Elanco Animal Health Incorporated Q3 FY2025 earnings call

• Elanco grew 9% organic constant currency in the quarter, outperforming guidance for revenue, adjusted EBITDA, and adjusted EPS.
• Innovation revenue year-to-date reached $655 million, with plans to raise full-year innovation revenue guidance by $100 million to $840 million to $880 million.
• Net leverage ratio improved to 3.7x at quarter-end, expected to end 2025 at 3.7x to 3.8x. Refinanced $2.1 billion Term Loan B facility, extending maturities to 2032.
• Key innovation products: Credelio Quattro became Elanco's fastest pet health blockbuster, Zenrelia showing strong momentum in global dermatology market, AdTab growing in Europe, Experior rapidly growing in U.S. cattle, and Bovaer continuing growth but at a measured pace.
• IPP strategy: Refilled innovation pipeline, IL-31 on track for commercialization in 2026, life cycle management strengthening portfolio, 2% price growth year-to-date expected to continue, and Elanco Ascend program driving efficiencies.

Elanco's third quarter showed strong growth. U.S. Farm Animal grew 20%, U.S. pet health up 9%, International pet health up 8%, and International farm animal up 5%. Organic constant currency growth was 9% for the quarter. U.S. Farm Animal led growth with 20% increase, driven by cattle products like Experior and Pradalex. U.S. pet health saw 9% growth, boosted by Credelio Quattro and Zenrelia. International pet health grew 8% due to Zenrelia, Credelio, and AdTab. International farm animal had 5% growth from poultry and ruminants.

• Full-year organic constant currency growth expected to be 6%-6.5%, adjusted EBITDA $880 million to $900 million, adjusted EPS $0.91 to $0.94.
• Fourth quarter organic constant currency revenue growth expected 4%-6%, reported revenue $1.085 billion to $1.11 billion, adjusted EBITDA $168 million to $188 million, adjusted EPS $0.09 to $0.12.
• 2026 expects sustainable competitive revenue growth via innovation, price contribution, and Elanco Ascend program for margin expansion, with interest expense expected to increase by ~$15 million.

• Tariffs: Potential impact, but mitigation actions and current guidance consider manageable risk.
• Product approval delays: Uncertainties with IL-31 commercialization due to factors like government shutdowns.
• Macroeconomic uncertainties: Could affect business performance despite current strong momentum.

Q: Congrats on the quarter. Clarify Quattro's sales and innovation basket ex Quattro.

A: Quattro reached $100 million in net sales in less than 8 months, fastest pet health blockbuster. Innovation basket ex Quattro has strong growth with other products like Zenrelia, AdTab contributing.

Q: Color on U.S. Zenrelia cleaner label aspirations and timing.

A: Zenrelia has strong momentum, data submitted to FDA for label update to align with international markets, with 13 months of use in U.S. and 35 country approvals supporting potential label change.

Q: 2025 EBITDA guidance and OpEx investments.

A: 2025 EBITDA midpoint raised to $890 million due to strong Q3 performance and incremental OpEx investments, with continued data-driven approach to launches in 2026.

Q: Thoughts on consumer macro pressure and U.S. vet visit declines.

A: Elanco is insulated by strong growing markets, differentiated innovation, diverse portfolio, and omnichannel strategy, positioning well despite macro challenges.

Q: Competition in innovation products and margins.

A: Elanco's innovation basket has margins above corporate gross margins, with strong differentiation and competitive position, leveraging Elanco Ascend for further margin improvement.

Q: Innovation sales guide increase and drivers.

A: Innovation sales guide increased by $100 million due to strong performance of products like Credelio Quattro, Zenrelia, AdTab, with momentum continuing into 2026.

Q: Zenrelia launch in Europe and Quattro channel mix.

A: Zenrelia launch in Europe is ahead of expectations, with head-to-head study data supporting strong performance. Quattro has strong growth from switches, new starts, and repeat patients, with puppy index as a lead indicator.

Q: OpEx growth and 2026 top line.

A: 2025 OpEx growth reflects data-driven investments, with Elanco Ascend program driving efficiencies, and 2026 expected to have top line growth supported by strong market fundamentals and innovation.

Q: Pricing and promotional strategy for Zenrelia, Quattro, and Bovaer.

A: Pricing aligned with customer value, multipronged approach for commercial success, Bovaer supported by CPG demand and repositioning strategy.

Q: Pet health pricing and Zenrelia distribution changes.

A: Pet health pricing aligns with customer value, excluding launches from pricing calculation, and Zenrelia has strong distribution relationships with consistent partnerships despite competitor changes.