[Forward-Looking Statements and Risk Factor Summary](index=4&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factor%20Summary) This section outlines inherent uncertainties in forward-looking statements and summarizes key risk factors - Forward-looking statements are based on current expectations and assumptions, inherently subject to uncertainties, risks, and changes in circumstances that may cause actual results to differ materially[9](index=9&type=chunk)[10](index=10&type=chunk) - Key risk factors include operating in a highly competitive industry, success of R&D and regulatory efforts, impact of disruptive innovations, competition from generic products, changes in regulatory restrictions, disease outbreaks, customer consolidation, dependence on top products, ability to complete acquisitions/divestitures, manufacturing problems, inventory fluctuations, risks related to AI, IT systems, weather conditions, loss of key personnel, labor disputes, substantial indebtedness, interest rate changes, goodwill write-downs, raw material costs, foreign/domestic economic/political/legal/business environments, foreign currency exchange rate fluctuations, underfunded pension plan liabilities, no dividend payment plan, activist shareholders, tax expense/exposures, regulatory actions, farm animal sustainability initiatives, tariffs, litigation, intellectual property rights, product misuse/counterfeiting, safety/quality/efficacy concerns, insufficient insurance, privacy laws, environmental/health/safety regulations, and inability to achieve ESG goals[11](index=11&type=chunk)[13](index=13&type=chunk) [PART I. Financial Information](index=6&type=section&id=PART%20I.%20Financial%20Information) This part presents Elanco's unaudited consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS) Elanco's unaudited consolidated financial statements for Q2 and H1 2025, including operations, balance sheets, and key notes [Condensed Consolidated Statements of Operations (Unaudited)](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20(UNAUDITED)) This statement provides a summary of the company's revenues, gross profit, net income (loss), and earnings per share for the periods presented Table: Condensed Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $1,241 million | $1,184 million | $2,434 million | $2,389 million | | Gross profit | $713 million | $689 million | $1,397 million | $1,379 million | | Net income (loss) | $11 million | $(50) million | $78 million | $(18) million | | Basic EPS | $0.02 | $(0.10) | $0.16 | $(0.04) | | Diluted EPS | $0.02 | $(0.10) | $0.16 | $(0.04) | [Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)%20(UNAUDITED)) This statement details the company's net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments Table: Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income (loss) | $11 million | $(50) million | $78 million | $(18) million | | Other comprehensive income (loss), net of taxes | $391 million | $(77) million | $579 million | $(276) million | | Comprehensive income (loss) | $402 million | $(127) million | $657 million | $(294) million | - Foreign currency translation, net of taxes, significantly contributed to other comprehensive income, with **$403 million for Q2 2025** and **$621 million for H1 2025**, compared to losses in the prior year periods[18](index=18&type=chunk) [Condensed Consolidated Balance Sheets](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) This statement presents the company's financial position, including assets, liabilities, and equity, as of the reporting dates Table: Condensed Consolidated Balance Sheets | Asset/Liability | June 30, 2025 (Millions USD) | December 31, 2024 (Millions USD) | Change (Millions USD) | | :---------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | | Cash and cash equivalents | $539 | $468 | +$71 | | Accounts receivable, net | $989 | $805 | +$184 | | Inventories | $1,670 | $1,574 | +$96 | | Property and equipment, net | $1,357 | $993 | +$364 | | Goodwill | $4,758 | $4,414 | +$344 | | Total assets | $13,742 | $12,614 | +$1,128 | | Total current liabilities | $1,392 | $1,315 | +$77 | | Long-term debt and finance lease liability | $4,148 | $4,277 | -$129 | | Liability for sale of future revenue | $293 | — | +$293 | | Total liabilities | $6,967 | $6,518 | +$449 | | Total equity | $6,775 | $6,096 | +$679 | [Condensed Consolidated Statements of Equity (Unaudited)](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20EQUITY%20(UNAUDITED)) This statement outlines changes in the company's total equity, accumulated deficit, and accumulated other comprehensive loss Table: Condensed Consolidated Statements of Equity | Metric | December 31, 2024 (Millions USD) | June 30, 2025 (Millions USD) | | :---------------------------------- | :------------------------------- | :------------------------------- | | Total equity | $6,096 | $6,775 | | Accumulated deficit | $(1,950) | $(1,872) | | Accumulated other comprehensive loss | $(771) | $(192) | - Net income contributed **$67 million (Q1 2025)** and **$11 million (Q2 2025)** to equity, while other comprehensive income (loss), net of tax, contributed **$188 million (Q1 2025)** and **$391 million (Q2 2025)**, largely due to foreign currency translation[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20(UNAUDITED)) This statement summarizes the company's cash flows from operating, investing, and financing activities for the periods presented Table: Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | Change (YoY, Millions USD) | | :---------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------- | | Net Cash Provided by Operating Activities | $233 | $202 | +$31 | | Net Cash (Used for) Provided by Investing Activities | $(114) | $4 | -$118 | | Net Cash Used for Financing Activities | $(104) | $(120) | +$16 | | Net increase in cash and cash equivalents | $71 | $64 | +$7 | - Investing activities included **$122 million** in net purchases of property and equipment and software in **H1 2025**, up from **$58 million** in **H1 2024**, primarily due to manufacturing facility expansions[27](index=27&type=chunk)[135](index=135&type=chunk) - Financing activities in **H1 2025** included **$290 million** proceeds from the sale of future revenue, used to repay **$374 million** in long-term borrowings[27](index=27&type=chunk)[136](index=136&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=11&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section provides detailed explanations and disclosures regarding the company's significant accounting policies, financial instruments, debt, revenue, and other key financial information [Note 1. Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=Note%201.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes the basis of preparation for the unaudited condensed consolidated financial statements, adhering to SEC interim reporting requirements and GAAP - The unaudited condensed consolidated financial statements are prepared in accordance with SEC interim reporting requirements and GAAP, with certain disclosures condensed or omitted[30](index=30&type=chunk) - Interim results should not be considered indicative of results for any other interim period or for the full year ending **December 31, 2025**, or any other future period[31](index=31&type=chunk) [Note 2. New Financial Accounting Pronouncements](index=11&type=section&id=Note%202.%20New%20Financial%20Accounting%20Pronouncements) This note details new accounting standards and their expected impact on future financial reporting - ASU 2023-09 (Income Taxes) is effective for fiscal years beginning after **December 15, 2024**, and is expected to result in additional income tax disclosures[32](index=32&type=chunk) - ASU 2024-03 (Expense Disaggregation Disclosures) is effective for fiscal years beginning after **December 15, 2026**, and will provide more detailed information about significant expense categories[33](index=33&type=chunk) [Note 3. Revenue](index=11&type=section&id=Note%203.%20Revenue) This note disaggregates revenue by product category for the three and six months ended June 30, 2025 and 2024 Table: Revenue by Product Category (Three Months) | Product Category | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | % Change | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | :------- | | Pet Health | $643 | $579 | 11% | | Farm Animal | $583 | $594 | (2)% | | Contract Mfg & Other | $15 | $11 | 36% | | **Total Revenue** | **$1,241** | **$1,184** | **5%** | Table: Revenue by Product Category (Six Months) | Product Category | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | % Change | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | :------- | | Pet Health | $1,278 | $1,218 | 5% | | Farm Animal | $1,129 | $1,150 | (2)% | | Contract Mfg & Other | $27 | $21 | 29% | | **Total Revenue** | **$2,434** | **$2,389** | **2%** | - A single customer accounted for approximately **12%** and **10%** of revenue for the six months ended **June 30, 2025** and **2024**, respectively[38](index=38&type=chunk) [Note 4. Acquisitions, Divestitures and Other Arrangements](index=12&type=section&id=Note%204.%20Acquisitions%2C%20Divestitures%20and%20Other%20Arrangements) This note details significant transactions including facility acquisitions, sales, and the divestiture of the Aqua business - Acquired the Speke, U.K. manufacturing facility in **November 2024** for **$36 million** to minimize supply disruption for farm animal product lines[40](index=40&type=chunk) - Sold the New Zealand manufacturing facility in **February 2025** for **$9 million cash**[41](index=41&type=chunk) - Closed the sale of the Aqua business on **July 9, 2024**, for **$1,294 million cash**, primarily used to repay term loan debt, resulting in a pre-tax gain of **$640 million**[42](index=42&type=chunk) [Note 5. Asset Impairment, Restructuring and Other Special Charges](index=13&type=section&id=Note%205.%20Asset%20Impairment%2C%20Restructuring%20and%20Other%20Special%20Charges) This note outlines various special charges, including restructuring, acquisition/divestiture costs, and asset impairments Table: Asset Impairment, Restructuring and Other Special Charges | Charge Type | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :---------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Restructuring charges | $0 | $4 | $1 | $43 | | Acquisition & divestiture-related charges | $1 | $10 | $1 | $17 | | Asset impairments | $0 | $61 | $0 | $61 | | Other | $0 | $5 | $8 | $5 | | **Total expense** | **$1** | **$80** | **$10** | **$126** | - Asset impairments in **2024** principally reflected the write-off of the IL-4R IPR&D asset (**$53 million**)[44](index=44&type=chunk) - Restructuring charges in **2024** primarily related to cash-based severance costs from a program shifting international resources from farm animal to pet health[43](index=43&type=chunk) [Note 6. Inventories](index=14&type=section&id=Note%206.%20Inventories) This note provides a breakdown of inventory categories, including finished products, work in process, and raw materials Table: Inventories by Category | Inventory Category | June 30, 2025 (Millions USD) | December 31, 2024 (Millions USD) | | :----------------- | :------------------------------- | :------------------------------- | | Finished products | $819 | $754 | | Work in process | $826 | $783 | | Raw materials and supplies | $98 | $98 | | **Total Inventories** | **$1,670** | **$1,574** | [Note 7. Debt](index=14&type=section&id=Note%207.%20Debt) This note details the company's debt structure, including term loans, senior notes, and finance lease liabilities Table: Debt Structure | Debt Type | June 30, 2025 (Millions USD) | December 31, 2024 (Millions USD) | | :---------------------------------- | :------------------------------- | :------------------------------- | | Term Loan B due 2027 | $2,288 | $2,593 | | Securitization Facility | $100 | $100 | | 4.900% Senior Notes due 2028 | $750 | $750 | | **Total debt** | **$3,954** | **$4,321** | | Finance lease liability | $255 | — | | **Total long-term debt and finance lease liability** | **$4,148** | **$4,277** | - The Revolving Credit Facility provides up to **$750 million** in borrowing capacity, bearing interest at Term SOFR plus **1.60%** at **June 30, 2025**[48](index=48&type=chunk) - Entered into a five-year finance lease for the new corporate headquarters in **June 2025**, resulting in a **$255 million** finance lease liability and a **$234 million** right-of-use asset[52](index=52&type=chunk) [Note 8. Financial Instruments](index=15&type=section&id=Note%208.%20Financial%20Instruments) This note describes the company's use of derivative financial instruments to manage market risks - Outstanding foreign currency exchange contracts had aggregate notional amounts of **$1,011 million** at **June 30, 2025**[56](index=56&type=chunk) - Restructured net investment hedges in **January 2025**, settling previous instruments and entering new cross-currency fixed interest rate swaps with **1,000 million CHF** notional amounts[57](index=57&type=chunk) - Outstanding interest rate swaps totaled **$2,800 million** as of **June 30, 2025**, with scheduled maturities in **2026**, and forward-starting interest rate swap agreements of **$850 million** will become effective in **2026**[59](index=59&type=chunk) [Note 9. Fair Value](index=16&type=section&id=Note%209.%20Fair%20Value) This note provides fair value measurements for derivative instruments, contingent consideration liabilities, and long-term debt - Fair value measurements for derivative instruments are primarily **Level 2**, while contingent consideration liabilities are **Level 3**, estimated using a Monte Carlo simulation model[64](index=64&type=chunk)[66](index=66&type=chunk) - Long-term debt (excluding finance lease liability) had a carrying amount of **$(3,975) million** and a fair value of **$(4,007) million** at **June 30, 2025**[64](index=64&type=chunk) [Note 10. Liability for Sale of Future Revenue](index=17&type=section&id=Note%2010.%20Liability%20for%20Sale%20of%20Future%20Revenue) This note details the liability recognized from the sale of future royalties and sales milestone payments from XDEMVY - Received **$295 million cash** from Blackstone in **May 2025** for rights to future royalties and sales milestone payments from XDEMVY in the U.S. until **August 2033**[67](index=67&type=chunk) - The proceeds, net of **$5 million** transaction costs, were recorded as a **$293 million** liability for sale of future revenue as of **June 30, 2025**[67](index=67&type=chunk)[71](index=71&type=chunk) - Imputed interest expense of **$7 million** was recognized for the three months ended **June 30, 2025**, with an effective interest rate of **16.1%**[71](index=71&type=chunk) [Note 11. Income Taxes](index=18&type=section&id=Note%2011.%20Income%20Taxes) This note presents income tax expense (benefit) and effective tax rates, discussing factors influencing the rates Table: Income Tax Expense (Benefit) and Effective Tax Rate | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income tax expense (benefit) | $14 million | $18 million | $7 million | $(2) million | | Effective tax rate | 55.4% | (61.3)% | 7.6% | 7.4% | - The effective tax rate for **Q2 2025 (55.4%)** was primarily due to the jurisdictional mix of projected income/losses and discrete tax expenses from a foreign tax rate change[72](index=72&type=chunk) - The 'One Big Beautiful Bill Act,' enacted **July 4, 2025**, is being evaluated for its expected impact on consolidated results and U.S. valuation allowance position[74](index=74&type=chunk) [Note 12. Commitments and Contingencies](index=18&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note outlines significant legal proceedings, including securities class actions, derivative lawsuits, and an antitrust lawsuit - A putative securities class action (Barpar) and related derivative lawsuits allege materially false/misleading statements regarding Zenrelia product safety and labeling; motions to dismiss are pending or cases are stayed[78](index=78&type=chunk) - Ongoing shareholder class actions (Hunter, Safron Capital) relate to alleged false/misleading statements about supply chain, inventory, revenue, and distributor relationships; appeals are ongoing for both[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) - An antitrust lawsuit (Tevra Brands, LLC) against Bayer Animal Health (acquired by Elanco) regarding alleged unlawful exclusive dealing resulted in a jury verdict for Bayer Animal Health, now under appeal, with additional related matters filed[82](index=82&type=chunk) [Note 13. Earnings Per Share](index=20&type=section&id=Note%2013.%20Earnings%20Per%20Share) This note provides basic and diluted weighted-average common shares outstanding for the periods presented Table: Earnings Per Share Data | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Basic weighted-average common shares outstanding | 496.6 million | 494.2 million | 495.9 million | 493.7 million | | Diluted weighted-average shares outstanding | 500.1 million | 494.2 million | 499.6 million | 493.7 million | - Approximately **3.5 million to 3.7 million** potential common shares were excluded from the calculation of diluted weighted-average shares outstanding because their effect was anti-dilutive[84](index=84&type=chunk) [Note 14. Business Segment Information](index=20&type=section&id=Note%2014.%20Business%20Segment%20Information) This note clarifies Elanco operates as a single business segment and provides a breakdown of significant segment expenses - Elanco operates as a single business segment focused on the development, manufacturing, marketing, and sales of animal health products for both pets and farm animals[85](index=85&type=chunk) - The CEO, as the chief operating decision maker, manages resource allocation and business process decisions globally, with consolidated net income (loss) as the principal measure of segment profit and loss[85](index=85&type=chunk) Table: Other Significant Segment Expenses | Expense Category | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | | Research and development | $186 | $176 | | Marketing and selling | $497 | $442 | | General and administrative | $244 | $249 | | Interest expense, net | $88 | $131 | | Income tax expense (benefit) | $7 | $(2) | | **Total other significant segment expenses** | **$1,045** | **$1,007** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on Elanco's financial condition and results of operations [Business Overview and Key Trends](index=22&type=section&id=Business%20Overview%20and%20Key%20Trends) This section provides an overview of Elanco's global leadership in animal health, its diverse portfolio, and key trends - Elanco is a global leader in animal health, offering a diverse portfolio of approximately **200 brands** for pets and farm animals in over **90 countries**[90](index=90&type=chunk)[91](index=91&type=chunk) - Key trends impacting results include new/higher tariffs in **2025** (leading to accelerated customer purchases in **Q2 2025**), a freeze in U.S. government sustainability incentives, the sale of future XDEMVY royalties, the new corporate headquarters lease, and the divestiture of the Aqua business in **July 2024**[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - The pet health business experiences seasonality, with increased demand for parasiticide products (Seresto, Advantage Family) in the first half of the year[102](index=102&type=chunk) [Product Development and Regulatory Update](index=22&type=section&id=Product%20Development%20and%20Regulatory%20Update) This section highlights recent product approvals and launches, demonstrating the company's innovation in animal health - Bovaer (methane-reducing feed ingredient) received FDA approval in **May 2024** and launched in Q3 2024[92](index=92&type=chunk) - Zenrelia (JAK inhibitor for canine atopic dermatitis) received final FDA approval in **September 2024** and launched in the U.S., with subsequent approvals in Brazil, Canada, Japan, and the EU[92](index=92&type=chunk) - Credelio Quattro (monthly chewable for dogs protecting against multiple parasites) received final FDA approval in **October 2024** and launched in **January 2025**[92](index=92&type=chunk) [Results of Operations Analysis](index=24&type=section&id=Results%20of%20Operations%20Analysis) This section provides a detailed analysis of the company's revenue, gross profit, operating expenses, and net income (loss) Table: Key Results of Operations | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | % Change | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | % Change | | :---------------------------------- | :------------------------------- | :------------------------------- | :------- | :------------------------------ | :------------------------------ | :------- | | Revenue | $1,241 million | $1,184 million | 5% | $2,434 million | $2,389 million | 2% | | Gross profit | $713 million | $689 million | 3% | $1,397 million | $1,379 million | 1% | | Gross margin % | 57% | 58% | -1 ppt | 57% | 58% | -1 ppt | | R&D | $92 million | $89 million | 3% | $186 million | $176 million | 6% | | Marketing, selling & admin | $400 million | $354 million | 13% | $741 million | $691 million | 7% | | Asset impairment, restructuring & other special charges | $1 million | $80 million | (99)% | $10 million | $126 million | (92)% | | Interest expense, net | $48 million | $65 million | (26)% | $88 million | $131 million | (33)% | | Net income (loss) | $11 million | $(50) million | NM | $78 million | $(18) million | NM | - Pet Health revenue increased **11%** for **Q2 2025**, driven by higher volumes (new products like Credelio Quattro, AdTab, Zenrelia), a **4% price increase**, and foreign currency exchange rate movements[110](index=110&type=chunk)[112](index=112&type=chunk) - Farm Animal revenue decreased **2%** for **Q2 2025**, primarily due to the Aqua business divestiture (which generated **$49 million** in **Q2 2024**), largely offset by a **4% volume increase** (led by Experior in U.S. cattle) and a **2% price increase**[110](index=110&type=chunk)[114](index=114&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's primary liquidity sources, operating cash flows, available credit facilities, and cash flow activities - Primary liquidity sources are cash on hand (**$539 million** at **June 30, 2025**), cash flows from operations, and funds available under credit facilities (Revolving Credit Facility: **~$750 million** unused; Securitization Facility: **~$165 million** undrawn)[129](index=129&type=chunk)[131](index=131&type=chunk) Table: Cash Flow Activities | Activity | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | Change (YoY, Millions USD) | | :----------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------- | | Operating activities | $233 | $202 | +$31 | | Investing activities | $(114) | $4 | -$118 | | Financing activities | $(104) | $(120) | +$16 | | Net increase in cash | $71 | $64 | +$7 | - Cash used for investing activities increased significantly due to **$122 million** in capital expenditures for manufacturing facility expansions in **H1 2025**[135](index=135&type=chunk) [Critical Accounting Estimates](index=28&type=section&id=Critical%20Accounting%20Estimates) This section highlights critical accounting estimates, particularly the ongoing assessment for goodwill impairment - The ongoing assessment for goodwill impairment is a critical accounting estimate, requiring significant management judgment in estimating fair value using an income approach[139](index=139&type=chunk) - Estimates involve future cash flows, revenue growth rates, profitability measures (gross margin, EBITDA margin), and appropriate discount rates[139](index=139&type=chunk) - Future goodwill impairment charges could result from decreased assumptions on cash flows, revenue growth, or profitability, or material increases in long-term interest rates[140](index=140&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Elanco is exposed to market risks from foreign currency exchange rate fluctuations and variable interest rates, which it manages [Foreign Exchange Risk](index=29&type=section&id=Foreign%20Exchange%20Risk) This section describes Elanco's exposure to foreign currency exchange risk from non-U.S. subsidiaries' financial statements and transactions - Elanco is exposed to foreign currency exchange risk from the translation of non-U.S. subsidiaries' financial statements and transactions not denominated in the functional currency[142](index=142&type=chunk) - Primary exposures are to the Euro, British pound, Swiss franc, Brazilian real, Australian dollar, Japanese yen, Canadian dollar, and Chinese yuan[142](index=142&type=chunk) - Hyperinflationary accounting has been applied for the Turkey subsidiary since **2022**, changing its functional currency to the U.S. dollar[143](index=143&type=chunk) [Interest Rate Risk](index=29&type=section&id=Interest%20Rate%20Risk) This section details how Elanco manages interest rate risk through interest rate swaps, converting variable-rate debt to fixed-rate - Outstanding interest rate swap agreements with a combined notional amount of **$2,800 million** effectively modified variable-rate debt to fixed-rate as of **June 30, 2025**[144](index=144&type=chunk) - Forward-starting interest rate swap agreements with a combined notional amount of **$850 million** will become effective in **2026**[144](index=144&type=chunk) - Approximately **89%** of long-term indebtedness (excluding finance lease liability) bore interest at a fixed rate as of **June 30, 2025**[144](index=144&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management evaluated disclosure controls and procedures as effective, with no material changes in internal control - Disclosure controls and procedures were evaluated by management, including the CEO and CFO, and concluded to be effective as of **June 30, 2025**[147](index=147&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the second quarter of 2025[148](index=148&type=chunk) [PART II. Other Information](index=31&type=section&id=PART%20II.%20Other%20Information) This part provides additional information on legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) This section refers to Note 12 for a summary of the company's legal proceedings, including various class action and derivative lawsuits - A summary of legal proceedings is provided in Note 12. Commitments and Contingencies to the condensed consolidated financial statements[151](index=151&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K - No material changes from the risk factors previously disclosed in the **2024 Form 10-K**[152](index=152&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds to report [Item 3. Defaults Upon Senior Securities](index=31&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities to report [Item 4. Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures to report [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2025 - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended **June 30, 2025**[153](index=153&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20EXHIBITS) This section lists the exhibits filed or furnished with the Form 10-Q, including employment agreements, credit facility amendments, and certifications - Exhibits include employment agreements, a transition agreement, an amendment to the receivables loan agreement, Section 302 and 906 certifications of the CEO and CFO, and Interactive Data Files (Inline XBRL)[156](index=156&type=chunk) [Signatures](index=33&type=section&id=SIGNATURES) This section confirms the official signing of the report by the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer - The report was signed on **August 7, 2025**, by Jeffrey N. Simmons, President and Chief Executive Officer, and Robert M. VanHimbergen, Executive Vice President and Chief Financial Officer[159](index=159&type=chunk)

Financial Data and Key Metrics Changes - Elanco reported revenue of $1,241 million, representing a 5% increase on a reported basis and an 8% organic constant currency growth driven by a 5% increase in volume and a 3% contribution from price [43][44] - Adjusted EBITDA was $238 million, a decrease of $37 million year-over-year, while adjusted EPS was $0.26, down $0.04 year-over-year [48] - The net debt leverage ratio improved to four times, reflecting strong second quarter results and working capital discipline [8][48] Business Line Data and Key Metrics Changes - U.S. Pet Health revenue increased by 11%, driven by demand for key innovation products and contributions from the vaccine portfolio [11][44] - International Pet Health grew by 7% in organic constant currency, led by demand for AdTab and ZENRELIA [12][44] - The U.S. Farm Animal business grew by 5%, while international farm animal revenue increased by 6% in organic constant currency [13][45] Market Data and Key Metrics Changes - The overall pet health market is experiencing double-digit growth, with significant contributions from innovative products like Credelio Quattro and ZENRELIA [20][21] - The dermatology market is growing rapidly, with ZENRELIA gaining market share and achieving a reorder rate of almost 80% [21][27] - The farm animal market is supported by increased demand for animal protein, with Experior showing rapid adoption and strong customer retention [30][31] Company Strategy and Development Direction - The company is focused on growth, innovation, and cash generation, with a clear path to becoming a leader in pet health and farm animal markets [6][10] - Elanco is increasing its full-year innovation revenue expectations by $60 million, reflecting strong performance across multiple products [8][15] - The Elanco Ascend initiative aims to drive efficiencies and improve productivity through automation and AI [39][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating external uncertainties and executing long-term growth strategies, with a strong position to raise revenue and earnings outlook [10][56] - The company anticipates organic constant currency growth of 5% to 6% for the full year, with adjusted EBITDA guidance raised to $850 million to $890 million [10][50] - Management highlighted the importance of innovation in stabilizing the base business and driving future growth [10][76] Other Important Information - The company is actively managing tariff risks and has implemented strategies to mitigate potential impacts, estimating a net impact of $10 million to $14 million for 2025 [9][53] - Elanco's cash generated from operations was $237 million in the quarter, compared to $200 million in the same quarter last year [48] Q&A Session Summary Question: Can you talk about some of the accelerated investments being made in the business? - Management indicated that investments are focused on DTC spending for Credelio Quattro and R&D for upcoming blockbusters, with a strong market response supporting these initiatives [61][62] Question: What are the expectations for the sustainability of mid-single-digit growth for the company? - Management believes that the base business is stable, with innovation expected to drive additional growth, and emphasized the importance of maximizing the potential of their product portfolio [72][76] Question: Can you provide insight into the main contributors to the increased innovation sales target? - Management noted that growth is being led by multiple products, particularly Credelio Quattro, and highlighted the seasonal nature of some products [81] Question: How does the company plan to allocate upside in a given quarter? - Management stated that they will monitor the effectiveness of investments in sales and marketing or R&D and adjust spending accordingly [83] Question: Can you discuss the margin uplift from innovation gaining scale? - Management confirmed that margin accretion is expected as new products gain scale, with a focus on operational improvements and leveraging existing cost structures [90][92]

Group 1: Earnings Performance - Elanco Animal Health reported quarterly earnings of $0.26 per share, exceeding the Zacks Consensus Estimate of $0.20 per share, but down from $0.30 per share a year ago, representing an earnings surprise of +30.00% [1] - The company posted revenues of $1.24 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 4.67% and up from $1.18 billion year-over-year [2] - Over the last four quarters, Elanco has surpassed consensus EPS estimates three times and topped consensus revenue estimates three times [2] Group 2: Stock Performance and Outlook - Elanco Animal Health shares have increased approximately 15.2% since the beginning of the year, outperforming the S&P 500's gain of 7.9% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.13 on revenues of $1.08 billion, and for the current fiscal year, it is $0.84 on revenues of $4.55 billion [7] Group 3: Industry Context - The Medical - Outpatient and Home Healthcare industry, to which Elanco belongs, is currently in the top 27% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Performance - Elanco's Q2 2025 revenue reached $1.241 billion, a 5% increase compared to $1.184 billion in Q2 2024 [34] - Organic constant currency (CC) revenue growth was 8% [9, 11] - Adjusted EBITDA for Q2 2025 was $238 million, compared to $275 million in Q2 2024 [34] - Adjusted earnings per share (EPS) diluted was $0.26, compared to $0.30 in Q2 2024 [34] Innovation and Portfolio - Innovation revenue contribution in H1 2025 was $420 million [9, 15] - The 2025 innovation sales target has been raised to $720-$800 million [9, 14, 15] - U S Pet Health segment experienced an 11% revenue increase [9, 32] Financial Outlook and Strategy - The company is increasing organic CC revenue growth guidance for 2025 to 5%-6% [10] - Adjusted EBITDA guidance for 2025 is $850-$890 million [10] - Adjusted EPS guidance for 2025 is $0.85-$0.91 [10] - The company expects a $500-$550 million gross debt paydown in 2025, targeting a net leverage ratio of 3.8x-4.1x [9]

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) Elanco Animal Health's strong Q2 2025 performance, exceeding expectations with organic revenue growth and accelerated deleveraging, leads to an upward revision of full-year 2025 guidance [Second Quarter 2025 Performance Overview](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Overview) Elanco Animal Health achieved its eighth consecutive quarter of growth in Q2 2025, with revenue exceeding expectations, driven by 8% organic fixed currency growth and 11% in U.S. pet health - The company achieved its eighth consecutive quarter of growth, with performance exceeding expectations[3](index=3&type=chunk) - The innovative product portfolio drove accelerated organic fixed currency revenue growth of **8%**, with U.S. pet health growing **11%**[3](index=3&type=chunk) - The company deleveraged faster than anticipated, reaching a net leverage ratio of **4.0x** at quarter-end[3](index=3&type=chunk) Key Financial Data for Q2 2025 | Metric | Amount (Millions USD) | Change (%) | Organic Fixed Currency Growth (%) | | :--- | :--- | :--- | :--- | | Revenue | $1,241 | 5% | 8% | | Reported Net Income | $11 | (122)% | | | Adjusted Net Income | $131 | | | | Adjusted EBITDA | $238 | (13)% | | | Reported EPS | $0.02 | NM | | | Adjusted EPS | $0.26 | (13)% | | | Net Leverage Ratio | 4.0x | | | [Full Year 2025 Outlook & Key Targets](index=1&type=section&id=Full%20Year%202025%20Outlook%20%26%20Key%20Targets) Elanco raised its full-year 2025 outlook, projecting revenue of $4.57 billion to $4.62 billion, with organic fixed currency revenue growth of 5% to 6% - The company raised its full-year 2025 outlook, with anticipated growth in both revenue and adjusted EBITDA[4](index=4&type=chunk) - The 2025 innovation revenue target was increased by **$60 million**, reaching **$720 million to $800 million**[4](index=4&type=chunk) - The year-end 2025 net leverage ratio target improved to **3.8x to 4.1x**, driven by year-to-date execution and disciplined working capital management[4](index=4&type=chunk) Full Year 2025 Guidance (Updated) | Metric | Updated Guidance (Millions USD) | Change | | :--- | :--- | :--- | | Revenue | $4,570 to $4,620 | Upward | | Reported Net Loss | $(38) to $(14) | | | Adjusted EBITDA | $850 to $890 | Upward | | Reported Loss Per Share | $(0.08) to $(0.03) | | | Adjusted Earnings Per Share | $0.85 to $0.91 | Upward | | Expected Total Debt Repayment | $500 to $550 | Increased | | Year-End Net Leverage Target | 3.8x to 4.1x | Improved | [Business & Financial Review](index=2&type=section&id=Business%20%26%20Financial%20Review) A comprehensive review of Elanco's Q2 2025 business and financial performance, highlighting revenue drivers, profitability, and balance sheet strength [Second Quarter 2025 Financial Results](index=2&type=section&id=Second%20Quarter%202025%20Financial%20Results) Elanco achieved $1.241 billion in total revenue for Q2 2025, a 5% year-over-year increase and 8% organic fixed currency growth, driven by strong pet health performance Q2 2025 Financial Performance Overview | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | Change (%) | Organic Fixed Currency Growth (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,241 | $1,184 | 5% | 8% | | Gross Profit | $713 | $689 | 3% | | | Reported Net Income (Loss) | $11 | $(50) | (122)% | | | Adjusted EBITDA | $238 | $275 | (13)% | | | Reported EPS | $0.02 | $(0.10) | NM | | | Adjusted EPS | $0.26 | $0.30 | (13)% | | - Total revenue reached **$1.241 billion**, a 5% year-over-year increase and 8% organic fixed currency growth, primarily benefiting from new products and favorable foreign exchange impacts[7](index=7&type=chunk) - Reported net income improved from a **$50 million loss** in Q2 2024 to a **$11 million profit**, while adjusted net income was **$131 million**, a 13.3% decrease year-over-year[15](index=15&type=chunk) [Revenue Performance by Segment](index=2&type=section&id=Revenue%20Performance%20by%20Segment) Pet Health revenue grew 11% to $643 million, driven by new products, while Farm Animal revenue saw 6% organic fixed currency growth to $583 million despite the aquaculture divestiture Q2 2025 Revenue by Segment | Segment | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | Change (%) | Organic Fixed Currency Growth (%) | | :--- | :--- | :--- | :--- | :--- | | Pet Health | $643 | $579 | 11% | 10% | | Farm Animal | $583 | $594 | (2)% | 6% | | - Cattle | $268 | $257 | 4% | 4% | | - Poultry | $215 | $198 | 9% | 7% | | - Swine | $100 | $90 | 11% | 10% | | - Aquaculture | $— | $49 | (100)% | | | Contract Manufacturing & Other | $15 | $11 | 36% | | - Pet Health revenue grew **11%**, with price contributing 4% and volume growth of 6%, primarily driven by new products like Credelio Quattro, AdTab, and Zenrelia[8](index=8&type=chunk)[9](index=9&type=chunk) - Farm Animal organic fixed currency growth was **6%**, with price contributing 2% and volume growth of 4%, primarily due to increased U.S. cattle (driven by Experior) and international poultry and swine sales[9](index=9&type=chunk) - International farm animal product sales benefited from customer pull-forward, particularly in China, with an estimated **$10 million to $20 million** of future purchases accelerated into Q2[9](index=9&type=chunk) [Gross Profit and Operating Expenses](index=3&type=section&id=Gross%20Profit%20and%20Operating%20Expenses) Gross profit for Q2 2025 was $713 million, with a gross margin of 57.5%, a 75 basis point decrease year-over-year, primarily due to inflation and higher manufacturing costs - Gross profit was **$713 million**, with a gross margin of **57.5%**, a 75 basis point decrease year-over-year, primarily due to inflation and increased manufacturing costs at the Speke facility[10](index=10&type=chunk) - Total operating expenses were **$492 million**, an 11% increase, with marketing, selling, and administrative expenses up 13% to **$400 million**, and R&D expenses up 3% to **$92 million**[11](index=11&type=chunk) - Asset impairment, restructuring, and other special charges were **$1 million**, significantly lower than **$80 million** in Q2 2024, which was primarily related to pet health IPR&D asset impairment and the aquaculture divestiture[12](index=12&type=chunk) [Net Interest Expense and Tax Rate](index=3&type=section&id=Net%20Interest%20Expense%20and%20Tax%20Rate) Reported net interest expense decreased by $17 million to $48 million in Q2 2025, while the adjusted effective tax rate increased to 21.7% from 16.9% in Q2 2024 - Reported net interest expense was **$48 million**, a **$17 million** decrease year-over-year, primarily due to lower debt balances[13](index=13&type=chunk) - Adjusted net interest expense was **$38 million**, a **$27 million** decrease year-over-year[13](index=13&type=chunk) - The reported effective tax rate was **55.4%**, and the adjusted effective tax rate was **21.7%**, higher than 16.9% in the prior year period[14](index=14&type=chunk) [Net Income and Earnings Per Share](index=3&type=section&id=Net%20Income%20and%20EPS) Reported net income for Q2 2025 was $11 million ($0.02 EPS), a significant improvement from a $50 million net loss in Q2 2024, while adjusted net income decreased to $131 million ($0.26 EPS) Q2 2025 Net Income and EPS | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Reported Net Income (Millions USD) | $11 | $(50) | (122)% | | Reported EPS | $0.02 | $(0.10) | NM | | Adjusted Net Income (Millions USD) | $131 | $147 | (11)% | | Adjusted EPS | $0.26 | $0.30 | (13)% | - The decrease in adjusted net income was primarily due to increased sales and marketing expenses supporting global new product launches and the impact of the aquaculture divestiture last year[15](index=15&type=chunk) [Adjusted EBITDA](index=3&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA for Q2 2025 was $238 million, a 13.5% year-over-year decrease, resulting in an adjusted EBITDA margin of 19.2%, down from 23.2% in Q2 2024 Q2 2025 Adjusted EBITDA | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | Change (%) | | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $238 | $275 | (13.5)% | | Adjusted EBITDA Margin | 19.2% | 23.2% | (400) bps | - The decrease in adjusted EBITDA was primarily driven by increased sales and marketing expenses related to global launches and the impact of the aquaculture divestiture[16](index=16&type=chunk) [Select Business Highlights](index=2&type=section&id=Select%20Business%20Highlights) Elanco achieved significant business milestones in Q2, including strong market penetration for Credelio Quattro, EU approval for Zenrelia, and USDA approval for TruCan Ultra CIV vaccine - Credelio Quattro™ captured approximately **14%** market share in broad-spectrum sales within U.S. veterinary clinics[8](index=8&type=chunk) - Zenrelia™ received European Commission approval, with a planned launch in EU countries in Q3 2025[8](index=8&type=chunk) - Experior® sales grew over **80%** year-over-year in Q2, and AdTab™ sales grew over **60%** year-over-year in Q2[8](index=8&type=chunk) - TruCan™ Ultra CIV received USDA approval and launched in the U.S. in July, enhancing Elanco's vaccine portfolio[8](index=8&type=chunk) - **$295 million** was generated from the monetization of lotilaner U.S. royalties, used for debt repayment[8](index=8&type=chunk) - Elanco Ascend, a productivity and capability program, was initiated, expected to deliver additional value in 2026 and beyond[8](index=8&type=chunk) - Robert (Bob) VanHimbergen was appointed Executive Vice President and Chief Financial Officer[8](index=8&type=chunk) [Working Capital and Balance Sheet](index=3&type=section&id=Working%20Capital%20and%20Balance%20Sheet) Operating cash flow for Q2 2025 was $237 million, and the net leverage ratio improved to 4.0x adjusted EBITDA as of June 30, 2025, driven by strong cash generation and debt repayment - Operating cash flow was **$237 million**, higher than **$200 million** in the prior year period[17](index=17&type=chunk) - As of June 30, 2025, the net leverage ratio was **4.0x** adjusted EBITDA, a 0.3x reduction from December 31, 2024[18](index=18&type=chunk) - The company anticipates the year-end net leverage ratio to improve to **3.8x to 4.1x**[18](index=18&type=chunk) [Financial Guidance](index=4&type=section&id=Financial%20Guidance) Elanco provides updated financial guidance for full-year 2025 and Q3 2025, reflecting strong performance and strategic investments in innovation [Full Year 2025 Guidance Update](index=4&type=section&id=Full%20Year%202025%20Guidance%20Update) Elanco updated its full-year 2025 guidance, raising revenue to $4.57 billion-$4.62 billion and adjusted EBITDA to $850 million-$890 million, reflecting strong Q2 execution and favorable foreign exchange Full Year 2025 Guidance (Updated) | Metric | May Guidance (Millions USD) | August Guidance (Millions USD) | | :--- | :--- | :--- | | Revenue | $4,510 to $4,580 | $4,570 to $4,620 | | Reported Net Loss | $(35) to $(7) | $(38) to $(14) | | Adjusted EBITDA | $830 to $870 | $850 to $890 | | Reported Loss Per Share | $(0.07) to $(0.01) | $(0.08) to $(0.03) | | Adjusted Earnings Per Share | $0.80 to $0.86 | $0.85 to $0.91 | - Favorable foreign exchange is expected to provide an approximate **$35 million** tailwind to revenue[20](index=20&type=chunk) - Excluding the impact of foreign exchange, divested royalty revenue, and the aquaculture divestiture, the company expects revenue growth of **5% to 6%** (previously 4% to 6%)[20](index=20&type=chunk) - Adjusted gross margin is projected to be **54.5% to 55.0%**, an increase of 30 basis points from the previous range[21](index=21&type=chunk) - Operating expenses are expected to increase by approximately **7%** at constant currency (previously 6%), reflecting strategic investments in the global launch of the innovation portfolio[21](index=21&type=chunk) [Full Year 2025 EPS Guidance Reconciliation](index=12&type=section&id=Full%20Year%202025%20EPS%20Guidance%20Reconciliation) Full-year 2025 reported loss per share guidance of $(0.08) to $(0.03) is reconciled to adjusted EPS guidance of $0.85 to $0.91 by adjusting for non-GAAP items Full Year 2025 EPS Guidance Reconciliation | Item | Full Year 2025 Guidance | | :--- | :--- | | Reported Loss Per Share | $(0.08) to $(0.03) | | Amortization of Intangible Assets | Approx. $1.08 | | Asset Impairment, Restructuring & Other Special Charges | $0.02 to $0.04 | | Other Net Expense | $0.03 to $0.04 | | Royalty Monetization | Approx. $0.03 | | Total Adjustments | $0.93 to $0.94 | | Adjusted Earnings Per Share | $0.85 to $0.91 | [Full Year 2025 Adjusted EBITDA Guidance Reconciliation](index=12&type=section&id=Full%20Year%202025%20Adjusted%20EBITDA%20Guidance%20Reconciliation) Full-year 2025 reported net loss guidance of $(38) million to $(14) million is reconciled to adjusted EBITDA guidance of $850 million to $890 million by adjusting for non-GAAP items Full Year 2025 Adjusted EBITDA Guidance Reconciliation | Item | Full Year 2025 Guidance (Millions USD) | | :--- | :--- | | Reported Net Loss | $(38) to $(14) | | Net Interest Expense (including royalty monetization liability) | Approx. $220 | | Income Tax (Benefit) Expense | $(13) to $8 | | Depreciation and Amortization | Approx. $670 | | EBITDA | $836 to $886 | | Total Non-GAAP Adjustments | Approx. $10 | | Adjusted EBITDA | $850 to $890 | | Adjusted EBITDA Margin | 18.6% to 19.3% | [Third Quarter 2025 Guidance](index=4&type=section&id=Third%20Quarter%202025%20Guidance) Elanco projects Q3 2025 revenue between $1.08 billion and $1.11 billion, with organic fixed currency revenue growth of 4% to 6%, and adjusted EBITDA between $160 million and $180 million Third Quarter 2025 Guidance | Metric | Guidance (Millions USD) | | :--- | :--- | | Revenue | $1,080 to $1,110 | | Reported Net Loss | $(66) to $(45) | | Adjusted EBITDA | $160 to $180 | | Reported Loss Per Share | $(0.13) to $(0.09) | | Adjusted Earnings Per Share | $0.12 to $0.16 | - Favorable foreign exchange is expected to provide an approximate **$10 million** tailwind to revenue[22](index=22&type=chunk) - Growth is anticipated to be impacted by approximately **$15 million** in revenue and **$10 million** in adjusted EBITDA from pre-tariff customer pull-forward, primarily from China[22](index=22&type=chunk) - Operating expenses are expected to increase by approximately **8%** at constant currency, reflecting strategic investments in the global launch of the innovation portfolio[22](index=22&type=chunk) [Third Quarter 2025 EPS Guidance Reconciliation](index=13&type=section&id=Third%20Quarter%202025%20EPS%20Guidance%20Reconciliation) Q3 2025 reported loss per share guidance of $(0.13) to $(0.09) is reconciled to adjusted EPS guidance of $0.12 to $0.16 by adjusting for non-GAAP items Third Quarter 2025 EPS Guidance Reconciliation | Item | Third Quarter 2025 Guidance | | :--- | :--- | | Reported Loss Per Share | $(0.13) to $(0.09) | | Amortization of Intangible Assets | Approx. $0.27 | | Asset Impairment, Restructuring & Other Special Charges | $0.00 to $0.01 | | Other Net Expense | Approx. $0.01 | | Royalty Monetization | Approx. $0.01 | | Total Adjustments | Approx. $0.25 | | Adjusted Earnings Per Share | $0.12 to $0.16 | [Third Quarter 2025 Adjusted EBITDA Guidance Reconciliation](index=13&type=section&id=Third%20Quarter%202025%20Adjusted%20EBITDA%20Guidance%20Reconciliation) Q3 2025 reported net loss guidance of $(66) million to $(45) million is reconciled to adjusted EBITDA guidance of $160 million to $180 million by adjusting for non-GAAP items Third Quarter 2025 Adjusted EBITDA Guidance Reconciliation | Item | Third Quarter 2025 Guidance (Millions USD) | | :--- | :--- | | Reported Net Loss | $(66) to $(45) | | Net Interest Expense (including royalty monetization liability) | Approx. $50 | | Income Tax (Benefit) Expense | $(6) to $1 | | Depreciation and Amortization | Approx. $170 | | EBITDA | $158 to $182 | | Total Non-GAAP Adjustments | Approx. $2 | | Adjusted EBITDA | $160 to $180 | | Adjusted EBITDA Margin | 14.8% to 16.2% | [Non-GAAP Financial Measures & Reconciliations (Historical)](index=6&type=section&id=Non-GAAP%20Financial%20Measures%20%26%20Reconciliations%20(Historical)) This section provides explanations and reconciliations for Elanco's non-GAAP financial measures, offering a clearer view of operational performance trends [Explanation of Non-GAAP Measures](index=6&type=section&id=Explanation%20of%20Non-GAAP%20Measures) Elanco utilizes various non-GAAP financial measures, such as adjusted revenue growth, EBITDA, and adjusted EPS, to provide transparent insights into its operational performance and trends - The company uses non-GAAP financial measures to assess and analyze operating results and trends, providing greater transparency into operational performance[29](index=29&type=chunk)[31](index=31&type=chunk) - Non-GAAP metrics include revenue growth excluding divestitures and foreign exchange, EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, net debt, and net debt leverage[29](index=29&type=chunk) - These non-GAAP measures should not be considered a substitute for GAAP reported metrics, and investors should primarily use GAAP measures to evaluate the company's performance[31](index=31&type=chunk) [Adjusted Gross Profit and Margin Reconciliation](index=9&type=section&id=Adjusted%20Gross%20Profit%20and%20Margin%20Reconciliation) Adjusted gross profit, defined as gross profit less divested royalty revenue and cost of sales adjustments, was $709 million in Q2 2025, with an adjusted gross margin of 57.3% Adjusted Gross Profit and Margin Reconciliation | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | | :--- | :--- | :--- | | GAAP Reported Gross Profit | $713 | $689 | | Divested Royalty Revenue | $(4) | $— | | Cost of Sales Adjustments | $— | $— | | Adjusted Gross Profit | $709 | $689 | | Adjusted Gross Margin | 57.3% | 58.2% | [Adjusted Net Income and EPS Reconciliation](index=9&type=section&id=Adjusted%20Net%20Income%20and%20EPS%20Reconciliation) Adjusted net income and EPS are reconciled by excluding non-GAAP items such as intangible asset amortization and special charges, with Q2 2025 adjusted net income at $131 million and adjusted EPS at $0.26 Q2 2025 Adjusted Net Income and EPS Reconciliation | Item | Q2 2025 (Millions USD) | Q2 2025 EPS | Q2 2024 (Millions USD) | Q2 2024 EPS | | :--- | :--- | :--- | :--- | :--- | | GAAP Reported Net Income (Loss) | $11 | $0.02 | $(50) | $(0.10) | | Amortization of Intangible Assets | $136 | $0.27 | $131 | $0.26 | | Asset Impairment, Restructuring & Other Special Charges | $1 | $0.00 | $80 | $0.16 | | Divested Royalty Revenue | $(4) | $(0.01) | $— | $— | | Interest Expense Adjustments | $10 | $0.02 | $— | $— | | Income Tax Expense | $(22) | $(0.04) | $(12) | $(0.02) | | Adjusted Net Income | $131 | $0.26 | $147 | $0.30 | H1 2025 Adjusted Net Income and EPS Reconciliation | Item | H1 2025 (Millions USD) | H1 2025 EPS | H1 2024 (Millions USD) | H1 2024 EPS | | :--- | :--- | :--- | :--- | :--- | | GAAP Reported Net Income (Loss) | $78 | $0.16 | $(18) | $(0.04) | | Cost of Sales Adjustments | $1 | $0.00 | $— | $— | | Amortization of Intangible Assets | $264 | $0.53 | $264 | $0.53 | | Asset Impairment, Restructuring & Other Special Charges | $10 | $0.02 | $126 | $0.25 | | Divested Royalty Revenue | $(4) | $(0.01) | $— | $— | | Interest Expense Adjustments | $10 | $0.02 | $— | $— | | Other Net Expense | $4 | $0.01 | $3 | $0.01 | | Income Tax Expense | $(48) | $(0.10) | $(61) | $(0.12) | | Adjusted Net Income | $315 | $0.63 | $314 | $0.63 | [Adjusted EBITDA and Margin Reconciliation](index=10&type=section&id=Adjusted%20EBITDA%20and%20Margin%20Reconciliation) Adjusted EBITDA for Q2 2025 was $238 million, with an adjusted EBITDA margin of 19.2%, calculated by adjusting net income for interest, taxes, depreciation, amortization, and other non-GAAP items Adjusted EBITDA and Margin Reconciliation | Item | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | | :--- | :--- | :--- | | GAAP Reported Net Income (Loss) | $11 | $(50) | | Net Interest Expense | $48 | $65 | | Income Tax Expense (Benefit) | $14 | $18 | | Depreciation and Amortization | $169 | $164 | | EBITDA | $242 | $197 | | Total Non-GAAP Adjustments | $(4) | $78 | | Adjusted EBITDA | $238 | $275 | | Adjusted EBITDA Margin | 19.2% | 23.2% | [Gross and Net Debt and Net Leverage Ratio](index=11&type=section&id=Gross%20and%20Net%20Debt%20and%20Net%20Leverage%20Ratio) As of June 30, 2025, Elanco's net debt was $3.436 billion, resulting in a net leverage ratio of 4.0x, calculated by adjusting total debt for cash and financing lease liabilities Net Debt Calculation as of June 30, 2025 | Item | Amount (Millions USD) | | :--- | :--- | | Long-term debt | $4,148 | | Current portion of long-term debt | $61 | | Less: Unamortized debt issuance costs | $(21) | | **Total Debt** | **$4,230** | | Less: Cash and cash equivalents | $(539) | | Less: Finance lease liabilities | $(255) | | **Net Debt** | **$3,436** | Net Leverage Ratio Calculation as of June 30, 2025 | Item | Amount (Millions USD) | | :--- | :--- | | Net Debt | $3,436 | | Adjusted EBITDA for the trailing twelve months | $855 | | **Net Leverage Ratio** | **4.0** | [Company Information & Legal Disclosures](index=5&type=section&id=Company%20Information%20%26%20Legal%20Disclosures) This section provides details on Elanco's corporate communications, company profile, forward-looking statements, and definitions of key financial terms [Webcast & Conference Call Details](index=5&type=section&id=Webcast%20%26%20Conference%20Call%20Details) Elanco hosted a webcast and conference call on August 7, 2025, at 8:00 AM ET to discuss Q2 results and provide updated financial guidance, with a replay available online - The company held a webcast and conference call on **August 7, 2025, at 8:00 AM ET**[24](index=24&type=chunk) - Investors, analysts, media members, and the public can access the live event and slides via the Elanco website, with a replay available within hours after the event[24](index=24&type=chunk) [About Elanco](index=5&type=section&id=About%20Elanco) Elanco Animal Health Incorporated (NYSE: ELAN) is a global leader in animal health, dedicated to innovating products and services for preventing and treating diseases in farm animals and pets - Elanco Animal Health Incorporated (NYSE: ELAN) is a global leader in animal health[25](index=25&type=chunk) - The company is dedicated to innovating and providing products and services to prevent and treat diseases in farm animals and pets[25](index=25&type=chunk) - The company's vision is "Food and Companionship Enriching Life," with a purpose to "make a difference" for animals, customers, society, and employees[25](index=25&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=5&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This press release contains forward-looking statements regarding product launches, revenue, 2025 guidance, and debt levels, subject to inherent uncertainties and risks that may cause actual results to differ materially - This press release contains forward-looking statements regarding product launches, revenue, 2025 guidance, debt levels, and industry and operational expectations[26](index=26&type=chunk) - Forward-looking statements are based on current expectations and assumptions but are subject to inherent uncertainties, risks, and changes in circumstances, where actual results may differ materially from those stated[27](index=27&type=chunk) - Key risk factors include a highly competitive industry, success of R&D and regulatory approvals, disruptive innovation, generic competition, restrictions on antibiotic use, animal disease outbreaks, customer and distributor consolidation, manufacturing issues, reliance on information technology systems, climate conditions, labor disputes, impact of significant debt, interest rate changes, and intellectual property challenges[27](index=27&type=chunk)[30](index=30&type=chunk) [Availability of Certain Information](index=7&type=section&id=Availability%20of%20Certain%20Information) Elanco discloses important corporate information, including investor overview presentations, to investors, customers, employees, and other stakeholders through its website - The company discloses important corporate information to investors, customers, employees, and relevant parties through its website[32](index=32&type=chunk) - Investors can access the investor overview presentation on the "Events & Presentations" page of the company's website[32](index=32&type=chunk) [Additional Information and Definitions](index=7&type=section&id=Additional%20Information%20and%20Definitions) This section defines "innovation revenue" as incremental revenue from new products and lifecycle management, and "organic fixed currency revenue growth" as revenue growth excluding divestitures and foreign exchange impacts - Innovation revenue is defined as incremental revenue from new products, lifecycle management, specific geographic expansion, and business development transactions, excluding cannibalization of the base portfolio[33](index=33&type=chunk) - Organic fixed currency revenue growth is defined as revenue growth excluding the aquaculture divestiture (July 9, 2024), divested royalty revenue (May 2025), and the impact of foreign exchange[34](index=34&type=chunk)

Core Insights - Elanco Animal Health reported its financial results for Q2 2025, achieving its 8th consecutive quarter of growth with an organic constant currency revenue growth of 8% [2][4] - The company raised its full-year revenue guidance to a range of $4,570 million to $4,620 million, reflecting strong performance and favorable foreign exchange rates [4][21] - Elanco's net leverage ratio improved to 4.0x adjusted EBITDA, with expectations to end the year between 3.8x and 4.1x [19][21] Financial Results - Q2 2025 revenue reached $1,241 million, a 5% increase year-over-year, with an 8% organic constant currency growth [4][8] - Reported net income was $11 million, compared to a net loss of $50 million in Q2 2024 [16][38] - Adjusted EBITDA for Q2 2025 was $238 million, a 13.5% decrease from the previous year, with an adjusted EBITDA margin of 19.2% [17][52] Business Segments Performance - Pet Health revenue was $643 million, up 11% year-over-year, driven by new products and a 4% price increase [9][10] - Farm Animal revenue was $583 million, down 2% on a reported basis but up 6% on an organic constant currency basis, with strong demand in U.S. cattle and international poultry [10][11] - The company saw significant growth in specific products, with Experior sales up over 80% year-over-year and AdTab sales up over 60% [5][10] Strategic Initiatives - Elanco launched several new products, including Credelio Quattro and Zenrelia, contributing to revenue growth [5][9] - The company is focused on a productivity initiative called Elanco Ascend, aimed at enhancing operational capabilities [5] - Bob VanHimbergen was appointed as the new CFO to guide sustainable value creation [5] Guidance and Outlook - For the full year 2025, Elanco expects adjusted EBITDA to be between $850 million and $890 million, with an adjusted EPS range of $0.85 to $0.91 [21][22] - The company anticipates a revenue tailwind of approximately $35 million from favorable foreign exchange rates compared to previous estimates [21][23] - Q3 2025 revenue guidance is set between $1,080 million and $1,110 million, with expected organic constant currency revenue growth of 4% to 6% [23][24]

Core Viewpoint - Elanco Animal Health is expected to report a quarterly earnings decline of 33.3% year-over-year, with earnings projected at $0.20 per share and revenues forecasted to increase slightly by 0.1% to $1.19 billion [1]. Earnings Projections - Wall Street analysts have revised the consensus EPS estimate upward by 1.5% over the last 30 days, indicating a collective reassessment of earnings forecasts [2]. - Changes in earnings projections are crucial for predicting investor reactions, as empirical studies show a strong correlation between earnings estimate trends and short-term stock price movements [3]. Revenue Estimates - Analysts predict 'Revenue- Total Pet Health' will reach $601.90 million, reflecting a 4% increase from the previous year [4]. - 'Revenue- Total Contract Manufacturing' is expected to be $10.89 million, indicating a decline of 1.1% from the prior year [5]. - 'Revenue- Total Farm Animal' is projected at $573.69 million, showing a decrease of 3.4% compared to the same quarter last year [5]. Stock Performance - Elanco Animal Health shares have decreased by 3.7% over the past month, contrasting with a 0.5% increase in the Zacks S&P 500 composite [5]. - The company holds a Zacks Rank of 3 (Hold), suggesting it is expected to closely follow overall market performance in the near term [5].

Core Insights - Elanco Animal Health has received approval from the European Commission for Zenrelia™ (ilunocitinib), marking a significant milestone in the EU canine dermatology market [1][2][3] Group 1: Product Approval and Market Impact - Zenrelia is recognized as a highly effective, convenient, and safe once-daily oral JAK inhibitor for controlling pruritus associated with allergic dermatitis and atopic dermatitis in dogs aged at least 12 months [2][3] - The approval reinforces Elanco's position as a leader in pet health innovation and is expected to enhance the treatment options available for veterinarians and pet owners in Europe [3][4] Group 2: Clinical Study and Efficacy - A head-to-head non-inferiority study against the market leader, Apoquel, involved 338 client-owned dogs and demonstrated that Zenrelia is at least as effective as the incumbent JAK inhibitor at the primary endpoint on Day 28 [4] - The study results have been published in the peer-reviewed journal Veterinary Dermatology, further validating the product's efficacy [4] Group 3: Commercial Strategy and Launch - Elanco's commercial teams are prepared for an immediate product launch, with supply availability expected in the third quarter of 2025 [4][8] - Zenrelia will join Elanco's growing pet health portfolio in Europe, which includes other products like AdTab, Credelio, and Galliprant [4]

Core Insights - Elanco Animal Health Incorporated (ELAN) is currently positioned as a more attractive investment compared to U.S. Physical Therapy (USPH) based on Zacks Rank and valuation metrics [3][7] Valuation Metrics - ELAN has a forward P/E ratio of 17.91, significantly lower than USPH's forward P/E of 30.39 [5] - The PEG ratio for ELAN is 2.93, while USPH's PEG ratio stands at 3.66, indicating ELAN's better valuation relative to its expected earnings growth [5] - ELAN's P/B ratio is 1.17, compared to USPH's P/B of 2.3, further supporting ELAN's superior valuation metrics [6] Earnings Outlook - ELAN has a Zacks Rank of 2 (Buy), reflecting positive revisions in earnings estimates, while USPH has a Zacks Rank of 5 (Strong Sell), indicating a less favorable earnings outlook [3][7] - The improving earnings outlook for ELAN is a critical factor for value investors [3]

Core Viewpoint - Elanco Animal Health Incorporated will announce its second quarter 2025 financial results on August 7, 2025, and will hold a conference call to discuss the performance with the investment community and media [1][2]. Group 1: Financial Results Announcement - The financial results for the second quarter of 2025 will be disclosed on August 7, 2025 [1]. - A conference call will take place on the same day at 8:00 a.m. Eastern time to provide further details [2]. Group 2: Access to Information - Investors, media, and the public can access a live webcast of the conference call through Elanco's website [2]. - A replay of the conference call will be available shortly after the event on the website [2]. Group 3: Company Overview - Elanco Animal Health is a global leader in animal health, focusing on innovating and delivering products and services for disease prevention and treatment in farm animals and pets [3]. - The company has a 70-year heritage in animal health and aims to create value for various stakeholders, including farmers, pet owners, and veterinarians [3]. - Elanco is driven by its vision of Food and Companionship Enriching Life and is committed to making a meaningful impact on communities [3].