So joining me now in a first on CNBC interview is Ela Co. Animal Health CEO Jeff Simmons. Jeff, we've spoken numerous times before.At this point, you know, I have multiple dogs in my household. Like many millions of Americans, we care about their health. What's been driving Ela Co's results, specifically when it comes to the pets versus the farm side of things.>> Yeah, Dom, thanks for the time. Yeah, we delivered a great quarter. 9% organic constant currency growth.That really marks uh nine consecutive quar ...

Core Insights - Ela Co. Animal Health reported a 9% organic constant currency growth, marking nine consecutive quarters of growth, driven by both pet and livestock segments [1][2] - The company experienced its highest quality quarter of growth in three to four years, attributed to innovation in pet health products and strong demand in the livestock sector [3][4] Pet Segment - Pet owners are increasingly willing to spend on innovative health products, particularly in areas like dermatology and pain management for pets [3] - The company has a significant product, Credelo Quattro, which has rapidly gained traction, becoming the fastest product to reach $100 million in sales [7][8] Livestock Segment - The livestock market is benefiting from high protein demand, with the US beef market experiencing a shortage of cattle at a 50-year low, leading to strong beef economics [4] - The company is focusing on ruminant markets, including dairy, beef, and poultry, as key growth areas [9] Innovation and Product Pipeline - Ela Co. emphasizes innovation as the primary driver of growth, with a diverse portfolio across multiple species and therapeutic classes [6][7] - The company plans to discuss its strategies for the ruminant, poultry, and pet markets during an upcoming investor day [9]

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Revenue Performance - Revenue for Q3 2025 was $1,137 million, a 10% increase from $1,030 million in Q3 2024[107] - Pet Health revenue for Q3 2025 was $533 million, up 10% from $486 million in Q3 2024, accounting for 47% of total revenue[111] - Farm Animal revenue for Q3 2025 was $593 million, a 12% increase from $530 million in Q3 2024, representing 52% of total revenue[111] - For the nine months ended September 30, 2025, total revenue was $3,571 million, reflecting a 4% increase compared to the same period in 2024[115] - Revenue for Pet Health increased by $47 million, or 10%, for the three months ended September 30, 2025, driven primarily by higher volumes[116] - Farm Animal revenue increased by $63 million, or 12%, for the three months ended September 30, 2025, supported by increased volumes across cattle and poultry[118] Profitability - Gross profit for Q3 2025 reached $607 million, reflecting a 13% increase compared to $538 million in Q3 2024[107] - Gross profit for the three months ended September 30, 2025, was $607 million, a 13% increase from $538 million in the same period in 2024[121] - Gross margin percentage for the nine months ended September 30, 2025, remained flat at 56% compared to the same period in 2024[122] - The company recorded a net loss of $34 million in Q3 2025, compared to a net income of $364 million in Q3 2024[107] Expenses - Research and development expenses for Q3 2025 were $89 million, a 2% increase from $87 million in Q3 2024[107] - Research and development expenses increased by $2 million for the three months ended September 30, 2025, totaling $89 million, maintaining 8% of revenue[123] - Marketing, selling, and administrative expenses rose by $28 million for the three months ended September 30, 2025, totaling $323 million, which is 31% of revenue[124] - Interest expense decreased by $6 million for the three months ended September 30, 2025, totaling $58 million, due to lower average outstanding debt balances[131] - The company recognized an income tax benefit of $16 million for the three months ended September 30, 2025, compared to an expense of $195 million in the same period in 2024[133] Cash Flow and Financing - Cash provided by operating activities increased to $452 million for the nine months ended September 30, 2025, compared to $364 million for the same period in 2024, reflecting a year-over-year increase of 24%[142] - Cash used for investing activities was $215 million for the nine months ended September 30, 2025, a decrease of $1,463 million compared to cash provided by investing activities of $1,248 million in the same period of 2024[143] - Cash used for financing activities decreased to $257 million for the nine months ended September 30, 2025, compared to $1,460 million for the same period in 2024, indicating a reduction of approximately 82%[145] - The company refinanced its Term Loan B due 2027, paying off the $2,102 million balance in full with proceeds from new debt facilities and cash on hand[139] Asset Management - The company recorded asset impairments of $24 million during the three months ended September 30, 2025, primarily related to suspended capital projects[127] - As of September 30, 2025, the company had cash and cash equivalents of $505 million and unused borrowing capacity of approximately $750 million on its Revolving Credit Facility[138] - The company had approximately $110 million in undrawn borrowing capacity on its Securitization Facility as of September 30, 2025[138] Strategic Actions - The company completed the divestiture of its aqua business for $1,294 million in cash proceeds in July 2024, resulting in a pre-tax gain of $640 million[102] - A Purchase and Sale Agreement executed in May 2025 with Blackstone generated proceeds of $295 million for future royalties from Tarsus[100] - The company intends to indefinitely reinvest substantially all foreign earnings for continued use in foreign operations, which may change based on tax-efficient reinvestment alternatives[137] - Approximately 80% of the company's long-term indebtedness, excluding finance lease liability, bears interest at a fixed rate following the refinancing and interest rate swap settlement[152] - The company purchased approximately 56 acres of land in August 2025 to develop the One Health Innovation District research hub in Indianapolis, Indiana[143] Currency Exposure - Approximately 51% of revenue for the nine months ended September 30, 2025, was denominated in foreign currencies[108] - Revenue in Turkey represented less than 1% of the company's consolidated revenue during the nine months ended September 30, 2025[151] Revenue Shifts - The company experienced a shift in revenue due to customers accelerating purchases in anticipation of tariff increases, impacting Q2 and Q3 2025 results[98]

Financial Data and Key Metrics Changes - Elanco reported revenue of $1.137 billion for Q3 2025, representing a 10% increase on a reported basis and 9% organic constant currency growth, primarily driven by volume increases [23][24] - Adjusted EBITDA was $198 million, an increase of $35 million year-over-year, while adjusted EPS rose to $0.19, up $0.06 from the previous year [25] - The net leverage ratio improved to 3.7x, better than expectations, with a target to end the year between 3.7x and 3.8x [6][25] Business Line Data and Key Metrics Changes - U.S. Pet Health revenue grew by 9%, driven by key innovation products like Credelio Quattro and Zenrelia, while international pet health achieved 8% growth [7][23] - U.S. Farm Animal business saw a significant 20% growth, supported by strong performance in cattle and poultry vaccines, while international farm animal grew by 5% [8][23] - Innovation revenue reached $655 million year-to-date, with an increase in guidance for innovation revenue to $840 million-$880 million for the full year [5][9] Market Data and Key Metrics Changes - The U.S. broad spectrum endecto market is currently valued at $1.4 billion, growing at nearly 40%, with Credelio Quattro capturing significant market share [10][40] - The global dermatology market for Zenrelia is estimated at $2 billion, with Elanco capturing approximately 5% market share in launched countries [13][16] - The farm animal market is experiencing strong demand for protein, with a resurgence in the U.S. dairy industry and favorable producer economics driving growth [72] Company Strategy and Development Direction - Elanco's strategy focuses on innovation, portfolio management, and productivity, with a commitment to driving shareholder value through consistent growth and operational execution [6][22] - The company is expanding its product offerings and geographic reach, particularly with the international rollout of Credelio Quattro and Zenrelia [10][13] - Elanco aims to improve its net leverage ratio to under 3x by 2027, supported by a disciplined capital allocation strategy focused on debt paydown [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic challenges, with expectations for continued growth in both pet and farm animal segments [7][32] - The company anticipates a stable operating environment, with a focus on leveraging innovation to mitigate potential declines in vet visit volumes [56][57] - Elanco's management highlighted the importance of maintaining a competitive edge through differentiated products and strategic investments in marketing and distribution [66][72] Other Important Information - Elanco successfully refinanced its $2.1 billion term loan B facility, extending maturities and reducing the cost of debt [26][27] - The company is on track for significant operational efficiencies through the Elanco Ascend initiative, which aims to enhance productivity across various functions [22][66] Q&A Session Summary Question: Clarification on Quattro's sales and peak potential - Management clarified that Credelio Quattro reached $100 million in sales year-to-date as of September, indicating strong market potential and differentiation [37][38] Question: U.S. label aspirations for Zenrelia - Management discussed ongoing efforts to improve Zenrelia's label in the U.S. and the positive momentum in international markets, highlighting strong market share gains [43][45] Question: 2025 EBITDA guidance and OpEx investments - Management confirmed the increase in EBITDA guidance and emphasized a data-driven approach to ongoing investments in innovation and marketing [49][50] Question: Consumer macro pressure and vet visit trends - Management noted that while vet visits are stabilizing, Elanco's diversified portfolio and strong market presence position the company well against macro pressures [53][56] Question: Competitive landscape in derm and parasiticides - Management indicated that competition is accounted for in guidance, with no significant impact observed from new entrants in the parasiticide market [76][77]

Financial Data and Key Metrics Changes - Elanco reported revenue of $1.137 billion for Q3 2025, representing a 10% increase on a reported basis and 9% organic constant currency growth, primarily driven by volume increases [23][24] - Adjusted EBITDA was $198 million, an increase of $35 million year-over-year, while adjusted EPS rose to $0.19, up $0.06 from the previous year [25][29] - The net leverage ratio improved to 3.7x, better than expectations, with a target to end the year between 3.7x and 3.8x [6][25] Business Line Data and Key Metrics Changes - U.S. Pet Health revenue grew by 9%, driven by key products like Credelio Quattro and Zenrelia, while international pet health achieved 8% growth [7][23] - U.S. Farm Animal business saw a significant 20% growth, bolstered by strong performance in cattle and poultry vaccines, while international farm animal grew by 5% [8][24] - Innovation revenue reached $655 million year-to-date, with an increase in guidance for innovation revenue to $840 million-$880 million [5][9] Market Data and Key Metrics Changes - The U.S. broad spectrum endecto market is valued at $1.4 billion and is growing at nearly 40%, with Credelio Quattro capturing significant market share [10][40] - The global dermatology market is estimated at $2 billion, with Zenrelia gaining approximately 5% market share in launched countries [13][16] - The farm animal market is experiencing strong demand for protein, with a resurgence in the U.S. dairy industry and a historically small cattle herd size driving producer economics [72][73] Company Strategy and Development Direction - Elanco's strategy focuses on growth, innovation, and cash management, with a commitment to raising guidance based on strong underlying momentum [5][7] - The company is leveraging its diverse portfolio of innovative products to stabilize its base business and drive overall industry-leading growth [21][22] - The Elanco Ascend initiative aims to enhance productivity and efficiency across the organization, contributing to margin expansion starting in 2026 [22][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic challenges, citing strong execution and proactive mitigation strategies for tariff risks [6][32] - The outlook for 2026 includes expectations for continued revenue growth driven by innovation and a stabilizing base, despite competitive pressures [30][31] - Management highlighted the importance of maintaining a balanced approach to guidance, considering competition and macroeconomic factors [57][59] Other Important Information - The company successfully refinanced its $2.1 billion term loan B facility, extending maturities and reducing the cost of debt [26][27] - Elanco plans to provide more insights into its strategy and financial outlook during the upcoming investor day on December 9 [34][78] Q&A Session Summary Question: Clarification on Credelio Quattro's sales - Credelio Quattro reached $100 million in sales year-to-date as of September, indicating strong market potential and differentiation [37][38] Question: U.S. label aspirations for Zenrelia - Management is optimistic about achieving a cleaner label for Zenrelia, supported by positive data and increasing market share in international markets [44][46] Question: 2025 EBITDA guidance and OpEx investments - The updated EBITDA guidance reflects strong performance and continued investments in innovation, with a focus on data-driven decision-making [48][50] Question: Consumer macro pressure and vet visit trends - Management believes that the company is insulated from declines in vet visits due to strong market fundamentals and a diversified portfolio [56][59] Question: Sustainability of livestock growth - The demand for protein is expected to remain strong, with Elanco's strategy focusing on innovation and competitive advantages in the livestock market [72][74]

Financial Data and Key Metrics Changes - Elanco reported revenue of $1.137 billion for Q3 2025, representing a 10% increase on a reported basis and 9% organic constant currency growth, primarily driven by volume increases [20][21] - Adjusted EBITDA was $198 million, an increase of $35 million year-over-year, while adjusted EPS rose to $0.19, up $0.06 from the previous year [22] - The net leverage ratio improved to 3.7 times, better than expectations, with a goal to end the year between 3.7-3.8 times [5][22] Business Line Data and Key Metrics Changes - U.S. Pet Health revenue grew by 9%, driven by key products like Credelio Quattro and Zenrelia, while international pet health saw an 8% increase [20][21] - U.S. Farm Animal business achieved a remarkable 20% growth, supported by strong performance in cattle and poultry vaccines [20][21] - International Farm Animal revenue increased by 5%, with growth attributed to poultry and ruminants [7][20] Market Data and Key Metrics Changes - The overall pet health market in the U.S. is experiencing strong growth, with the broad spectrum endecto market reaching $1.4 billion and growing at nearly 40% [9][34] - The global dermatology market is also expanding, with Zenrelia capturing approximately 5% market share in countries where it has launched [12][14] - The farm animal sector is benefiting from a historically small U.S. cattle herd, driving demand for products like Experior, which grew 70% in Q3 [15][51] Company Strategy and Development Direction - Elanco is focused on innovation, portfolio management, and productivity, with a strong emphasis on cash generation and operational execution [4][19] - The company is raising its full-year expectations for innovation revenue to $840 million-$880 million, reflecting broad-based momentum across its product portfolio [4][6] - The strategy includes geographic expansion and leveraging differentiated products to capture market share in both pet and farm animal segments [7][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic challenges, including tariff impacts, while maintaining strong growth momentum [5][25] - The outlook for 2026 includes expectations for continued revenue growth driven by innovation and a stabilizing base business, despite competitive pressures [27][28] - Management highlighted the importance of maintaining a balanced approach to guidance, considering both competitive dynamics and macroeconomic factors [41][42] Other Important Information - The company successfully refinanced its $2.1 billion term loan B facility, extending maturities and reducing the cost of debt [5][23] - Elanco's innovation pipeline is robust, with several products expected to launch in 2026, including IL31, which is currently under USDA review [17][19] - The company is committed to enhancing productivity through initiatives like Elanco Ascend, aimed at driving efficiencies across the organization [19][49] Q&A Session Summary Question: Clarification on Credelio Quattro's sales - Management clarified that Credelio Quattro reached $100 million in net sales since its launch, not just in Q3, and expressed optimism about its potential peak sales [31][34] Question: Insights on Zenrelia's label update and market share - Management discussed the positive momentum for Zenrelia, highlighting its growing market share and the recent removal of vaccine-induced disease language from its label [35][36] Question: 2025 EBITDA guidance and OpEx investments - Management confirmed the increase in EBITDA guidance and discussed the ongoing investments in operational expenses to support product launches and growth [38][39] Question: Competitive landscape and market dynamics - Management acknowledged the competitive pressures in the derm and parasiticides markets but emphasized that their differentiated portfolio has allowed them to maintain market share [53]

Core Insights - Elanco Animal Health Incorporated (ELAN) reported quarterly earnings of $0.19 per share, exceeding the Zacks Consensus Estimate of $0.13 per share, and showing an increase from $0.13 per share a year ago, resulting in an earnings surprise of +46.15% [1] - The company achieved revenues of $1.14 billion for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 4.28%, compared to $1.03 billion in the same quarter last year [2] - Elanco Animal Health shares have increased approximately 85.8% since the beginning of the year, significantly outperforming the S&P 500's gain of 15.1% [3] Earnings Outlook - 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 next quarter is $0.13 on revenues of $1.08 billion, and for the current fiscal year, it is $0.89 on revenues of $4.6 billion [7] Industry Context - The Medical - Outpatient and Home Healthcare industry, to which Elanco belongs, is currently ranked in the top 18% of over 250 Zacks industries, indicating a favorable outlook for the sector [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors or through tools like the Zacks Rank [5][6]

Financial Performance - Q3 2025 revenue reached $1.137 billion, a 10% increase compared to $1.030 billion in Q3 2024[32] - Organic constant currency (CC) revenue growth was 9%, driven by a 20% increase in U S Farm Animal and a 9% increase in U S Pet Health[9, 12] - Adjusted EBITDA for Q3 2025 was $198 million, up 21% from $163 million in Q3 2024[34] - Adjusted earnings per share (EPS) increased by 46% to $0 19, compared to $0 13 in Q3 2024[34] Innovation and Portfolio - Year-to-date (YTD) innovation revenue contribution was $655 million, with the 2025 target raised to $840-$880 million[9, 15] - Innovation sales target raised to deliver an incremental $840-$880 million, compared to $275 million in 2024[14, 15] Financial Guidance and Outlook - The company is increasing expected organic CC revenue growth to 6%-6 5%, with adjusted EBITDA of $880-$900 million and adjusted EPS of $0 91-$0 94 for 2025[10] - Full year revenue guidance is $4 645 - $4 670 billion, expecting 6%-6 5% organic CC growth[54] - The company expects an end-of-year net leverage ratio of 3 7x-3 8x[9, 41] Debt and Capital Allocation - Net debt decreased by $153 million in Q3 2025[41] - Refinanced $2 1 billion Term Loan B, extending maturity and lowering the cost of debt[9, 51]

Revenue Performance - Revenue for Q3 2025 was $1,137 million, a 10% increase year-over-year, with 9% organic constant currency growth[5] - Pet Health revenue was $533 million in Q3 2025, a 10% increase year-over-year, driven by new products including Credelio Quattro and Zenrelia[8] - Farm Animal revenue reached $593 million in Q3 2025, a 12% increase year-over-year, with strong sales in cattle and poultry[10] - Revenue for Q3 2025 was $1,137 million, a 10.4% increase from $1,030 million in Q3 2024[37] Profitability Metrics - Adjusted EBITDA for Q3 2025 was $198 million, representing a 21% increase compared to Q3 2024, with an adjusted EBITDA margin of 17.5%[17] - Adjusted EPS for Q3 2025 was $0.19, a 46% increase compared to the same period in 2024[16] - Gross profit for Q3 2025 was $607 million, compared to $538 million in Q3 2024, resulting in a gross margin of 53.1%[39] - Adjusted gross profit for Q3 2025 was $601 million, with an adjusted gross margin percentage of 53.1%[39] Financial Guidance - The company raised its full-year revenue guidance to a range of $4,645 million to $4,670 million, expecting organic constant currency revenue growth of 6% to 6.5%[5] - Elanco plans to provide financial guidance for Q4 and full year 2025 during the conference call[25] - The full year 2025 adjusted EPS guidance is projected to be between $0.91 and $0.94, with reported loss per share guidance ranging from $(0.11) to $(0.08)[50] - The full year 2025 adjusted EBITDA guidance is estimated to be between $880 million and $900 million, with reported net loss guidance ranging from $(56) million to $(41) million[52] Debt and Leverage - The company improved its year-end net leverage ratio target to 3.7x to 3.8x, down from 4.3x at the end of 2024[5] - As of September 30, 2025, the company's net debt was $3,281 million, with a net leverage ratio of 3.7[48] - The company reported a total gross debt of $4,041 million as of September 30, 2025[48] - The company successfully refinanced its $2.1 billion Term Loan B debt facility, improving its debt portfolio's maturity risk profile[9] Expenses - Operating expenses for Q3 2025 were $440 million, a 7% increase year-over-year, driven by strategic investments in new product launches[12] - Research and development expenses for Q3 2025 were $89 million, slightly up from $87 million in Q3 2024[37] - The company reported an interest expense of $52 million for Q3 2025, down from $58 million in Q3 2024[37] Net Income and Loss - Net loss for Q3 2025 was $34 million, compared to a net income of $364 million in Q3 2024[37] - For the three months ended September 30, 2025, adjusted net income was $94 million, resulting in adjusted EPS of $0.19, compared to adjusted net income of $66 million and adjusted EPS of $0.13 for the same period in 2024[40] - The company reported a GAAP net loss of $34 million for the three months ended September 30, 2025, compared to a net income of $364 million for the same period in 2024[40] Future Projections - Reported net loss for Q4 2025 is projected between $(100) million and $(86) million[54] - Adjusted EBITDA guidance for Q4 2025 is estimated to be between $168 million and $188 million[54] - Adjusted EBITDA margin is expected to range from 15.5% to 16.9%[54] Innovation and Market Strategy - Credelio Quattro achieved $100 million in net sales in under eight months, marking it as Elanco's fastest pet health blockbuster[4] - Elanco's innovation revenue is defined as revenue from new products and geographic expansions, excluding cannibalization effects[34] - The company is focused on addressing risks related to competition, regulatory changes, and operational challenges in the animal health industry[30]