Elanco(ELAN) - 2024 Q1 - Quarterly Report

Forward-Looking Statements and Risk Factor Summary Forward-Looking Statements Forward-looking statements are based on current expectations and assumptions, subject to inherent uncertainties and risks that may cause actual results to differ materially - Forward-looking statements are based on current expectations and assumptions, subject to inherent uncertainties, risks, and changes in circumstances that could cause actual results to differ materially[10] Risk Factor Summary Key risk factors include competitive industry dynamics, R&D success, regulatory changes, operational challenges, financial leverage, and macroeconomic conditions - Key risk factors include operating in a highly competitive industry, success of R&D and licensing efforts, impact of disruptive innovations, competition from generic products, changes in regulatory restrictions, and risks related to infectious disease outbreaks[11] - Financial risks include substantial indebtedness, changes in interest rates, goodwill write-downs, and foreign currency exchange rate fluctuations[11] - Operational and strategic risks encompass the ability to complete acquisitions/divestitures, implement business strategies, manage manufacturing problems, address IT system breaches, and navigate legal, regulatory, and environmental challenges[11][14] PART I. Financial Information Item 1. Financial Statements Elanco's unaudited Q1 2024 condensed consolidated financial statements are presented, covering operations, comprehensive income, balance sheets, equity, and cash flows, with detailed notes Condensed Consolidated Statements of Operations (Unaudited) | Metric (in millions) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | % Change | | :------------------------- | :----------------------------- | :----------------------------- | :------- | | Revenue | $1,205 | $1,257 | (4)% | | Net income | $32 | $103 | (69)% | | Basic EPS | $0.06 | $0.21 | (71.4)% | | Diluted EPS | $0.06 | $0.21 | (71.4)% | | Cost of sales | $515 | $494 | 4% | | R&D | $87 | $81 | 7% | | Marketing, selling & admin | $337 | $327 | 3% | | Income before income taxes | $12 | $108 | (89)% | | Income tax (benefit) expense | $(20) | $5 | NM | Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) | Metric (in millions) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net income | $32 | $103 | | Other comprehensive (loss) income, net of taxes | $(199) | $82 | | Comprehensive (loss) income | $(167) | $185 | Condensed Consolidated Balance Sheets | Metric (in millions) | March 31, 2024 | December 31, 2023 | Change (in millions) | | :------------------------ | :------------- | :---------------- | :------------------- | | Total assets | $14,019 | $14,362 | $(343) | | Total liabilities | $7,963 | $8,139 | $(176) | | Total equity | $6,056 | $6,223 | $(167) | | Cash and cash equivalents | $345 | $352 | $(7) | | Accounts receivable, net | $988 | $842 | $146 | | Inventories | $1,638 | $1,735 | $(97) | | Assets held for sale | $651 | $0 | $651 | | Goodwill | $4,478 | $5,094 | $(616) | | Long-term debt | $5,727 | $5,736 | $(9) | Condensed Consolidated Statements of Equity (Unaudited) - Total equity decreased from $6,223 million at December 31, 2023, to $6,056 million at March 31, 2024[22][24] - Net income contributed $32 million to equity, while other comprehensive loss, net of tax, reduced equity by $199 million[24] - Stock-based compensation activity resulted in 1.2 million additional shares outstanding[24] Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity (in millions) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change (in millions) | | :---------------------------------------- | :----------------------------- | :----------------------------- | :------------------- | | Operating activities | $2 | $(145) | $147 | | Investing activities | $37 | $(55) | $92 | | Financing activities | $(27) | $174 | $(201) | | Net decrease in cash and cash equivalents | $(7) | $(27) | $20 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Basis of Presentation and Summary of Significant Accounting Policies Unaudited financial statements are prepared per SEC interim reporting, with interim results not indicative of full-year performance, and estimates subject to variation - Financial statements are unaudited and prepared per SEC interim reporting rules, condensing GAAP disclosures[30] - Interim results are not indicative of full-year performance[30] - Estimates and assumptions are made, and actual results may differ[31] Note 2. New Financial Accounting Pronouncements The company is assessing ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), effective for fiscal years after December 31, 2023, and 2024 - ASU 2023-07 (Segment Reporting) is effective for fiscal years beginning after December 31, 2023, aiming to improve disclosures about significant segment expenses[33] - ASU 2023-09 (Income Taxes) is effective for fiscal years beginning after December 31, 2024, aiming to enhance transparency of income tax disclosures[33] - The company is currently assessing the impact of both ASUs on its consolidated financial statements and footnote disclosures[33] Note 3. Revenue Revenue from product sales is recognized upon shipment, with rebates reducing revenue, and is disaggregated by product category and geographic area - Revenue from product sales is recognized when the customer obtains control of goods, typically upon shipment[34] - Sales rebates and discounts are recorded as a reduction to revenue based on specific agreements and estimates[36] | Category | 2024 (in millions) | 2023 (in millions) | | :--------------------- | :----------------- | :----------------- | | Pet Health | $639 | $675 | | Farm Animal | $556 | $573 | | Contract Manufacturing | $10 | $9 | | Total Revenue | $1,205 | $1,257 | | Region | 2024 (in millions) | 2023 (in millions) | | :------------ | :----------------- | :----------------- | | United States | $531 | $543 | | International | $674 | $714 | | Total Revenue | $1,205 | $1,257 | [Note 4. Acquisitions, Divestitures and Other Arrangements](index=12&type=section&id=Note%204.%20Acquisitions