Elanco Animal Health, Inc. Q1 FY2025 earnings call

• Elanco exceeded first quarter guidance for revenue, adjusted EBITDA, and adjusted EPS, with 4% organic constant currency revenue growth. - Innovation revenue for the year was raised to $660 million to $740 million, with new products like Credelio Quattro off to a strong start. - The company is deleveraging faster than planned, revising the net leverage target for year-end to 3.9x to 4.3x. - Maintained organic constant currency growth outlook of 4% to 6% for 2025, with Q2 expected to have 4% to 6% growth. - Highlighted progress of key products: Zenrelia has seen increased clinic penetration, Credelio Quattro launched well with strong vet response, AdTab showed accelerating growth in Europe, and farm animal products like Experior and Pradalex performed strongly. - Monetized Lotilaner U.S. Royalties for $295 million, contributing to cash and deleveraging efforts.

Elanco achieved 4% organic constant currency revenue growth in the first quarter. In pet health: U.S. pet health saw March rebound to 13% growth and April strength; Vet clinic revenue was flat, but excluding legacy Bayer impact, it would be ~8%. International pet health had 5% organic constant currency revenue growth driven by AdTab, Credelio, and Seresto. In farm animal: U.S. farm animal was up 17% with Experior leading; international farm animal was up 2% but faced headwinds from Kexxtone recall and commercial model changes. Innovation revenue in Q1 was $198 million, and full-year innovation revenue guidance was raised to $660 million to $740 million.

• Maintained organic constant currency revenue growth outlook of 4% to 6% for 2025, with revenue guidance raised for FX. - Kept full-year adjusted EBITDA outlook at $830 million to $870 million and adjusted EPS outlook at $0.80 to $0.86. - Q2 revenue expected to be between $1.175 billion and $1.195 billion, adjusted EBITDA between $200 million and $220 million, and adjusted EPS between $0.17 and $0.21. - Anticipates between $450 million and $500 million of cash available for debt paydown in 2025, aiming for end-of-year net leverage of 3.9x to 4.3x adjusted EBITDA.

• Tariff impact: Estimated net impact on 2025 adjusted EBITDA from tariffs is $16 million to $20 million, with potential incremental exposure if the pharma exemption is removed. - Macroeconomic challenges: Including tariff and trade impacts, regulatory and policy changes, and shifts in consumer sentiment and spending.

Q: Jon Block from Stifel inquired about 2Q guidance, tariffs, and Zenrelia label change.

A: Todd Young stated that Q2 investments are for key product launches such as Credelio Quattro with a no regrets launch approach. There is a $25 million EBITDA tailwind from FX, and Jeff Simmons discussed the progress of Zenrelia label change with the FDA.

Q: Michael Ryskin from Bank of America asked about innovation updates and Credelio Quattro.

A: Jeff Simmons emphasized the Big 6 innovations and Credelio Quattro's strong start, while Todd Young mentioned the FX tailwind.

Q: Andrea Alfonso from UBS asked about Zenrelia ramp and innovation revenue drivers.

A: Jeff Simmons talked about Zenrelia's clinic penetration, and Todd Young said the innovation revenue raise is from the complete portfolio.

Q: Brandon Vazquez from William Blair asked about innovation revenue contributors and the macro environment.

A: Jeff Simmons and Todd Young discussed Experior as a major driver and Elanco's insulated position from pet visit changes.

Q: Ekaterina Knyazkova from JPMorgan asked about tariffs and Zenrelia Europe launch.

A: Jeff Simmons discussed tariff price mitigation, and Todd Young talked about Zenrelia Europe launch progress.

Q: Navann Ty from BNP Paribas asked about the U.S. retail environment and pricing.

A: Jeff Simmons and Todd Young discussed the rebound of the U.S. retail environment and the 2% price expectation for the year.

Q: Mike DiFiore from Evercore ISI asked about Zenrelia label change and the livestock market.

A: Jeff Simmons and Todd Young discussed Zenrelia label change timelines and Elanco's position in the livestock market.

Q: Erin Wright from Morgan Stanley asked about distributor stocking and the livestock market.

A: Todd Young and Jeff Simmons discussed distributor stocking dynamics and the stability of the livestock market.