Elanco(ELAN) - 2025 Q1 - Quarterly Report

PART I - Financial Information Financial Statements Unaudited condensed consolidated financial statements for Q1 2025 show $1.193 billion revenue, $67 million net income, and $12.94 billion total assets | | Three Months Ended March 31, | | :--- | :--- | :--- | | (in millions, except per-share data) | 2025 | 2024 | | Revenue | $1,193 | $1,205 | | Gross profit | $684 | $690 | | Income before income taxes | $60 | $12 | | Net income | $67 | $32 | | Diluted EPS | $0.13 | $0.06 | | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | (in millions) | (Unaudited) | | | Total current assets | $3,440 | $3,215 | | Total assets | $12,941 | $12,614 | | Total current liabilities | $1,269 | $1,315 | | Total liabilities | $6,588 | $6,518 | | Total equity | $6,353 | $6,096 | | | Three Months Ended March 31, | | :--- | :--- | :--- | | (in millions) | 2025 | 2024 | | Net Cash (Used for) Provided by Operating Activities | ($4) | $2 | | Net Cash (Used for) Provided by Investing Activities | ($58) | $37 | | Net Cash Provided by (Used for) Financing Activities | $52 | ($27) | | Net increase (decrease) in cash and cash equivalents | $19 | ($7) | Notes to Financial Statements Key notes detail revenue disaggregation, the 2024 aqua business divestiture, total debt, a May 2025 royalty sale, and ongoing shareholder lawsuits | Product Category | Q1 2025 Revenue (in millions) | Q1 2024 Revenue (in millions) | | :--- | :--- | :--- | | Pet Health | $635 | $639 | | Farm Animal | $546 | $556 | | Contract Manufacturing and Other | $12 | $10 | | Total Revenue | $1,193 | $1,205 | - In July 2024, the company sold its aqua business to Merck Animal Health for $1.294 billion in cash, recognizing a pre-tax gain of $640 million; the divested assets had a carrying value of $634 million, including $458 million in goodwill[41][42] - Total long-term debt, including the current portion, was $4.42 billion as of March 31, 2025, with approximately 80% bearing a fixed interest rate, inclusive of interest rate swaps[46][49] - The company is defending against several shareholder lawsuits, including class actions and derivative actions, related to allegations of misleading statements about product safety (Zenrelia), launch timelines, and financial disclosures[66][67][68] - In May 2025, after the quarter's end, Elanco sold the rights to future U.S. royalties and certain milestones for the human health product XDEMVY to Blackstone for $295 million[77] Management's Discussion and Analysis (MD&A) Management discusses Q1 2025 financial results, including a 1% revenue decrease, doubled net income, key product launches, and sufficient liquidity Business Overview and Key Developments Elanco, a global animal health leader, highlights key product approvals and launches, alongside the strategic divestiture of its aqua business - Key product innovation and launch highlights include: Bovaer (FDA approval in May 2024 for a first-in-class methane-reducing feed ingredient); Zenrelia (FDA approval in September 2024 for a canine dermatitis treatment); and Credelio Quattro (FDA approval in October 2024 for a comprehensive chewable parasiticide for dogs, launched in January 2025)[82] - The divestiture of the aqua business was completed on July 9, 2024, for $1.294 billion in cash, resulting in a $640 million pre-tax gain[87] - The business experiences seasonality, particularly in Pet Health, where key parasiticide products like Seresto and Advantage Family generated 70% and 55% of their respective 2024 annual revenues in the first half of the year[89] Results of Operations Q1 2025 total revenue decreased 1% to $1.193 billion, with Pet Health down 1% and Farm Animal down 2%, while net income significantly increased to $67 million | (Dollars in millions) | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,193 | $1,205 | (1)% | | Gross profit | $684 | $690 | (1)% | | Asset impairment, restructuring | $9 | $46 | (80)% | | Interest expense, net | $40 | $66 | (39)% | | Net income | $67 | $32 | 109% | | (Dollars in millions) | Revenue | Price | FX Rate | Volume | Divestiture | Total % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Pet Health | $635 | 2% | (2)% | (1)% | —% | (1)% | | Farm Animal | $546 | 3% | (3)% | 4% | (6)% | (2)% | | Total | $1,193 | 2% | (2)% | 2% | (3)% | (1)% | - Pet Health revenue decreased 1% due to lower volumes from a prior year channel stocking event and a challenging U.S. retail environment, partially offset by new product revenue and strong demand in Europe[95] - Farm Animal revenue decreased 2%, as the impact of the aqua business divestiture and unfavorable FX outweighed a 4% increase in volumes (led by U.S. cattle) and a 3% price increase[96] - Interest expense decreased by $26 million (39%) compared to the prior year, primarily due to lower average outstanding debt balances[102] Liquidity and Capital Resources Primary liquidity sources include $487 million cash, operating cash flow, and over $825 million in credit facilities, deemed sufficient to meet obligations | (in millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash from Operating activities | $(4) | $2 | | Net cash from Investing activities | $(58) | $37 | | Net cash from Financing activities | $52 | $(27) | | Net change in cash | $19 | $(7) | - As of March 31, 2025, the company had $487 million in cash, approximately $750 million available on its Revolving Credit Facility, and approximately $75 million available on its Securitization Facility[107] - Cash used for investing activities was $58 million, primarily due to $65 million in purchases of property, equipment, and software, an increase of $41 million from the prior year, mainly for the expansion of the monoclonal antibody manufacturing facility in Elwood, Kansas[111] Market Risk Disclosures Elanco is exposed to foreign currency and interest rate risks, mitigated by derivative instruments, with approximately 80% of long-term debt at a fixed rate - The company is exposed to foreign currency exchange risk, primarily with respect to the Euro, British pound, Swiss franc, Brazilian real, Australian dollar, Japanese yen, Canadian dollar, and Chinese yuan[118] - To manage interest rate risk, the company uses interest rate swaps; including these swaps, approximately 80% of its long-term indebtedness bears interest at a fixed rate as of March 31, 2025[120] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Management, with the participation of the CEO and CFO, evaluated disclosure controls and procedures as of March 31, 2025, and concluded they were effective[122] - There were no changes in internal control over financial reporting during the first quarter of 2025 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[123] PART II - Other Information Other Information (Items 1-5) This section refers to Note 11 for legal proceedings, the 2024 Form 10-K for risk factors, and confirms no unregistered equity sales or new trading plans - For a summary of legal proceedings, the report refers to Note 11. Commitments and Contingencies in the financial statements[126] - There have been no material changes from the risk factors previously disclosed in the company's 2024 Form 10-K[127]