Elanco(ELAN) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Elanco reported revenue of $1,193 million for Q1 2025, a decrease of 1% on a reported basis, but achieved 4% organic constant currency growth compared to Q1 2024 [39][40] - Adjusted EBITDA was $276 million, a decrease of $18 million year-over-year, but increased by $8 million when excluding the impact of the Aqua divestiture and foreign exchange headwinds [44][45] - Adjusted EPS improved to $0.37, reflecting a favorable discrete tax rate benefit and interest expense savings from debt reduction [45] Business Line Data and Key Metrics Changes - Total Pet Health revenue increased by 1% in constant currency, with U.S. Pet Health revenue declining by 3% due to a challenging retail environment and soft vaccine demand, while international Pet Health grew by 5% [40][41] - The U.S. Farm Animal business grew by 17%, driven by strong demand for Experior and the launch of Pradillac, while international farm animal revenue increased by 2% [42][43] - Innovation revenue reached $198 million in Q1, leading to an increase in full-year expectations for innovation contributions to $660 million to $740 million [6][18] Market Data and Key Metrics Changes - U.S. retail experienced a decline of 21% in January and February due to adverse weather, but rebounded to a positive 13% growth in March [13][16] - International Pet Health growth was driven by products like AdTab, Credelio, and Seresto, with AdTab doubling its revenue year-over-year [16][41] - The U.S. Farm Animal business saw significant growth, particularly in cattle, with Experior leading the way [17][31] Company Strategy and Development Direction - Elanco's strategy focuses on innovation, cash management, and a global operating model to navigate external uncertainties [7][10] - The company is committed to maintaining a balanced profile of risks and implementing mitigating strategies against tariffs and macroeconomic challenges [10][11] - Continued investment in product launches and facility expansions is planned, with a focus on long-term value creation [38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 2025 goals, citing strong Q1 performance and positive trends in March and April [48][52] - The company is prepared to address potential economic slowdowns and tariff impacts while leveraging favorable foreign exchange rates [11][48] - Management emphasized the importance of innovation and a diverse product portfolio in driving growth [34][35] Other Important Information - Elanco announced the monetization of its Lotta Lantern U.S. royalties for $295 million, which will aid in deleveraging efforts [37] - The company expects to maintain its full-year adjusted EBITDA and adjusted EPS guidance despite external challenges [10][48] Q&A Session Summary Question: Can you elaborate on the Q2 guidance and the impact of investments on EBITDA? - Management confirmed that Q2 investments are aimed at supporting product launches during the peak parasiticide season, which may dampen near-term EBITDA but are expected to drive revenue growth in the second half [57][59] Question: What is the expected impact of tariffs on EBITDA? - Management indicated a potential $25 million EBITDA tailwind from favorable foreign exchange rates, which has not been reflected in the current guidance due to uncertainties surrounding the pharma exemption [60][62] Question: Can you provide more details on the ZENRELIA label change? - Management confirmed ongoing constructive dialogue with the FDA regarding label changes, with expectations for feedback in the second half of the year [63][64] Question: What are the key drivers of innovation revenue growth? - Management highlighted the strong performance of the innovation portfolio, particularly ZENRELIA and Credelio Quattro, as significant contributors to the increase in innovation revenue expectations [70][92] Question: How is the macro environment affecting consumer spending? - Management noted that while monitoring consumer spending is essential, Elanco's diversified capabilities and innovation position the company well to navigate potential economic fluctuations [103][106]