Financial Performance - Elanco Animal Health reported first-quarter 2025 adjusted earnings per share of 37 cents, a 9% increase year over year, surpassing management guidance of 29 to 34 cents and consensus of 31 cents [1] - The company achieved sales of $1.19 billion, exceeding the consensus of $1.17 billion and management guidance of $1.16 billion to $1.18 billion, although sales decreased 1% on a reported basis but increased 4% on organic constant currency growth [1] Segment Performance - Pet Health revenue was $635 million, reflecting a 1% decrease on a reported basis but a 1% increase when excluding foreign exchange rates, with a 2% increase from price compared to Q1 2024 [2] - Farm Animal revenue was $546 million, a 2% decrease on a reported basis, but a 7% increase when excluding unfavorable impacts from aqua divestiture and foreign exchange rates, driven by a 3% increase from price [3] - First-quarter volumes for Farm Animal were up 4%, primarily due to strength in U.S. cattle, led by the product Experior [3] EBITDA and Leverage - Adjusted EBITDA was $276 million, a decrease of 6%, with an adjusted EBITDA margin of 23.1% compared to 24.4% a year ago [3] - As of March 31, Elanco's net leverage ratio was 4.4x adjusted EBITDA, an increase of 0.1x compared to December 31, 2024, with expectations of gross debt paydown of $450 million to $500 million in 2025 [4] Guidance and Future Outlook - The company raised its 2025 full-year revenue guidance from $4.45 billion to $4.51 billion, now expecting between $4.51 billion and $4.58 billion, compared to the consensus of $4.484 billion [7] - Elanco reaffirmed its 2025 adjusted EPS guidance of 80 to 86 cents, against the consensus of 83 cents, and expects second-quarter 2025 adjusted earnings of 17 to 21 cents, compared to the consensus of 25 cents [8] Market Context - The year-over-year volume decline in Q1 was primarily due to a challenging U.S. retail environment and decreased vaccine sales, offset by increased sales of new products and strong demand for parasiticide products in Europe [9] - The Advantage Family of products and Seresto contributed revenues of $123 million and $153 million, respectively [9]

Financial Data and Key Metrics Changes - Fourth quarter revenue was $1.02 billion, representing a 1% reported decline, but organic constant currency growth was 4% [46] - Adjusted EBITDA for the fourth quarter was $177 million, an increase of $12 million on a reported basis [54] - Full year adjusted EPS came in at $0.91 compared to $0.89 in 2023, reflecting a year-over-year growth [58] Business Line Data and Key Metrics Changes - Total Pet Health revenue increased 6% in constant currency in the fourth quarter, with U.S. Pet Health growing 2% and international Pet Health growing 11% [47][48] - U.S. Farm Animal business achieved $223 million in sales, a 6% increase, driven by cattle market expansion [49] - International Farm Animal revenue was flat, impacted by the Kexxtone recall and strategic changes in certain geographies [50] Market Data and Key Metrics Changes - The U.S. dermatology market is projected to surpass $2 billion, with Zenrelia capturing significant market share [80] - The global carbon market for Bovaer is estimated to be $2 billion, with strong demand from farmers [38] - The U.S. dairy farmers earned approximately $10 million in credits from using Rumensin in the fourth quarter [39] Company Strategy and Development Direction - The company is focused on growth, innovation, and cash generation, with expectations for 2025 organic constant currency revenue growth of 4% to 6% [12][73] - Strategic divestiture of the aqua business has allowed for debt reduction and increased investments in product launches [10][20] - The company aims to leverage its comprehensive portfolio to enhance market share in both Pet Health and Farm Animal sectors [22][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in accelerating fundamentals for 2025, despite challenges from foreign exchange impacts [14][72] - The company anticipates continued growth from innovation and a stabilization of its base business [13][42] - Management highlighted the importance of effective commercial execution and the positive reception of new product launches [72] Other Important Information - The company achieved a net leverage ratio of 4.3 times at the end of the year, down from 5.6 times at the start of 2024 [20] - The company launched five new U.S. product approvals in 2024, contributing to a robust innovation pipeline [28] - The company expects adjusted EBITDA for 2025 to be between $830 million and $870 million, factoring in foreign exchange headwinds [64] Q&A Session Summary Question: What is the expected penetration of Zenrelia by year-end 2025? - Management indicated that Zenrelia is experiencing strong adoption, with a focus on increasing clinic penetration through aggressive sampling and direct-to-consumer efforts [81][84] Question: What factors contribute to the accelerating revenue growth in Q1 2025? - Management noted that the growth is driven by the ramp-up of Zenrelia and Credelio Quattro, alongside the absence of headwinds faced in the previous year [88][89] Question: What gives confidence in the innovation contribution for 2025? - Management highlighted strong momentum from products like Experior and AdTab, as well as the growth potential in the dermatology market with Zenrelia and Quattro [96][97] Question: How is the early launch of Credelio Quattro performing? - Management reported positive initial momentum, with strong veterinarian interest and a comprehensive commercialization strategy in place [115][116] Question: What are the dynamics behind the surge in Galliprant sales? - Management attributed the surge to its strong safety profile and effective marketing strategies, expecting continued performance into 2025 [120] Question: How does the company view the competitive environment in dermatology? - Management acknowledged competition as a headwind but emphasized the growing market and unmet needs that present opportunities for growth [125][126]