Elanco Animal Health Incorporated

ladies and gentlemen thank you for standing by welcome to elanco animal health fourth quarter 2025 earnings conference call at this time all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you'd like to ask a question during this time simply press star followed by the number one on your telephone keypad if you'd like to withdraw your question again press star one thank you I'd now like to hand the call over to Tiffany Kanega, Vice President of Investor Relations. You may begin.

Good morning. Thank you for joining us for Elanco Animal Health's fourth quarter 2025 earnings call. I'm Tiffany Kanega, Vice President of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer, Bob Van Hembergen, 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 forecast. 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 statements. 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 2025. 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. 2025 was a year of significant delivery for Elanco across all three of our priorities, growth, innovation, and cash. As highlighted on slide four, Elanco delivered a strong fourth quarter with 9% organic constant currency revenue growth. We outperformed the high end of guidance for revenue, adjusted EBITDA, and adjusted EPS. Growth was led by U.S. farm animal up 17% and U.S. pet health up 10%. This now marks 10 consecutive quarters of underlying total growth. Revenue from innovation exceeded expectations in 2025 at $892 million for the year, as the fourth quarter was our largest quarter for innovation to date. We are raising our 2026 outlook for innovation to $1.15 billion, reflecting contributions across a broad set of geography, species, and products. Our continued focus on cash, combined with strong results, improved our net leverage ratio faster than planned to 3.6 times at year end. We now expect to finish 2026 at 3.1 to 3.3 times. With our consistent execution, we are well positioned to introduce 2026 guidance in line with our longer-term algorithm. We expect full-year organic constant currency revenue growth of 4% to 6%. adjusted EBITDA of $955 to $985 million, representing growth of 8% at the midpoint, and adjusted EPS of $1 to $1.06, representing growth of 10% at the midpoint. This guidance continues our prudent, balanced approach in a dynamic macro environment. On slide five, let me ground today's discussion in accountability and transparency. by sharing a checklist for the year in review. Elanco delivered across our full set of 2025 commitments to our customers and our shareholders. We have entered our new era of growth with a track record of consistent execution. Innovation revenue cleared a bar that was raised each quarter in 2025. We brought the entire Big Six across the finish line with Befrenta's December approval. This is a real testament to the optimized innovation engine that Ellen's team has built over the past few years. Organic constant currency revenue growth reached 7% for the full year, with balanced contributions across species and geographies, as well as between volume and price. 2025 revenue, adjusted EBITDA, and adjusted EPS, all exceeded last February's expectations with steady outperformance throughout the year. And we delivered about a half a turn faster than expected while also refinancing our term loan B ahead of schedule. Timmy Lanco, I want to extend my gratitude for an incredible year. Your level of engagement and execution has never been higher while your unwavering dedication to transforming animal care has truly shown. Looking more closely at the fourth quarter revenue performance on slide six, 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. US Pet Health, had a robust quarter, up 10%. Crudelio Quattro and Zenrelia led solid growth in the vet clinic and also drove broader portfolio benefits with positive trends for Galaprant. Retail likewise grew in Q4, and dispensing trends were healthy across our OTC parasiticides, including Seresto and the Advantage family. Importantly, our strong end of the year for U.S. pet health led us to gain share in every major category for the full year 2025. Prescription parasiticides, osteoarthritis pain, dermatology, and vaccines. Moving to international pet health, we achieved 8% organic constant currency revenue growth driven by Zinrelia, Credelio, and ADTAP. Senreli is exceeding expectations in the $700 million-plus international market with double-digit share in several key markets and strong early traction in Europe, the U.K., and Australia. U.S. farm animal delivered an excellent quarter, up 17% on top of 6% last year, building on our market leadership. Cattle led the way with strong growth for Xperia and Pradalax, with positive contributions from poultry as well. And finally, International Farm Animal was up 4% in organic constant currency, with growth coming from ruminants, swine, and poultry. Looking at slide 7, we delivered $892 million of innovation revenue in 2025, outperforming across a diverse basket led by Credelio Cuatro, Xperia, Senrelia, and ADTAP. We are now committing to at least another $250 million of growth in 2026 to $1.15 billion. This target is led by our big six gaining traction in the global marketplace with our no regrets launch approach. We are driving sustainable growth as we expect the big six to double in revenue from 2025 to 2028 on top of a stabilizing base. And we've refilled the pipeline to deliver a consistent flow of high impact innovation. Let's further discuss the progress of our big six major innovation products on slide eight, starting with Cordelio Quattro. This groundbreaking parasiticide, the first FDA approved product with four active ingredients, is the fastest blockbuster in our history, and we believe has the potential to become our biggest product class ever. We see Quattro as best medicine, with its four dimensions of differentiation, fueling a growth trajectory more like a first-to-market product. In the fourth quarter, Quatro continued to gain dollar share of U.S. broad-spectrum sales and was the only one to gain share in the quarter in vet clinics, demonstrating continued strong momentum almost a year after its launch. Cordelio Quattro enters 2026 with the most momentum in the $1.4 billion U.S. broad-spectrum parasiticide market. We have significant runway ahead, with approximately one-third of clinics penetrated today and plenty of room to grow share within those clinics. A good leading indicator is Kinetics Puppy Index, where Quattro ranked highest in Q4 versus other broad-spectrum inductos, and grew versus Q3. Quattro is gaining share and also expanding what is the fastest growing animal health market today, the U.S. broad spectrum and DECTO market, up 30% year over year. We expect Quattro to lead that growth through its profitability for the clinic and its differentiated offering for the pet owner, aided by our DTC investments, expanded sales teams, and distribution partners. Importantly, Quatro has boosted our broader Elanco portfolio in clinics. Its momentum and portfolio benefits drove Elanco to be the only major animal health player to see share gains for the total parasiticide prescription portfolio in U.S. vet clinics in 2025. Looking beyond the U.S., Quatro's global rollout begins now with approval in Australia last week. With this approval, we are kicking off our expansion into the $700 million international market, which is growing double digits. Next, we couldn't be more pleased with Zenrelia's performance in the $2 billion DERM market. Every quarter, Zenrelia's efficacy profile becomes more recognized, and its success is becoming more global. We have a special product in Zenrelia. The Zenrelia momentum is building. with December as our best month yet. Importantly, we exited the month with double-digit share of the U.S. Jack Market. This strength is continuing into January. We're now in about half of the clinics in the U.S., and the reorder rate is over 80%. Trends accelerated after the label update in September, adding 2,500 new purchasers. We remain committed to making the U.S. label consistent with the other 40 countries where it's already approved without restrictions. Senreli's Q4 international results were exceptional. In our first cohort of launches, Brazil, Canada, and Japan, we've already achieved year three or year four analog share in just the first year. Senreli's jack market share in Brazil has reached 40%, and Japan is over 30%. The rapid success and overwhelmingly positive customer feedback are driven by Zenrelia's strong efficacy and support our long-term belief in the product with a clean label. We're also encouraged by the early traction in Europe, the UK, and Australia. Zenrelia is outperforming the new competitive entrant in the key EU markets. Local sellout data confirms double-digit jack market share in France, Italy, and Spain. We've already contracted with all major EU corporate accounts, helping to drive growth ahead of our expectations. We've also achieved more than 10% share in the UK. Our EU head-to-head study results are coming to life in the field, and we're the only player providing that competitive data. Again, FGC is the differentiator across Europe and around the world, with over a million dogs treated with Xenrelia globally. Its efficacy is resonating strongly with vets and pet owners alike. Senrelia works, and it works really well. Moving now to Bofrena, our second monoclonal antibody and our second DERM product. We gained USDA approval on December 31st, fulfilling our year-end commitment. We expect a launch in the second quarter of 2026 as we progress through the anticipated manufacturing ramp-up. A phase launch is very typical for monoclonal antibodies or MAB products as we scale our bioreactors. Our expanded facilities in Elwood, Kansas are ready, our manufacturing plans are right on track, and we feel good about our overall MAB capabilities for Bifrena and beyond. Bifrena offers positive differentiation on convenience, value, and efficacy. It's recommended at a dosing interval of six to eight weeks post-treatment versus four to eight weeks for the current market competitor. And when we showed a close proxy of the label to approximately 350 veterinarians, 83% responded they are likely to use profrena, especially in seasonal cases. Finally, our OTC parasiticide, ADTAB, has continued its robust growth trajectory with sales up more than 50%. ADTAB is the fastest growing brand in the $600 million OTC ecto market in Europe. achieving more than 50% oral OTC share to become number one in less than two years on the market. Moving to farm animal, Xperia continues to grow nicely, up 35% in Q4 against a tougher compare. We are benefiting from the historically small U.S. cattle herd size, while noting that heifer retention recently turned positive for the first time since January 2017. Xperia crossed the $200 million mark in 2025, up nearly 80% for the full year, with significant runway still ahead for this blockbuster and its portfolio benefits. We see strong opportunity in an estimated potential market of over $350 million in the U.S. and Canada through extending the days of use, continued adoption, and price, with geo-expansion as another longer-term growth driver. Lastly, regarding Bovair, we continue to see demand from CPG companies that support sustained interest and consistent cow numbers, with farmer retention remaining over 90%. We will continue to invest in Bovair to achieve its expected potential by enhancing the product's strategic optionality and demonstrating an increased value proposition for farmers and CPG companies. Long-term, we continue to view Bovair as a blockbuster, with near-term growth at a measured pace in a dynamic market backdrop. Moving to slide nine, we offer some recent highlights across the three parts of our IPP strategy, innovation, portfolio, and productivity. Ellen and her team have built a science-based engine and organizational capability to maximize throughput. With the big six now each approved in the US without attrition, we are focused on the next wave with five to six blockbuster potential approvals expected through 2031. Elanco's R&D engine is humming with depth and expertise and a laser focus on the next milestones, all with a vision of creating a consistent flow of high impact innovation. At the same time, we're optimizing our diverse portfolio to drive near-term growth and to gain share. We experienced broad-based organic constant currency top-line growth in 2025 across our top five product franchises and in nine of our top 10 countries. And very importantly, our launch excellence is enabling share gains with accelerating pricing. As Bob will detail, we achieved 2% price growth in 2025 in line with our expectations, and we anticipate acceleration in 2026, including our largest increase in five years to U.S. vet clinics. Our pricing strategy reflects our latest innovation and the value of our total portfolio to customers. We've also signed an agreement to acquire AHV International, a Dutch-based farm animal health innovator focused on a portfolio of products for cattle that improves animal health and optimize efficiency while reducing the need for antibiotics. The deal accelerates Elanco's efforts to expand our leadership in the dairy industry, particularly in North America and Europe, growing both our share of voice and enhancing our portfolio with exciting solutions that supports transition cow health, one of the greatest needs in the dairy industry. We're excited about the potential of this opportunity to bring needed solutions to producers and one of the fastest-growing proteins, and we believe one of the greatest market opportunities in animal health. At the same time, we continue to rapidly pay down debt and strengthen our balance sheet. We improved our net leverage ratio by two turns in just two years, with the under three times landmark expected in 2027. And as Bob will also describe momentarily, our company-wide productivity initiative, Elanco Ascend, is off to a good start to drive meaningful efficiencies and margin enhancement starting in 2026. With that, I'll pass it to Bob to review our fourth quarter results and financial guidance.