- First Quarter 2023 Financial Results
- Revenue of $1,257 million, including an estimated $90-$110
million benefit from customer purchasing shifted from the second
quarter into the first as a result of ERP system commercial
ordering blackout period for legacy Bayer Animal Health products in
April
- Reported Net Income of $103 million, Adjusted Net Income of
$220 million
- Adjusted EBITDA of $379 million or 30.2% of Revenue
- Reported EPS of $0.21, Adjusted EPS of $0.45
- Net leverage ratio of 5.4x Adjusted EBITDA
- Raising the bottom end of full year 2023 guidance ranges to
reflect current assumptions:
- Revenue of $4,310 to $4,400 million
- Reported Net Loss of $(134) to $(98) million, Reported
diluted EPS of $(0.27) to $(0.20)
- Adjusted EPS of $0.76 to $0.83, Adjusted EBITDA of $940 to
$1,000 million
- Net leverage ratio expected at 5.3x to 5.8x Adjusted EBITDA
at year-end 2023
- Successful integration of legacy Bayer Animal Health
business into Elanco’s ERP system and shared service center network
with all affiliates and sites resuming normal operations in April,
as scheduled
- Received USDA conditional approval for breakthrough Canine
Parvovirus Monoclonal Antibody treatment; Initiated USDA submission
for IL-31 monoclonal antibody for canine dermatology
Elanco Animal Health Incorporated (NYSE: ELAN) today reported
financial results for the first quarter of 2023, provided guidance
for the second quarter of 2023, and raised the bottom-end of
guidance for the full year 2023.
“Elanco delivered sequentially improved underlying business
performance in the first quarter driven by recovering business
conditions and actions we have taken to strengthen our commercial
positioning, notably in U.S. Pet Health driven by improved share of
voice, physical availability, price and innovation. In April, we
achieved a major milestone with the successful integration of the
Bayer Animal Health business into our ERP system, with the first
quarter benefiting from customers shifting their purchases ahead of
our system blackout. We expect lower revenue in the second quarter
as a result of this shift,” said Jeff Simmons, Elanco president and
CEO. “I am very pleased with the progress on Seresto as we continue
to align with the EPA on its recommended stewardship actions
supporting the continued registration of Seresto. We received USDA
conditional approval for our breakthrough Canine Parvovirus
Monoclonal Antibody treatment and initiated USDA submission for our
IL-31 monoclonal antibody for canine dermatology.”
“The combination of advancing innovation, reducing uncertainty
with the successful ERP integration and increased confidence in our
U.S. Pet Health and international poultry businesses, allow us to
confidently raise the bottom end of our first half and full year
2023 guidance for our key metrics. We are focused on delivering an
expected return to top-line growth in the second half of the year,
while also dedicating resources as we prepare to bring up to four
additional potential blockbuster products to market in 2024."
Financial Highlights
First Quarter Results
(dollars in millions, except per share
amounts)
2023
2022
Change (%)
CC Change(1) (%)
Pet Health
$675
$640
5
%
8
%
Farm Animal
$573
$569
1
%
5
%
Cattle
$248
$247
0
%
4
%
Poultry
$183
$180
2
%
6
%
Swine
$102
$99
3
%
9
%
Aqua
$40
$43
(7
)%
(5
)%
Contract Manufacturing
$9
$17
(47
)%
(41
)%
Total Revenue
$1,257
$1,226
3
%
6
%
Reported Net Income
$103
$51
102
%
Adjusted EBITDA
$379
$338
12
%
Reported EPS
$0.21
$0.10
110
%
Adjusted EPS
$0.45
$0.36
25
%
(1) CC = Constant Currency, representing
the growth rate excluding the impact of foreign exchange rates.
Numbers may not add due to rounding.
In the first quarter of 2023, revenue was $1,257 million, an
increase of 3% on a reported basis, or an increase of 6% excluding
the unfavorable impact from foreign exchange rates, compared to the
first quarter of 2022. Revenue in the period benefited from
customer purchases of legacy Bayer Animal Health products that the
company believes were shifted from the second quarter of 2023 into
the first quarter as a result of communicated commercial shipping
blackout periods in April resulting from the company’s ERP system
integration (the “ERP Blackout”). The company estimates $90 million
to $110 million of revenue benefit in the first quarter, or an
estimated 7 to 9 percentage point benefit to growth, as a result of
the ERP Blackout. The system integration was executed in line with
the company’s expectations with all affiliates and sites resuming
normal operations throughout April, including production, order
taking and product shipping to customers. The U.S. market resumed
shipments on April 10, while other affiliates resumed commercial
operations in a staged approach through April 27. Beyond the ERP
Blackout, an improving global environment and positive outcomes
from actions the company has taken to strengthen market positioning
drove sequential improvement in the underlying business in the
first quarter compared to the 7% constant currency decline in the
fourth quarter of 2022.
The following table summarizes the estimated impact from the ERP
Blackout on Pet Health and Farm Animal revenue:
First Quarter Results
(dollars in millions)
2023
CC Change(1) (%)
Estimated ERP Blackout Impact
(%)
Estimated ERP Blackout Impact
($)
Pet Health
$675
8
%
10% to 12%
$65 to $80
Farm Animal
$573
5
%
4% to 5%
$25 to $30
Contract Manufacturing
$9
(41
)%
—%
$—
Total Revenue
$1,257
6
%
7% to 9%
$90 to $110
Pet Health revenue was $675 million, a 5% increase on a
reported basis or 8% excluding the unfavorable impact from foreign
exchange rates, with a 5% increase from price, compared to the
first quarter of 2022. Excluding the estimated ERP Blackout impact,
the decline in the first quarter was primarily driven by supply
constraints for certain vaccines, continued competitive pressure on
certain parasiticide products and declines in retail products
notably in Europe, partially offset by improved price and
innovation launches. While the underlying Pet Health business has
not yet returned to growth (excluding the estimated ERP Blackout
benefit), the business improved sequentially from the 11% constant
currency decline in the fourth quarter of 2022.
The Advantage® Family of products contributed $155 million, an
increase of 17% excluding the unfavorable impact from foreign
exchange rates, with an estimated 16 percentage point benefit from
the ERP Blackout. Seresto revenue was $178 million, an increase of
14% excluding the unfavorable impact from foreign exchange rates,
with an estimated 23 percentage point benefit from the ERP
Blackout. Excluding the estimated benefit from the ERP Blackout,
both products grew in the U.S., but declined outside the U.S.
Farm Animal revenue was $573 million, a 1% increase on a
reported basis or 5% excluding the unfavorable impact from foreign
exchange rates, with a 5% increase from price compared to the first
quarter of 2022. Excluding the estimated ERP Blackout impact, the
year over year change in the first quarter was primarily driven by
strength in Europe and Asia, led by poultry, innovation revenue and
improved price, offset by poultry rotations in the US, generic
pressure, timing of Aqua purchases in the prior period and supply
constraints for cattle vaccines in the U.S. Similar to the Pet
Health business, Farm Animal revenue improved sequentially from the
3% constant currency decline in the fourth quarter of 2022.
Contract Manufacturing revenue was $9 million, a decrease
of 47% or 41% excluding the unfavorable impact from foreign
exchange rates, driven primarily by disruptions in supply from the
company’s vaccine manufacturing facility.
Reported gross profit was $763 million, or 60.7% of revenue, and
adjusted gross profit was $764 million, or 60.8% of revenue, in the
first quarter of 2023. Reported gross profit as a percent of
revenue increased 220 basis points. Adjusted gross profit as a
percent of revenue improved 230 basis points, primarily driven by
improved price and continued productivity efforts across the
company's manufacturing footprint, partially offset by inflation.
The company estimates gross profit as a percent of revenue
benefited by an estimated 130 to 170 basis points from the
estimated incremental $90 million to $110 million of legacy Bayer
Animal Health revenue from the ERP Blackout in the period, as the
average gross margin of those products is greater than Elanco's
overall average gross margin.
Total operating expense was $408 million for the first quarter
of 2023. Marketing, selling and administrative expenses increased
1% to $327 million, and research and development expenses were flat
at $81 million. The increase in total operating expenses was
primarily driven by higher employee related expenses, partially
offset by a favorable impact from foreign exchange rates.
Asset impairment, restructuring and other special charges were
flat at $40 million in the first quarter of 2023. Charges recorded
in the first quarter of 2023 primarily related to costs associated
with the implementation of new systems, programs and processes due
to the integration of Bayer Animal Health. The ERP system go-live
was completed in April 2023, with continued performance
optimization expected over the next several quarters.
Reported and adjusted net interest expense was $64 million in
the first quarter of 2023, an increase of $12 million, compared to
the first quarter of 2022. The impact of the partial repayment of
the company's senior notes in April 2022 was more than offset by
the impact of rate increases on variable rate debt.
The reported effective tax rate decreased to 4.4% in the first
quarter of 2023 compared to 31.6% in the first quarter of 2022,
primarily driven by the jurisdictional location of Elanco profits
and refinements in the calculation of required capitalization of
certain R&D expenses. The adjusted effective tax rate decreased
from 29.7% in the first quarter of 2022 to 21.9% in the first
quarter of 2023, primarily driven by the jurisdictional location of
profits and certain unfavorable return to provision adjustments
that impacted the first quarter of 2022.
Net income for the first quarter of 2023 was $103 million and
$0.21 per diluted share on a reported basis, compared with net
income of $51 million and $0.10 per diluted share for the same
period in 2022. On an adjusted basis, net income for the first
quarter of 2023 was $220 million, or $0.45 per diluted share, a 25%
increase compared with the same period in 2022. The company
estimates adjusted EPS in the first quarter includes a $0.11 to
$0.14 benefit from the ERP Blackout, assuming a corporate
consolidated tax rate of 21.9%.
Adjusted EBITDA was $379 million in the first quarter of 2023, a
12% increase compared to the first quarter of 2022. Adjusted EBITDA
as a percent of revenue was 30.2% compared with 27.6% for the first
quarter of 2022, an increase of 260 basis points. The company
estimates adjusted EBITDA in the first quarter includes a $70
million to $90 million benefit from the ERP Blackout, or a 370 to
460 basis point benefit in adjusted EBITDA as a percent of
revenue.
The following table summarizes the estimated impact from the ERP
Blackout on Adjusted EBITDA and Adjusted EPS:
First Quarter Results
(dollars in millions, except per share
amounts)
2023
Change (%)
Estimated ERP Blackout
Impact
Adjusted EBITDA
$379
12%
$70 to $90
Adjusted EPS
$0.45
25%
$0.11 to $0.14
Working Capital and Balance
Sheet
Cash used in operations was $145 million in the first quarter of
2023 compared to $62 million in the first quarter of 2022. The
decrease in cash from operations in the first quarter of 2023
reflects increases in accounts receivable, cash interest and
inventories, partially offset by higher net income.
As of March 31, 2023, Elanco’s net leverage ratio was 5.4x
adjusted EBITDA, compared to 5.5x as of December 31, 2022.
"While we are pleased by the sequential improvements in first
quarter revenue from our underlying business, we are focused on
improving our net working capital performance, especially as it
relates to inventory on our balance sheet," said Todd Young, Elanco
CFO. " With the post-Covid stabilization of global supply chains
and our ERP integration complete, we believe we can start to
improve this area of our business."
Select Business Highlights Since the
Last Earnings Call
- Successful integration of the Bayer Animal Health ERP system
into Elanco’s system and shared service center network,
representing the final integration milestone for the August 2020
acquisition.
- Initiated U.S. Department of Agriculture (USDA) submission for
IL-31 monoclonal antibody, a potential blockbuster product for
canine dermatology, with a path toward approval by the first half
of 2024.
- Received USDA approval of Elanco's Elwood, Kansas monoclonal
antibody manufacturing facility.
- Received USDA conditional approval for a breakthrough Canine
Parvovirus Monoclonal Antibody treatment, with an expected launch
in the coming weeks following state approvals.
- Received European Medicines Agency approval for and have
launched Adtab™, an over-the-counter oral monthly flea and tick
product for dogs and cats.
- Received Food and Drug Administration (FDA) conditional
approval of Varenzin-CA1, a first-in-class product for the control
of non-regenerative anemia associated with chronic kidney disease
(CKD) in cats.
- In the U.S., launched Bexacat™, a first-in-class once-daily
SGLT-2 inhibitor oral treatment for feline diabetes to
veterinarians, and parasiticide solutions Advantage™ for cats and
K9 Advantix™ for dogs in the over-the-counter market.
Financial Guidance
Elanco is updating financial guidance for the full year 2023,
summarized in the following table:
2023 Full Year
(dollars in millions, except per share
amounts)
February
Guidance
May
Guidance
Revenue
$4,280
to
$4,400
$4,310
to
$4,400
Reported Net Income (Loss)
$(157)
to
$(109)
$(134)
to
$(98)
Adjusted EBITDA
$920
to
$1,000
$940
to
$1,000
Reported EPS
$(0.32)
to
$(0.22)
$(0.27)
to
$(0.20)
Adjusted EPS
$0.74
to
$0.83
$0.76
to
$0.83
Elanco is raising the bottom end of its full year 2023 guidance
for revenue, adjusted EBITDA and adjusted earnings per share. The
update is driven by the successful completion of the ERP system
integration, innovation progress, and increased confidence in the
company’s U.S. Pet Health and international poultry businesses. The
impact of foreign exchange is now expected to be a headwind of
approximately $20 million to $25 million from the unfavorable
impact of foreign exchange rates compared to the prior year. On a
constant currency basis, the company expects revenue to be flat to
declining 2%.
Additionally, the company is raising the bottom end of its
financial guidance for revenue, adjusted EBITDA, and adjusted
earnings per share for the first half of 2023 and providing
guidance for the second quarter of 2023, as summarized in the
following table:
2023 First Half and Second
Quarter
(dollars in millions, except per share
amounts)
February
Guidance
First Half 2023
May
Guidance
First Half 2023
May
Guidance
Second Quarter 2023
Revenue
$2,230
to
$2,310
$2,260
to
$2,310
$1,003
to
$1,053
Reported Net Income (Loss)
$(53)
to
$(22)
$(47)
to
$(25)
$(150)
to
$(128)
Adjusted EBITDA
$490
to
$540
$510
to
$540
$131
to
$161
Reported EPS
$(0.11)
to
$(0.04)
$(0.10)
to
$(0.05)
$(0.31)
to
$(0.26)
Adjusted EPS
$0.43
to
$0.50
$0.45
to
$0.50
$0.00
to
$0.05
In the second quarter, the company expects a headwind of
approximately $15 million from the unfavorable impact of foreign
exchange rates compared to the prior year. Revenue guidance for the
second quarter of 2023 accounts for an estimated $90 million to
$110 million in customer purchases shifted from the second quarter
of 2023 into the first quarter as a result of the ERP Blackout,
negatively impacting expected growth in the second quarter by an
estimated 8 to 9 percentage points. The impact of the ERP Blackout
is expected to negatively impact adjusted EBITDA and adjusted EPS
in the second quarter.
Excluding the estimated impact from the ERP Blackout, the second
quarter revenue guidance represents an estimated 1% to 4% constant
currency decline in the base business in the second quarter of
2023, with expected headwinds from competition, environmental
pressure on the pet health OTC retail business in the U.S. and
Europe, and supply disruption in vaccines, as included in the
company’s initial guidance for the first half in February. In
addition, aligned with the company’s guidance in February, second
quarter adjusted EPS is expected to be impacted from headwinds from
higher interest expense, taxes, unfavorable foreign exchange rates
and additional operating expense investments compared to the second
quarter of 2022.
For the first half of 2023, the company expects a constant
currency revenue decline of 2 percent to 4 percent, with an implied
flat to 2 percent growth in the second half of 2023 based on the
full year guidance.
The financial guidance reflects foreign exchange rates as of the
beginning of May.
Further details on guidance, including GAAP reported to non-GAAP
adjusted reconciliations, are included in the financial tables of
this press release and will be discussed on the company's
conference call this morning.
WEBCAST & CONFERENCE CALL
DETAILS
Elanco will host a webcast and conference call at 8:00 a.m.
Eastern time today, during which company executives will review
first quarter financial and operational results, discuss second
quarter and full year 2023 financial guidance, and respond to
questions from analysts. Investors, analysts, members of the media
and the public may access the live webcast and accompanying slides
by visiting the Elanco website at https://investor.elanco.com and
selecting Events and Presentations. A replay of the webcast will be
archived and made available a few hours after the event on the
company's website, at
https://investor.elanco.com/investor/events-and-presentations.
ABOUT ELANCO
Elanco Animal Health Incorporated (NYSE: ELAN) is a global
leader in animal health dedicated to innovating and delivering
products and services to prevent and treat disease in farm animals
and pets, creating value for farmers, pet owners, veterinarians,
stakeholders and society as a whole. With nearly 70 years of animal
health heritage, we are committed to helping our customers improve
the health of animals in their care, while also making a meaningful
impact on our local and global communities. At Elanco, we are
driven by our vision of Food and Companionship Enriching Life and
our Elanco Healthy Purpose™ Sustainability/ESG framework – all to
advance the health of animals, people and the planet. Learn more at
www.elanco.com.
Cautionary Statement Regarding
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including,
without limitation, statements concerning product launches and
revenue from such products, our 2023 full year and second quarter
guidance and long-term expectations, our expectations regarding
debt levels, and expectations regarding our industry and our
operations, performance and financial condition, and including, in
particular, statements relating to our business, growth strategies,
distribution strategies, product development efforts and future
expenses.
Forward-looking statements are based on our current expectations
and assumptions regarding our business, the economy and other
future conditions. Because forward-looking statements relate to the
future, by their nature, they are subject to inherent
uncertainties, risks and changes in circumstances that are
difficult to predict. As a result, our actual results may differ
materially from those contemplated by the forward-looking
statements. Important risk factors that could cause actual results
to differ materially from those in the forward-looking statements
include regional, national or global political, economic, business,
competitive, market and regulatory conditions, including but not
limited to the following:
- heightened competition, including from generics;
- the impact of disruptive innovations and advances in veterinary
medical practices, animal health technologies and alternatives to
animal-derived protein;
- changes in regulatory restrictions on the use of antibiotics in
farm animals;
- our ability to implement our business strategies or achieve
targeted cost efficiencies and gross margin improvements;
- consolidation of our customers and distributors;
- an outbreak of infectious disease carried by farm animals;
- demand, supply and operational challenges associated with the
effects of a human disease outbreak, epidemic, pandemic or other
widespread public health concern;
- the potential impact on our business and global economic
conditions resulting from the conflict involving Russia and
Ukraine;
- the success of our research and development (R&D) and
licensing efforts;
- misuse, off-label or counterfeiting use of our products;
- unanticipated safety, quality or efficacy concerns and the
impact of identified concerns associated with our products;
- fluctuations in our business results due to seasonality and
other factors;
- the impact of weather conditions, including those related to
climate change, and the availability of natural resources;
- risks related to the modification of foreign trade policy;
- risks related to currency exchange rate fluctuations;
- our dependence on the success of our top products;
- the impact of customer exposure to rising costs and reduced
customer income;
- the lack of availability or significant increases in the cost
of raw materials;
- the impact of increased or decreased sales into our
distribution channels resulting in fluctuation in our
revenues;
- risks related to the write-down of goodwill or identifiable
intangible assets;
- risks related to the evaluation of animals;
- manufacturing problems and capacity imbalances;
- the impact of litigation, regulatory investigations and other
legal matters, including the risk to our reputation and the risk
that our insurance policies may be insufficient to protect us from
the impact of such matters;
- actions by regulatory bodies, including as a result of their
interpretation of studies on product safety;
- risks related to tax expense or exposure;
- risks related to environmental, health and safety laws and
regulations;
- risks related to our presence in foreign markets;
- challenges to our intellectual property rights or our alleged
violation of rights of others;
- our dependence on sophisticated information technology and
infrastructure and the impact of breaches of our information
technology systems;
- the impact of increased regulation or decreased financial
support related to farm animals;
- adverse effects of labor disputes, strikes, work stoppages and
the loss of key personnel or highly skilled employees;
- risks related to underfunded pension plan liabilities;
- our ability to complete acquisitions and successfully integrate
the businesses we acquire, including Kindred Biosciences, Inc.
(KindredBio) and the animal health business of Bayer
Aktiengesellschaft (Bayer Animal Health) and specifically the
impact of the integration of ERP systems in April 2023 and related
sales order processing blackout periods and their impact on revenue
in the second quarter of 2023;
- the effect of our substantial indebtedness on our business,
including restrictions in our debt agreements that will limit our
operating flexibility;
- risks related to certain governance provisions in our
constituent documents; and
- any failure to maintain an effective system of disclosure
controls and internal control over financial reporting, including
arising from an identified material weakness.
For additional information about the factors that could cause
actual results to differ materially from forward-looking
statements, please see the company’s latest Form 10-K and Form 10-Q
filed with the Securities and Exchange Commission. Although we have
attempted to identify important risk factors, there may be other
risk factors not presently known to us or that we presently believe
are not material that could cause actual results and developments
to differ materially from those made in or suggested by the
forward-looking statements contained in this press release. If any
of these risks materialize, or if any of the above assumptions
underlying forward-looking statements prove incorrect, actual
results and developments may differ materially from those made in
or suggested by the forward-looking statements contained in this
press release. We caution you against relying on any
forward-looking statements, which should also be read in
conjunction with the other cautionary statements that are included
elsewhere in this press release. Any forward-looking statement made
by us in this press release speaks only as of the date thereof.
Factors or events that could cause our actual results to differ may
emerge from time to time, and it is not possible for us to predict
all of them. We undertake no obligation to publicly update or to
revise any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as may be
required by law. Comparisons of results for current and any prior
periods are not intended to express any future trends or
indications of future performance, unless specifically expressed as
such, and should be viewed as historical data.
Use of Non-GAAP Financial
Measures:
We use non-GAAP financial measures, such as revenue excluding
the impact of foreign exchange rate effects, EBITDA, EBITDA margin,
adjusted EBITDA, adjusted EBITDA margin, adjusted net income
(loss), adjusted EPS, adjusted gross profit, adjusted gross margin
and net debt leverage to assess and analyze our operational results
and trends as explained in more detail in the reconciliation tables
later in this release.
We believe these non-GAAP financial measures are useful to
investors because they provide greater transparency regarding our
operating performance. Reconciliation of non-GAAP financial
measures and reported GAAP financial measures are included in the
tables accompanying this press release and are posted on our
website at www.elanco.com. The primary material limitations
associated with the use of such non-GAAP measures as compared to
U.S. GAAP results include the following: (i) they may not be
comparable to similarly titled measures used by other companies,
including those in our industry, (ii) they exclude financial
information and events, such as the effects of an acquisition or
amortization of intangible assets, that some may consider important
in evaluating our performance, value or prospects for the future,
(iii) they exclude items or types of items that may continue to
occur from period to period in the future and (iv) they may not
exclude all unusual or non-recurring items, which could increase or
decrease these measures, which investors may consider to be
unrelated to our long-term operations. These non-GAAP measures are
not, and should not be viewed as, substitutes for U.S. GAAP
reported measures. We encourage investors to review our unaudited
condensed consolidated and combined financial statements in their
entirety and caution investors to use U.S. GAAP measures as the
primary means of evaluating our performance, value and prospects
for the future, and non-GAAP measures as supplemental measures.
Availability of Certain Information
We use our website to disclose important company information to
investors, customers, employees and others interested in Elanco. We
encourage investors to consult our website regularly for important
information about Elanco.
Elanco Animal Health
Incorporated
Unaudited Condensed
Consolidated Statements of Operations
(Dollars and shares in
millions, except per share data)
Three Months Ended March 31,
2023
2022
Revenue
$
1,257
$
1,226
Costs, expenses, and other:
Cost of sales
494
509
Research and development
81
81
Marketing, selling, and administrative
327
323
Amortization of intangible assets
134
137
Asset impairment, restructuring, and other
special charges
40
40
Interest expense, net of capitalized
interest
64
52
Other expense, net
9
9
Income before income taxes
$
108
$
75
Income taxes
5
24
Net income
$
103
$
51
Earnings per share:
Basic
$
0.21
$
0.10
Diluted
$
0.21
$
0.10
Weighted average shares outstanding:
Basic
491.1
488.0
Diluted
492.8
492.2
Elanco Animal Health Incorporated
Reconciliation of GAAP Reported to Selected Non-GAAP
Adjusted Information (Unaudited) (Dollars and shares
in millions, except per share data)
We define adjusted gross profit as total revenue less adjusted
cost of sales and adjusted gross margin as adjusted gross profit
divided by total revenue.
We define adjusted net income as net income (loss) excluding
amortization of intangible assets, purchase accounting adjustments
to inventory, integration costs of acquisitions, severance, asset
impairment, gain on sale of assets, facility exit costs, tax
valuation allowances and other specified significant items, such as
unusual or non-recurring items that are unrelated to our long-term
operations adjusted for income tax expense associated with the
excluded financial items.
We define adjusted EBITDA as net income (loss) adjusted for
interest expense (income), which includes debt extinguishment
losses, income tax expense (benefit), and depreciation and
amortization, further adjusted to exclude purchase accounting
adjustments to inventory, integration costs of acquisitions,
severance, asset impairment, gain on sale of assets, facility exit
costs and other specified significant items, such as unusual or
non-recurring items that are unrelated to our long-term
operations.
We define adjusted EPS as adjusted net income divided by the
number of weighted average shares outstanding for the periods ended
March 31, 2023 and 2022.
We define net debt as gross debt less cash and cash equivalents
on the balance sheet. We define gross debt as the sum of the
current portion of long-term debt and long-term debt excluding
unamortized debt issuance costs. We define the net leverage ratio
as gross debt less cash and cash equivalents divided by adjusted
EBITDA. This calculation does not include Term Loan B
covenant-related adjustments that reduce this leverage ratio.
The following is a reconciliation of GAAP Reported for the three
months ended March 31, 2023 and 2022 to Selected Non-GAAP Adjusted
information:
Three Months Ended March 31,
2023
Three Months Ended March 31,
2022
GAAP Reported
Adjusted Items (b)
Non- GAAP (a)
GAAP Reported
Adjusted Items (b)
Non- GAAP (a)
Cost of sales (1)
$
494
$
1
$
493
$
509
$
—
$
509
Amortization of intangible assets
$
134
$
134
$
—
$
137
$
137
$
—
Asset impairment, restructuring and other
special charges (2) (3)
$
40
$
40
$
—
$
40
$
40
$
—
Other expense, net (4)
$
9
$
(2
)
$
11
$
9
$
—
$
9
Income before taxes
$
108
$
173
$
281
$
75
$
177
$
253
Provision for taxes (5) (6)
$
5
$
(56
)
$
61
$
24
$
(51
)
$
75
Net income
$
103
$
117
$
220
$
51
$
126
$
178
Earnings per share:
basic
$
0.21
$
0.24
$
0.45
$
0.10
$
0.26
$
0.36
diluted
$
0.21
$
0.24
$
0.45
$
0.10
$
0.26
$
0.36
Adjusted weighted average shares
outstanding:
basic
491.1
491.1
491.1
488.0
488.0
488.0
diluted
492.8
492.8
492.8
492.2
492.2
492.2
Numbers may not add due to rounding.
The table above reflects only line items
with non-GAAP adjustments.
(a)
The company uses non-GAAP
financial measures that differ from financial statements reported
in conformity with U.S. generally accepted accounting principles
(GAAP). The company believes that these non-GAAP measures provide
useful information to investors. Among other things, they may help
investors evaluate the company’s ongoing operations. They can
assist in making meaningful period-over-period comparisons and in
identifying operating trends that would otherwise be masked or
distorted by the items subject to the adjustments. Management uses
these non-GAAP measures internally to evaluate the performance of
the business, including to allocate resources. Investors should
consider these non-GAAP measures in addition to, not as a
substitute for or superior to, measures of financial performance
prepared in accordance with GAAP.
(b)
Adjustments to certain GAAP
reported measures for the three months ended March 31, 2023 and
2022 include the following:
(1)
2023 excludes amortization of inventory fair value adjustments
recorded from the acquisition of certain assets of NutriQuest, LLC
($1 million).
(2)
2023 primarily excludes charges associated with integration efforts
and external costs related to the acquisition of Bayer Animal
Health ($40 million).
(3)
2022 excludes charges associated with integration efforts and
external costs related to the acquisitions of Bayer Animal Health
and KindredBio ($24 million), the finalization of a write-down
charge associated with the sale of our manufacturing site in Speke,
U.K. ($22 million), and facility exit costs ($1 million), partially
offset by adjustments resulting from the reversal of severance
accruals ($7 million).
(4)
2023 excludes the impact of hyperinflationary accounting related to
Turkey ($1 million) and a gain recognized on our 2022 investment in
BiomEdit ($1 million).
(5)
2023 represents the income tax expense associated with the adjusted
items partially offset by an increase in the valuation allowance
recorded against our deferred tax assets during the period ($4
million).
(6)
2022 represents the income tax expense associated with the adjusted
items as well as a decrease in the valuation allowance recorded
against our deferred tax assets during the period ($14 million).
Q1
2023
Q1
2022
As reported diluted EPS
$
0.21
$
0.10
Cost of sales
0.00
—
Amortization of intangible assets
0.27
0.28
Asset impairment, restructuring and other
special charges
0.08
0.08
Other (income) expense, net
0.00
—
Subtotal
0.35
0.36
Tax impact of adjustments (1) (2)
(0.11
)
(0.10
)
Total adjustments to diluted EPS
$
0.24
$
0.26
Adjusted diluted EPS (3)
$
0.45
$
0.36
Numbers may not add due to rounding.
(1) 2023 includes the favorable adjustment
relating to the increase in the valuation allowance recorded
against our deferred tax assets (impact of less than $0.01 per
share) during the three months ended March 31, 2023.
(2) 2022 includes the unfavorable
adjustment relating to the decrease in the valuation allowance
recorded against our deferred tax assets (impact of $0.03 per
share) during the three months ended March 31, 2022.
(3) Adjusted diluted EPS is calculated as
the sum of as reported diluted EPS and total adjustments to diluted
EPS.
For the periods presented, we have not made adjustments for all
items that may be considered unrelated to our long-term operations.
We believe adjusted EBITDA, when used in conjunction with our
results presented in accordance with U.S. GAAP and its
reconciliation to net income, enhances investors' understanding of
our performance, valuation and prospects for the future. We also
believe adjusted EBITDA is a measure used in the animal health
industry by analysts as a valuable performance metric for
investors. The following is a reconciliation of U.S. GAAP net
income for the three months ended March 31, 2023 and 2022 to
EBITDA, adjusted EBITDA, and adjusted EBITDA Margin, which is
adjusted EBITDA divided by total revenue, for the respective
periods:
Three Months Ended March 31,
2023
2022
Reported net income
$
103
$
51
Net interest expense
64
52
Income tax expense
5
24
Depreciation and amortization
173
176
EBITDA
$
344
$
303
Non-GAAP adjustments:
Cost of sales
$
1
$
—
Asset impairment, restructuring and other
special charges
40
40
Other (income) expense, net
(2
)
—
Accelerated depreciation and amortization
(1)
(5
)
(5
)
Adjusted EBITDA
$
379
$
338
Adjusted EBITDA margin
30.2
%
27.6
%
Numbers may not add due to rounding.
(1) Represents depreciation and
amortization of certain assets that was accelerated during the
three months ended March 31, 2023 and 2022. This amount must be
added back to arrive at adjusted EBITDA because it is included in
asset impairment, restructuring and other special charges but it
has already been excluded from EBITDA in the "Depreciation and
amortization" row above.
The following is a reconciliation of gross debt to net debt as
of March 31, 2023:
Long-term debt
5,639
Current portion of long-term debt
381
Less: Unamortized debt issuance costs
(60
)
Total gross debt
6,080
Less: Cash and cash equivalents
318
Net Debt
5,762
Elanco Animal Health Incorporated
Guidance
Reconciliation of 2023 full year reported EPS guidance to 2023
adjusted EPS guidance is as follows:
Full Year 2023 Guidance
Reported loss per share
$(0.27)
to
$(0.20)
Amortization of intangible assets
Approx. $1.08
Asset impairment, restructuring, and other
special charges(1)
$0.18
to
$0.22
Subtotal
$1.26
to
$1.30
Tax impact of adjustments
$(0.28)
to
$(0.23)
Total adjustments to EPS
Approx. $1.03
Adjusted earnings per share(2)
$0.76
to
$0.83
Numbers may not add due to rounding.
(1) Asset impairment, restructuring, and
other special charges adjustments primarily relate to integration
efforts of acquired businesses, including the animal health
business of Bayer, and IPR&D related to the feline diabetes
care asset Elanco licensed during the second quarter of 2022.
(2) Adjusted EPS is calculated as the sum
of reported EPS and total adjustments to EPS.
Reconciliation of 2023 full year reported net loss to adjusted
EBITDA guidance is as follows:
$ millions
Full Year 2023 Guidance
Reported net loss
$(134)
to
$(98)
Net interest expense
Approx. $315
Income tax benefit
$(17)
to
$16
Depreciation and amortization
Approx. $690
EBITDA
$841
to
$921
Non-GAAP adjustments
Income Tax Expense
Approx. $1
Asset impairment, restructuring, and other
special charges
Approx. $100
Accelerated depreciation and
amortization
Approx. $(10)
Other income, net
Approx. $(1)
Adjusted EBITDA
$940
to
$1,000
Adjusted EBITDA margin
21.8%
to
22.7%
Reconciliation of 2023 first half reported EPS guidance to 2023
first half adjusted EPS guidance is as follows:
First Half 2023 Guidance
Reported loss per share
$(0.10)
to
$(0.05)
Amortization of intangible assets
Approx. $0.54
Asset impairment, restructuring, and other
special charges (1)
$0.15
to
$0.17
Subtotal
$0.69
to
$0.71
Tax impact of adjustments
$(0.16)
to
$(0.14)
Total adjustments to EPS
Approx. $0.55
Adjusted earnings per share (2)
$0.45
to
$0.50
Numbers may not add due to rounding.
(1) Asset impairment, restructuring, and
other special charges adjustments are related to integration
efforts, including the acquisition of the animal health business of
Bayer.
(2) Adjusted EPS is calculated as the sum
of reported EPS and total adjustments to EPS.
Reconciliation of 2023 first half reported net loss to 2023
first half adjusted EBITDA guidance is as follows:
$ millions
First Half 2023 Guidance
Reported net loss
$(47)
to
$(25)
Net interest expense
Approx. $140
Income tax provision
$(8)
to
$8
Depreciation and amortization
Approx. $350
EBITDA
$437
to
$476
Non-GAAP adjustments
Income Tax Expense
Approx. $1
Asset impairment, restructuring, and other
special charges
Approx. $80
Accelerated depreciation and
amortization
Approx. $(10)
Other expense, net
Approx. $(1)
Adjusted EBITDA
$510
to
$540
Adjusted EBITDA margin
22.6%
to
23.4%
Reconciliation of 2023 second quarter reported EPS guidance to
2023 second quarter adjusted EPS guidance is as follows:
Second Quarter 2023 Guidance
Reported loss per share
$(0.31)
to
$(0.26)
Amortization of intangible assets
Approx $0.27
Asset impairment, restructuring, and other
special charges (1)
$0.07
to
$0.09
Other Expense
Approx. $0.01
Subtotal
$0.34
to
$0.36
Tax impact of adjustments
$(0.03)
to
$(0.05)
Total adjustments to EPS
Approx. $0.31
Adjusted earnings per share (2)
$0.00
to
$0.05
Numbers may not add due to rounding.
(1) Asset impairment, restructuring, and
other special charges adjustments are related to integration
efforts, including the acquisition of the animal health business of
Bayer.
(2) Adjusted EPS is calculated as the sum
of reported EPS and total adjustments to EPS.
Reconciliation of 2023 second quarter reported net loss to 2023
second quarter adjusted EBITDA guidance is as follows:
$ millions
Second Quarter 2023 Guidance
Reported net loss
$(150)
to
$(128)
Net interest expense
Approx. $76
Income tax provision
$(13)
to
$3
Depreciation and amortization
Approx. $177
EBITDA
$93
to
$132
Non-GAAP adjustments
Asset impairment, restructuring, and other
special charges
Approx. $40
Accelerated depreciation and
amortization
Approx. $(5)
Other expense, net
Approx. $2
Adjusted EBITDA
$131
to
$161
Adjusted EBITDA margin
13.1%
to
15.3%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230509005358/en/
Investor Contact: Kathryn Grissom (317) 273-9284 or
kathryn.grissom@elancoah.com
Media Contact: Colleen Parr Dekker (317) 989-7011 or
colleen.dekker@elancoah.com
Elanco Animal Health (NYSE:ELAN)
Historical Stock Chart
From Nov 2023 to Dec 2023
Elanco Animal Health (NYSE:ELAN)
Historical Stock Chart
From Dec 2022 to Dec 2023