- Fourth Quarter 2023 Financial Results:
- Revenue of $1,035
million
- Reported Net Loss of $141
million, Adjusted Net Income of $39
million
- Adjusted EBITDA of $165
million or 15.9% of Revenue
- Reported EPS of $(0.29),
Adjusted EPS of $0.08
- Net leverage ratio of 5.6x Adjusted EBITDA
- Full Year 2023 Financial Results:
- Revenue of $4,417
million
- Reported Net Loss of $1,231
million, Adjusted Net Income of $439
million
- Adjusted EBITDA of $979
million or 22.2% of Revenue
- Reported EPS of $(2.50),
Adjusted EPS of $0.89
- Full Year 2024 Guidance:
- Revenue of $4,450 to
$4,540 million
- Reported Net Loss of $17 to
$62 million, Adjusted EBITDA of
$960 to $1,010
million
- Reported EPS of $(0.12) to
$(0.03), Adjusted EPS of $0.87 to $0.95
- Guidance includes full year contribution of the company's
aqua business and does not consider contribution from expected
launches of three blockbuster-potential products
- Announced strategic restructuring impacting approximately
420 personnel, resulting in a charge to 2024 reported results of
$50 to $55
million and generating approximately $30 to $35 million
in annualized savings, which the company plans to reinvest in more
significant value creation opportunities
GREENFIELD, Ind., Feb. 26,
2024 /PRNewswire/ -- Elanco Animal Health
Incorporated (NYSE: ELAN) today reported its financial results for
the fourth quarter and full year 2023 and provided initial guidance
both for the first quarter and full year 2024.
"Elanco ended 2023 with momentum, returning to constant currency
revenue growth for the full year and delivering 5% growth in the
fourth quarter, primarily driven by our farm animal business,
innovation revenue and price growth," said Jeff Simmons, President and CEO of Elanco Animal
Health. "While we exceeded our sales expectations and demonstrated
strong operating expense management in the fourth quarter, adjusted
EBITDA was adversely impacted by approximately $18 million of unexpected items, primarily the
significant devaluation of the Argentinian peso that occurred in
December of 2023. Over the past year, we have enhanced our
commercial infrastructure to support future growth, doubled year
over year innovation sales, returned to revenue growth and taken
actions to accelerate debt paydown."
Simmons continued, "As we look at 2024, we expect our existing
portfolio to deliver constant currency revenue growth of 1% to 3%,
with both pet health and farm animal expected to contribute to
growth. We remain encouraged by our three late-stage pipeline
products under regulatory review that have a path toward approval
in the first half of 2024 and would be additive to our topline
expectations in the second half of the year. Continuing our efforts
to improve efficiency, today we announced a strategic restructuring
to continue the shift of our investments into more significant
value creation areas. We are investing to enhance our launch
efforts, prioritizing cash flow improvements and meaningfully
reducing leverage, from both our improving free cash flow and the
expected sale of our aqua business. We believe that the investments
we are making in 2024 will provide the foundation to enable
sustained revenue growth over the medium and long term."
Financial Highlights
Fourth Quarter
Results
(dollars in
millions, except per share amounts)
|
2023
|
2022
|
Change
(%)
|
CC
Change(1) (%)
|
|
|
|
|
|
|
Pet
Health
|
$416
|
$420
|
(1) %
|
(1) %
|
Farm
Animal
|
$610
|
$552
|
10 %
|
10 %
|
Cattle
|
$249
|
$222
|
12 %
|
11 %
|
Poultry
|
$220
|
$187
|
18 %
|
19 %
|
Swine
|
$98
|
$100
|
(2) %
|
(3) %
|
Aqua
|
$43
|
$43
|
0 %
|
(5) %
|
Contract
Manufacturing
|
$9
|
$13
|
(31) %
|
(28) %
|
Total
Revenue
|
$1,035
|
$985
|
5 %
|
5 %
|
Reported Net
Loss
|
$(141)
|
$(55)
|
(156) %
|
|
Adjusted
EBITDA
|
$165
|
$172
|
(4) %
|
|
Reported
EPS
|
$(0.29)
|
$(0.11)
|
(164) %
|
|
Adjusted
EPS
|
$0.08
|
$0.19
|
(58) %
|
|
|
|
|
|
|
|
Full Year
Results
(dollars in
millions, except per share amounts)
|
2023
|
2022
|
Change
(%)
|
CC
Change(1) (%)
|
|
|
|
|
|
|
Pet
Health
|
$2,104
|
$2,138
|
(2) %
|
(1) %
|
Farm
Animal
|
$2,271
|
$2,219
|
2 %
|
4 %
|
Cattle
|
$949
|
$944
|
1 %
|
2 %
|
Poultry
|
$765
|
$716
|
7 %
|
10 %
|
Swine
|
$382
|
$384
|
(1) %
|
1 %
|
Aqua
|
$175
|
$175
|
0 %
|
(2) %
|
Contract
Manufacturing
|
$42
|
$54
|
(22) %
|
(21) %
|
Total
Revenue
|
$4,417
|
$4,411
|
0 %
|
1 %
|
Reported Net
Loss
|
$(1,231)
|
$(78)
|
|
|
Adjusted
EBITDA
|
$979
|
$1,017
|
(4) %
|
|
Reported
EPS
|
$(2.50)
|
$(0.16)
|
|
|
Adjusted
EPS
|
$0.89
|
$1.11
|
(20) %
|
|
|
|
|
|
|
|
(1) CC = Constant Currency, representing the
growth rate excluding the impact of foreign exchange rates.
Numbers may not add due to rounding.
Fourth Quarter Results:
In the fourth quarter of 2023,
revenue was $1,035 million, an
increase of 5% on both a reported and constant currency basis,
compared with the fourth quarter of 2022.
Pet Health revenue was $416 million, a decrease of 1% on both a reported
and constant currency basis, with a 3% increase from price in the
quarter. The year over year constant currency decline in the fourth
quarter was primarily driven by continued competitive pressure on
certain products in the U.S. veterinary channel, partially offset
by increased price, increased contribution from innovation
products, and increased demand for Seresto® globally
compared to the fourth quarter of 2022. The Advantage®
Family of products and Seresto contributed revenue of $75 million and $42
million, respectively.
Farm Animal revenue was $610 million, an increase of 10% on both a
reported and constant currency basis, with a 4% increase from
price. The year over year constant currency growth in the fourth
quarter was primarily driven by strength in poultry globally,
revenue from new products, led by Experior®, strong
global demand for Rumensin®, resupply of cattle vaccines
in the quarter and increased price, partially offset by continued
declines in international swine and sheep.
Gross profit was $519 million, or
50.1% of revenue in the fourth quarter of 2023. Gross profit as a
percent of revenue declined 440 bps, primarily driven by planned
reduced throughput at certain manufacturing sites in an effort to
reduce balance sheet inventory and improve cash conversion,
unfavorable manufacturing performance including inflation, and
higher affiliate expenses including a recently implemented higher
import duty rate in Argentina,
partially offset by increased price.
Total operating expense was $371
million for the fourth quarter of 2023. Marketing, selling
and administrative expenses decreased 3% to $292 million, and research and development
expenses decreased 1% to $79 million.
The decrease in total operating expenses was primarily driven by
lower promotional spend and savings associated with the completion
of the ERP system implementation in the second quarter of 2023,
partially offset by higher employee related expenses.
Asset impairment, restructuring, and other special charges were
$36 million in the fourth quarter of
2023, compared to $32 million in the
fourth quarter of 2022. Charges recorded in the fourth quarter of
2023 primarily related to a $26 million non-cash write-down of
an asset associated with a long-term manufacturing and supply
agreement, and, to a lesser degree, costs associated with the
implementation of new systems, programs, and processes due to the
integration of Bayer. Charges recorded in the fourth quarter of
2022 primarily related to costs associated with the implementation
of new systems, programs, and processes due to the integration of
Bayer.
Net interest expense was $67
million on both a reported and adjusted basis in the fourth
quarter of 2023, an increase of 8% on a reported basis and 10% on
an adjusted basis as compared to the fourth quarter of 2022. The
increase was driven by the impact of higher interest rates.
Other expense was $34 million
in the fourth quarter of 2023 on a reported basis, compared to
$21 million in the fourth quarter of
2022. Other expense recorded in the fourth quarter of 2023 included
a $12.5 million accrual for a
possible resolution or settlement relating to a previously
disclosed matter with the SEC, as well as the impact from foreign
currency transaction losses, which were most prominent for our
Argentina subsidiary. Other
expense recorded in the fourth quarter of 2022 primarily consisted
of the impact from foreign currency transaction losses.
The reported effective tax rate was negative 11.1% in the fourth
quarter of 2023 compared to 39.2% in the fourth quarter of 2022.
The effective tax rate in the fourth quarter of 2023 was impacted
by a net increase in the valuation allowances recorded on certain
deferred tax assets and unfavorable return to provisions
adjustments, partially offset by the benefit of certain refundable
state income tax credits. The adjusted effective tax rate was 39.7%
in the fourth quarter of 2023 as compared to negative 23.8% in the
fourth quarter of 2022.
Net loss for the fourth quarter of 2023 was $141 million and $0.29 per diluted share on a reported basis,
compared with a net loss of $55
million and $0.11 per diluted
share for the same period in 2022. On an adjusted basis, net income
for the fourth quarter of 2023 was $39
million, as compared to $94
million for the fourth quarter of 2022, or $0.08 per diluted share, as compared to
$0.19 per diluted share for the same
period in 2022.
Adjusted EBITDA was $165 million
in the fourth quarter of 2023, a decrease of 4% compared to the
fourth quarter of 2022. Adjusted EBITDA as a percent of revenue was
15.9% compared with 17.5% for the fourth quarter of 2022, a
decrease of 160 basis points.
Working Capital and Balance Sheet
Cash provided by
operations was $157 million in the
fourth quarter of 2023 compared to $13
million in the fourth quarter of 2022. The increase in cash
from operations in the fourth quarter of 2023 reflects improvements
in net working capital, specifically inventory and more efficient
collections, partially offset by lower net income compared to the
fourth quarter of 2022.
As of December 31, 2023, Elanco's net leverage ratio was
5.6x adjusted EBITDA, down slightly from 5.7x as of September 30, 2023.
For further detail of non-GAAP measures, see the Reconciliation
of GAAP Reported to Selected Non-GAAP Adjusted Information tables
later in this press release.
Select Business Highlights Since the Last Earnings
Call
- Announced sale of aqua business to Merck Animal Health for
approximately $1.3 billion, with the
transaction expected to close around midyear. The company plans to
use expected after-tax proceeds of $1.05
billion to $1.1 billion for
debt paydown. With the proceeds and expected improvement in
free cash flow from the business, Elanco expects to end 2024 with
net debt to adjusted EBITDA in the mid-4x range, and end 2025 in
the high-3x to low-4x range.
- Completed capacity expansion for supply of
Canine Parvovirus Monoclonal Antibody (CPMA).
- Completed regulatory submissions for approval of Zenrelia™ in
several markets including the European Union, United Kingdom and Australia.
- Announced restructuring intended to reallocate resources to
more significant value creation opportunities, which is expected
to:
- Shift resources from Farm Animal to Pet Health across the
international business as the company drives adoption of innovation
products and prepares to globalize its potential blockbuster
products currently under regulatory review;
- Capitalize on efficiencies resulting from our
completed ERP system integration and concentrate roles into
strategic locations;
- Transition our business models to distribution or other
third-party models in certain markets, notably Argentina;
- Result in net savings of $20 to
$25 million primarily in compensation
and benefits in 2024, which is expected to be reinvested in areas
with greater earnings potential, annualizing to $30 to $35 million
of savings in 2025 and beyond; and,
- Result in charges of $50 to
$55 million, including $40 to $45 million
for severance in connection with the restructuring of approximately
420 personnel, to be recorded in the first quarter of 2024. The
estimated cash impact is expected to be $30
million to $35 million in
2024, and approximately $10 million
in 2025.
Financial Guidance
Elanco is providing financial
guidance for the full year 2024, summarized in the following table,
subject to the assumptions described below:
2024 Full
Year
(dollars in
millions, except per share amounts)
|
Guidance
|
|
|
|
|
Revenue
|
$4,450
|
to
|
$4,540
|
Reported Net
Loss
|
$(62)
|
to
|
$(17)
|
Adjusted
EBITDA
|
$960
|
to
|
$1,010
|
Reported Loss per
Share
|
$(0.12)
|
to
|
$(0.03)
|
Adjusted Earnings per
Share
|
$0.87
|
to
|
$0.95
|
The company anticipates revenue between $4,450 million and $4,540
million, with a headwind of approximately $5 million from the unfavorable impact of foreign
exchange rates compared to prior year, resulting in expected
constant currency revenue growth of 1% to 3%, with growth expected
in both pet health and farm animal. The guidance includes the full
year contribution of the company's aqua business and does not
consider contribution from expected launches of new products
(Credelio QuattroTM, ZenreliaTM,
Bovaer®) in 2024. Constant currency growth in 2024 is
expected to be driven by increased price, increased sales of
launched innovation products and increased OTC pet retail demand
globally, partially offset by continued competitive pressure in the
U.S. pet health veterinary market and strategic business model
changes including changes to go-to-market models in certain
countries, exiting low margin distribution agreements, and expiring
contract manufacturing agreements.
2024 guidance includes a slight decline in gross margin, as
benefits from revenue growth are expected to be more than offset by
the impact of actions to reduce manufacturing throughput to reduce
balance sheet inventory and improve net working capital. The gross
margin headwinds from the plant slowdowns the company experienced
in the second half of 2023 are expected to continue in the first
half of 2024, improve in the third quarter and shift to a tailwind
in the fourth quarter of 2024.
Operating expenses are expected to increase 2% to 4% in 2024
driven by higher employee related expenses and increased investment
in commercial capabilities to support our pet health business
globally, primarily in the first half of the year. The
restructuring announced today is expected to deliver savings
primarily in the second half of the year.
"Elanco is taking actions to improve our earnings potential and
leverage profile. In 2024, the cadence of gross margin and
operating expense dynamics within the year are expected to result
in a decline in the first half the year and increase in the second
half of the year for both adjusted EBITDA and adjusted EPS," said
Todd Young, Executive Vice President
and CFO of Elanco Animal Health. "Improvement in net working
capital and reduced project cash costs are expected to meaningfully
improve our cash for debt paydown to $280 to $320
million in 2024. This, paired with the anticipated proceeds
from the sale of the aqua business, is expected to allow us to
reduce leverage to the mid-4x range by the end of the year."
The aqua transaction is expected to close around midyear 2024.
In 2023, the aqua business contributed approximately $175 million in revenue and approximately
$92 million in adjusted EBITDA,
excluding the allocation of corporate costs. The expected debt
payment with proceeds from the sale of the aqua business is
expected to result in reduced interest expense of approximately
$65 million, or $0.11 of EPS, annually. The company expects to
update guidance on its quarterly cadence once the transaction has
closed.
2024 First
Quarter
(dollars in
millions, except per share amounts)
|
Guidance
|
|
|
|
|
Revenue
|
$1,160
|
to
|
$1,185
|
Reported Net
Loss
|
$(34)
|
to
|
$(13)
|
Adjusted
EBITDA
|
$255
|
to
|
$275
|
Reported Loss per
Share
|
$(0.07)
|
to
|
$(0.03)
|
Adjusted Earnings per
Share
|
$0.25
|
to
|
$0.28
|
As previously reported in 2023, as a result of the ERP system
go-live in April 2023, the company
experienced sales order processing blackout periods on legacy Bayer
products in the second quarter of 2023. As a result, the company
reported a shift of approximately $90
million to $110 million of
revenue, $70 million to $90 million of adjusted EBITDA and $0.11 to $0.14 of
adjusted EPS into the first quarter of 2023 that would otherwise
have been expected in the second quarter of 2023. This significant
shift in timing in 2023 impacts the growth rates implied from the
company's guidance for the first quarter of 2024.
In the first quarter, the company expects revenue between
$1,160 million and $1,185 million, with a headwind of approximately
$5 million from the impact of foreign
exchange rates compared to prior year. Excluding the estimated
impact of the ERP system integration, the company expects constant
currency revenue growth of 1% to 3%.
The financial guidance reflects foreign exchange rates as of the
beginning of February. 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 fourth quarter and full year 2023 financial and operational
results, provide financial guidance for the full year and first
quarter of 2024, 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™ – all to advance the
health of animals, people, the planet and our enterprise. Learn
more at www.elanco.com.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains forward-looking statements within the
meaning of the federal securities laws, including, without
limitation, statements concerning product launches and revenue from
such products, our 2024 full year and first 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:
- operating in a highly competitive industry;
- the success of our research and development (R&D) and
licensing efforts;
- the impact of disruptive innovations and advances in veterinary
medical practices, animal health technologies and alternatives to
animal-derived protein;
- competition from generic products that may be viewed as more
cost-effective;
- changes in regulatory restrictions on the use of antibiotics in
farm animals;
- an outbreak of infectious disease carried by farm animals;
- risks related to the evaluation of animals;
- consolidation of our customers and distributors;
- the impact of increased or decreased sales into our
distribution channels resulting in fluctuation in our
revenues;
- our dependence on the success of our top products;
- our ability to complete acquisitions and divestitures and
successfully integrate the businesses we acquire;
- our ability to implement our business strategies or achieve
targeted cost efficiencies and gross margin improvements;
- manufacturing problems and capacity imbalances;
- fluctuations in inventory levels in our distribution
channels;
- risks related to the use of artificial intelligence (AI) in our
business;
- our dependence on sophisticated information technology and
infrastructure and the impact of breaches of our information
technology systems;
- the impact of weather conditions, including those related to
climate change, and the availability of natural resources;
- demand, supply and operational challenges associated with the
effects of a human disease outbreak, epidemic, pandemic or other
widespread public health concern;
- the loss of key personnel or highly skilled employees;
- adverse effects of labor disputes, strikes and/or work
stoppages;
- the effect of our substantial indebtedness on our business,
including restrictions in our debt agreements that limit our
operating flexibility, changes in our credit ratings that lead to
higher borrowing expenses and may restrict access to credit and
changes in interest rates that may adversely affect our earnings
and cash flows;
- changes in interest rates;
- risks related to the write-down of goodwill or identifiable
intangible assets;
- the lack of availability or significant increases in the cost
of raw materials;
- risks related to our presence in foreign markets;
- risks related to currency rate fluctuations;
- risks related to underfunded pension plan liabilities;
- our current plans not to pay dividends and restrictions on our
ability to pay dividends;
- the potential impact that actions by activist shareholders
could have on the pursuit of our business strategies;
- risks related to certain governance provisions in our
constituent documents;
- risks related to tax expense or exposure;
- actions by regulatory bodies, including as a result of their
interpretation of studies on product safety;
- the possible slowing or cessation of acceptance and/or adoption
of our farm animal sustainability initiatives;
- the impact of increased regulation or decreased governmental
financial support related to the raising, processing or consumption
of farm animals;
- risks related to the modification of foreign trade policy;
- 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;
- challenges to our intellectual property rights or our alleged
violation of rights of others;
- 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;
- insufficient insurance coverage against hazards and
claims;
- compliance with privacy laws and security of information;
and
- risks related to environmental, health and safety laws and
regulations.
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-Qs 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 U.S. generally accepted accounting principles
(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 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 GAAP reported measures. We
encourage investors to review our unaudited consolidated financial
statements in their entirety and caution investors to use 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, including an Investor Overview presentation containing a
general overview of the business, which can be found in the Events
and Presentations page of our website.
Elanco Animal Health
Incorporated
Unaudited
Consolidated Statements of Operations
(Dollars and shares
in millions, except per share data)
|
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Revenue
|
$ 1,035
|
|
$ 985
|
|
$ 4,417
|
|
$ 4,411
|
Costs, expenses, and
other:
|
|
|
|
|
|
|
|
Cost of
sales
|
516
|
|
448
|
|
1,931
|
|
1,913
|
Research and
development
|
79
|
|
80
|
|
327
|
|
321
|
Marketing, selling,
and administrative
|
292
|
|
302
|
|
1,285
|
|
1,265
|
Amortization of
intangible assets
|
138
|
|
130
|
|
548
|
|
528
|
Asset impairment,
restructuring, and other special charges
|
36
|
|
32
|
|
127
|
|
183
|
Goodwill
impairment
|
—
|
|
—
|
|
1,042
|
|
—
|
Interest expense, net
of capitalized interest
|
67
|
|
62
|
|
277
|
|
241
|
Other expense,
net
|
34
|
|
21
|
|
75
|
|
32
|
Loss before income
taxes
|
$ (127)
|
|
$
(90)
|
|
$
(1,195)
|
|
$
(72)
|
Income
taxes
|
14
|
|
(35)
|
|
36
|
|
6
|
Net loss
|
$ (141)
|
|
$
(55)
|
|
$
(1,231)
|
|
$
(78)
|
Loss per
share:
|
|
|
|
|
|
|
|
Basic
|
$ (0.29)
|
|
$ (0.11)
|
|
$ (2.50)
|
|
$ (0.16)
|
Diluted
|
$ (0.29)
|
|
$ (0.11)
|
|
$ (2.50)
|
|
$ (0.16)
|
Weighted average shares
outstanding:
|
|
|
|
|
|
|
|
Basic
|
492.8
|
|
488.5
|
|
492.3
|
|
488.3
|
Diluted
|
492.8
|
|
488.5
|
|
492.3
|
|
488.3
|
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,
goodwill and other asset impairments, 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, goodwill and other asset impairments, gains 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
December 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 December 31, 2023 and 2022, to selected Non-GAAP
adjusted information:
|
Three months ended
December 31, 2023
|
|
Three months ended
December 31, 2022
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
Amortization of
intangible assets
|
$
138
|
|
$ 138
|
|
$
—
|
|
$
130
|
|
130
|
|
$
—
|
Asset impairment,
restructuring and other special charges (1)
|
$
36
|
|
$
36
|
|
$
—
|
|
$
32
|
|
$
32
|
|
$
—
|
Interest expense, net
of capitalized interest (2)
|
$
67
|
|
$
—
|
|
$
67
|
|
$
62
|
|
$
1
|
|
$
61
|
Other expense, net
(3)
|
$
34
|
|
$
18
|
|
$
16
|
|
$
21
|
|
$
3
|
|
$
18
|
(Loss) income before
taxes
|
$
(127)
|
|
$ 192
|
|
$
65
|
|
$
(90)
|
|
$ 165
|
|
$
76
|
Income tax expense
(benefit) (4)
|
$
14
|
|
$
(12)
|
|
$
26
|
|
$
(35)
|
|
$
(17)
|
|
$
(18)
|
Net (loss)
income
|
$
(141)
|
|
$ 180
|
|
$
39
|
|
$
(55)
|
|
$ 148
|
|
$
94
|
(Loss) earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
$
(0.29)
|
|
$ 0.37
|
|
$ 0.08
|
|
$
(0.11)
|
|
$ 0.30
|
|
$ 0.19
|
diluted
|
$
(0.29)
|
|
$ 0.37
|
|
$ 0.08
|
|
$
(0.11)
|
|
$ 0.30
|
|
$ 0.19
|
Adjusted weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
492.8
|
|
492.8
|
|
492.8
|
|
488.5
|
|
488.5
|
|
488.5
|
diluted
(5)
|
492.8
|
|
494.9
|
|
494.9
|
|
488.5
|
|
492.6
|
|
492.6
|
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 GAAP. The
company believes these non-GAAP measures provide useful information
to investors. Among other things, they may help investors evaluate
the company's ongoing operations. They can also 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 reported GAAP measures for the three months
ended December 31, 2023 and 2022,
include the following:
(1) Adjustments of $36
million for the three months ended December 31, 2023, related primarily to a
$26 million impairment of a contract
asset we initially recorded in 2022 related to a long-term
manufacturing and supply agreement, in addition to charges
primarily associated with integration efforts and external costs
related to the acquisition of Bayer Animal Health. Adjustments
of $32 million for the three months
ended December 31, 2022, related
primarily to $28 million of charges
associated with integration efforts and external costs related to
the acquisition of Bayer Animal Health and KindredBio, in addition
to asset impairments and the write-off of a receivable associated
with a previous R&D collaboration arrangement.
(2) The adjustment of $1
million for the three months ended December 31, 2022, related to a debt
extinguishment loss recorded in connection with the early repayment
of our Term Loan B.
(3) The adjustments of $18 million for the three months ended
December 31, 2023, primarily related
to an accrual for a possible resolution or settlement relating to a
previously disclosed matter with the SEC ($12.5 million), a write-off of an
acquisition-related tax indemnification receivable from Bayer
($10 million) and the impact of
hyperinflationary accounting in Turkey ($5
million), partially offset by decreases related to
contingent consideration payable to NutriQuest, LLC (NutriQuest)
($8 million). The adjustment of
$3 million for the three months ended
December 31, 2022 related to a
contribution to The Elanco Foundation.
(4) Adjustments of $12
million for the three months ended December 31, 2023, represented the income tax
expense associated with the adjusted items discussed above,
partially offset by an increase in the valuation allowance recorded
against our deferred tax assets during the period ($80 million). Adjustments of $17 million for the three months ended
December 31, 2022, represented the
income tax expense associated with the adjusted items discussed
above and a net tax benefit associated with the sale of the Speke
manufacturing site ($12 million),
partially offset by an increase in the valuation allowance recorded
against our deferred tax assets during the period ($69 million).
(5) During the three months ended December 31, 2023 and 2022, we reported a GAAP
net loss and thus, potential dilutive common shares were not
assumed to have been issued since their effect was anti-dilutive.
During the same periods, we reported non-GAAP net income. As a
result, potential dilutive common shares would not have had an
anti-dilutive effect, and diluted weighted-average shares
outstanding for purposes of calculating adjusted EPS include 2.1
million and 4.1 million, respectively, of common stock
equivalents.
|
Three Months Ended
December 31,
|
|
2023
|
|
2022
|
As reported diluted
EPS
|
$
(0.29)
|
|
$
(0.11)
|
Amortization of
intangible assets
|
0.28
|
|
0.26
|
Asset impairment,
restructuring and other special charges
|
0.07
|
|
0.06
|
Interest expense, net
of capitalized interest
|
—
|
|
0.00
|
Other expense,
net
|
0.04
|
|
0.01
|
Subtotal
|
0.39
|
|
0.34
|
Tax impact of
adjustments (1)
|
(0.02)
|
|
(0.03)
|
Total adjustments to
diluted EPS
|
$
0.37
|
|
$
0.30
|
|
|
|
|
Adjusted diluted EPS
(2)
|
$
0.08
|
|
$
0.19
|
Numbers may not add due to rounding.
(1) 2023 includes a favorable adjustment relating to the
increase in the valuation allowance recorded against our deferred
tax assets (impact of $0.16 per
share). 2022 includes a favorable adjustment relating to the
increase in the valuation allowance recorded against our deferred
tax assets (impact of $0.14 per
share).
(2) Adjusted diluted EPS is calculated as the sum of as reported
diluted EPS and total adjustments to diluted EPS.
The following is a reconciliation of GAAP Reported for the year
ended December 31, 2023 and 2022, to Selected Non-GAAP
Adjusted information:
|
Twelve months ended
December 31, 2023
|
|
Twelve months ended
December 31, 2022
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
|
GAAP
Reported
|
|
Adjusted
Items (b)
|
|
Non-
GAAP (a)
|
Cost of sales
(1)
|
$
1,931
|
|
$
2
|
|
$ 1,929
|
|
$
1,913
|
|
$
—
|
|
$ 1,913
|
Amortization of
intangible assets
|
$
548
|
|
$ 548
|
|
$
—
|
|
$
528
|
|
$ 528
|
|
$
—
|
Asset impairment,
restructuring and other special charges (2)
|
$
127
|
|
$ 127
|
|
$
—
|
|
$
183
|
|
$ 183
|
|
$
—
|
Goodwill
impairment
|
$
1,042
|
|
$ 1,042
|
|
$
—
|
|
$
—
|
|
$
—
|
|
$
—
|
Interest expense, net
of capitalized interest (3)
|
$
277
|
|
$
—
|
|
$ 277
|
|
$
241
|
|
$
20
|
|
$ 221
|
Other expense, net
(4)
|
$
75
|
|
$
42
|
|
$
33
|
|
$
32
|
|
$
2
|
|
$
30
|
(Loss) income before
taxes
|
$ (1,195)
|
|
$ 1,761
|
|
$ 566
|
|
$
(72)
|
|
$ 733
|
|
$ 661
|
Income tax expense
(5)
|
$
36
|
|
$
(91)
|
|
$ 127
|
|
$
6
|
|
$ (111)
|
|
$ 117
|
Net (loss)
income
|
$ (1,231)
|
|
$ 1,670
|
|
$ 439
|
|
$
(78)
|
|
$ 622
|
|
$ 544
|
(Loss) earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
$
(2.50)
|
|
$ 3.39
|
|
$ 0.89
|
|
$
(0.16)
|
|
$ 1.27
|
|
$ 1.11
|
diluted
|
$
(2.50)
|
|
$ 3.39
|
|
$ 0.89
|
|
$
(0.16)
|
|
$ 1.26
|
|
$ 1.11
|
Adjusted weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
492.3
|
|
492.3
|
|
492.3
|
|
488.3
|
|
488.3
|
|
488.3
|
diluted
(6)
|
492.3
|
|
493.7
|
|
493.7
|
|
488.3
|
|
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 GAAP. The
company believes these non-GAAP measures provide useful information
to investors. Among other things, they may help investors evaluate
the company's ongoing operations. They can also 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 reported GAAP measures for the year ended
December 31, 2023 and 2022, include
the following:
(1) Adjustments of $2
million for the year ended December
31, 2023, related to the amortization of inventory fair
value adjustments recorded from the acquisition of certain assets
of NutriQuest and NutriQuest Brazil.
(2) Adjustments of $127
million for the year ended December
31, 2023, primarily related to charges associated with the
integration efforts and external costs related to the acquisition
of Bayer Animal Health ($93
million), a $26 million
impairment of a contract asset we initially recorded in 2022
related to a long-term manufacturing and supply agreement and the
write-down of certain indefinite-lived intangible assets, primarily
due to increases in discount rates. Adjustments of $183 million for the year ended December 31, 2022, primarily related to charges
associated with the integration efforts and external costs related
to the acquisition of Bayer Animal Health ($105 million), an impairment charge related to
acquired IPR&D with no alternative future use that we recorded
upon the initial consolidation of a variable interest entity that
is not a business ($59 million) and
the finalization of a write-down charge associated with the sale of
our manufacturing site in Speke, U.K. ($22
million), partially offset by adjustments from the reversal
of severance accruals ($9
million).
(3) Adjustments of $20
million for the year ended December
31, 2022, related to debt extinguishment losses recorded in
connection with the partial early extinguishment of our 4.272%
Senior Notes due August 28, 2023, and
the early repayment of our Term Loan B.
(4) Adjustments of $42
million for the year ended December
31, 2023, primarily related to settlement provisions
recorded in 2023 related to the Seresto class action
lawsuits ($15 million) and for a possible resolution or
settlement relating to a previously disclosed matter with the SEC
($12.5 million), as well as a
write-off of an acquisition-related tax indemnification receivable
from Bayer ($10 million) and the
impact of hyperinflationary accounting in Turkey ($7
million), partially offset by decreases in contingent
consideration payable to NutriQuest ($4
million). Adjustments of $2
million for the year ended December
31, 2022, primarily related to a contribution to The Elanco
Foundation ($3 million) and the
impact of hyperinflationary accounting related to Turkey ($4
million), partially offset by the gain recognized on the
disposal of the microbiome R&D platform ($3 million) and up-front payments received in
relation to license and asset assignment agreements ($2 million).
(5) Adjustments of $91
million for the year ended December
31, 2023, represent the income tax expense associated with
the adjusted items discussed above, partially offset by an increase
in the valuation allowance recorded against our deferred tax assets
during the period ($93 million).
Adjustments of $111 million for the
year ended December 31, 2022,
represent the income tax expense associated with the adjusted items
discussed above, the reversal of tax expense that was previously
stranded in accumulated other comprehensive income due to an
interest rate swap settlement ($17
million) and a net tax benefit associated with the sale of
the Speke, U.K. manufacturing site ($12
million), partially offset by as increase in the valuation
allowance recorded against our deferred tax assets during the
period ($62 million).
(6) During the years ended December 31, 2023 and 2022, we reported a GAAP
net loss and thus, potential dilutive common shares were not
assumed to have been issued since their effect was anti-dilutive.
During the same periods, we reported non-GAAP net income. As a
result, potential dilutive common shares would not have had an
anti-dilutive effect, and diluted weighted-average shares
outstanding for purposes of calculating adjusted EPS include 1.4
million and 3.9 million, respectively, of common stock
equivalents.
|
Twelve Months Ended
December 31,
|
|
2023
|
|
2022
|
As reported diluted
EPS
|
$
(2.50)
|
|
$
(0.16)
|
Cost of
sales
|
0.00
|
|
—
|
Amortization of
intangible assets
|
1.11
|
|
1.07
|
Asset impairment,
restructuring and other special charges
|
0.26
|
|
0.37
|
Goodwill
impairment
|
2.11
|
|
—
|
Interest expense, net
of capitalized interest
|
—
|
|
0.04
|
Other expense,
net
|
0.09
|
|
0.00
|
Subtotal
|
$
3.57
|
|
$
1.49
|
Tax impact of
adjustments (1)
|
(0.18)
|
|
(0.23)
|
Total adjustments to
diluted EPS
|
$
3.39
|
|
$
1.26
|
|
|
|
|
Adjusted diluted EPS
(2)
|
$
0.89
|
|
$
1.11
|
Numbers may not add due to rounding.
(1) 2023 includes a favorable adjustment relating to the
increase in the valuation allowance recorded against our deferred
tax assets (impact of $0.19 per
share). 2022 includes a favorable adjustment relating to the
increase in the valuation allowance recorded against our deferred
tax assets (impact of $0.13 per
share).
(2) 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 GAAP and its reconciliation to
net income (loss), 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 GAAP net income
(loss) for the three and twelve months ended December 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
December 31,
|
|
Twelve Months Ended
December 31,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Reported net
loss
|
$
(141)
|
|
$
(55)
|
|
$
(1,231)
|
|
$
(78)
|
Net interest
expense
|
67
|
|
62
|
|
277
|
|
241
|
Income tax expense
(benefit)
|
14
|
|
(35)
|
|
36
|
|
6
|
Depreciation and
amortization
|
171
|
|
169
|
|
694
|
|
682
|
EBITDA
|
$
111
|
|
$
141
|
|
$
(224)
|
|
$
851
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
Cost of
sales
|
$
—
|
|
$
—
|
|
$
2
|
|
$
—
|
Asset impairment,
restructuring and other special charges
|
36
|
|
32
|
|
127
|
|
183
|
Goodwill
impairment
|
—
|
|
—
|
|
1,042
|
|
—
|
Other expense,
net
|
18
|
|
3
|
|
42
|
|
2
|
Accelerated
depreciation and amortization(1)
|
—
|
|
(4)
|
|
(10)
|
|
(19)
|
Adjusted
EBITDA
|
$
165
|
|
$
172
|
|
$
979
|
|
$
1,017
|
Adjusted EBITDA Margin
|
15.9 %
|
|
17.5 %
|
|
22.2 %
|
|
23.1 %
|
Numbers may not add due to rounding.
(1) Represents depreciation and amortization of certain assets
that was accelerated during the periods presented. These assets
became fully depreciated and amortized during the second quarter of
2023. 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 December 31, 2023:
|
|
Long-term
debt
|
$
5,736
|
Current portion of
long-term debt
|
38
|
Less: Unamortized debt
issuance costs
|
(50)
|
Total gross
debt
|
5,824
|
Less: Cash and cash
equivalents
|
352
|
Net Debt
|
$
5,472
|
Elanco Animal Health
Incorporated
2024 Full Year and First Quarter
Guidance
Reconciliation of 2024 full year reported EPS guidance to 2024
adjusted EPS guidance is as follows:
|
Full Year 2024
Guidance
|
Reported loss per
share
|
$(0.12)
|
to
|
$(0.03)
|
Amortization of
intangible assets
|
Approx.
$1.11
|
Asset Impairment,
restructuring and other special charges
|
$0.07
|
to
|
$0.15
|
Subtotal
|
$1.18
|
to
|
$1.26
|
Tax impact of
adjustments
|
$(0.26)
|
to
|
$(0.19)
|
Total adjustments to
EPS
|
$0.99
|
to
|
$1.00
|
Adjusted earnings per
share(1)
|
$0.87
|
to
|
$0.95
|
Numbers may not add due to rounding.
(1) Adjusted EPS is calculated as the sum of reported EPS and
total adjustments to EPS.
Reconciliation of 2024 reported net loss to 2024 adjusted EBITDA
guidance is as follows:
$ millions
|
Full Year 2024
Guidance
|
Reported net
loss
|
$(62)
|
to
|
$(17)
|
Net interest
expense
|
Approx. $280
|
Income tax
expense
|
$(17)
|
to
|
$29
|
Depreciation and
amortization
|
Approx. $685
|
EBITDA
|
$886
|
to
|
$976
|
Non-GAAP
Adjustments
|
|
|
|
Asset impairment,
restructuring and other special charges
|
Approx. $50
|
Adjusted
EBITDA
|
$960
|
to
|
$1,010
|
Adjusted EBITDA
margin
|
21.6 %
|
to
|
22.2 %
|
Numbers may not add due to rounding.
Reconciliation of 2024 first quarter reported EPS guidance to
2024 first quarter adjusted EPS guidance is as follows:
|
First Quarter 2024
Guidance
|
Reported loss per
share
|
$(0.07)
|
to
|
$(0.03)
|
Amortization of
intangible assets
|
Approx.
$0.28
|
Asset impairment,
restructuring and other special charges
|
$0.09
|
to
|
$0.11
|
Subtotal
|
$0.37
|
to
|
$0.39
|
Tax impact of
adjustments
|
$(0.07)
|
to
|
$(0.06)
|
Total adjustments to
EPS
|
$0.31
|
to
|
$0.32
|
Adjusted earnings per
share(1)
|
$0.25
|
to
|
$0.28
|
Numbers may not add due to rounding.
(1) Adjusted EPS is calculated as the sum of reported EPS and
total adjustments to EPS.
Reconciliation of 2024 first quarter reported net income (loss)
to 2024 first quarter adjusted EBITDA guidance is as follows:
$ millions
|
First Quarter 2024
Guidance
|
Reported net
loss
|
$(34)
|
to
|
$(13)
|
Net interest
expense
|
Approx. $70
|
Income tax
expense
|
$(2)
|
to
|
$7
|
Depreciation and
amortization
|
Approx. $170
|
EBITDA
|
$203
|
to
|
$232
|
Non-GAAP
adjustments
|
|
|
|
Asset impairment,
restructuring and other special charges
|
Approx. $50
|
Adjusted
EBITDA
|
$255
|
to
|
$275
|
Adjusted EBITDA
margin
|
22.0 %
|
to
|
23.2 %
|
Numbers may not add due to rounding.
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
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SOURCE Elanco Animal Health