Elanco Animal Health (ELAN) 9 May 232023 Q1 Earnings call transcript

Good morning, and welcome to Elanco Animal Health's First Quarter 2023 Earnings Call. [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. Thank you. ahead. go Please

you First Thank Head us Elanco for Investor Good XXXX for Earnings Health's Quarter Grissom, Call. Animal Relations. morning. joining I'm of Katy

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

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

For release risk as the XX-K factors press our as today's latest Form earnings with more information, well filed and discussed see XX-Q in SEC. the

any to statements. duty forward-looking undertake any update do We not

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

turn I'll the Jeff. now over to call

Katy. everyone. morning, Thanks, Good

business we're open easing improvement sequential XXXX. results business quarter. this indicators we our pressured improving encouraged saw As many that our factors underlying demand We leading environmental of and in by in XXXX,

half Elanco persist, to constant while currency decision progress making our this flow and returning While focusing cash of generation second macro year. factors innovation on the sales business we expect in to a disciplined pipeline stabilize necessary is to and improving the our growth

the Bayer the and operational milestones system bottom with encouraging guidance integration year We Improvement the notably the pet progressed the collaboration reduced confidence us in including positive EPA and of in the on and key allowing outlook in on metrics. uncertainty of progress our Slide range our areas, key and end ERP pipeline completion year and for business, the important first underlying raise full Beginning Seresto. in health our to half This XXXX, off for start. X. of to is increases an the

monoclonal continued dermatology. initial pipeline our conditional it better is with two our pipeline product antibody than ago. months for to of parvovirus even and approval IL-XX Overall, position an just was advance The our of submission in

remain we generate in the year. throughout to business’s cash the ability confident our and Additionally, liquidity

operating was quarter, first our we in cash approximately to available the paydown to lower improvement this seasonally million throughout year. leading While flow of year, the for expect continue $XXX debt cash

We in covenants leverage financial remain and position and relative to our our to reduce time. confident our debt debt ability over

of planning leadership our to the expected remain and launches blockbuster Finally, innovation. delivery, for team while our committed also near-term are global potential actively executive we

the see yet call, approvals and the inflection some considerations At we end of begin for potential I an expect as outlook blockbusters. to as XXXX we encouraging in will our point share receive launching balanced our

delivered of growth quarter, we our In Moving Elanco first to revenue of million, of Health Slide global reported and X. bringing a ERP integration, Elanco constant legacy into the Animal X% business Global In currency completed the systems Bayer April, growth environment. the $X,XXX X%.

two-week to products preparation, Animal to system periods occur As customers a Bayer we in expectations shipping part a of blackout proactively Health four-week our our communicated would cutover April. legacy for of our that

to February of from into Our of purchases products the that market. shift ensure customers the second first Bayer likely in assumed legacy the guidance quarter supply quarter would continuity

results to million results, X-percentage blackout $XXX to our growth. of $XX in estimate in point markets, ERP the range benefit of a on X-percentage the analysis conversations, based best Our individual benefit from point a and or customer to million

in U.S. our continued farm both market the XXXX. compared overall, strong U.S. declines pet performance the health animal revenue first clinic blackout, health, quarter improvement to ERP fourth with line in was the vet represents in visits. a sequential despite the largely our In and remains and quarter Excluding expectations pet low single-digit for

we Excluding ERP the single-digit and an improvement double-digit our the business from approximately last declines representing health pet several flat low the high benefit over from reported the blackout, was quarters.

team improved pricing, the refined and in in area, physical and largest execution key Bobby Mode, our Health, strategy innovation. President Executive business U.S. our Vice highest Pet performance share voice, margin improved and leading have of areas: of his to four and availability,

We have of ways. voice share increased our three in

through more with adding conversations are We and innovation targeted inside Elanco. vets, provide and share sales more to and gain leveraging efficient reps driving from frequent clinics with engagement digital mind more to tools, broader

and generation. first example greater care expanding of with was efforts digital resulting clinic year-over-year touch our an vet quarter, the lead total points As XX% in faster in professionals up

our Next, channels, we're in new portfolio. contributing our availability shelves, points across dispensing to and more clinic retailers the across physical locations distribution and improved stores, of expanding products. total More meaningful

In by growth in the Family first which total quarter, retail distribution the U.S. points for we Seresto XX%, our expanded the to contributed and Advantage portfolio quarter.

maximizing Regarding increases in price, price disciplined revenue to we via optimization. space. trade promotion upgraded significantly list our a We're and approach this taking capabilities

Health first year, Pet U.S. quarter last X%. global health growth any contributed the quarter price the more in price the than pet of grew to in which

muscle additional launched six improved we in and capabilities. building approved months health pet Finally, from through products innovation we're U.S. or are in six the as capturing sales product with a launch last refreshes excellent

category the from growth sales, and OTC in the pressure health the relaunch Rx are the cannibalization overall our Overall, value-oriented efforts continued higher Our than Elanco to family velocity outpace help drive veterinary Advantix. U.S. product competitive actions clinic dispensing quarter, on believe driving lower despite the out year-over-year KX to distributors Advantage we of management in these first pet expected in business innovation. from we retail for and category

improved likely Additionally, season. earlier the conditions, including benefited and parasiticide consumer macro factors, a from we potentially

we market a this and competitive pleased have economy, outcomes taken play U.S. with lot the to the still pet actions from uncertainty positive the out our with year in are to but position strengthen retailer there's around We acknowledge actions. health pricing,

this We continued progression to business. look forward improve to

expected, was pressured compared XXXX. our about first business quarter environment been the health internationally. pet but In better economic performance comments the to start the few a the in our Europe, quarter in very strong Now than of has

in and sell-out still for data improving Europe environmental market, on countries available we the pet the pressure quarter. sequentially, second Elanco health the expect continued While in business is

offering, organizations year, Experior the to by animal, Asia, have by value the benefited select the for Rumensin. cattle the strengthen this of in to the categories. beef this, adoption opportunity portfolio business farm largest our the and overall with moved broad poultry, by encouraged continues Despite to remain six underlying Experior Europe U.S. of led the adoption and decline commercial a in by processors. offset supply competition In Experior feeding in from of strength related growth acceptance vaccine including U.S. product we cattle

We're environmental improving, Finally, in farm animal businesses, pressure. cautiously year-over-year we poultry to China, expect is and throughout monitoring while prices progress market gradual start this in to the year. pet improvement the continue were year. and assume pressured Across and swine our competitive

the health of metrics the integration, decision bottom our international raise half However, both in our and U.S. poultry first end business, positive the key in system support for completion our successful our and and year. on pet guidance ERP notably full innovation progress, our indicators to of the

with IPP milestones we few productivity. X. Slide achieve Starting to moving months. last Next total

preparation, associated forward business We the major us are to of the integration, the look their am and and Animal into pleased consolidated We simplicity on milestone this Health the last advance of Bayer execution the operating with leadership, with of ERP phase. the new the proud I transaction, this the completion optionality one to team's of now flexibility system.

portfolio. to Moving

We EPA of the of supporting Seresto appreciate their approach actions recommended review to continues align the EPA and stewardship they to near as science-based product. collaborate their and process, FDA with the expert of included completion continue diligence continued We the with the the counsel review the process. during from on the registration in which Elanco EPA's

finalized formal We EPA coming to expect as the are they by communicated the the in results weeks. be

we deadly raise support health, and welcome Seresto animal pets can will EPA committed believe bar are work continued on the they and opportunity actions in stewardship pets the leader of the safety the that a protect from and well-being we ticks diseases fleas the and to to the with carry. to these of As

through key three advances X six progress unlocking our Since submission new area with of expectations. in our four and blockbuster to Elanco's Slide initiated The major markets strengthen our details all line new launched approvals value innovation. growth received product. products, in of continues we with in the programs February, towards potential next pipeline and

opportunities. in innovations both for organization cats Earlier R&D view a the our in executing kidney FDA treatment is driving oral product approval first-in-class U.S. commercial. across SGLT-X we shipping daily These chronic began associated manufacturing Vorenzin,-CA and conditional line The with partnership anemia market cats. control with we the excellence we In them as diabetes creation of for and disease products inhibitor are once-daily portfolio-enhancing received X, month, fee this oral while for Bexacat, mid-March,

conditional and canine Elwood, Next, approved USDA the granted approval site Kansas for antibody our our parvovirus monoclonal treatment. manufacturing

monoclonal our platform. the this XXX,XXX this approximately approval As journey parvovirus milestone addressable per this a value a first approval and need year, the significant important in U.S. treatment. With of represents advance in our conditional market canine to the unique antibody, total for cases highlights

blockbuster the product. from a potential for veterinary strong have this already We community interest

access, agencies approval finalize the treatment of We these both given a expect for unmet approvals weeks to products to understand significant and the shipping accelerated state are the in Important varenzin approvals. agreed-upon as we parvovirus needs. market for begin coming allow with our to conditional address regulatory reflection pathways

approval expect commercially For status both, to progress we towards to do plan the not limiting. and current to continue be full

last better, subset of launched to tick KX These to cats category dogs and side, On enhance the expanded approach OTC capability preventative flee OTC and tick health a a for pet here. our good, flea we our retailers. retail Advantage, and our Advantec, management. small value call, R&D efforts U.S. preventative offerings are of our best for a Since we've flee and a cornerstone at

Advantage markets, approval market to this of for dogs parasiticide Adtab pleased our introduction addition brand several we're oral the monthly tick third in Additionally, and OTC year, in oral cats. an This announce the Europe. OTC both Adtab EU and establishes emerging product flea and leveraging is in the name, Elanco launch

as Experior, are our completed monoclonal first towards of technical our Finally, approval for in path by XXXX. novel is canine antibody a the to product progressing the for we products. the submission Parboil with each planned of IL-XX March, potential and Bever first-in-class initial half our blockbusters USDA dermatology,

parasiticide to and these and While growing broad-spectrum expected products current JAK be dermatology markets. asset the inhibitor differentiated our from in large are

quarter I'll Now on provide Todd results more it first guidance. to financial and to the pass

detailed and Thank our to release good quarter for today's the press I focus measures so Jeff, in earnings of you, results. morning, first a reported my our adjusted will comments year-over-year on Today, description please everyone. refer changes

currency. constant the In quarter, in X. the growth of we Price or $X,XXX X% reported delivered Slide in revenue, contributed of on growth of Starting first quarter. million X% X%

As $XX benefit this from the quarter we led our to a we believe ERP in shift Jeff shift first. system million first quarter revenue In would by to integration referenced, second assumed sales $XX to million. the February,

However, customer-initiated demand few the we the million shift $XX to now the be to approximately revised factors $XXX drove million. of A estimate estimate shift.

customers our the related believe sensitivity we cutover than the anticipated from for supply disruption system we higher First, potential level concerns. demonstrated and to general extended a of chain

stronger at sequentially contributed to believe retail health business. pet dispensing we U.S. of the in partners purchases our magnitude the Additionally,

of ERP the We important performance. in from trends resulting context understand better business believe the the provides benefit underlying shift blackout sales estimating our in to the

estimate basis on as revenue currency XX, quarter in Slide a the from ERP the provide well on for area and the by results blackout. business Therefore, a we our constant our as reported benefit

health, growth XX currency with to benefit from percentage an estimated was ERP the of X% constant points For blackout. pet XX

vaccines pressure benefit health in from including grew blackout. portfolio, parasiticide pet OTC XX%, supply products. business on parasiticide was U.S., legacy percentage The by underlying the revenue performance point continued offset for an and disruption certain estimated growth the driven by approximately In ERP innovation flat our XX and

period. the in retail Recent both our in In extended Elanco potential the dynamics an indicates in flea avoid our first the benefiting with family price data retail tick policy grew the and before and we to minimum quarter improving temporarily our U.S. the after the suspended or macro market and channel or MAP dispensing commercial maintaining availability in in Advance quarter, improving described. Jeff environment from blackout leadership market efforts advertised OTC ERP Seresto the product interruptions position.

throughout in During We number the dynamic the move on and a to did and of offered helping the may materially with reimplementation to prices dispensing higher primarily of end of price consumers, in of map of customers health. of promotion this X% the strength Elanco April. the as MAP Seresto our not dispensing Seresto. be our increase retailers prices trends lower anticipate the in believe change a some trade quarter suspension, global remainder policy of a at potential first strategy the pet the season result as softening result quarter the drive

latest XX We robust in start protecting as X% pet points the pricing benefit the in constant an negatively demand blackout. early post are outbreak MAP percentage an from pointing estimated a these important ERP in end component year's was quarter. our by U.S., as year in grew comparison believe However, brands value data improving last the maintaining creates markets with first encouraged term. Outside China the COVID the quarter, of lockdown starting by the health difficult long first impacted to we market is to currency, March. of of International the the

the points our approximately cattle percentage currency U.S., underlying implants. the blackout. was in in of points X benefit estimated Elanco In products business driven declined disruptions, benefit farm percentage supply our with farm X rotating estimated vaccine blackout. animal off an an demand of business constant the points percentage our X% X decline for from of from the X% The with customers business poultry lower and by to ERP Globally, grew ERP

partially the estimated offset by was These were and benefit our products. new the offset by partially X health our Europe headwinds in portfolio, U.S., of of innovation Experior poultry growth points purchases XX% of business. by from price, Outside Aqua continued Asia, the business was an nutritional with growth currency ERP approximately constant timing ramp in mainly and percentage led the The by the driven underlying strength in and blackout.

Continuing margin down XXX XXX as by points first on the the gross in quarter. Slide sales Animal margin were more XX. benefited the Bayer ERP legacy products income statement estimated XX.X%, higher-margin increased Gross XXX points Health of blackout basis from an basis to realized to

inflation. driven network, manufacturing partially Additionally, growth offset the improvement was by and continued across by price our productivity gains

quarter, expenses offset impact expenses, rates. expectations. employee-related $XX foreign X%, by $XX Operating at increased Interest to in $XX compared expense up expenses year, million flat was X% the in million R&D our driven of favorable expenses and SG&A with year-over-year line the million last primarily exchange partially by with

Adjusted Adjusted EBITDA with to an an million $XXX or basis point ERP basis benefit estimated EBITDA XXX margin $XX from blackout. XX% the million was XX.X%, benefit was of ERP $XX point of with the million increase an XXX blackout. of XXX basis points growth to from estimated

$X.XX EPS a rate Adjusted assuming an was quarter from to the blackout, $X.XX with of $X.XX in ERP consolidated tax estimated benefit of XX.X%. corporate approximately the

was the moving guidance, million The quarter. Cash cash and the cash, lower the on flow Before integration. for capital excluding income a working operations first reflects operating ERP our quarter words Slide to debt let XX. a decline our offer few and $XXX the year-over-year used impact on cash in from in interest net reported me higher

increasing increase our and of to from quarter fourth with timing is payout quarter corporate to due the March. Historically, the cash-generating in the the our quarter sales receivable accounts of first quarter the first bonus lowest sequential

in animal quarter over driven inventory growing, health inventory the the Additionally, pressured last declining slightly inventory sales several farm quarters. with volume largely pet by the increased and

balance We as have a our it cross-functional our on relates capital on team inventory working established to focused especially sheet. performance, net improving

manage help inventory our reduce down. We facilities throughput levels manufacturing balance to certain have to plans begun in implementing sheet

and the on $X.X with we ERP with can of typical debt the revolver to improve flow ended With stabilization drew the of We business. chains we net our line area global believe cash $XXX our post-COVID billion our offset of supply seasonality to this start as we expectations. in our of million complete, integration quarter

to the X.X% end end was leverage of of the guidance now leverage our paydown, expectations times. net year-end March, for times at lower and X.X ratio available X.X EBITDA net times, tighter XXXX. ratio than slightly of X.X our At $XXX our the of we cash between flow free With million debt anticipate continued and be our

banking March, on advantage forward In latest second debt position. that liquidity, the volatility of the the investor the recent This October swaps in increased took view our the debt XXXX. we and billion between curve XX this $X in provides debt volatility the quarter XX% and of keep of lock roll through were in to sector of in rates focus fixed the at SOFR off set of and our total interest for in year. Given Slide of will XXXX to XXXX appendix rate XX% through

flows with cash business liquidity durable position. expect to continue in debt ability our our and we current our service are to from our Importantly, confident

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

bottom across health innovation the poultry. by U. the successful range Jeff progress the system said, completion metrics, and our business, integration, key we pet ERP are base in raising S. indicators international notably driven of guidance positive the and end As in our all of our

For the by to $XX revenue constant $X.XX between to X% now guidance our approximately currency billion flat billion the be full bottom a decline. year, raising or and million we are $X.X expect and end of

For adjusted million million EBITDA, end the $XXX billion. and of bottom we $X are by expect raising guidance $XX now to our

adjusted we compared provides $X.XX on updates February Finally, bottom assumptions. EPS to the Slide anticipate $X.XX XX to $X.XX several the increase of to appendix additional our of of our guidance. in an

in our the full financial quarter. we half for the Slide We first guidance the second provide year On end raised of year bottom updated guidance. reflected first half and XX, the the the guidance of

half by approximately top continue X%, factors for competitive a by the indicators, constraints and primarily line the to While we're decline expect U.S. supply driven encouraged in we first and of of Barn to environmental X% the positive in leading business. our XXXX

of approximately points percentage percentage we quarter first points will the expect $XXX ERP unwind, blackout from the $XX revenue growth to X second negatively estimated XX, in million Slide X the the impacting benefit quarter. by on As shown in to million

Excluding quarter. with impact the quarter, XX. base from adjusted EBITDA investments. first shift FX in the the also February, the will operating Slides with expect EPS line and In the in favorable businesses guidance ERP expense shown and XX The of is by be impact blackout, interest, in in expected second and estimated additional rates we and adjusted also line negatively on decline headwinds our higher taxes the adjusted largely EPS initial as impacted is year-over-year to

moving Finally, Slide XX. to

implied this our For for second the our guidance constant represents full consistent February, from currency X% flat initial growth. half with year, outlook to year

in reflects the this and first of sequential improvement growth second in Our both half guidance year.

in growth confident to half are of We expected the return second XXXX several for reasons.

we innovation our products continue as existing are launched. portfolio First, will ramp products to expect and grow innovation new

will continue Second, supply we contribution to to year. we more vaccine starting strong for assume the X% of Price in full improvement start, an quarter. the than is and third off occur in a expect

see in XXXX. we to Europe conditions and improving the second Finally, significant experienced pressure the macro U.S. in the half we compared China, of

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

Todd. Thanks,

desire Elanco beyond. team focused XXXX understand we our and delivering in XXXX, the better on in opportunity is While acknowledge for to the

giving thinking not are guidance with I today, the about want some context but we're to on you how beyond We provide XXXX future.

First, our portfolio outlook is balanced.

continued and business. also expect health in We but supply our improved base and stabilization generic pressure competitive anticipate pet

ramp revenue parvovirus XXXX XXXX. continue and $XXX path our innovation, treatment, million by expect in others we innovation new OTC towards to million Regarding products the our Experior, on delivering $XXX to incremental will

with XXXX path half late-stage towards in potential, a we're other assets first confident approvals. four our For blockbuster

competitive factors we lines landscape the is uncertain. are and know to as many However, subject regulatory time

are on control, submissions. our comprehensive progressing and timely, focused what is quality We in

speed X and post we With launch experience are launches with plans that be X reviewing months post are recent Zorbiumbexacat to and market approval. approval. months we on our Based focused actively around to parvovirus expect to on said,

plans. have finalized We launch investment our not

investment more launch. consideration spending significant launches However, limited post we of ahead for expect with incremental more

approach team thoughtful is optimize closely will launches U.S. these The and to investment. working staging to take a

expect than year, Finally, to synergies flow. with project to $XX to our of next expected we to cash and contributing the additional less million completion ERP continue operating integration, reduced needs improved cash drive

as helpful beyond. in is Elanco context you for the XXXX additional this consider hope opportunity We and

outlook uncertainty and the for the that, We to achieved, medium have our I'll progress indicators Q&A. to over by turn Katy term. positive are and milestones expected reduced leading a encouraged moderate in it balanced the With

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

[Operator Instructions].

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

Your line is open.

Chris. This is you, on taking so question. Thank Ekaterina for for much my

dynamic all from the of was piece more ERP, just ERP I underlying you on of the just are quarter. in elaborate greater ERP not bit you like think you than the were the first, a that How separating mentioned you than I demand So that, you magnitude expecting? was Can expecting approaching, you out demand? strong were guess, how ERP maybe know and kind on

in then second on inventory is And channel the levels question the quarter.

of So, inventory have lowering competitors some in your distributors mentioned levels QX.

maybe that's take you the this happened that is the Bayer also you, you all with And Thank impact out the did So, so saw something that ERP business? much. for product, how Elanco if piece then for QX.

respect specific customers, the stock customers levels. conversations and at the we’ve them, underlying also lot what in $XX with our our sales have to trends, question, from both orders periods and been with analysis data demand we’re by looking With $XXX inventory of ordered historic to dispensing for just understanding then and million million a to the provided done for Thanks we’ve Ekaterina. respect estimate bridging

our sales. of already having best This I’ve the is estimate, number benefit seen got also April

$XX we February first good than we’d is $XXX very issue. we half, like. million to decision be but a we with to made this a So, the understanding about This demand. little net-net, million, to why underlying it good that, are But feel pleased noisier guide about we feel timing in would that is this very ideally the

the was course April, and up, rest by for up The had And running. April news our customers staged over would have, longer execution the were of the great on XX. we’re the confidence we in U.S. concerned as us, be higher our our estimate We think of probably than execution it product was they’d original money. of we’re what the running out is country than more was we

We’re shipping product.

collecting. billing, We’re we’re

team pleased really ERP with executed the how cutover. this So

first then retail Bayer sales directly go part channel the question of the note, inventory, on products with most to And the for customers. legacy the U.S. to our

on So, to had the focusing that distributors levels of what of with But since of cost end we with on capital, inventory much the have been levels channel. there’s impact Overall, levels. in farm XXXX. we QX higher distributor attuned have those not or are consistent

And so, forward into we factored that our well. guidance as

next from Morgan from go Erin question Our comes Stanley. Wright ahead. Please

line Your is open.

incremental this, think, the As investments products three delays there very can changes there the you And How that about blockbuster commercial need you just make the Thanks. dermatology, think these to certain kind given any of parasiticide the possibility from FDA line specifically? your animal pricing Jeff, in do what derm? competitor XXXX and any think a companion And at to the of parasiticides XXXX? you on across in you time of need the is but Is out? around those and make investments, about investment you products Has about thinking you launches? we that strategy still on how been touched perspective talk I expediting kind to should distribution, track? And across with to conversations end, what FDA in are the commercial there? with roll the about

things. say control. question we're is I What mentioned, what at the Erin. look And I'd position, It's relative can the of Thanks, I timing. following we and step to as the say to we back would kind the as right controlling ask pipeline

Allen of done team. with regulatory the team. think her and our First, What has the of her quality quality I team,

the here the recent USDA, [indiscernible] dialogue success Second team Verena and quality which Parvo, this is proof capable an FDA, I is of with three points, and packages, and we're the they're record very approvals think confident the can The I in. of example recently, point track regulators, of. to what

us, also going spaces new think for into maybe new we're for Aaron, some regulatory. but not spaces, I

a or that para, new Parvo these short-acting like derm Delays areas. So or new areas. in come with we are saw JAK typically with IL-XX an

sit size we very that, number confidence pipeline the size our us, on do would position have. major the relative say of strong I on is shots and a markets the that to we goal So, to of in level in

little us, seen believe highlight the give as recent to it, doing 'XX we're you've on to wanted as X months all Relative these the launching for today, approval, and on, with today's to we investment, to count are going bit things we've after X we've help. a got demand seen we why drive months you to to approvals that's and perspective

the physical the capabilities approvals, of up, we digital, step-up coming we'll voice, of So, a see Erin, availability, ahead see the step share believe accordingly. major model after launches, and don't major that with the we the launch we'll that

this So that's ago two the happened everything progress a of with update. quarter. Again, even position in stronger the in that pipeline much a lot than months

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

Your line is open.

everyone. morning, good Hi,

So, a couple of questions on Seresto.

it, able on with the to discussions the covenants it you. with withdrawal, there's net the and ratio entail, impact coverage leverage been and these safety methodology the If that reconcile EPA, interest have you topic, you any both and could could on interest also what rate same would to Thank situation covenants? Seresto your the maybe comes the elaborate with kind of about you your EPA on if where more speak the if and of see and

this the results expect Seresto, appreciative bar Thanks, the profile recommendations, safety weeks. we're of of raising the Again, mentioned, stewardship yes, we We all for which as supporting we've progress. EPA by communicated to registration our Balaji. of of actions On confident with nice February, the formal in with in made the the Seresto. do pleased We're the very continued overall. share coming We aligned the that, be EPA's in on also to progress EPA are the category of last the we'll product. linked and from update I

in We I we to Seresto quarter. you calculate the cut return important so just the saw for saw after a little out U.S. sequential because the over, on improvement the highlight bit growth. it's U.S. us, to

as a Some a availability attributed bit. little think was also increased but to an half may a a year in as kind I I Seresto the be people months. some than management. down first back the say, more well step quarter coming XXXX earlier back we that was inventory of of factor. strong this season, of was and physical our to three sold It retail, ago OUS of

remaining. coming like results lot engagement the there's the wait of is Again, the see. we'll positive we what formal progress, EPA here the season in for with So, we The and weeks. a

with the there's see laid that, respect the we X don't debt liquidity flow Slide we over the our the covenant of appendix out we've metrics with comfortable business next risk cash how whatsoever, on any to think feel covenants, Balaji, very in progressing overall With we position, deck. all eight the and debt-related our quarters.

So can there questions, find information if the and has the anyone that all you like. towers on

about very we stand. So, we feel good where

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

open. line Your is

It around looks free business better, cash tracking I'm stuff. then of confused flow and really is inventory the base just but like some the

So, there because let more should driven revenues If million be cash me was business base another in minus it forward, as why well. $XXX tracked and EBITDA free is have well specific. flow then million pull $XXX

says of partners, further -- then secondly, Bayer Bayer Todd, you inventory ERP said to XQ. blackout, was was the and additional something I'm straight ahead retail And but just as uncomfortable. it's disclosures about inventory, XX, there no in on the so XX-K build inventory, makes an goes it increased of December me

and seeing right this I inventory performance guess is extent what to the it we're driving is understand now? I the magnitude So, what don't of

flow, of to quarter. increased couple these accounts see in the Umer, happened $XX of free significantly With of sales has given the balance have of for receivable cash respect last most $XXX that million million to you'll would weeks thanks question. the the the

coming those collections, there quarter. comes EBITDA recognized cash that in wouldn't revenue And from so that flow being from is have the the there in been but

main the driver. that's So

difference that And because balance then year. let's was our the There's about purchases on on on our talk headwind business for our communicated, of inventory the in made of at Again, about inventory inventory the that, balance certainly our talk a ERP let's more then here. sheet. and U.S. there the as blackout sheet low That's inventory at between and partners. at something retail we end partners inventory the last retail

So on We had down again, volumes X% got farm. we price.

having base decline, in with price, that's So, volume. the business lower more but underlying still

on of goods pet about think which are its sheet balance cost margin, animal, helped the on lower. balance because that inventory and is farm you higher the When is between split inventory sold lower means health the generally

the again, margin, occurs, side, comp flip farm flop value. gross higher lower the On

animal we've U.S. driving got struggles balance sheet. that's inventory the the increase volumes farm in So, in our in on the for

had expectations in the we did Bayer animal of see in sales actually first That's quarter, are pet foreign of inventories product You'll happened, with line that health the greater reduce. up. inventories

exchange foreign is other item to The rates. note

there. lot sits inventory We have with Europe of that U.S., our manufacturing outside the footprint in a

As the sheet the because weakened increased dollar in quarter, of euro. balance inventory value it's in the that

from sheet, generally flow our in where with So hopefully, free still inventory to this cash year QX. retailers And flow debt. line pay separated in at we’ve inventory we million expected down of operating balance again, in We again, numbers. the cash expect to be $XXX

ahead. Bank America. from question Please of next go comes from Michael Our Ryskin

open. is line Your

for Thanks taking Great. question guys. my

your comments on First, I about ask price. want to

that only I the between think for of quarter and more price driving on year. you lighting I year, companion or the of negative just that because little what's follow-up. then That up wondering is the X% than that in indicated map And Is said impact suspension? X% of a a But comps? XQ assets. that. I've got rest in for X%. the think the ERP, I'm implies first you type Is the very balance

Mike. Sure,

legacy It there so quarter, year those an good more be the quarter, full we'll taken did to than would in right. get less more recognizing be price in the coming more expectation We benefit the a a was price year. first from We've X% second are products we've this first You're said quarter. where get for X%.

follow-up? Any

the then a comments towards the It helpful, prepared goes And remarks. That for Okay. blockbuster the next to bit follow-up. of end back to but I year. was dig the wanted really your little deeper. appreciate Jeff, I launches product

first also half. first You June talked January 'XX, is obviously, half is half, about first

months we're just approval. in XXXX, point post still coming to early have on X you months given So, anticipating don't your that launching wondering clarity, X that

a on months got in would of parasiticide, you got bit you thoughts ramping, scenario change the a like market. X to for your terms broad-spectrum the approval, year. Does a months in you've much in that later little pretty the you've seasonality expect If especially June puts something where X major

the the the on to first of half want market in You be year.

ramp to launch just any ready Thanks. doing there a at-risk an consideration Is there? manufacturing, in room is So of there to be like that limited after approval. of Or sort in volumes, the day is a possibility?

The question, right Michael.

time. We a of are putting lot

each Beddington, these using lot really there's these in we've all capabilities all and know, of We concentrated on you Tim in Zori We're capabilities. of this launches, so now talent test area. effort invested a one brought to of Parvo in these and scenarios. As

are to I over experience out blockbusters of of ad 'XX, ramping these two That's mentioned. gate. as I'd Even would to things $XX highlight of potential tab, first you think, as a of OTC are space. of they'll What be a approvals what with I'll see our point is, ramping. talked just we've about, at that $XXX the which point Parvo, just key, we time all the couple I critical look to Those million six is we this the product. million say oral

ramping important 'XX. thing critical most will into as be first go the So, we

becomes spring seasonal. increased a a products got less lot program, there's look, and balanced of become has pragmatic it start I then seasonality at goal, here going the because lot is pop trying of different over looking to this much less all less with get compliance, Para, a two the to When specifically And dynamics, markets a shots as shipping factor. we've we're drop if say as into you good would into news four in Para. major there's a kind of derm on you be can of

We will launch.

the more launch have the better But to on I an lot to company's do we've four interest of with and that the history, of got than we investment after a and right We progress. months as focus you will though two ever today assured, updated most say the in after with excellence what be resources, will is come setup. potential, tried approval. That's to market we that this, and keep we'll given

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

open. is line Your

Great. it maybe be what And Would you sounds on you to follow-up, if meant could changes the the by I going Good you expect Jeff, on EPA? you to market able questions. from holiday. Seresto. are could, elaborate Seresto, like continued the to registration product Thanks in then any there think morning. map while for Stewardship back I how going And the quick actions forward?

pet impact thinking shift? the And health in on thinking to the had when about about to that is million that impact sales $XXX that, range you are the the quarter? the in How contemplated $XX million XQ XQ

great elaborate on the for won't other to Seresto EPA, happened mentioned, as question, lot A say, We dialogue. Thanks much I than Nate. that's here recently. Yes. productive further and

would weeks. and will sequential improvement, results we the come in no Formal anything, up. step demand coming lot if sequential a say, A change, interest see in of, I Seresto,

And and increasing mentioned, it's Bobby expertise has done back nice on U.S. that's capability. time I As retail health, the come see what to it a took that's -- pet to growth. little why driven U.S.

the and e-comm availability When up as lot of well taking the we brick-and-mortar. a we're loyalty look both just we're from physical sector our going price seeing as at overall XX%,

in pleased we again, for the get continued recommended So, and our the Seresto the in details but that's raise registration to they're category, important with I'll believe into the We're and come. look more actions. of those category right product collars won't key. bar for reemphasize now, EPA's for the point. most the the We support But others to stewardship thing

look map health at extended protects is during the bit. and of to minimized you the commonly is brand, been kind for and off long-term to that pricing, step MAP animal little cutover. want holiday on avoid in disruptions This a value CPG or I supply back This of the used retail held long advertised pricing. As in time. a a It we extended in

Yes, despite we would important, like on Elanco price, X% that, health, I price in even like products see pet did retailers and compete still really our Seresto, achieved say.

it we normal on policy stay are that environment, I think at a do the can go yes, our as we'll up rest and that year. operating to factor, reinstated we end we So MAP was this April. highlight back of through to the of continue policy I but

will with $XX less more $XXX may And That's had have the underlying than our play, been little again, We QX, underlying saw that continuing $XX our to respect million, in Nate, we're to dispensing to do in we million it think why we estimated and as drive a execute category. more February. to -- QX. $XX reverses, expect million there million you this in we'd back in maps fundamentals the

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

Your line open. is

$XXX quarter. a right morning. quarter? I for $XX on to $XX I have then, the million X% guys. the is that. Seresto, just to the normalized for down And the is $XXX might And sales, million just missed number sorry, Jeff, million this million Thanks there Good the for was -- number think, innovation year, still Jeff,

more still that you expectations of just updated The maybe expect Todd? price this than on, year, grow tack to a Do just two. quick

came to unchanged. the So, million, And a up way bottom of if the Is farm modestly of it's the top the was if X%, because initial very left range just animal $XX sort volumes down that throw end out implies a number, came or since from perspective? thing so, health of guide that your it? end more was frame thing a pet fair it

to here. as No couple Jon. therapeutics, we'll Parva change to drivers our product sales, of innovation the we pet OTC highlight, be now shipping will the in We'll Experior, be Thanks, in coming have that weeks. products, that next

recovery is to in We're still drivers the Seresto all want be Yes, ramp not here with And going forward. So, be everything course. we down. stay Seresto. where full as globally those again, will we

highlighted first I XX% last year. big a in couple international, of growth As factors, a quarter

So, inventory. inventory had challenging there's we management, oversight again, they compare. lower a internationally, And the saw retailer

factors. were those So

a in with to of here the all on campaign April on increased pretty on things highlighted, an seen we leaning the the second significant Seresto in is some in again, operating and So pick off investment are in quarter QX. expense Seresto that that up we we've build the demand kicked that

as we forward. we'll updated keep So, go you

and across well where price was on pretty where overall, place our the to felt respect improvement just is a was environment more QX, executed the with we question where pet captured And to a We X ERP U.S. risk business, and the Jon, competition continued we stabilization. no softness up like there sequentially to of price, continues capture. your farm glitches, system retired in then, business, challenging generic health running price area be with lot in

have we are the a different happy across that where more to get raising be factors lot a price start positive feel the price, guidance. bottom We end our to was big in of and Yes. the of we'd between we embedded that that the year. of our be in about guidance. business So If volumes would sit drivers our obviously and good global

next Please Piper comes Our question from David Sandler. ahead. from Westenberg go

Your line is open.

Hi, thank question. you for ERPs hard. taking are Congrats. my

that happening terms there just about details, us calculating I'll can Can in don't I for out benefit going ERP? is methodology Wall of know mean, that put into Street And right So, what just in bridge you idiots exactly of the away. warehouses the on industry exactly us get happening to $XX what's the what main of like get it's like help talk vets? in you kind level, to the I to distributors, it's kind going million that to nuts million calculation from is $XXX a us. to mean, for to going of and like bolts really

think, you And just that Are then of a got approval bit terms Triple, in behind is factoring schedule. actually with or second quick maybe a it anything I BI's LIBOR the guidance. question I have now now little competitively

any the Thank the you, in pulls of factors? So, the and very much. with competitive pushes guidance

at million, we product When have with off in inventory our it's out. to Yes. $XX our trends data an With you historic terms and this order to customers, looking levels $XXX underlying and it, based of talking week. pull sales to the million that every about is -- looking respect estimate think customers at

on bigger and focus told went both out number. the and pet farm U.S. we because the customers, And but side, we'll it's notional on that so,

So, product we for not up XX. on ordering will you'll be retailer, new went selling and next but XX running and online and the we product told a days, big back be April

for I a I decision. to make retailer make has I to the make Do quarter. that need sales. my my need to trust, And cash I'll flows have that?

And for buy they so, they XX because because concerned. they're for buy do product XX they days they're it days trust us and enough evaluating,

So that's that's sort of the happening. valuation

sorts and Mexico, blacked country about no going distributor went and come do buy say, to in, "You're product, be our be for out they you execution. them next of implementation, ERP going -- let's confident up product the those things." ability to month's buy XX we we of in days, worth XX you're get a six our to buy weeks, on with So, to to said, the If they were think we into and

first we would and that why we end million. due half think because little of in more back the That's bottom we're increasing to the at off a That's $XXX to the February Again, we this million we're conservative guidance $XX good they $XX were knew guidance $XX to million, half you complicated, to the we year. probably start because gave million took first approach. be how get

Yes.

changed guidance, to we On in new guidance news build, coming February, the has yes, to the assumptions our on have relative the approvals that hasn't second David, nothing changed and from recent your just even competitors on question, in.

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

open. is line Your

already of been have Thanks for lot questions taking my product-specific question. asked. A

you you them through you look heard correctly, continue improving the And I that So, back kind was, you of one I macro -- said to of the half or kind improving. got my as expect guess of kind attention are think trends year, globally. you of struck if I

could about not that a there's little half. because of investors, concern that macro lot in didn't of kind in you health, think back a general, just from deteriorate but the bit of curious if talk kind I Just in

benefits what's follow-up worsening you kind So, talking your to And now, the what there is maybe about seeing you the is guys are there? if being a then are environment? keep to of pricing that able Thanks. macro in confidence

us really back The of was Europe. lots across the Brandon. half really saw Recall, pressure tough. was of ugly. for year environment last We Thanks Sure.

You XXXX. business in impacted had the COVID lockdowns in China our that really negatively

year to Pet back improvement? this sequential the be this So, going to OTC products. conditions, question talk into Health are was, going about coming customers when see channels we Where we there improving going the our for was to

We about to respect have to we two QX. four we as seen with and what that that. Again, underlying We our got challenges macro guide we speak have down environment. in in that's feel business, good improving to here that, to

year. had stabilization So, rate massive we last are but calling just than clearly greater rather recovery, not a we

the continue to of pricing, the respect competition continues There teams in be good the have the of year. X% increases a start to underlying the question they focused why for we've well marketplace, to capturing much lot they than price With very to to can. and as that's QX. on a that job we demonstrated in a more have That's X% are lot received year we ensure as of said, of again, on, teams do the in full and the done are executing dynamics

Steve Cowen. next Please Our Scala question TD comes go from from ahead.

Your open. line is

I Hi. Chris This two for questions, parvovirus. on Steve. is have on both

product? forex expect on capacity constraints the the should the do you. U.S. the $XXX on that we guide versus then behind how would Thank march? U.S. about split any U.S. So timeline first, think you what million is that markets? ex-U.S. And And second,

Chris. Yes, you. Thank

We parvovirus. about are excited the

We couple will the shipping products in next of weeks.

the this approvals first month. in to now XX% expect we will XX% approval, conditional the we of about federal be expect state states need that We follow about

antibody couple So, throughout the we as now we with our to from half move plan approved, Yes, of emphasize as year. leader happen be higher that but that, ramping, we plant will Kansas leader will a would come be will second about shipping of states first next smaller and the to having weeks in on. the monoclonal excited a capacity,

by sees really year, a the in and a from virus as USDA XXX,XXX our plus like a in dogs cases XX% will high. mortality This approval. launch a limiting commercial this the So, at body just to regulatory net limited to dying I all highlight, capacity. trial. want not parvovirus comes is is this us. interest be It this moment take case this is also to conditional be initially The will zero

the Let's in accelerate market. this product

continue we year. with half is the is approval, be there second need, this really is approval than strong with full in other a restrictions conditional but will the end as there We interest there a a situation here high throughout ramp and no will really high net supply we

make couple this With a quarter to quick that, I our this doing you one for quarter will say and at we're questions Elanco continue interest. Thank great closing just at and looks today comments. time. a invest

business think want yet. We actions, of be are we the disciplined where what's and But as we a this and I to quarter not showed necessary look proof at critical. progress overall lot points, decisions,

Overall the engagement, growing inside. Elanco on is

Our here are would is, headline to I tracking high. the focus our say, is expectation. we And

seeing are QX stabilizing coming areas of improvement nice sequential some are growth. returning that out areas We to

Health, IT specifically around that, first the that and saw point us in this U.S. not as overall Pet to matters stand long-term are the the months indicators the indicators three the around lead but for would risk success. retiring up the months of of the of most as management as business, market I the we well four first that's only that going up driving business set lag to Seresto system, the our

our having blockbusters marketplace, six submission in two -- as of launching three approvals, well then four in blockbuster made. our innovation, major As now products and the initial last

So, a here challenge have QX. we still in

we Thank And Have your in fielding to questions to forward growth now day. all of great look we can Elanco. on is execution half. focused company. from right are the you return expect to assured throughout a for what and control this that the We quarter be in We you. second across continued interest

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

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