Elanco Animal Health Incorporated

Good day and thank you for standing by. Welcome to the Atlanta Animal Health Report's second quarter 2026 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tiffany Kanaga, Vice President of Investor Relations and ESG. Please go ahead.

Good morning. Thank you for joining us for Alanko Animal Health second quarter 2026 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 VanHimbergen, 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 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 represents revenue growth excluding the impacts from royalty revenue that was sold to a third party, foreign exchange rates, and acquisitions and divestitures. 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 second quarter results demonstrate our momentum and leadership in the attractive, durable animal health industry. I'd like to thank the global Elanco team, for their disciplined execution and once again delivering on our commitments. As highlighted on slide four, we achieved 8% organic constant currency revenue growth, outperforming the high end of guidance for revenue, adjusted EBITDA, and adjusted EPS, allowing us to once again raise our guidance for the year. Growth was led by the U.S. Pet Health and U.S. Farm Animal, each up 11%, followed by International Pet Health up 9%, and we saw strong contributions from both price and volume. Elanco's diverse portfolio and omni-channel approach provide a strategic advantage with commercial execution across species and geographies. In the U.S. pet health, we continue to achieve share gains across all four major categories, derm, para, osteoarthritis pain, and vaccines. Zenrelia, our newest blockbuster after reaching that milestone in July, was the largest contributor to second quarter total elanco growth, closely followed by Crudelio Quatro. In farm animal, the other half of elanco revenues, we added to our leading position in the U.S., We grew nicely in international and saw global ruminants up 17% on a reported basis. Our big six, led by Zanrelli and Quattro, helped drive $340 million of second quarter revenue from innovation on top of a stable base. Our differentiated portfolio creates clear value. While our strong commercial success is also attracting top industry talent, allowing us to further enhance our sales team and distribution partnerships. With significant runway ahead for the big six, we are raising our full year innovation revenue target to $1.25 billion. Our robust top line growth plus faster than expected margin expansion and working capital discipline have driven down our net leverage ratio more rapidly than planned. We are improving our year end net leverage target to approximately three times down from a range of three to 3.2 times previously. With our solid first half performance and business momentum, we are raising our top and bottom line full year outlook. We now expect organic constant currency growth of 6-7%, adjusted EBITDA of $1.01 billion to $1.035 billion, representing 13% growth at the midpoint, and adjusted EPS of $1.10 to $1.16, representing 20% growth at the midpoint. Our consistent delivery demonstrates our IPP strategy is working. to expand our industry and at the same time gain share across key markets and now also improve Elanco's profitability. While there has been much focus on U.S. vet visit volumes, we have consistently demonstrated that innovation and omni-channel leadership can drive strong growth in the U.S. pet health market. Stepping back, our positive results are clearly not aligned with secular declines in vet visits. This is about changing pet owner buying behaviors, not about vet visits. Very importantly, Elanco is bringing highly valued innovation into an industry-leading omnichannel capability, while there is more diversity in consumer spending that matches our broad access to the pet owner. For example, our data indicates that vet home delivery sales are growing nearly twice as fast as in-clinic sales. Combined across channels, we see a growing U.S. pet health industry up mid-single digits for the trailing four quarters through Q1, with resilient pet owner spend and rational pricing. In summary, Elanco is growing even faster through our comprehensive portfolio of differentiated innovative products and omni-channel execution. Simply said, the durable pet health market is growing and the pet owner is simply shifting behaviors like in most consumer markets. Looking more closely at the second quarter revenue performance on slide five, we break down the 8% underlying organic constant currency revenue growth. Our recently closed acquisition, AHP International, contributed about a half a point of growth not included in the organic rate, building on our global ruminant success. U.S. Pet Health's 11% increase reflects a strong growth, both inside the vet clinic, online, and at retail, as well as in both prescription and OTC products. In the clinic, we achieved robust double-digit growth with our basket of innovation, led by Zinrelli and Quattro, outperforming on top of a stable base. And the new launch has also benefited the greater portfolio, including vaccines and pain. At retail, our OTC parasiticide portfolio performed well, building on our leadership position. Soresto and the Advantage family both experienced good consumption growth in a mature market, reflecting strong trends for our products and supported by expanded in-store availability with Costco and Dollar General as new customers. Additionally, while building off a small base, Zanreli and Quattro are growing rapidly in alternative channels. Moving to international pet health, we delivered 9% organic constant currency revenue growth driven by Zenrelia, AdTab, and Credelio. While Zenrelia has reached blockbuster status globally, we expect it to attain this goal in both the U.S. and separately international pet health, where it is quickly capturing share in the $850 million international derm market. U.S. farm animal increased 11% in the quarter with continued growth across all species. Our cattle portfolio led the way as robust consumer demand for high-quality, sustainable animal protein continues to outpace inflation at retail. International farm animal grew 2% in organic constant currency, reflecting previously mentioned timing of certain shipments in Q1 2026, primarily to the Middle East. Year-to-date growth of 7% shows the strong underlying fundamentals that demonstrate the global nature of the protein revolution reinforcing the long-term value of the farm animal business. Turning to slide six, we delivered $340 million of innovation revenue in the second quarter. With growth across all of the big six, our broader basket of innovation outperformed expectations. As a result, we are raising our anticipated innovation contribution for 2026 by another $50 million to approximately $1.25 billion, reflecting many large products growing and gaining share in key growing global markets. Let's further discuss the progress of our major innovation products on slide seven, starting with our newest blockbuster, Zenrelia. With over 2.5 million dogs now treated, Xenrelia's growth trajectory both in the U.S. and internationally has accelerated further and continues to surpass our expectations, with rapid share gains in the $2.2 billion and growing global dermatology market. Xenrelia's momentum is driven by its strong efficacy differentiation. June was Zenrelia's largest month yet, despite new competition in the quarter with U.S. penetration climbing to approximately 18,000 vet clinics. That's greater than 60% of the total clinic base with a reorder rate maintained at over 80%. Our U.S. Jack Market share improved nine points year on year and also gained versus Q1, reflecting these new purchasers. Importantly, We are seeing increasing use of first-line treatment, now to over 40% of users, demonstrating growing belief that Xenrelia is the first choice for derm treatment for many veterinarians. Outside the US, Xenrelia is now in 47 countries, all without label restrictions. We continue to drive significant share gains across key geographies. For example, Xenrelia has built on its market-leading position in Brazil, and gained number one JAK status now in France. In Europe, we continue to outperform the competitive entrant with JAK market share as high as 40% plus. As we previously shared, Xenrelia performed well in a head-to-head study against the market incumbent. This strong performance is also clear in a new study commissioned by the competitive entrant that compares the efficacy of available JAK inhibitors in a laboratory model. The results reflect our real-world experience that Xenrelia's efficacy is a game changer. On to our second derm innovation, Bafrena, which soft-launched in May ahead of the allergy season. Commercial product has shipped to approximately 1,400 US clinics with strong early feedback. We are ramping capacity to meet higher customer demand That is double the size of our expectations with weekly increases in supply. Given the robust demand, we anticipate supply reaching unconstrained levels in early 2027. A phase launch is typical for monoclonal antibodies or MAB products as we scale our bioreactors with the anticipated manufacturing ramp up. Overall, we're pleased with Befrenta's very early momentum and ability to increase our competitiveness, especially with corporates. Next, on Cordelio Cuatro, we are excited by further acceleration of dollar share gains and broad spectrum dispensing sales from U.S. clinics. Cuatro's market share increased four points in Q2, on top of the three points in Q1. We rapidly expanded the number of clinics that carry Quattro to over half of the U.S. base today, up 10 points since Q1. That's an increase of approximately 3,000 clinics. We achieved this significant penetration as a direct result of our strategic brand investments year-to-date, helping veterinarians and pet owners gain appreciation for the four dimensions of differentiation that make Quattro what we believe is best medicine. The speed of tick kill is proving especially relevant to pet owners today. As the Wall Street Journal and others have recently reported, black-legged tick populations are expanding and Lyme disease cases are rising as a result. Quattro is resonating with pet owners who want robust protection for their pets and themselves with our newly published data again showing faster speed of black-legged tick kill than the leading competitors. This combines with Quattro's first FDA conditional approval for the treatment of New World Screwworm in dogs, all to represent powerful examples of lifecycle management to build on our differentiation. Like Xenrelia, Quattro's momentum accelerated during the quarter, with June also as the product's largest month ever. We're seeing strong pet owner demand activated by DTC activities where we continue to make high return on investments. Our targeted media approach and industry-leading position with reps and distributors differentiate Elanco and drive our share of voice in the pet health marketplace. Together, we're taking this differentiated product to new heights with runway for significant share gains ahead. We continue to track Kinetics Puppy Index as an important leading indicator where Quattro ranks highest versus other broad-spectrum Indectos. Globally, we are confident Quattro can lead the Cordelio family to become our largest product family ever. So far this year, Quattro has launched in Australia, Canada, and Japan. The EU and the UK are next in the nearly $800 million international broad spectrum market, which is growing double digits. Finally, our international OTC parasiticide ad tab has continued its rapid climb toward blockbuster status, with sales up more than 30%. ADTAB is the fastest growing brand in the nearly $600 million OTC ECTO category in Europe, with success also supported by data-driven, high-return DTC investments. Moving to farm animal, Xperia grew double digits in the quarter. This growth, plus the benefit to our cattle portfolio, have helped power another quarter of double-digit U.S. farm animal results. We expect Xperia to continue to grow and provide portfolio synergies with multiple levers from extending days of use, continued adoption, and price. However, we anticipate moderating growth rates against challenging comparisons. Lastly, on Bovair, our expectations and trajectory are consistent with our last update as we continue to see demand from CPG companies that supports sustained interest, and consistent cow numbers. Bovair achieved good year-over-year growth in the quarter, albeit off a small base, and we're investing in long-term initiatives for this potential blockbuster to enhance the product value and demonstrate user flexibility. For the balance of 2026, we continue to expect growth at a measured pace. Moving now to slide eight, we provide recent highlights across the three parts of our consistent IPP strategy, innovation, portfolio, and productivity. Starting with innovation, we've had meaningful progress since our December investor day with the next wave portfolio growing and progressing without attrition. We now have even higher confidence behind the five to six blockbuster potential innovations expected through 2031. Ellen and the R&D team have increased the number and value of projects in development and the overall probability. This is driven by a few specific things that are working very well. We built a project-centered organization and established a one-of-a-kind innovation execution capability that leverages the potential of AI and has an optimized global footprint combined with strategic partnerships in clinical and technical development. and most of all, a stable, engaged, highly capable and experienced team of scientists who are laser focused on progressing the next wave portfolio and refilling the pipeline. We are working hard to ensure a consistent flow of blockbuster potential innovations through the end of this decade and well into the next. Today, our basket of innovation is driving our broad-based growth. This can be seen in global ruminants. are fastest growing species as innovation fortified our beef and dairy portfolio up 12% in the quarter on an organic constant currency basis or 17% including AHV and FX. Our pet health launches are powering growth with U.S. corporate account sales, adding 300 new corporate clinics with year-to-date sales ahead of total U.S. pet health. Innovations also driving pricing gains up 2% in Q2 for Total Elanco. We are on track for full year acceleration from 2025, including a back half step up from customer mix. Finally, we continue to pay down debt faster than planned and strengthen our balance sheet. At 3.1 times net leverage in Q2, we are now approaching the under three times landmark. enabling greater capital allocation flexibility. This opportunity is enabled by productivity gains with gross margin expansion in the second quarter up 80 basis points and Elanco Ascend on track to drive meaningful efficiencies and margin improvement in 2026 and beyond. I firmly believe we're just the start of the next era of value creation for Elanco as our consistent execution along with growth, innovation, and cash will add to our momentum and leadership in animal health. With that, I'll pass it to Bob to provide more on the second quarter results and financial guidance. Thank you, Jeff.