Elanco Animal Health Incorporated

one on your keypad. If you would like to revert a question, please press star one again. I will now hand the call over to Tiffany Kanaga, Vice President of Investor Relations and ESG. You may begin the conference.

Good morning. Thank you for joining us for Alanko Animal Health's third quarter 2025 earnings call. I'm Tiffany Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer, Bob Van Himbergen, our Chief Financial Officer, and Beth Haney from Investor Relations. The slides referenced during this call are available on the Investor Relations section of elanco.com. Today's discussion will include forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecasts. For more information, see the risk factors discussed in today's earnings press release, as well as in our latest Form 10-K and 10-Q filed with the SEC. We do not undertake any duty to update any forward-looking statement. Our remarks today will focus on our non-GAAP financial measures. Reconciliations of these non-GAAP measures are included in the appendix of today's slides and in the earnings press release. References to organic performance exclude the estimated impact of the aqua business. which was divested July 9, 2024, and certain royalty and milestone rights that were sold to a third party in May 2016. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Jeff.

Thanks, Tiffany. Good morning, everyone. Elanco's strong third quarter results build on our consistent priorities of growth, innovation, and cash. As highlighted on slide four, Elanco continues to deliver, growing 9% organic constant currency in the quarter and outperforming the high end of our guidance for revenue, adjusted EBITDA, and adjusted EPS. Growth was led by U.S. Farm up 20% and U.S. Pet Health up 9%. This marks nine consecutive quarters of underlying total growth and our highest quality of growth in the nine quarters. Innovation continues to exceed expectations, achieving $655 million in year-to-date revenue. We are further raising our full-year expectations by an additional $100 million at the midpoint to $840 million to $880 million. The consistent outperformance reflects broad-based momentum from our diverse basket of innovation across geographies, species, and products large and small. The portfolio benefits of our newer products are also driving more stability in our base business. Our strong focus on cash and operational execution improved our net leverage ratio faster than planned to 3.7 times at quarter end. We now expect to end the year at 3.7 to 3.8 times. Additionally, We refinanced our $2.1 billion term loan B facility, extending the maturities through 2032. We expect our balance sheet to be in a strong position as we exit 2025. On tariffs, our intervention actions, FX tailwinds, and year-to-date execution are mitigating potential impacts and risks. We continue to expect a 2025 net impact of $10 to $14 million and believe any likely tariff risk scenarios are covered in our 2025 guidance. With our consistent outperformance, we are well positioned to raise our top and bottom line outlook. For the full year, we now expect organic constant currency growth of 6% to 6.5%, adjusted EBITDA of $880 to $900 million, and adjusted EPS of 91 to 94 cents. This guidance raise considers the dynamic macro environment and our confidence in the underlying momentum, agility, and strength of our business. We are turning strategy into results, providing a long runway for shareholder value creation. Looking at the third quarter revenue performance on slide five, we break down the 9% underlying organic constant currency revenue growth. This chart demonstrates strength across our global business, with all four quadrants growing nicely. U.S. Pet Health had another solid quarter, up 9%. We saw growth in the vet clinic, driven by Credelio Quattro and Zenrelia, and also at retail through our OTC parasiticides. It is clear that our innovation insulates us from vet visit volume declines and benefits the broader portfolio. with Gallopran and vaccines also showing growth in the quarter. Moving to international pet health, we achieved 8% organic constant currency revenue growth driven by Zenrelia, Credelio, and ADTAP. We are very pleased with the early results for the Zenrelia's launch in the EU and Great Britain, following our success in Brazil, Japan, and Canada. We expect geographic expansion to be a tailwind for our basket of innovation in the coming quarters and years. U.S. farm animal delivered an outstanding quarter, up 20%, on top of 11% in Q3 of 2024, bolstering our market leadership. Cattle led the way with strong growth for Xperia and Pradalax. Poultry vaccines also contributed to the quarter. Finally, international farm animal was up 5% in organic constant currency, with growth coming from poultry and ruminants. Expected the quarter was modestly impacted by some pre-tariff buying shifting to Q2 from Q3 to satisfy customer demand, primarily in China. Overall, we're encouraged by the performance of the business, supported by strong animal protein markets. Looking at slide six, we delivered $655 million of innovation revenue year-to-date without performance across a diverse basket, led by Credelio Quattro, Xperia, AdTab, and Zenrelia. We are again raising our innovation guidance for 2025 by $100 million at the midpoint of the range to $840 million to $880 million. This target reflects several large margin accretive products, and they are gaining traction in the marketplace with our no regrets launch approach. Let's further discuss the progress of our major innovation products on slide seven, starting with Cordelia Quattro. In early September, Quattro became Elanco's fastest pet health blockbuster in history and one of the industry's fastest ever, reaching blockbuster status of $100 million in net sales in less than eight months. This is especially notable with a single geographic approval. We're seeing incredibly strong demand for the all-in-one products, from both pet owners and veterinarians, pushing the U.S. broad-spectrum Indecto market to $1.4 billion today, with growth at almost 40%. We believe Quattro is best medicine in its fastest-growing animal health market, and our product is not only expanding the market even further, but we're also gaining share ahead of expectations. These gains grew from the second quarter, both into and out of the clinics. Our strategic DTC investments, our expanded sales team, and distribution partners are all driving the success of this launch, as veterinarians and pet owners clearly appreciate Quattro's three dimensions of differentiation. First, Quattro has broad coverage. This includes multiple species of tapeworms, and following a recent label update, also includes protection against the black-legged and long-horned ticks for prevention of Lyme disease. Second, Quattro kills ticks twice as fast as the competition, as detailed in a published head-to-head study. And third, Quattro has heartworm coverage from month one. We've also received positive feedback from vets and pet owners praising its great palatability. The introduction of Quattro has bolstered our broader Elanco portfolio and clinics as we now offer veterinarians a complete ECTO, ENDO, and INDECTO portfolio with a variety of parasiticide coverage at a variety of price points to meet veterinarian and pet owner needs. This more complete portfolio is especially enhancing our offering for corporates where we've historically under-indexed. Cannibalization, has been limited as approximately 70% of Quattro's share capture has come from the competitive product switches, new starts, or repeat patients. Our product ranks highest on Kinetics Puppy Index versus other broad-spectrum Indectos. This is supported by our puppy program and DTC investments, but mostly by the differentiated product profile and performance. Looking ahead, we are excited about Quattro's international rollout with launches expected to start in 2026. Next, on Zenrelia. We are seeing strong momentum and positive developments on several fronts as we make further inroads into the $2 billion global dermatology market that is consistently growing at a double-digit rate. We estimate our market share at approximately 5% in the countries where we have launched. Zanrelia posted its best quarter since launch. As we move through peak allergy season, sales accelerated nicely, nearly doubling globally compared to the second quarter. Over 12,000 U.S. clinics are buying the product, up from 10,000 in August, and the reorder rate also continues to climb, now over 80%. We have continued to achieve growth ahead of our expectations with more first-line treatment use and willingness to use, a reflection of Xenrelia's efficacy, convenience, and value. We are also expanding the market with approximately 18% of Xenrelia patients being new to therapy. Xenrelia's momentum in the U.S. was particularly strong at the end of the quarter with a label update in September. Upon evaluation of submitted data, the FDA concluded that the totality of evidence supports removal of vaccine-induced disease language, which has been subsequently removed from the Xenrelia label in the U.S. This development has sparked new interest among veterinarians and increased pet owner acceptance. Also, Elanco has recently submitted additional new data to the FDA Center for Veterinary Medicine seeking to further update the Xenrelia label in the US. This data, peer-reviewed and published, evaluated Xenrelia's impact on dogs' immune response to common booster vaccinations. Our aim is to amend the vaccine warning to make the US label more consistent with the other major geographies where it's already approved. Overall, we believe this data, combined with 13 months of positive use in the US, along with 35 country approvals, all with non-restrictive labels, support further positive change to the U.S. Xenrelia label. In a $700 million DERM market outside the U.S., Xenrelia continues its good progress, launching in the European Union, Great Britain, and now Australia. You remember we completed a head-to-head study in Europe versus the marketplace incumbent as part of the EU approval process. We are encouraged by the early results in these geographies reflecting the head-to-head data and overall strong efficacy of Zenrelia. The newest launches follow success in Brazil, Canada, and Japan. Notably, Zenrelia has double-digit percent market share in these markets. supporting our long-term belief in the product with a clean label. We believe the consistent key driver to Zinrelia's increased momentum is product testimonials on its differentiated efficacy profile. Now our OTC parasiticide product, ADTAP. In Europe, it continues to achieve good growth with sales up more than 25%. ADTAB's robust trajectory is fueled by the April approval and launch in the U.K. and supported by data-driven strategic DTC investments. ADTAB is now the market leader in the European ISOX OTC market and the only product in the space that can be used in both dogs and cats. Finally, on CPMA, our treatment for the deadly canine parvovirus, we do expect growth to remain tempered in the near term. We are working to expand access through shelter promotions. Moving to farm animal, Xperia continues to grow rapidly, up 70% in Q3, on top of more than 100% growth in Q3 of 2024. We continue to benefit from the historically small U.S. cattle herd size, which reached the lowest mid-year count in more than 50 years of record keeping. This dynamic is driving stronger producer economics and sticky demand, with Xperia's customer retention rate remaining over 90%. Looking ahead, Xperia does face stronger comparisons as it lapsed the combination clearance for heifers. However, there are early positive signs of herd rebuilding, representing a multi-year tailwind. We see significant runway for this blockbuster and the benefits of its portfolio synergies in an estimated potential market of over $350 million in the U.S. and Canada, with also geo-expansion as another expected tailwind over the longer term. Lastly, regarding Bovair, the product continues to grow, but at a more measured pace than initially projected. We see consistent demand from CPG brands, which supports sustained interest and consistent cow numbers. As we've seen with other innovative farm animal products, the adoption curve can take time. However, Our experience shows that once these products are integrated and their value realized, they become sticky, providing significant and lasting benefits to farmers. Overall, we continue to see substantial value in Bovair for both our CPG partners and the producers we serve. Moving to slide eight, we offer some recent highlights across the three parts of our IPP strategy, innovation, portfolio, and productivity. First on innovation. Ellen and her team have refilled the pipeline and are progressing our next wave of Blockbuster products. She's created an organizational capability to generate a consistent flow of high-impact innovation. More near-term, IL-31 remains on track for commercialization in the first half of 2026. We're in the final stages of the USDA dossier review. Given our data submissions and constructive conversations with the USDA, we're cautiously optimistic that the product will be approved in the fourth quarter. However, the lack of ADUFA timelines and the government shutdown introduced some potential for variability beyond our control. Our commercialization timeline can absorb a modest potential delay from the shutdown, and perhaps most importantly, this year's progress in growth, innovation, and cash has clearly demonstrated that our results are driven by our total portfolio. As our diverse portfolio of innovation scales, it also stabilizes our base business, driving overall industry-leading growth. Our US farm animal business is consolidating its leadership. having achieved 11% growth on a trailing 12-month basis led by beef cattle. At the same time, our lifecycle management efforts continue to strengthen our portfolio. For example, Credelio recently became the first-ever FDA product to receive emergency use exemption for treatment of New World screwworm and dogs. Price is also an important portfolio growth enabler. We have achieved 2% price growth year to date, and we continue to expect the full year to also be up 2%. While pricing was flat in the third quarter, this performance aligned with our expectations, representing fluctuation in customer and product mix. Remember that our newest launches like Quattro are not reflected in price. Our strategy continues to align price with customer value. Finally, on productivity, we continue to rapidly pay down debt and strengthen our balance sheet. We now expect to improve our net leverage ratio by two turns in just two years, with the under three times milestone in sight in 2027, especially as our company-wide margin enhancing initiative, Elanco Ascend, drives meaningful efficiencies beginning next year. Our recent debt refinancing further strengthens our balance sheet, with an improved capital structure that both extends our maturities and lowers our cost of debt. We expect our net leverage ratio to benefit on multiple fronts ahead, growing EBITDA and debt pay down. And on the manufacturing front, we remain on track for a strategic expansion of our facilities in Fort Dodge, Iowa, and Elwood, Kansas, with the latter supporting our MAP platform for IL-31 and beyond. With that, I'll pass it to Bob to review our third quarter results and financial guidance.