ELAN - Earnings call transcript Q3 2018 | Elanco Animal Health Incorporated

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Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Elanco Animal Health, Inc., Q3 Earnings Call. All lines have been placed on mute to prevent any background noise.

Following the presentation, we will conduct a question-and-answer session. now turn would to call I Mr. Instructions] like the to over [Operator of Relations. Greffet, Investor Jim Head Please go ahead.

Jim Greffet

earnings as Melissa. for am Elanco XXXX joining you, Jim us our Thank Good Investor for Animal morning. Greffet, Head Health’s Relations. company. publicly traded a Thank of you call, I first QX

of new Jeff Executive Joining our Officer; Financial acting are President Regulatory CFO; Aaron Chief our Simmons, Innovation, our Schacht, and me President Development. on today’s Executive Business and Vice Chief Todd our call Officer; Montarce, and Young, Lucas

current During projections this conference and forward-looking call, we anticipate statements making based on expectations. our

accounting derived and actual attributed direct with Our Slide have statements indirect were consolidated prospectus to of X materially Securities financial filing, prior on and our Commission costs, of Health the initial costs first the prospectus XXXX. to on factors, outlined and Lilly. years those of a XXXX our financial half in allocations our and as business from which for recent Exchange results number our the These differ X, of indicated could include records in and for relating September Eli been and listed filed the including Also offering Animal statements those Company. to due public Lilly

may expenses Elanco Lilly of TSAs. functions. these or under of Some for corporate as us that to basis certain these to technology, were you of and support Lilly, continue services for other certain within aspects the example are agreements provide provided such services call allocations functions for what centralized on a will facilities transitional some hear business

a of first would not years what do results necessarily and had as combined As standalone operations financial we the prior public prior company. noted statements XXXX been, operated of for the we reflect the have in half filings,

certain As a difficult prior make instances. this comparisons can the in to year result,

results financial allocations from also XXXX quarter Third include Lilly.

receive information on be a to our is of to costs not our for mentioned. with related direct going allocations. The promotional the standalone from quarter it not the For XXXX prescribing not sufficient cost operations include based with will intended provide we all periods and products Lilly will results and and benefit associated under services forward, fourth starting the results for the is about TSAs investment and is our be I community, pipeline the we decisions. Those

slides can the referenced and on elanco.com. call investor You workbook in our press find this on release,

and that the the call. also We slides will to we time site measures The continue release to important non-GAAP discuss company press financial will during use about information further in our information. this distribute critical contain

In addition comment to well providing our Elanco. to our intend to key the financial environmental and as provide over events factors Jeff to questions. earnings happy will we to take remarks, prepared the to use be highlights. industry to highlight now your quarterly on After relevant achievements results, call animal I'll health we the our and calls as to turn

Jeffrey Simmons

Thanks Jim.

to appreciate offering. me by much Let saying we your initial our in start public support Company and interest the how

I'd believe our from our quarter start positioned are this on this reflect X. well a execution of results Company strength are a and we themes Slide We full important like as highlighting quarter in few business. standalone the mode by to

new targeted We delivering launches, and are to we on First, say in that saw we growth approvals, achieve this QX. several commitments return as collaboration. and to flow you innovation our growth with accelerated performance continue new growth categories strong and know R&D sustainable year during we've a pleased product our of to in

first highlights quarter traded as generating Elanco our expectations of targeted company. expansion in efforts pillars Finally, continue our X three publicly value progress. Slide to for delivery Ultimately, the margin strategy. we the met a our

business. importance to of to to continue back will the highlighting this focused come We the our approach

Elanco new shared growth and on portfolio have of position can we and products our with positioned we is build as of our are innovation. grow portfolio marketed driving well where the First,

executing is drive portfolio margin value. pillar productivity innovation. and sustainable second agenda our deliver unique Using The unlock on significant our a expansion robust and model to innovation of to consistent

of This quarter, the the key events all we with across have of portfolio. starting a strategy, number pillars

of portfolio an for $XXX.X exchange. the or Our foreign accounted topline increase X% of revenue of million, without impact XX%

is excluding without grew revenue While call million the strategic exchange. XX% impact This most core our importantly we for of expectations the or to quarter. $XXX.X performance revenue exits consistent XX% with foreign what

perform As NSAID. Prevention our well. which Credelio’s Therapeutics milligram In in Future is Protein Companion growth year-to-date Interceptor in market Prevention, August exceeded Plus currency. quarterly grew in more Animal reintroduced vaccines Disease Galliprant to the In adoption Animal currency growth XXXX. Galliprant clinic new Health expectations Future XX% Companion than & above in Animal quarter. & branded of also a and patterns group, influenced this by quarter, overall The accelerated one Companion in categories; we the normalizes more for dispensed U.S. and dosing X% pattern. growth Health for for and quarterly the other continue and category Disease increased Animal approach X% constant dose purchasing of provides category, this our Galliprant purchase clinics the by convenient of Protein constant targeted Companion growth year-to-date Credelio Therapeutics XXX and continues more a least dogs. presentation the any at in large the

Executive to this on with to innovation these expand of Three XXXX front, grew the a and the us highlights. we launching further year since QX Business forward. products in portfolio sustainable Regulatory innovation. going year second plans million over our recently flow of Development new same quarter $XX.X XX% have Schacht, last of On innovation innovation a consistent pillar, and a In of launched any today is and deliver are our VP Aaron revenue. can R&D

You of year with associated parasiticides in each and use seasonality the impact products. can see the Aqua QX patterns

to overall year year-over-year the last our our same to expectations. the quarter significant tracking As at and growth, look we is innovation the comparison launched

Slide detail see in this X. can You

During XX disease or Future the Prevacent. launch plan, launched within committed alternatives nutritional meet designed fully poultry a poultry product we Protein or respiratory piglets product our category, prevents important is Asia. a of & the vaccine the specific antibiotic into Elanco tailored blend antibiotics. Correlink advance This the probiotics operation. we’ve Health medically alternatives. challenges porcine a our In Elanco assessed to our and to flock to developed reproductive Antibiotic XX Correlink This older. health the two we eight-point for called launched syndrome To-date underscores since commitment introduced pipeline in quarter, in of Stewardship weeks of

for has Norway, is the key a for we marketing Europe. after extension. an work And flea This additional approval authorization on Imvixa. oral, The while of register to with the decided for application withdraw launching and Agency Credelio cats We tablet in this Norwegian We're review, product. line we've data Agency requested chewable have Medicines in the cats. first also tick to

We are very the innovation and and to bring to diligently confident given in Norway. working in value this performance results are Imvixa’s Chile

We sea and significant continue review challenges the States to address salmon pursue for United registrations currently of to producers. the Canada lice under the and

identifying control overall alteration does help the business. not R&D This collaboration near-term a for medically cattle. capabilities developing event with to our and a the we new antibiotics. products microbiome, is our animal's this to health bring assumptions, and inflammation for for reduce important in and cattle, an to manage key expectations the growing Elanco the alternatives for change nutritional to infections is collaboration into we expands our health focus Novozymes, commercialization entered develop In this business decrease development, as nutritional products gut While need

Turning to productivity, the our continue efforts pillar gross and with drive expansion in manufacturing results across third pricing to margin quarter.

control over QX Slide price XXXX. tower of efforts of growth X, a additional We facility the showing of year-to-date. this for the completed by and categories the to our the results lean Iowa advancing and the sites. manufacturing value manufacturing versus we implementation quarter currency Transitioning Our approach of pricing to the growth based constant Larchwood, summarizes is continued targeted spend manufacturing with X% sale

of offset exits. by the impact see can strategic contribute to all our positively You categories growth,

are some as tracking demonstrates our and our of expected rates performing and towards are strategy. to goals growth the the our patterns, While large in are with year-to-date goals. QX is strategy This more quite due we results in purchasing line

over financial guidance Lucas our I'll to to the for our to review call Now QX detail XXXX. provide and turn results more in

Lucas Montarce

our adjustment Thanks underlying I will adjusted my measures the provide made Jeff. results while X the summarize Slide the financials. to insights Slide Slide comments adjusted at the in focus the considering results, on XX our trends GAAP to the our adjusted in GAAP our into arrive a presentation. to X of business. summary items to appendix provides XX describes

the of results. to year-on-year quarter in today's press earnings please a refer for our release description detailed third GAAP changes So

see Slide adjusted at total X% the Elanco revenue will the on grew Looking in measures you X, quarter.

increased of strategic our Total X% cost agenda. decision of This of and favorability control QX exit. decreased timing $XX.X the revenue new the our businesses productivity Marketing, income we made XXX% Core Jeff performance across X%, update R&D have an by net compared margin points reflecting and operating of last of realized from primarily or decreased business their to was operating XXX to resulting XX% price, an XX% primarily improve increase sales result structure. of improvement manufacturing pattern measures in last and a XXXX, basis an selling that increase The expenses and driven productivity actions projects exited a decreased As or have and mix exclude marketing Gross growth year. driven within core revenue as produce investment. margin due combination purchasing products expenses mature expenses over of by to mentioned percentage to X% revenue the year. our for continue the favorable XX%. quarter the revenue to initiatives, cost operating million quarter. a administrative of year. growth exits, earlier, The certain savings of expenses was was this timing of operating products, we of product which due

bottom net the adjusted significant revenue for same to operating reducing details year-to-date. rate nearly earning We delivering our double-digit The tax growth right the At was XX.X%. measures million. margins the the increased while September slide Our and XXX% growth improving line, income achieved by of side our $XXX.X expenses.

growth. effect volume Slide revenue and Moving take look of rate the XX, on to price, at let's a

overall, was effect growth was the of growth was XX%, exchange basis was revenue our XX%. at Volume foreign while on a headwind X% performance these, X%. quarter, excluding This core price growth

favorable and Future aqua in by overall poultry. and see product growth the growth comparison our pattern partially vaccine, XX% I price. purchasing grew from from Plus were prior vaccines Companion increase. and higher growth, driven parasiticide driven and They removes impact to XX% price XX% price the increased from Prevention, introduction of an new volume offset presentation XXXX, customer a Disease in the in quarter, performance X% QX, that On the international shifted well continued X% year, results includes Credelio our offset Protein their uptake a and & from including of and XX% which of Animal from can Animal XX% you XXX and on in for by X% the across large to in price revenue Companion from quarter, Trifexis year nutritionals, will certain breakdown price, Health the in volume foreign out agreements. exchange. of These quarter, grew decline focus grew which which milligram Slide, of by quarter. in four by X% of growth volume as sales stock Interceptor continued and realized current Therapeutics second as realized anticipated sales Galliprant vaccines the by from dogs, driven categories.

is patterns X% purchasing that and & and Protein volume. and & U.S. in and the Now grew in mainly out growth the in year-to-date Future of mature was Swine current all both key quarter Growth Health prior driven year from vaccine. X%. by brands Ruminants performance the international cattle

internationally. Swine Slide consistent a performance Now in XX, of U.S. our expectations. is X% with The provides growth breakdown that & in the year-to-date Ruminants and our

to the between for to billion. billion $X.XX guidance and between project to be adjusted $X.XX. Slide per be $X.XX share between financial XXXX adjusted our the a on $X.XX revenue to calculated diluted full-year to to translate to Turning XX, $X.XX basis on we on basis GAAP earnings basis These an $X.XX

review I Now to that turn Jeff are some to over the we trends macro will monitoring. back call

Jeffrey Simmons

Thanks, Lucas.

you, couple for of part a As good to Animal our thoughts be to topics. provide efforts our partner a we'd Health on like

for tariffs. our of ADUFA Animal We this we will quarter two build you fourth recently in Act, is Drug pharma’s a think do to Fee investor time. and the ACT, updated you as Health’s important ADUFA perspective. in PDUFA. one, Drug of is this way User created Animal this User the the is reauthorized keep The give are relationship. XXXX trade was topics and reauthorization Prescription We our human version ADUFA for Fee and number

or U.S. FDA the allows has timely medications. grant legislation animal conditional additional medicines where innovate allow have data demonstrated. the important in safety This efficacy in veterinarians for the high approval needed the collect serious necessary to no the most collect resources approval currently products will been reduce to threatening life us is treating product and time time keep where to the in once diseases improvement insure FDA animals. to contains to So of of for areas to can approved fees review to standards The process improvements The market. and the agency new

innovator animal supports that health, and Elanco innovation. science-based IV predictable leader process a PDUFA in regulatory a enables As as

the dynamic are The and and expectation was levels monitoring year-to-date closely, we animal growth. higher topic are last our than second exports all time pork tariffs. are to while this among of beef, them tariffs Turning trade greater for of health and customers of poultry year. and U.S. Trade

pork global policy. trade poultry of was capacity meet to from this and intended an that facing partly now is New some impact demand

pork retaliation the well having new as impact U.S. are on implementation Continued the partnership as without Mexico the beef and and Trans-Pacific from Canada pending of an

tariff and we any agreements and three announcement UK a impact to see are with have We U.S. all trade customers We our our business. tariffs Fewer the for Elanco. global as month's of and don't separate the near-term barriers and by EU. for last beneficial from is encouraged non-tariff the trade Japan, that trade is to exploring material business

We results. in there going conditions the impact see summary, will this themes monitor into XXXX. quarter's I customers you of In a how our few key trade economic hope are will

publicly First, we met company. traded first our expectations our in as quarter a

growth that We driven to our return by growth have targeted strategy. QX value generating and accelerated in

We and are launched and which in it's perspective our well. unique growth in favorable one-time is the perform on these important to products seeing and keep approach some delivering this patterns success XXXX with create grow focused quarter. our events Innovation categories. continue to year-on-year Yet comparison results newly purchasing

work much Finally, remains.

of are Elanco, our focused strategic plan. we For execution acceleration on our customers the and and

wish remarks, as for We and the like I'd time unit. Lilly’s the XX to the through and industry call over my gratitude Elanco’s Lilly our transition. CFO. tirelessly the to he him as are Lucas Before Todd Lucas introduce Jim Elanco’s to to closely months. moderate CFO over for our ensure Elanco thank has working of Lucas combined new end business the through us the him history. CFO. acting I moving his his Q&A make pleased I'll service addition to best the already to excellent International now transformation an as We am guide to session. worked Q&A, reiterate smooth to him guiding IPO knowledge process prepared Todd’s Elanco. Young returns as And financial pharmaceutical to this deep will concludes a to to and at exciting This Todd expertise our year turn with company's in last

Jim Greffet

two that parts. Thanks as in take as question to want two We possible many so ask or a to them limit we you Jeff. questions

and Melissa, So to provide we the you question. we if ready take Q&A are instructions then the could session for ready, first are

Operator

first line Thank [Operator Chris from of you. comes from Your Instructions] question Schott JPMorgan. the

is open. line Your

Christopher Schott

questions. the for much very Thanks Great.

bit little XQ Just the results. had two A clarification of on here.

protein first business. the So the future one health and was

underlying acceleration a as had in up guys being very there this year. XXX the you that Companion slowed Can a on on be was side, elaborate so is results strong more what that? flip I milligram and we're of Therapeutics with earlier quarter quarter like – bit there any from you the second seemed well? growth. think the very growth seeing or the step should watching then business just in very And Thanks largely for bit dynamics strong we Galliprant much. a business the my Is the question

Jim Greffet

Jeff, then tease to then on Therapeutics and normalizations you Great. can out. Chris, good future you with for Lucas, if the questions. needed. Lucas, the also we Companion add talk overall that protein and And some try have health, about why specifics don't Animal to

Jeffrey Simmons

the broilers Overall, well as and Thanks we Chris or fundamentals, that's aqua. and start for questions. I'll both by salmon just saying, as led the is continue great protein poultry see demand to being eggs by really

underlying the remain solutions, fundamentals salmonella or sea coccidiosis we've to and we’re as leading continue pancreas and lice whether we as the out globally continue So strong. the of disease. have poultry mentioned, business, the economics on And and that's road, to

overall performance. So would feel we very X% point year-to-date, to good. at level, year-to-date a more the Chris, the I high probably

is purchasing We the some in really have of seen representative some the of slowing patterns primarily international business.

Lucas Montarce

Companion terms and to second in volume your Galliprant The attributed the strong milligrams. to XX%, volume growth question, X% from price. the growth So can QX Animal the from as you is of XX% highlighted of Therapeutics in XXX introduction be

the you from once the growth is from certainly, XX% normalize X% So volume. overall price that actually XX% and by quarter, for

quarter, Just to last QX XX%. was compare versus growth actually

growth double-digit Companion So we're basically actually Animal seeing Therapeutics. the quarters both again, in trends you see that again that's mid

Christopher Schott

is of back that much. Quick as sales? Galliprant, level Great, just step a the you up product of read is XXX more that's follow-up thanks very the a on the that comes milligram, that or one-time sustainable

Jeffrey Simmons

system. there I wasn't much inventory Yes, the yes, because think in Chris, certainly –

think pool, There there to of to a there. demand I continues so be through pull speak. good replenishment needs to the be

product the as that through strong of be might but underlying still in bit well. lump, of there a flow are little fundamentals the So a pretty

Christopher Schott

Okay. so Thanks much.

Jim Greffet

next Melissa, question.

Operator

the from comes question David Morgan Stanley. from of line next Risinger Your

open. Your line is

David Risinger

two and please. performance. I congrats the have much Thanks Yes. questions on very

And third just second versus benefited question the one price $XXX indicates it an a bit you Could be X% the that slightly reported on slides, to actually price year-to-date my little about how of that? Companion respect Companion is Could then Animal. implies you. just it you to in from that perspective mix respect much flat price versus that's EBITDA expected will million with improvement how calculated guidance, positive despite figures raised the shift? is, Animal of down sequentially. to you with how some quarter Thank provide to revenue First, provide quarter's much X% up fourth and on in Elanco your across color

Jeffrey Simmons

Choosing in start? numbers lots want Lucas, so of those questions, you

Lucas Montarce

attributed Maybe Yes. David. Thank about in your you Companion highlighted the again, have one done but price contracts a Day, year-to-date X% Animal of recapture to for of an you cover you question, Analyst the price, basically heavily for the we starting in a Preventions that is with growth we that first U.S. us, a there as is as margin have during have changing companion also in we the

So much XXXX. is that's That that very one-time is again, also a driver. event in happening

On also one the third mentioned you mix.

– have There again is Credelio of Interceptor of the component and a mix. again within that re-introduction with We Plus.

terms is moving drivers two truly in margin the the is we price. expectation year-to-date, points All long see are three is increases, forward those X% businesses. at coming X of points X% from combining X basically that our that that from percentage percentage term, list recap So at you price see together that bottom, the that coming

combination in step-up in actually seen into place well, is the grow QX, quarter. that EBITDA but place question expense basically QX. that have fourth what playing the Then that have gross you see level of terms the of timing at for for you full QX expenses to What EBITDA taking as of in of Now step-up you basically basically out quarter. seen is taking will into continue the again you the interest we see going into sales,

one, So won't since you've interest be it on is in big The grounded a EBITDA, impact. of step-up correct. expenses timing yes,

Jeffrey Simmons

earnings you'll notice see you'll from share obviously also same it Dave, there. phenomenon in per the the Yep. just math, that

third. earnings If you point, the quarter delivered out fourth share the the than per do and less the in at what is mid forced we the

interest reasons, all said, that fourth Lucas For have step-up well just as quarter. as and will the in the the

David Risinger

you. Yes, thank

Jim Greffet

Melissa, next question.

Operator

Your next Credit from question Wright Erin of line from comes Suisse.

line Your open. is

Erin Wright

Great, thanks.

well of for then over segment the higher several where as you competitive expect speak as in second positioned part quarter the broader initiatives Credelio into been to positioning to in cost us do you here years? of you accomplished update Thanks. for how structure stand terms Animal be initial how and Therapeutics and parasiticide on to – next our near-term of what has the spoke You manufacturing where question with rationalization? and realized the head and my Can in at of XXXX? you as expansion can is also kind And is, in you're [indiscernible] we remind the uptake the your price Companion the magnitude and margin Trifexis CMO

Aaron Schacht

Great, you want Jeff, to…? do

Jeffrey Simmons

Aaron. for Thanks question. the Absolutely,

space, portfolio, very we So in as continues to of as about good well conditions and feel to our Trifexis oral the that that not we've Animal veterinarian. and users, positioned, heartworm with spaces if continues dogs loyal we ticks. do to Prevention be Companion have are offers that our really have not look flea presence bring veterinarian the at the you parasiticide as even talked about outside and But the both products, of broad portfolio a have

well So you've United as of urban southeast the as States. seen markets both in the

younger to by and you the puppy product. and on coming acceptance also marketing we're combine to to flea, across mean when for the safety, and areas. Plus, our Interceptor numerous only also when breadth there you come look and Plus continue the and as as good but seeing, tick not ability segmentation those with good I administration seeing well that great we build the given efficacy, you're its with in And Then in at Credelio Interceptor that with coverage So worms Credelio targeted growth dog. tremendous

across differentiated Plus, set and to Credelio, veterinarian these solutions Interceptor a products. nice portfolio again, portfolio and the and nice working with we're on continue to Trifexis, a segmenting veterinarian. very focused that for target of we pet the So different owner again, But the differentiated relative understanding appropriate

Aaron Schacht

about the talk productivity…? Well

Jeffrey Simmons

Yes.

we've shared. productivity, the the extremely comprehensive is on as So agendas shared we've

was our sold. The excited Our of And the And get the to we plant. key the goal transition that key our we as right place. be of sale last possible footprint to quickly in that manufacturing as needed product moves one footprint Larchwood will was get – that to right the four size. we're to could dodge

our focus and now on looking elements Now plan. I the at is the heavily SKUs tower our the and in rationalizing key And procurement Aaron mentioned, control manufacturing of spend aspects and appropriately, some pricing. of as our we've of put lean majority that

less becomes it one So a a of now and execution of footprint.

Jim Greffet

Melissa, next question?

Erin Wright

you. Thank

Jeffrey Simmons

Erin. Thanks

Operator

Your from question Liav comes next of from the line Abraham Citi.

Your line open. is

Liav Abraham

a Can morning. firstly, you A opportunity mentioned the bit you outlook competitive questions, little for just Credelio environment cats. what about – bit and this is your on this the to for a little Good of elaborates a in a couple Thank and following broad wounds? indication? development where us to on spectrum of just you targets and And that question, ticks, in then secondly the much. are you ectoparasite can just previous the very fleas remind you

Jim Greffet

to welcome party Let’s the [indiscernible]. Aaron

Aaron Schacht

Yes, Liav. for cats. morning. Good sure. Thanks for Credelio the on question Thanks

excited There's that's Lotilaner combination this tick dogs. cats available be ingredient, the ingredient as the Credelio. oral introducing flea goes on. the product first product another We same the spot the are This as EU. active will a into active available it about is in for and

excited molecule. obviously that this provides safety of the of the continuous through offer about method, in we efficacy administration and a preferences profile it different for different So read we're a owners, there, convenience

the to we're take to that, expect obviously looking to forward veterinarians kit product to in how so marketplace And see the tool place responds a cats. good treat that but for

was a ecto question second spectrum and broad around product. Your

a probably so another you're cases, most challenge distinct you're achieve ectoparasites, flea of that differences it the the coverage that envisioning or down. four going And present. First, what products, same final concept that that way the in or that. a of is what three of get broad in medicines, to for about of heartworm, will to to three format of the considering In like like is all try the the maybe the have GI across thinking efficacy might achieve will covers more set current product, provides break regulatory for that parasites to take probably combining globe. want start with the to again, across ectoparasites, different three and and let's the and in geography, all the product regardless the then nematodes, you're one and you and the then or maybe intestinal various The combining tick, end market, going to two spectrum of want enterprises composition you safety readily four and on, various and palatable, medicines expectations manufacturable that the different different coverage one

thing And so this to is not an easy accomplish.

see develop we'll field this think and grow. I

players active. key will of the All be

We are active.

just point we is the such like this. And Milbemax good have would great a to think or a and We for pursuing two products Credelio, Plus job for then does lot flea of that lot a active job ingredients we And I which obviously a Interceptor have we'll tick that of that aspire will for to a be today, does in substrate good to forward Europe, try coverage and great product effort in to this which to. ought to area. build forward and on any product future really Endoparasitic broad try the standard to look competitive look spectrum.

Jim Greffet

Melissa, Great, the move we next can forward question? to Aaron.

Operator

line of Evercore from Raffat comes ISI. the next Umer Your from question

Your line is open.

Umer Raffat

pretty was, grew taking just feel nicely like Thanks Galliprant I first we My quarter-over-quarter. new question my seasonality the launches. for know the on question.

And the margin changing? that QX new some down of sort it this, key understand launches? in What's dollar years. So XXX, to and the down already then of some from dollar putting example, it the down non-Galliprant wanted to What's on are went go for it's to manufacturing that? same much. that? And me know drill And would know we of very going happened around, to CMOs, manufacturing be impact expansion, of then we to just the possible XXX couple Thank What to dollar secondly, you X,XXX perhaps if gone going numbers XX. impact to QX? know So you on to with headcounts the line X,XXX really from the items sites. bear from of next X,XXX on we

Jim Greffet

want to there we the probably and a can start off you hand do different Lucas, bit things. little for

slide you on new maybe growth. start about seasonality we the So see product could the of that

Lucas Montarce

Certainly. Credelio own question maybe heavy is what our of see Umer. and we flea you place Maybe the U.S. QX seasonality you highlight in for versus just tick flea year that the brought and the Remember in that comparing again the a that's season thank prior product. in particular taking to is Again, to that tick DC QX. market or in the impact

a heavy and line products our but is see very driver Again, you of that expectations, impact major much playing our Credelio. market aligned that that in the with see year-to-date is very That's you for with seasonality in is out. expectations much for inside our nicely and but of you full-year. the driven see So by QX, that growing basically expectations the

Jim Greffet

Umer, it’s Jim.

it the all since sort you a questions. little more answer the quantified of described. out Let start me bit we on haven't of in margin that systematic expansion way a I'll teased bits

the gross the it that sits lot a setting. we want that it other impact Quarter-to-quarter, productivity we've see our mixed in and the a done future as the of margin like as improve above more we than window of it a the throughout be a will Period-to-period, that certain will into mix initiatives you of and the think purchasing to that will already savings view in rationalization parts. question, good others, price of patterns benefit leads margin seasonality saw we say been of there influence. portfolio. the avoid time, the forward-looking some the Overall, and some organization. those the and of this initiatives and the where mix so it is in can productivity look be I'd that as there. moving overall footprint today across to be periods and why at this us important sort We'd as for and you the overcomes manufacturing initiatives business see the put improvement will a it's we the Although, and of overall quarter that we with place reasons see cited that have of lumpiness gross

through, continue SKUs, move see strive to and the reduce. the we long-term rationalizations, As the the that we of CMOs benefit procurement, to we'll the

right So macro on we puts think at of trajectory that a level. us portfolio the things

Umer Raffat

good And Lucas. luck you. Thank

Jim Greffet

We’ll miss But too. Todd welcome we much. very him

question, Next Melissa.

Operator

Michael question comes from America of line next the Your of Bank Ryskin Lynch. from Merrill

Your line is open.

Michael Ryskin

like still that be on talk Thanks. on earlier sustainable portfolios? on product the an a especially product more in Congrats prevention you for more those want deeper price seeing Protein question, quarter. the of price but a little broadly for a could into from gains on you X% Can seeing parts in Health how going with to competition forward, and in some gains up from and & low quarter, realized details increasingly want going to break dig provided focus I both Ruminants we and given you're the follow-up is guys. to year. quarter, bit for price the new XX% on the to focus about on Generally, have XXXX, what quarter classes. I quarter you're catch of single-digit about we disease is moving the from I I your Swine if But would you for the Trifexis, more this know price sort products. those where the the mean out, the in the expect look, if what's in portfolio. and line what I be you across commentary that to it on But understand and year, you for gains year-to-date, the flat want year-to-date entire try &

trying a question. catch-up have then prior follow-up I parse out versus the Just And from years? to

Jim Greffet

some Lilly Jim. think thoughts offer this Great. and about there because it nuance, rate, it’s volume that a same way, is think calculations. I it's – is way an does I'll you important Mike, the price but

a especially in The current especially remember we year piece patterns time’s is over volume that year volume, talked the about price Lucas disease rate prior the companion animal volume price. purchasing year So current with way price Trifexis. prevention, calculate

price in that you math. shows lot in the in and volume, prevention XX% a So can function in large it's you of and difference the area, a price. see have instances disease in where higher a swings that And

do element of described. to equation just the that another and it as set to choose need we You point in one I static or

a the portfolio is unique we and is on portfolio the overall described, year-to-date. I to of the Trifexis. So There quarter. somewhat price diced had there quarters the with issue That see what is like this and the just products Lucas because, there into lumpiness some groups instance to we and the which inflation can be things is the of about stocking across in why part price talked reason especially picture

margin that you overall normalize the pricing the are the see the mix So we're we of prices schemes, numbers in portfolio. with list for taking, when consistent things, pricing the those recapture the

Jeffrey Simmons

on, build looking shared medium fundamentals health pretty X% critical? what And of really continues years some to XX long-term, going price changed. would built on. say the be at about openly, and just we the plans what would as we in area fundamentals I Jim, animal of I of in Yes, are see we've our haven't

that's that. You cats need to a coming innovating representation just new innovation here, lot problems. bringing of then lifecycle solutions a and think are of of of keep And existing example XXX seeing and products, offering is the to Two management whole bigger you're and I Credelio examples or portfolio to Galliprant of in. what innovation

And So keep price you very lifecycle value where look fundamentals. mike? a we about you again X% feel Did in good the countries as have question, management what long-term. and eyes that. sustainable is portfolio, that targeted get medium and innovation, can on at that creates that your the follow-up We

Michael Ryskin

want and And on I to Novozymes other thanks. Yes, collaboration the the there. quick want talk also some to I color. real the opportunities of appreciate

ability to You as are margin about think have the for how we ongoing focused how your should very just few on do well? strategy their should think you obviously business improvement further given internal part a partnerships and deals? progress the the in Just already we about of that

Jim Greffet

you how talk and capital overall allocation talk Aaron, about Lucas, then Novozymes in about general. Yeah. you can Maybe can and we think partnering about

Aaron Schacht

product Thanks, about towards, advance fermentation match and for Sure. lot to what now product prebiotics, just a the There bring development very a for culture, of health We're excited teams collaboration and health the really that we've with we're technology help and excited nutritional microbial about and a probiotics collaboration. with of believe begun of Michael business expertise fit the the reinventing and in additives medicated is orientation development, leader a on They a simultaneously. we the and historically us feed technologies Jim coming the innovation and Novozymes. nutrition world the and our thanks, medicated question. are fermentation, cattle, strong very field and prospects feed in are position enzymes, additives new and of and focusing will the that from

Lucas Montarce

those in and to terms allocation, will for basically of that us clear to investment loud again, We we continue priorities moment. terms heard in and Maybe flow to we by also are will to make debt-to-EBITDA continue to our cash allocate you've capital our Again, that our well. find follow-up, as our priorities of X.XX. X.X investment were from sure that leverage basically return the XXXX of target capital also R&D again

again, growth find the enable future. that continue accelerate We will our way, to By our of budgets. us explore to operating we'll within will the collaborations those into type again,

Jim Greffet

Melissa, we’re ready question. for the next

Operator

the Your from next Miner Kathy from line & comes of Company. Cowen question

is open. line Your

Kathy Miner

Thank morning. you. Good

tell as bit also given revenue greater before any couple or shipment question specifically that questions, go which if into specific the could of business? end XXXX? Future species some part the Can talked percentage for Elanco upcoming and cattle to the a is, is So clarity? could us provide first, And share big Protein Thank outlook such and Just you about China? you Ruminants of trading for a what of through terrorists you. swine. of Swine little and your And some for a could wide and we the there & of events second XXXX us you poultry are trends you, when market

Jeffrey Simmons

Yes, Kathy. there's lot there a

with directly. very think on that here happen a I high I in representation of are external going our would on But we eminent the is the United happening today's see election. States good soon trade with in a level, going world there's a lot nothing say it's what's dynamics this we're the to here what is going probably today at impact customers in

state think you overall we at XXXX those And it. monitoring factors. being trade economic, look need and I as we're is go the into of to one

XXXX, going expectancy But I and little bit. to was go there swine sound built and see beef look pretty some poultry. shared, cattle I've Would as have recovering, mostly we overall export capacity I think pork more poultry be, in that a So as globally and that's state. the at, they in markets were that into cattle, would we will hindered

all and the So prices grain then inventories grains, to, trades the the then on amount and crops what it and and inventory that. comes down protein, of the do on price of on protein impacts

that to no or medium-term trade impact in or see So we things positively. the that, negatively near-term is event going here

Of watch to forward. going course, the Asia got piece, think we I China,

one. number that's So

at I future – look the think as you I think was around trends. other question just

the protein to the but we’re I the watch, going mentioned, think I U.S. farmers economics think I As especially, most.

materially. business, Companion Animal forecast our large you term going or medium anything as see a to in Elanco’s think at that's business look We've we I got don't the business. shorter impact

aqua. much most are Our in as driven poultry isn't our of on prevention economics and treatment growth of the drivers is businesses And the in disease and that producer.

So the and pretty to we medium term. insulated feel relative short

we seeing I I those trade, and protein growing our in continue way. a underlying think fundamentals XX% as continue we lot. it's out need and we in for forget, this production more the and cannot to mentioned Asia of just protein think Latin There's driving XXXX that it dynamics played but dependency significant I've the customers whether to demand demand, a America or on out, domestic see by the still just a play

Jim Greffet

question. a color detail there. of provide haven't it's the good On to China. level disclosed, we can't The exports Kathy, we so

Todd Young

U.S., business countries XX in perspective approximately. our in some provide we that with will XX our XX% that business of again, And presence countries in Jeff XX% Maybe see may you we the again, of on, OUS. mentioned is business already is have slide basically

the level business not heavily distributed again, idea about, of to and an So providing give any is specific OUS basically of diversified you exposure lot just a country. to

Jim Greffet

questions? more have we do Melissa,

Operator

Instructions] Craig-Hallum. Ellich Kevin next of question from [Operator from Your Yes. line the comes

Your line is open.

Kevin Ellich

about Good And think guess is I a as for of basis? questions. being the OUS talk start off the your on you your where sales go-forward and question you kind use exposure, right portfolio? go the comment Jeff, on countries provide with could in Thanks internal second number? commentary that can XX do my Thank presence might XX morning. force then about strategy. taking of and you is distribution starting you your go-to-market And some rationalizing your you. in

Jim Greffet

overall to Lucas, you objectives exposure the the want talk there? about and Great. country do

Lucas Montarce

actually certainly. and We to with about that proceed this this concentrating and We actually we are were roughly – this processing our intentional very to a reducing strategy. We XX basically countries. in about public XX less than Well the talk presence. were country

use presence number of the and are in again distribution products, only when reducing and don't on we that So we presence SKUs ahead have also it. well on number but expertise agenda that basically and the provide that, concentrate concentrate, other to our of will not leverage us of countries

to question. turn second of for the it part will the I Jeff So

Jeffrey Simmons

Yes, great question Kevin.

categories. So see segments focused theme that is a about you generating Elanco talked talked these through our about everything very value we've we're that strategy focused question, on no three we

A are we when that voice areas of we our Animal increase As complex call Therapy. value, number launching see just share to little the to be increase role our the designing highest working we're we're in launch that target to has customers. the were salesforce to. maybe on for, bit forward. hard as Companion we will clear, is few to share a frequency voice, most and me distribution need They're But especially use go is that play continue focusing products Lucas doing more distribution key our are mentioned, played products. able geographies of that really we a the like sales And one we critical most let to

less them concentrated markets lastly on little a not bit Secondly, smaller markets, with see that helping SKUs were smaller kind even as us is and strategic. of that we are

to the cost and continue they there. We're been]. is it’s we that [as and evaluating is probably dialogue to productive So they're see adding and a the playing role a very the us, value as that that and think I live and value constantly add distribution

Kevin Ellich

Q&A End Thank of you.

Jim Greffet

think – that more us we questions. Melissa, believe don't I brings I Great, have

So Jeff, closing wrap this I Can you think comments. you had some up?

Jeffrey Simmons

We relationship Most Hey, to support as company. interest our Yes. you forward your your your long-term very building much public thank as with we in look importantly, begin for We're Company. time and this We journey a pleased a you. margin strategic of with plan. results growth seeing execution the we're expansion our quarter. will our to agenda acceleration the the the from expectation Elanco’s and drive broad-based liked accelerate for and our continue meeting targeted of our and strategy

Have If day. you have reach any please Jim. questions, we great to out a didn't answer,

Operator

today’s concludes conference call. This

disconnect. now may You

Elanco Animal Health (ELAN) 6 Nov 182018 Q3 Earnings call transcript