Q3 2021 Elanco Animal Health Inc Earnings Call
As generic pressures as discussed in August.
Today, we are raising our 2021 full year revenue guidance and maintaining adjusted EBITDA and adjusted EPS guidance. We provided in August all three of which stand well above our initial targets from the December Investor Day.
You can see that on slide five at the midpoint, we anticipate revenue of $190 million or 4% higher than the original December guidance, adjusted EBITDA guidance is $85 million or 9% higher than originally stated and adjusted EPS is <unk> 11 or 12.
Higher <unk>.
2021 is shaping up to be a strong step toward our long term growth algorithm, providing total year expected revenue up approximately 7%, reflecting the durability and diverse nature of our combined business.
Growth. This year includes gains for our focus brands momentum at retail global execution for parasiticide in pain and share gains in U S farm animal.
These <unk> are balanced with competitive dynamics reemergence pressure re emerging pressure from African swine fever and generic challenges.
We're also making steady headway toward our long term margin targets with approximately 300 basis points of adjusted EBITDA expansion anticipated. This year on a pro forma combined company basis.
Our margin expansion in 2021 is representative of a company wide priority given to this important metric with a comprehensive plan to sustain this trajectory towards our goal of 31% by 2024.
Our teams are well positioned to execute on our core business. While several recent strategic actions are enabling accelerated long term value creation.
Kindred bio acquisition closed at the end of August and advances <unk> access to the fast growing $1 billion, plus dermatology market with a combination of <unk> internal pipeline plus the kindred bio additions, we expect to be a key leader in this next era of pet health growth.
<unk> three potential blockbusters launching by 2025 as well as full ownership of the canine parvovirus therapy adds approximately $100 million to our innovation revenue expectations, bringing the total to 6% to $700 million by 2025 as.
As part of our increased focus on high value late stage Pet health pipeline progress, we welcomed Ellen de <unk>, our new head of innovation a few weeks ago. She is a highly accomplished R&D leader with a proven track record in animal health blockbuster development and is ideally suited to drive execution ultimately build.
<unk> on the strong foundation established Aaron's shots tenure, Aaron is now leading the potential carve out of our early stage microbiome R&D platform in which we may retain a minority stake.
The separation is expected to be completed by the end of the first quarter of 2022, we hope to have more details to share with you as this date approaches.
Finally on the productivity front in June we announced the exit of three manufacturing sites on August 1st the sale of the shiny site closed.
Further streamlining our footprint, we are accelerating our gross margin efforts, reducing annual capex and improving working capital.
We believe all of these strategic actions will combine to support consistent double digit adjusted EBITDA and adjusted EPS growth ahead.
On slide six we provide the key drivers of our third quarter revenue performance.
On a pro forma pre.
Pro forma combined company basis, we grew approximately 6%.
Assuming the Bayer acquisition had occurred on January one 2020.
Pet health drove approximately one third of the upside versus the midpoint of guidance, reaching $527 million in revenue for the quarter.
Trends are moderating on incrementally tougher comparisons leading to low single digit year over year increases in U S vet clinic traffic during the quarter.
However growth is still very healthy on a multiyear basis in turn our vaccine business saw strong <unk> performance as we evaluate the stickiness of the trends and Pat's post COVID-19 that matter first the improved vet clinic experience.
As well as the wellness programs and improving compliance should represent longer term market expansion factors on the other side of the pandemic.
Turning to Parasiticide third quarter <unk> revenue was $52 million, while global advantage family revenue was $121 million each up 9% year over year.
Both saw healthy gains in the U S and let our continued strength in international Pet Health <unk> revenue was up 28% compared to 2019.
That's more in line with historical two year trends as the OTC Parasiticide channel rebounded from transient weather related challenges in may.
We remain on track towards full year expectations for <unk> with key initiatives already in place going into next year, creating a long runway to grow this trusted brand.
Moving to <unk>, the global franchise is performing well in a competitive field.
Crude Elio is the second fastest growing brand in global oral parasiticide market. According to the industry data for the second quarter. The most recent available data to.
<unk> shipped product achieved quarter and year to date <unk> growth in the U S supplemented by international expansion and the launches of <unk>, plus and <unk>. We continue to see good traction in the pairing opportunity with interceptor plus.
And our sales and marketing teams across the world are driving our OTC and scripted parasiticide portfolio across retail e-commerce, and the vet clinic as rising pet numbers and greater compliance provide a favorable and durable industry backdrop.
Anticipated and expected declines in our older brands, <unk> and <unk> as well as the divested product drove legacy <unk> pet health down 2% for the quarter.
Finally in Therapeutics Gala <unk> outpaced the branded U S. NSAID market. According to the kinetic data the brand continues to grow nicely as a leader in pain, making progress towards becoming our 10th blockbuster.
Turning now to the farm animal business.
Legacy Atlanta was up 8% in the third quarter.
We saw demand driven strength in share growth in our global cattle business.
In the U S cattle on feed numbers have remained elevated versus historic levels and placements were higher year over year.
We achieved strong VDI performance in cattle and swine for Robinson off the flex in dental guard in the quarter.
Our U S farm animal growth reflects our value based products and the presence of higher feed cost as well as our comprehensive portfolio our value beyond product offerings and the beneficial industry dynamics.
In China swine we.
We experienced ongoing headwinds from the reemergence of African swine fever as discussed on our last call in August.
Oversupply to financially induced herd liquidation has kept hog prices broadly at their lowest levels for the year down about 60% since the start in January we.
We expect these macro challenges to continue in the fourth quarter.
Our overall swine business remains competitive with a strong portfolio targeting larger producers that are better positioned in the market.
So in turn we believe we are well positioned for outsized success as the market still poised to deliver.
Piece, two percentage point of growth to totally linked revenue.
Finally, we drove double digit growth and international poultry and Aqua as many of our international markets recovered from the 2020 pandemic impacts global poultry markets have seen significant improvement with most regions now moving into profitable conditions benefiting from increased demand and reopened econ.
<unk>.
And Aqua salmon prices had been consistently positive year over year since mid July which is driving the use of our DNA vaccine client app to protect Atlantic salmon from pancreatic disease.
Turning to slides seven and eight since our Investor day, we are growing we are transforming.
<unk> elevating our business, while prioritizing innovation.
We have consistently outperformed revenue guidance since Q4 of last year.
At the same time, we are on track towards our synergy commitments and our long term margin and net leverage.
<unk>, we are moving with speed and decisiveness to several recent strategic actions to drive disciplined execution against each of the three pillars of our IPP strategy.
To enable accelerated value creation.
Slide nine outlines our outlines our innovation progress in 2021 with details around all eight products, which have now launched we continue to expect these launches to contribute $65 to $85 million in revenue this year.
On the pet health side, where innovation is running above expectations <unk> plus launched in Australia in the quarter in time for the local parasiticide season, Cardello cat and Laura are performing well and expanding our feline portfolio.
And farm animal Xperia acceptance continues to grow with both producers and Packers. The total value proposition has been substantiated in the field with expanded use from those that have tested the product and production systems.
We have doubled the number of cattle on the products since the second quarter.
We continue to see potential for blockbuster status for this unique product the first U S. FDA approved product label to reduce ammonia gas emissions.
As part of your <unk> pledged to be our customers lead partner on their journey to net zero emissions, we hosted leaders from across the global animal protein industry ahead of the United nation's food system summit.
To position animal agriculture, as a meaningful solution to climate change, while identifying opportunities to help our industry accelerate progress. Additionally.
Additionally, in linker was recently named among the top 20 of fortunes.
2021 change the World list, which recognizes companies that have made an important social or environmental impact through their profit, making strategy and operations. Our teams commitment to our purpose and continued execution and creating value for farmers pet owners veterinarians stakeholders and society as a whole.
With that I'll hand, it over to Todd to provide more color on our results and our outlook.
Thanks, Jeff.
Slide 10 summarizes our financial performance highlights, including our reported net income and earnings per share.
On slide 31 to 33 in the appendix you can find the summary of the adjustments made to the reported results to arrive at our adjusted presentation.
I'll focus my comments on our third quarter adjusted measures in order to provide insight on the underlying trends of our business. So please refer to today's earnings press release for a detailed description of the year over year changes in our reported results.
Looking at the adjusted measures on Slide 11, you will see the total revenue increased 27% in the quarter on a reported basis with one point of benefit from foreign exchange.
For legacy <unk>.
From 2012 visual representation of our revenue outperformance versus the guidance range. We provided in August with key drivers in order of magnitude, where global capital outperformance Global Pet health in the retail channel International poultry recovery Aqua and currency tailwind.
Adjusted gross margin as a percent of revenue was 55, 7% an increase of 150 basis points compared to the third quarter of last year the year over year improvement, we can achieve despite higher logistics costs reflects the bear acquisition the benefit of positive price and volume on a lag those legacy portfolio and continued productivity.
<unk> gains.
The sequential deceleration of 240 basis points versus the first half of this year reflect seasonality as we move past the northern hemisphere parasiticide season.
Total operating expense increased 19% in the third quarter driven by the addition of the Bayer animal health business and Kindred bio.
Operating income increased 67%, reflecting the Bayer animal health acquisition, our topline execution expense leverage and discipline and synergy capture.
Our adjusted EBITDA was $211 million and our adjusted EBITDA margin for the quarter was 18, 7% up 200 basis points versus last year at the bottom line Q3, adjusted net income increased 55% to $93 million and our effective tax rate in the third quarter was 23, 5%.
Now, let's discuss our revenue performance more closely on slide 13, you will see a breakdown of the contribution from legacy <unk> and legacy bear portfolios by category.
Zubair products contributed $441 million in the quarter.
<unk> drove $527 million of revenue or 47% of total <unk>.
The sequential step down to less than half perform VIX reflects seasonality.
<unk> contributed $256 million.
83% of total ankle revenue quarter, poultry items of $173 million, representing 15% swine $110 million or 10% and aqua $44 million or 4%.
On slide 14, you can see.
The effect of price rate and volume on our revenue performance to Asia analysis for our performance the full benefit of the bear acquisition for the quarter as reflected in volume on the slide.
We achieved a 2% increase for legacy like a year to date and expect that to hold for the full year as well looking further ahead, we are focused on levers to drive revenue, including greater price increases that we have implemented historically for certain skus as inflationary pressures risen expresso and transportation costs.
Slide 15 provides a breakdown of overall performance between the U S and our international operations, we will further outline our geographic performance by pop health and farm animal as well as contract manufacturing all of which benefited from the addition of Baird.
We expect to file our 10-Q very soon but moving to slide 16, let me offer a few words on working capital and debt.
For the third quarter with $453 million in cash and equivalents on our balance sheet.
A 5.97.
$7 billion.
On August 12, we entered into a new seven year $500 million credit facility, consisting of a secure senior secured term loan to retire our $500 million of senior notes that matured on August 20 setup.
This new loan bears interest at a floating rate of LIBOR, plus 175 basis points.
Terms are generally consistent with those of our existing term loan b.
At the end of Q3, <unk> $250 million drawn on its revolving credit facility that was used to fund the $440 million acquisition of kindred bio.
We used $194 million of cash on hand to pay the remainder of the purchase price.
Net leverage was five eight times within the quarter and we continue to expect approximately five five times at the end of 2021 in line with our original projections from December 2020.
Additionally, we regularly updated view our aggregate channel inventory levels at distribution remained consistent with prior quarters in the U S and across our global business.
Now I will transition to a full year and fourth quarter 2021 outlook starting on slide 18.
We are raising our full year 2021 guidance for total revenue and maintaining our ranges for adjusted EBITDA and adjusted EPS. Despite a higher expected full year 2021 tax rate of approximately 24, 5% from previously expected at approximately 24%.
We balances.
'twenty, one revenue of $4 73 to $4 77 billion.
We also expect adjusted EPS of <unk> 97 to $1 <unk>.
And adjusted EBITDA of $1 <unk> five to $1 $75 billion based on an adjusted gross margin of $56 seven.
The 37%.
We are updating our reported EPS guidance to negative <unk> 91 to negative 83.
<unk> two noncash impacts from the third quarter.
As part of our R&D processes, we terminated a farm animal portfolio project due to the observed efficacy results. This action required a write down of the value of the spin process R&D assets through the P&L.
The second was a charge associated with the establishment of a liability for future royalty and milestone payments relating to our license agreement with kindred bio for parvovirus therapy, which was settled upon the closing of the acquisition.
Moving to slide 19, we are providing guidance for the fourth quarter reported 21, we expect revenue of one point of those 708 to 111 8 billion adjusted.
Adjusted EBITDA of $190 million to $230 million and adjusted EPS of <unk> 13 to 19.
Our fourth quarter revenue guidance reflects a year over year decline I want to emphasize that we do not have a fundamental change in our core business performance.
A number of well known onetime impacts from last year.
These fourth quarter comparisons include four items of note.
First we had a large retail customer order for approximately $10 million of OTC parasiticide in the fourth quarter of 2020 versus the first quarter of 2021.
Second we had $10 million from incremental U S cattle vaccine implant revenue through the composer stock outs.
Third we are facing a $20 million year over year decline in contract manufacturing due to the sale of our Xiaomi manufacturing facility to try Rx and the discontinued human growth hormone production for Lilly for more speed facility.
We exited certain low margin product sales at the start of 2021, representing $20 million.
Excluding the $60 million in total revenue specific comparisons our range reflects underlying growth of flat to three 5% also incorporating the challenges with African swine fever flipping from a tailwind in 2022 of headwinds in 2021.
Our global teams continue to pursue productivity initiatives and synergy capture on both cost of goods sold and Opex, which are expected to drive fourth quarter, adjusted EBITDA of $35 million year over year at the midpoint of our guidance range and adjusted EPS of <unk> at the midpoint.
As we close out 2021 and head towards 2022 I want to note that we will provide initial point 'twenty two guidance with our fourth quarter results in late February while our balanced global portfolio continues to provide solutions to farmers pet owners and veterinarians around the world. We look forward to discussing our continued progression.
Against our long term growth algorithm with our anticipated growth in revenue adjusted EBITDA and adjusted EPS in 2022.
Now I'll hand, it back to Jeff for closing comments. Thanks Todd.
Summarize we continue to consistently post strong quarterly results as we move through 2021 further extending our track record of execution since acquiring Bayer animal health.
Durability and diverse nature of our global business and our commercial execution is expected to drive approximately 7% of revenue growth this year and adjusted EBITDA growth of approximately 21% and an increase in adjusted EBITDA margin by approximately 300 basis points. Our teams are focused on.
<unk> on our financial commitments in 2021 and excited to continue to grow revenue adjusted EBITDA and adjusted EPS in 2022, while delivering on our vision of food and companionship enriching life.
Finally, I'd like to wish Tiffany success as she leaves the land go after today to pursue an exciting opportunity outside of animal health, our treasurer, Dave <unk> at 27 years of combined experience across Lily any langkow will serve as our interim head of Investor Relations I expect a seamless transition in our shareholder.
<unk> under Dave's leadership, and we will continue to prioritize consistency transparency and accountability with that I'll turn it over to Tiffany to moderate the Q&A.
Thanks, Jeff.
Take questions from as many callers as possible.
We ask that you limit yourself to one question and one follow up.
Please provide the instructions for the Q&A session and then we will take the first caller.
At this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from the line of Michael risks with Bank of America.
Great. Thanks for taking the question guys and congrats on the quarter I'm going to squeeze in both my my first and my follow up right away. So first Jeff in light of your comments just now that this year youre seeing 7% pro forma growth.
Should we take that comp into account when we're thinking about next year and the year beyond sort of.
The numbers, we should be thinking of more comp adjusted relative to that long term run rate of 3% to 4%.
A follow up you highlighted kindred and the potential blockbusters are maintained at 2025 innovation target of $600 million to $700 million can you provide any updates on timing for some of those blockbuster, specifically darn product or a combo endo at the Paris site.
Early 2023, doable or should be thinking more of a 2024 for those areas.
Thanks, Michael first on 2022, as we said we do continue to see growth on revenue EBITDA and EPS going forward. We also as Todd stated, we will share that guidance in our Q4 results in February.
A few things just important to note to backup very clearly I think this quarter now four sequential quarters is proving the strategy and the algorithm are right 21 is creating momentum that will carry into 2002, we have a more durable and diverse company I think our plans are more balanced and here is what I think will.
B the key contributors as we go forward for growth in 'twenty, two I mean first our focus brands.
<unk> Gala <unk> franchise to innovation this year's innovation and next year's innovation, the Omnichannel with digital support and the farm animal business, continuing we believe too.
Lead growth in that segment.
Against I think good industry backdrop for our portfolios in both Pat and farm animal.
And we will convert that revenue growth I think as well as anybody in the industry and continued margin expansion.
So we're going to hold to the.
Our belief in this growth algorithm that we shared a year ago and that will be really our north star as we go forward and I want to emphasize we do see.
<unk> growth as we go into 2020 to buy these things that I just mentioned relative to kindred I think I would just back up and say first of all we closed it in August Michael.
World Class team, we've kept all of that team in place retained all the key people there is already becoming a really nice complement and leverage between our derm development teams and their derm development teams were engaging on a regular basis Ellen has been onboard only a couple of weeks, but has already engaged in very much.
Integrated right into the center of all that and yes, we we solidified $100 million before assets. We believe these assets can be differentiated play nicely in our portfolio I'm not going to highlight specifics anymore.
Any more than what we highlighted during the Investor Day conference at this time as innovation progresses and starts to impact.
The results and the plans, we will continue to communicate more of that as we go forward.
Alright, Thanks, Mike we'll take the next caller.
Your next question comes from the line of Omar <unk> with Evercore ISI.
Hi, this is might be jewelry and for whom are thanks. So much for taking my questions and congrats on the quarter I just got disconnected. So apologize if I missed this a question for Ellen.
Just general thoughts and color on your vision for the R&D organization that may be newer may have differed from the past.
My follow up is.
<unk>.
What could explain the seemingly sudden turnaround of international poultry and Aqua given that the prior <unk> headwinds.
Macroeconomic pressures experienced there it seemed like.
In the first half of the year, it's been consistently message.
Suffering these macro pressures, but all of a sudden this is turnaround and <unk>, maybe you could offer some color there. Thank you.
Thanks, Michael.
First of all <unk> is not in that part of the call. Today, we will look to have Alan part of the calls as we go forward as I just mentioned she's a couple of weeks in no problem on that I will say just a quick highlight that.
She has been part of the 2022 planning process. She is integrated into the team and the pipeline in a great way and.
Engaging in will be will be key.
And sharing some of her insights and will be able to answer those questions. I know as we go into into 2022. So I think that's important relative to poultry, yes, we have seen a <unk>.
Significant rebound as we had shared at the beginning of the year, we had predicted that in the second half of the year and we would see this a lot of this is driven by the economic pullback that was caused by Covid and mid sized markets that we had high market shares in we're seeing that recovery as people are now returning to stores as well.
As restaurants, and purchasing poultry and we're seeing prices rise and with that chickens are being placed back into Barnes and and our portfolios are winning those yield is right now just a U S based product and really unrelated to that international poultry market rebound.
Okay, we'll take the next caller.
Your next question comes from the line of Nathan Rich with Goldman Sachs.
Hi, good morning.
Maybe just to follow up on the last question on R&D I guess do you expect there to be any re prioritization or nearing and the focus of R&D priorities you talked about maybe a greater focus on pet health, but could we see any change in the pipeline. So maybe focus on some of the larger opportunities that youre going after.
And then just a question on probably for Todd on the inflation.
Youre seeing in the ability to pass on costs is there any kind of.
No difference in your ability to maybe take price increases on the farm animals side versus the pet health side could you just maybe help us understand the dynamics there. Thank you.
Thanks for the question Nate I'll start on the R&D one.
Absolutely I think you highlight and as we made the announcement on <unk> during the quarter.
I would just put this in and the line just like the Kindred acquisition and just like the Tri Rx and reducing our footprint. This is just another strategic move to strengthen our value proposition going forward.
What I would share is Ellen brings a lot of experience on.
Not only refilling pipelines, but late stage development as she has her name against some of the biggest blockbusters.
Blockbusters in the industry.
With our carve out of our early stage microbiome platform that is allowing us to have increased resources and focus on these especially late stage assets. It is very clear what we must do in the portfolio. We've got to an increase in pets as a <unk>.
<unk> and increase in blockbuster potential products going into larger markets like parasiticide, derm pain, and even even wellness.
So that will be the clear agenda.
<unk> already as Ive shared integrated into that I don't see any change to that agenda I will say the change of the microbiome coming out has removed work, which allows increased resources and focus on what I believe is relative to our size one of the most robust late stage pipelines in the industry.
And then maybe a.
A question of inflation as we pulled out we think crude prices, 2% year to date and expect that the whole for the full year. We are looking for more targeted and greater price increases a lot of our kind of consumer OTC retail E. Commerce type products as we do think the best in class products like <unk>.
We have some space there with requests for <unk> versus <unk>.
Yeah.
We all departmental side, we're very value based.
Product provider to farmers across the globe and look to continue to do that and where it makes sense for our products continue to keep animals healthy we'll look to see what kind of price. We can bring at the same time. It goes a little bit more generic pressure on that side of the house at the moment as well.
Thanks, Nick we'll take the next caller.
The next question comes from the line of Chris Schott with Jpmorgan.
Great. Thanks, so much just following up on those inflation comments I think you'd previously said there was about a 3% or so impact this year from supply chain and inflation I'm trying get a sense of like as we look out to 2022 should we kind of like annualized and that type of impact or do you think theres going to be offset so I'm trying to get a sense of.
Yeah.
How.
It.
Is this a short term phenomenon versus a longer term impact and then the second question was just on <unk> side as you kind of think about header.
Heading into I guess next year as kind of flea tick season et cetera have you felt most of the impact on products like <unk> from kind of newer.
They were triple coming to market or is that something we should be thinking about either accelerating or greater impact as we go out to next year I know.
<unk>.
The OTC products are doing well I'm trying get a sense of that legacy prescription business.
Are we kind of hitting a floor there or is there more erosion to come there. Thanks so much.
First on your inflation, both input costs at our manufacturing facilities as well as the transportation costs.
The transportation shipping imports across the globe.
A lot of attention to and working to open up new trade routes to get our products out to our customers. So we're continuing to fight through this year and will likely be a headwind.
And into next year, but the team is doing a great job of finding ways.
To continue to try to strive to reach our goal of keeping costs flat as we grow volumes.
Relative Chris to the Parasiticide market I think you've hit on the key thing which is.
This is not a surprise that some of the dynamics that played out so far this year and what we see going forward, where legacy brands ours and others are the ones being impacted and I do see parasiticide is the largest market. It is growing because of I think the entrance of innovation, but it's also very dynamic and very competitive.
What what I think you can see in our results this quarter and as we go forward is more of a global holistic approach to parasiticide that we took.
Not only with our R&D strategy, but also with the acquisition of Bayer So new innovations expanding the market new innovation.
Patients taken from legacy brands.
No coronary ob the second fastest growing oral brand shows play any franchise across cats, Cornelio, plus which is very competitive outside of the U S.
And then our holistic approach which is.
Sure.
The combination products of <unk> working with an interceptor plus in the U S portfolio class outside the retail and then our partnerships we're going to continue to partner used.
<unk> digital utilized distribution as we go forward and we believe Thats working.
So a holistic global approach continuing to grow going forward legacy brands will continue to be impacted we.
We haven't noted specifically how much but.
We do see us in our strategy working as we go forward.
Thank you Chris next caller.
Your next question comes from Jon Block with Stifel.
Great guys. Thanks, good morning.
First question I'll ask both upfront as well I guess just wide range for <unk> EBITDA and innovation for.
EBITDA in the range of $40 million is essentially as wide as revenue. So Todd maybe if you could just call out some of the variables that would take us to the high end or the low end considering we've got roughly two months left for the year and then a quick tack on Jeff is just on the <unk> side I think I heard grow you just referenced growth overall, thanks guys.
So John on the EBITDA.
We would be.
The midpoint of our guidance in Q3 by only $3 million.
Essentially carried over the Q3 beat into our Q4 guidance, but otherwise have maintained.
One thing to know we've had less depreciation that we'd previously.
Forecast of that.
Its helping us offset some of the inflationary costs and allowing us to deliver on gross margin, but it has been negatively impacting ebitdas theres less to add back. So overall, we're continuing to drive through and talk through and deliver in the guidance. We're providing this morning.
Yes, John relative to <unk> overall, we won't <unk> havent, given the specific by country product growth.
We're seeing we're seeing growth come first globally from the <unk> franchise, driven initially by Cornelio plus in a very strong.
Launch of that product between Japan, Europe and Australia.
And then Cornelio cats, and yes, <unk> and across the globe.
As I've shared a very competitive continues to grow and will as we go into 2022, that's that's as much detail at this time that will get into.
Thanks, John next time.
Your next question comes from the line of <unk> <unk> with Barclays.
Good morning, and congrats on the results just two quick questions from me Firstly on viral way is math.
Now can Glenn add demand strength, that's guessing mold indications on the expectation was that they will be submitting that benefited claim in June and my commendations as convince management that indicated they expect approval of both the prophylactic and therapeutic indications by the end of the year is that still the goal and if so can you.
Provide some context into the launch next year on your understanding of the expectations around the market.
Secondly on <unk>.
Do you still believe that with three additional and generate.
License to come in.
Do you see a path to grow of growth for this product over the next couple of deals. Thanks.
Thanks, <unk> great great questions.
What I will say.
On the parvovirus is we are continuing to progress that nicely through our pipeline we are expecting.
Approval and launch into the market in 2022.
We're not getting regulators and things are progressing nicely.
We will likely make more comments on this as we get into our 2022 guidance.
Has as we're looking at the launch.
Not have needs as you've heard.
Some of the data from Kindred Banfield study shows there is 250000 properties every year with parvovirus and Theyre spending thousands of dollars would not really a great solution and so we're going to create a market. That's one factor to as a supply chain being able to have.
This product available in some complexities in the supply chain as well as manufacturing and these are all factors that will drive the timing and the size of the launch but we're we're excited about this product being a great complement to our portfolio, but even more so to veterinarians today that really can't offer.
For that new puppy owner a solution if they have parvovirus and we believe this will this will give a veterinarian across the country.
A new opportunity on <unk>.
What I'd say is there's two markets out there there is Europe, where theres a lot more generics there is numerous generics and in the U S. There's really only two us and one other company and there will be more that we're anticipating will enter this is John <unk>.
<unk>, we've said from the beginning this is a portfolio play.
We are leaders in confined to beef cattle with our portfolio. We picked up significant number of products from Bayer in that portfolio and then launching in cracks. It gives us a very strong bovine respiratory disease portfolio and <unk> performing.
A little above our expectations at this point in the U S and mostly because it's a value based approach and a portfolio offering to cattle producers in the U S and that'll be the continued case and we continue to see this being a nice brand within our portfolio.
We'll continue to update you as we move forward, especially to <unk>.
Through the fall season, as we're wrapping up now.
I'll take the next caller please.
Your next question comes from John Kreger with William Blair.
Okay. Thanks, very much Jeff could you just give us an update on sort of where you go next with the Bayer integration to drive some of the margin goes you have and then Todd maybe a quick one for you.
A year from now where would you like to see the receivable DSO relative to the 81 that you just reported.
Yes, John real quick.
Without question just as we've shown by our behaviors this year constant energy around and wide productivity agenda that is well in play looking at everything from footprint Skus to infrastructure cost. So as we look at kind of.
Specs of the company, especially anything that is non value oriented.
Relative to pipeline.
So.
As we've shown.
None with Novartis and others, we will.
By productivity and.
And be very very aggressive against it and we will continue to update you, but it will be.
It'll be mostly across that infrastructure and skus that maybe are not as.
Is valued but most of the emphasis requests on dsos were continuing to work.
Across the globe to be focused on cash.
Thinking about collections.
The change relative to Q2 is driven by having more international farm animal, which has got longer payment terms as a general matter that our U S retail business.
Yeah.
They are two different systems and collecting cash from our customers around the globe. So I think we see inside the 81 in Q3 of next year as we continue to focus on.
Collecting our cash on a timely basis.
Next caller please.
Your next.
Raymond James.
Thanks, and maybe I could just follow up.
That line of questioning Todd and specifically a little bit difficult to subtract cash movement, given the some of the acquisitions in.
Swings in working capital, but thinking about this quarter and exiting the year. What do you expect the company is still be operating cash flow positive on a on a full year basis.
A question for Jeff just around.
The growth opportunity in China.
Your earlier comments, obviously youre still on track to deliver incrementally.
Each point of growth to the topline from the Chinese market, but certainly there could be a lot more pressures there, particularly on the livestock side.
Going forward. So can you just talk about some of the other initiatives and growth levers avail.
Available to you in terms of continuing to drive an increasing contribution from China, maybe outside of just the swine market. Thanks.
On your question on your operating cash flow Youll see.
<unk>, we're going to file shortly our year to date $260 million and we expect that to continue to grow in Q4 and the progress again in 2022.
Yes, Elliot on on China, absolutely I would start, though with swine and say that we do believe that African swine fever has allowed us to really target. These large producers continue to bring our portfolio. We brought therapeutic claims to our performance based portfolio and I believe that we're well positioned.
As I mentioned.
Cause of the size of it relative to our business. We do see this as something as I mentioned that will will outsize ourselves. We believe in this rebound I think the other side is poultry that a long history with a concentrated industry in the poultry.
Business there we brought in nutritional health and continue to play very nicely in the poultry business and then what there has brought and I really will be to answer your question specifically the most material change TUI langkow will be a strong business in the pet side, we're putting a lot of energy relative to reach.
Jean Pet owners, integrating and working with veterinarians advantage and so resto are keenly brands as well as <unk> and <unk> and doing very well and then lastly, I would say that the kind of the fourth leg to the stool in China is our Aqua business, our warm water business that we have there a warm water aqua where it's it's in.
Nice growth driver, it's still smaller but it will.
As a nice long runway of growth as well so diverse portfolio for key business units.
A great Chinese leadership team and I spent a lot of time on share of voice in reaching appropriate customers. The most efficiently.
We continue to see nice growth prospects, even going into 'twenty two for China.
Elliot next caller.
Your next question comes from the line of <unk> <unk> with Citi.
Hi, good morning.
Three you see there is still continued switch to no call on it.
Have you been in the U S and globally.
Google trends.
Thank you.
Yes, Sir.
Inventory Destocking and maybe if you could discuss.
No Dan.
Thank you.
Thank you.
Thanks, Dave on what I would say is what I have learned over 30 years in the poultry industry and spent a lot of time with those customers as they are very value based they had the strongest analytics of any protein group and this becomes it's really not about low cost, it's all about maximizing value and so what we have.
Seen as we bring one of the largest databases that performance and help with our customers and that that service offering with our portfolio is what's allowed us to continue to grow share and really had the number one poultry business globally relative to FCC, there's nothing new to report there is no.
And the scope of the context, we're cooperating with the SEC and again I want to emphasize we believe strongly our actions where appropriate and confident.
That our business strategy and our changes in distribution were also done very appropriate. That's that's all I have to comment nothing else New to report. Thank you, we'll take one more caller.
Your next question comes from David Whiston with Guggenheim Securities.
Thanks for taking the question.
I apologize if I missed it but is there any way to think about kind of the value to wait context in.
Sorry, the value of the weight of MF as in context of excess freight costs that we might be seen in the industry.
And then my second question is just on generally.
Generally on livestock macro can you remind us of any of the macro trends that we saw this year that might be comping next year, both in a positive and negative direction.
As we kind of do our models there. Thank you.
Yes.
Just quick like at a high level, if I Miss anything Todd you can jump in here, but I think without question you touch on something that is correct. I mean, not every portfolio is the same across the animal health companies, we do have.
Msas and products that have more complexity more weight and more dynamics in the supply chain.
As Todd said, we are working with productivity agenda in a lot of other.
Interventions to offset those cost, but yes, there is an added <unk>.
Context, too and challenge to some of our portfolio relative to that on a livestock basis, what I would say at the highest level is I think one on swine I think we want to watch for.
There is an extreme this of up and down that we've seen with African swine fever, we believe that that usually means youll see you will see a rebound in probably an extreme way as well as we go in maybe to 2022, but continued pressure in <unk>.
In Q4, but it will be I think the swine market will be going against a very strong first half last year, not just in China, but.
That benefited globally I think thats number one and then I think number two is.
I think cattle continues to be a beneficiary of.
What the challenges were with Asia exports have grown the most for beef.
Feed yards are as full as they've been in a long time and I see that sustaining and then poultry again.
We see probably a positive compare in the first half at these economics continue to remain strong, especially in the international markets. So those would be the three key material ones that I would that I would highlight.
Okay. Thank you.
Closing remarks from Nina.
I would like to say first of all thank you for your interest in <unk> I would like to thank Tiffany as she enters a new great opportunity for her that she has been very very important to us and our relationship with all of you and I wish her all the best going forward and look forward to Dave Pugh as our in term IR leader.
I want to just emphasize I believe this quarter represents a key milestone for quarters of consistent delivery.
What is working as our algorithm our Investor Day conference highlights of our strategy. The Bayer acquisition, our distribution changes. These decisions that we're making have been the right ones and it's been representative of four quarters of delivery. We have lots of work to do there is appropriate head.
Wins with the tailwind, we do see a durable industry with a positive backdrop, both on the pet side as well as for us in our portfolio on the farm animal side, where a more strengthened company, that's driving transformation and we're executing everything from the new pipeline to a company wide productivity agenda.
Our engagement scores have risen this quarter as we've got a very loyal focused employee base that I want to say, thank you to as well and very trying challenging times in our in our world <unk> continues to execute well and do work in a very important way.
As noted by some of the things that we're doing on the side of improving society with animals.
So with that thank you again for your interest and have everybody have a great day.
This concludes today's conference you may now disconnect.
Yeah.