainability The reason be for and our operational beef to that

With going a integration creating operating experience one complete Bayer portfolio, stability, live fast our system opportunity for more approaching the for efficiencies. environment more better and in April, we're customer

past move allows the improving towards it pivoting and cash organization as distraction us out. the significant associated free cash cost the laid Todd generation, and flow to driving Importantly, portfolio the

this we improving enter engagement, for targeting. first U.S. a built that In are digital era finally, across excellence drive year launch Elanco. marketing force retail commercial pet and as our execution the has a Bobby sales Modi the health we organization, pricing, leading data-driven will leadership team excellence, next And capabilities vet clinic and commercial building business,

across diverse animal seasoned our a antibiotic the share the products. growing and game-changing offerings. is many farm across and industry's veterinarian business outside Simas alternatives to U.S. nutritionist business demonstrated shape Ramiro geographies, a and Cabral, leader international health species and the while Jose our his leader with U.S. ability to across animal has helping Elanco's sustainability lead future

the organization both are his broadly. addition of strength we're He in some complement farm team finally, P&Ls leadership pet launches great industry. Tim our most the and of in Tim animal largest Health. health, our we enhancing and And the With successful our the some Bennington. further with run has announce pleased commercial commercial leaders experience years Animal and to will of industry our across of led blockbuster XX be to a of

We are growth. as overall enhance for window prepares this will confident he launch team and historic sustainable our our competitiveness

turn Katy to Q&A. over I'll that, the it to With moderate

session, Thanks, then caller. the Jeff. Q&A the please take [Operator we'll the and first Operator, Instructions] provide instructions for

[Operator comes Instructions] first Bank Ryskin question go Michael America. from Our from Please of ahead.

line open. is Your

Jeff, and for start, have Todd. you follow-up maybe one then to a I for

you So like in an there How a emphasize the first, recent continue years, market out market, OTC seeing see playing to more do products. OTC products so you on parasiticides. of shift focus seems the in longer term? combination prescription we're some It including oral increasing the the

the continuing expected and you're this down is but do in at be lost market a OTC. in least to That sort on XXXX double to that's So again year share to seems 'XX. of

talk the you can about versus just XXXX? pretty Seresto prescription. given particular, OTC maybe So In disappointing forward, on you going can comment expectations

for absolutely, you Thank question. the Yes, Michael.

and an or. is an this believe not we So

some population vet critical that terms that's meeting to coming. of owner even vet more of the the and can the where pipeline pet will clinic -- segment even that. of pet be really, to drive of go of about still that's is shop. the vet spaces is omnichannel, some We the owners this a the believe You have they economic challenges we've does not the right, large may coming, in the want We biggest got that critical. biggest And then clinic blockbusters in the some technology -- see vet in so the game-changing

caps we believe ever what shelves. physical availability. We're Bayer this is up today we combination we've going we retailers picking end both to what in the on done and since So said do a portfolio is more more more do, than of -- more and were

three bringing We're consumer Seresto. and a the maybe that segments to XD from to today with more loyal innovate. advantaged that products here products X those are want we've are like really puts that announced different announced more targeting we cost and convenient us more before. that is conscious Two the And that

we'll and down in is in now term as a movement whole, see as new inventory global. in as we EU medium that medium high. some, this be step to going the help initiatives the to that's not U.S. profile the to heavily we It's life, down pressures segment. see coming as Seresto long we have yes, key more that economic 'XX, a long with retailer to was well So strong. are were across vet we but term think this and the put continues we and margin, going that it again, and over in The to we a forward, the company in in 'XX, physical just going a said growth in presence. But innovations growth clinic. maybe will price product with we impacted in this trade geographic as strong loyalty improvements something continuing availability, see remain as see in more by place and Seresto, mentioned the more

year again, 'XX. So Seresto for in improving an

Your for Mike? up, Todd. follow-up Follow

sort that. operating But on I debt flow, a of cash you for provide plans. projects Yes, going follow-up any sort where lot Slide appreciate through Todd, Can balance more on targets cash a of really as of debt on, we quick pay-up cash exiting we XX should of the end be sort year 'XX, this year? could on say just you leverage think helpful. color

just relative year-end Mike, at to leverage, provided EBITDA. numbers looking the net debt right, we've

to X.X Projected. times X.X that's times. So

expense look we If that on we've project as you a We've appendix in lot modeling out for provided well the door the got the as of as cash still at cash said. goes do all CapEx the assumptions purposes, taxes, there's the cash interest.

net of we're a gross million debt guiding if about $XXX a paydown, not paydown that, of you That to you was at all that performance. to disappointing capital So improve working company very as while on us look depending gets on of us initiatives line. XXXX area in we've performance in that XXXX, to that got with help to better across lot for the needs cash a new and drive focus the on

net pay looking right the end those it down. are key would about of at now, of the at. the But be things million So day, we're $XXX

question Next from Please ahead. Stanley. Morgan Erin comes from Wright go

is open. Your line

So one on innovation and parasiticide. on the one

in XXXX? are And your And you net what's the in well can of of innovation launch XXXX expedited for down baking of small what the target Bovaer. in as that as contribution? that So be terms growth long-term thinking well in, we embed terms ramping innovation should how as Does about break innovation acquisition guidance you contribution as 'XX. the now from in

And second be competitive how And in Or be is market? my OTC products question for third able the to now Or on parasiticide, more to still positioning be you it -- broad thinking will combination you then it so spectrum share of legacy parasiticides? will just is oral you'll -- terms existing mostly think from the to there? out you and the are take do market?

you to start Todd, on Sure. do innovation? want

Sure. to $XXX got in $XXX sales in doing in million after $XXX Erin, million XXXX innovation we've million XXXX.

we're to on more million in to as to we're $XXX are confidence to gives have ability look amount. $XX $XXX million not in And as million we range. Bovaer that Overall, million, the in $XXX deliver we that adding but alternatives 'XX, today. the just ramping on $XXX antibiotic ramping guidance that's well but the innovative earlier, not coming million giving forward million us $XXX again, changed to So about we these excited

overall confidence has can spectrum really quality in to broad will differentiation submissions we the threshold that's have what product leading made, are on really so pipeline we product. a highlight made that continued and being and believe the the is we nothing the this emphasize the increased have heartworm pipeline the regarding I that differentiation. of path. would matters that Erin, submission whole the I parasiticide, in into differentiated to the -- want highlight slipped But progress, that year, really not all is. the coming what details already going passed come most, we We're of say last

commercial news here Bennington, pivot we now That largest leading earlier. even launches system existing now on other is as around can The excellence as existing experience our this to we're better complementing the commercial the earnings focus channelled how of segment the his with that's the in, business. is more our Bringing the Tim's finish comes energy and in take and focusing readiness, team call in excellence. launch business, charge he is on, products share Tim Tim the some more pivoting globally, them ramp we standup,

go Our Sachs. next from question Nathan ahead. comes Goldman from Please Rich

line Your open. is

think of both the you I'll Erin's how to question. when and referenced, about we kind year you're launch are of up the strategy. contribution should what about Jeff, about ramping of swing And kind go-to-market just kind that upfront. One, products on mind factors we new window as thinking biggest historic in things ask kind I think build and wanted in next keep of you should launches that of XXXX? the

expected, then like year. we were this secondly, the just have move we would you than Could about just first seems to half what for EBITDA expect first And as through and numbers bit earnings the -- kind on a think half underlying as second year. of you It I maybe especially the ask cadence on cadence wanted talk of maybe of kind we kind little growth line. of versus half

Nathan. Yes. Great question,

the looking capabilities add of is to of example enhanced need right share So with Zorbiums, I the having significant at adding existing think to coming we've and strong clinic. will building this don't critical. to sales a taking that we the like in and insurance we're test we're we're actually the to think, is us, will appropriate to the We in building on. enhancing that feel I targeting of marketing of voice the our markets, the believe, we're but number it the Zorbium good all, we're absolutely right first parvovirus Bexacats, really now. Day And a it globally, is We to share making from of right be back pricing enablers digital, a the place got able be that right sure vet and capabilities Investor right And the of the drive demand. seeing to voice that, is reps

a drawn more interest us into And lot bringing That's number these are actually, in products first-in-class of a clinics. lot one. are that

the readiness. what will that go around this products differentiation and launch segmentation Two be after. in then segments And all the around is all of we'll the building that

and our how what plans able take coming these and actually sooner will numerous can of in going experience that So of progress had be for and There on will some his is be leverage will be as we to existing Todd together Tim launch our we've pulls. little expect bring together do where and maybe be products. will is lot them to But teams good whole, a individually. a place in And bit we those and is look with do them but we'll the of those timing look, and enhance those resources there than right at launches resources looking as we're we the putting then launch that a these plans do come to said, where the timing going capture be and well. And complement lean we delayed. to that ensure pushes we're areas. efficiently some at as

contribution the me let half, first the taking second things as year-over-year first into half declining and the Northern this ending and got product the half how is QX we're season, of margin we've big you Nathan, from account. And gross both Hemisphere, dynamics those that in seeing provide pressure EBITDA. the parasiticide and have recessionary driver first We half, the do retail

situation. EBITDA does a make it that So tougher

doing would The other sure and team first part, up on last making new the biggest at end really has to play the brands their we're time at and came by relaunches the quarter Modi seen that. his right the our I bringing Bobby appropriately behind ramped of is year, say, advantage investing execution

think mix biggest being cadence. first the the So that's in those I expectation on item contribute element probably half the that of the what and sales

-- half the that second half between was the two the on half, first it's the -- really us us, then the again split second for easy in Again, in versus halves and the year. for of tough it an a or just compare confidence compare the And EBITDA gives

Please from Our go Chris from question JPMorgan. Schott comes ahead.

open. is line Your

questions from a contribution seeing your larger It of peers seems are two on like for Just some first Maybe price. me. price this year.

just on So I contribution rolling my some second guess expense. help of dynamics think I And your it the was kind interest the seeing you can you're us and think across you half, in and ramping with can some then a of of the I on interest -- swaps was kind second just off just portfolio? X%-plus interest expense where and kind elaborate rate of to further understand Or take of interest expense as would a that rate interest stay on half looking expense reasonable we there? annualize for are that what second rate look kind run kind they step from assuming it just like today, can XXXX, I if a target? of run could out just guess, we're of rates up reasonable

saying at of increases taken year, as last we'll We've good leading year. lapping Chris, one beginning in price X% have on One, take well. the saw, of year throughout increases the first some full for We in the half the as the price behind year year. the we are significant than kind here points and put first We QX, some will that. I X%. price. year. Yes, I'll X% with we this of price increased taken start that year, will most some the of of effect we of last have more see support this indicators also end

our sustainability things innovation in on the and and adding side, bringing targeting adding So is to and the pet innovation, and the the same. necessary beyond in I nutritional increases place both portfolio product customers out price price, side. health building on going is the we're and farm value mean sustain farm our do more the doing better, which pet are build products, to bundle animal animal help on

some capabilities coming added So -- experts and and we've in. price

driver to be for say saying will 'XX us a in hold and we than going more we're that beyond. again, X% pricing here but So price, will key growth

November, on on do off call would the stacks we you another swap pointed regarding on interest, QX well floating at rightly And are debt about rolling $X as Fed, XXX. And get we're at so the all in debt start these we of QX. give our we environments the you swaps portfolio. That rate $X.X higher Chris, would interest as question billion our have at billion as today, interest that get provided roughly SOFR your as rate $X.X the up rate plus out, facts of billion with to us into of

rate the clear back and of X% the impact have. the to so debt about the our on driver. for half in in amount So floating year, QX make debt be -- expecting big back I the to leverage that that's range on we're of the want we of

by into up out a the our focus slide, I'm over to Fed run of to starting pay rates rate will is rate on of with be And that. it cut lot driven the and 'XX. I'd going second going That's XXXX, free for systems allow floating those on on why play then comment you Fed because is more economies that in time. the systems 'XX dramatically to debt. or drop can't a half comment to 'XX the debt as dropping -- finish look will off policy to we good the how not the would the really interest I and rates forward cash suggest cash we integration As cash project are curves down Bar

Raffat ahead. ISI. Our go question Evercore from Please comes next from Umer

line Your is open.

may. if two I have I here,

the you that reflect numbers $X.XX all negative revisions, as and reasonably the last of a year, such first? Jeff, $X.XX overestimating is a course team First, And so why back guidance in assume way? was -- consistent we do Elanco think to can over truly trough the the you

that. what's lot incremental new investors launches? And Elanco which so? important on the I then or be, that Will the less than new on Or operating they much an base be XX% think $X margin in that a for question no to of would at secondly, is used at the is, business come looking it EPS, longer it

has as Todd here with today We Yes. stand guidance, Mark. Thank our highlighted. in you, 'XX confidence

look put to holding at second the and consistent we guidance. went and quarters last May we back staying call to we As of together and our half, had X year our came into

and were we over-indexed improvements, these And China, and in say in that we things looking Europe. pet got to carry and half would year. saying, we're we on very at I'm as a impact and predicted. inflation us approach war, had of that could a this 'XX multitude is we've into we that but seeing measured taken ways, the of the guidance a but an the -- assumed hit at where this yes, looking year really the us predicting were this that will in Northern China and of team lockdowns first going the step-up taken a we a into and Those looking challenges recession lower sure in sequential confidence assumptions. headwinds our competitive environment that a We've situation in have retail highlighted, not -- the overall, we've and lot I lot that same Todd this a we've throughout a -- out seen environment, we're as at portfolio of macro have coved

company. in the way our of this 'XX of to value so it in long-term to with and also prepare in here to of critical going again, and balanced our in I so growth that's assumptions, approach we've do And return taken investors a growth and confidence 'XX, era We next We're this stand the in the start to second the guidance. half year.

clinic Over and the where launches our appropriate vet launches, the coverage will incrementally launches needed. time, installed provide be big on flow-through certainly, will over will margins is these for go really at good higher EBITDA the given these base

to really And expenses in. or so something the or launches needing the double to versus marketing drive margin about force incremental it be will sales that

we But them to margins over as higher know, margins. improve. time, certainly, over be these time, scale to So to And higher you helps. incrementally continue is expect we as drive

from Jon comes Block ahead. Our go from question Please next Stifel.

is line open. Your

cash $X Todd, there's in $X.X stepped just lot for the million down 'XX, reasons requirements of year-end and in a leverage the to million 'XX. why slides, the

or downs on but second the is step call I'll front. that, to And get there XX from the ratios leverage covenant I a XX the Any think question, -- about out? be of? then perspective in I to ask aware anything

the XQ Q-over-Q, the least think it's I've X X been got at breakout. Just years, for don't past to I down down Seresto since Jeff, XQ to

new resolution And So do then the product talk expect share. about EPA anything horizon, can the in with the with you on XXXX? you the EPA

on We over there's any think times. are forward. Jon, X issue that the going leverage covenants don't

continue years. to in guide confident expanding future EBITDA feel and in We this

Yes, Seresto. the but as pullback We smaller think know, for the off where It's you retail on QX, the on season. is this a recessionary and people much quarter dynamics economic Jon, segment driver. the was to seasonality, was Retailers maybe clinic, went trade not more over for in treatment big substantial. the vet and and a inventory. That It move definitely down stepped prevention. little a a down

done we've into lot a this. So of study

that us year much of X into as confidence the many the in into I key end product, more more season, indicators got we and the positive Seresto's early are availability, probably give season brand this as indicators caps at going mentioned, is I look this we've we retailers, and lot to retailer as think the a physical and lead come loyalty season as the into as the as we e-com sequential ever. change as loyalty, move

a And I economic-driven bigger was lot the that quarter off-season, it percentages. so think smaller of caused

same of have to going some we're total across notion our business. Now bigger these of the pressures

a dialogue whole, brand how as we at on expect EPA. that but endorsing positive highlight step to that working as do we're report I again, products a is lot overall we're constructive looking EPA -- So of with we having oversight confidence yes, EPA, very in would the something FDA to down, we of like going as some and arrangement and as the at we Seresto. the see a look stewardship product look this we're improve at the can

look an product being yes, something this have it constructive and And outcome would term the drive we see very help to has see in long that that of key again, encouraging. company. the collaborative 'XX. Seresto been and EPA, and for with I strength us medium, So again, And we're will profile dialogue a

little the We over the bit We'll continue the few a we questions. And realize a have I caller. answer Thanks. in go take to queue. might We'll next hour.

from from go comes James. question Raymond next ahead. Elliot Wilbur Please Our

open. line Your is

But full and specifically if those. not called year out pressures number or in impact, Jeff catch did quarter. you I fourth for question First the Todd. competitive you for I mentioned the the heard

So full that of year have detail over could the the of impact you the I occasions you couple a was pressures competitive wondering was what of calls. last on if couple cited

thinking are forthcoming favorable you then Jeff, of to balance desire in osteoarthritis to than you've channel? what on U.S. And vets for to labeling Europe. And U.S., U.S. in of sort reduce versus but launch is about part mab a the the seen or specifically, what slightly given in Europe, the the disintermediation of the I product growing date more the understand how control be trying vet that to within seems just

the just talk basis for for year, margin the down Todd, But to the about the range different about higher-margin trying next in for out I guide And products then or just you reduce trends XXX effects all gross tease guess, of XXXX. the is or at expectations low products can in inflation, end points. performance terms specifically of of some

to those targets previous allow what how of to longer-term more trying a a bit normal may thinking margins think And improve little about update. light in of today's than sort more your about Just in modestly. be environment we should just

Okay. A there. lot in Well.

be million vet back a the turn there year. it of lot to was is this The When retail third, in against think do called plus trade roughly out channel vet gross me -- and $XXX we full previously. some and competitive a channel. traffic million margin, mix. competes to continues to the of $XX product Let the QX we generic I'll first so We reasonably launch on that Jeff similar the hit think was of about clinic first, from that into a us Claro pressure

health to expect grow business. business highest currency. in our is our don't in margin pet constant We 'XX That

a is that negative impact. So

still part gross the our adding we across declines to lot in have able other top in and A that inflation, into 'XX, The to in we work offset productivity health face of million our and network pet both margin. manufacturing space. about is $XX of were inflation of increase

of any this did there time. take a targets will to off And it. any ago, commitments it of mix things. out those impacting The continues team now, new to continue, we're ways, element the we will to at margins Do think The right reiterating Jeff a for is putting we longer-term year Absolutely. stabilize new before it. lot not on Galliprant. improve products we certainly we're that the drive looking then So turn different but areas to about retail innovations expect And over I'll but find the

way. and level, just -- high a a entry we're and at is growing U.S. and had the Galliprant When It really of in. one first portfolio. in competitive We we pain look in overall, increasing has awareness segment brand well using all, wider And positioned to a fastest-growing Galliprant, new more Sierra markets an longer. segment relative whole with Elliott, vets the specifically, been continues Nocita, you large the has again, our It very at Yes. here pet expand and of in are Galliprant, label. and pain and strong Zorbium, year. as coming to with It's know, is that a on overall

And that a OA of I focus for with say pain multimodal. multimodal treatments Most would is on inflammation. recommend will

innovation. expect treatment include We're a regimen Galliprant. in maybe typically NSA inset the think an treatment like treatment And will an important. we I maybe an addition to more a recommend overall that's becoming would first-line that guidelines of segment. of

we again, this much more as segment, will forward. pain again, that, believe in pipeline, pain. we positioned in position believe stronger than important increasingly with Galliprant Elanco overall even even And were and well a we more we're we Europe. our in become go So to

from Balaji go comes question ahead. Barclays. Next Prasad Please from

open. is line Your

guidance getting the the back on Just XX. to Slide of part question

look understand pricing X% of you're this likely guidance get million What million I to the factors around another and $XX from revenue. driven the assuming $XXX and Elanco-specific As year, to this at million is of bridge. innovation benefit $XXX incremental I

of me on gives to So side, it be And balancing other the supply. competitive on that innovation contribution. around seems positive and positive

the both case provided. going offset one. a and can there range you fully is with supply competitive innovation $XX That's this where benefit million So

surprised impacting this and that the as you OpEx us on was call see into not FX secondly, EBITDA the needs launches. bridge. also go And side, help the to year out investments new understand supporting that to I Can

Todd, Sure. the to -- bridge for you the just start want 'XX? do on

Sure.

a bridge. how think got the handle you on You've good very about

guidance demand if and innovation We But than into being spent offset. play X%. the our continue for supply execute all leadership constant way do we'll better sales drive Jeff that flat better have competitive as an year, more demand China the Certainly, focused commercial than again, is through there, on for this And retail. certainly X% provide mentioned, getting built what continue to revenues, Yes, again, off certain start demand to getting is we as And down as things currency is price that. products. at the they to better out our to

again, guidance. So the we're in confident

point. it's about million it's the and half. $XX headwind an the this standpoint some big $X that to half a million to in again, tailwind top as always -- just little a But bit we a million EBITDA second million $X headwind the respect line. from mentioned, off becomes out, at first headwind It that that's timing. EBITDA, With It's it's $XX in a on to in

didn't a the of just it in make big walk. deal we So

comes question Our Blair. William ahead. next Please from Brandon go from Vazquez

Your line open. is

I'll ask as well. Tom

-- just there's is of inventory a first couple of levels. The been mentions

in just help plays. if Advantage And the value that was talk kind can as baked launch? sale Can levels guidance? QX. Does to into relaunch those before? of of need if inventory the the like and is these continue well accretive the it as 'XX, more year? to in Advantix, of think Curious were are at about reduced on and expected kind second that that's are maybe you already U.S. the And I you about, through margin talking in

Brandon. Thanks, Sure.

we're how or would again, continue from seeing not assumed a point. step rebuild rather animal the We've there a those QX that on So just side. there they in at that levels and was inventory farm down

in an the again down end to half, increase of million don't headwind assumed in So 'XX if pet $XX volatile products, it's of We've we theory on acceleration. that retailers of it growth the not a tailwind that. over be a retail of that back will for perspective, OTC year. at million in the a half have Similarly, back take from the year, to again, headwind the the not be Overall, inventories, $XX did course that's part

part have again, well. would So the of be level, again, facility. an that stays it the to the this products, assuming in our wouldn't manufacturing to growth they headwind the at customers serve at With keel in that scale we half easier we again, order making and level need very it's then think back through about comp. a as at relaunch respect efficient

they're at the price lower to yes, so for gross And even point overall margins consumer, accretive of the Elanco.

like turn have over would Jeff call back to the queue. further We for Simmons questions to no closing in I remarks.

really our time the the environment, in your environment came challenging do in the this into that 'XX our really of have right this I We was us do We guidance front is maybe half business it assumptions, do Coming we believe, from here and environment one. Okay. is off a second X returning our us we that guide from this half. growth We Very briefly. into for first with look in that close at guidance. back growth it But in see the but of year guidance. shared to confidence see points 'XX, today. overall leave when Thank and you Elanco. challenging this macro in confidence, to gives as up persisting of XXXX, 'XX next area innovation this

XX proof really And points. the then second is

this than environment that FX. OTC, with points big in as to being offset the just next really the returning then third early price signals more better. X which will I well end data, is drivers sequential as innovation, China And growth, really supply sell-out of in point, highlighted, to area and X just As X growth, then growth. is summary, of And percentage innovation the improvements

Over blockbusters us Elanco the to growth. the open we a this first takes really add the complexity months the lean XXXX, up, next to path and finish next of of X the half of with and that we again Bovaer which pipeline. out now into the stand up innovation as really door allows for and X era will system,

We engaging time today. your forward you So to with Thank quarter. you. for look thank you as through go the we

today's concludes your Thank This for participation. you conference call.

now may disconnect. You