Q1 2024 Elanco Animal Health Incorporated Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Welcome everyone to Elanco Animal Health's first quarter 2024 earnings conference call.

Ladies and gentlemen, thank you for standing by welcome everyone to the Atlanta Animal Health's first quarter 2024 earnings conference call. At this time all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press the star followed by the number one on your telephone keypad, if you'd like to be.

Operator: At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the number one once again. Thank you. I would now like to hand the call over to Katy Grissom, Head of Investor Relations. You may begin your conference.

Your question. Please press the star followed by the one once again.

I would now like to hand, the call over to Katie Cristal head of Investor Relations you May begin your conference.

Katy Grissom: Good morning. Thank you for joining us for Elanco Animal Health's first quarter 2024 earnings call. I'm Katy Grissom, Head of Investor Relations. Joining me on the call today are Jeff Simmons, our President and Chief Executive Officer, Todd Young, our Chief Financial Officer, and Scott Perucker from Investor Relations.

Good morning, Thank you for joining us for Alanco animal Health first quarter 2024 earnings call I'm, Katy Grissom head of Investor Relations joining me on the call today are Jeff Simmons, our President and Chief Executive Officer, Todd Young, our Chief Financial Officer, and Scott Parker from Investor Relations. The slides referenced during this call are available on the <unk>.

Katy Grissom: The slides referenced during this call are available in the Investor Relations section of elanco.com. Forward-looking statements This discussion will include forward-looking statements, which are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the risk factors discussed in today's earnings press release, as well as the latest Form 10-K and 10-Q filed with the SEC.

Bester relations section of <unk> Dot Com todays discussion will include forward looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast.

For more information see the risk factors discussed in today's earnings press release as well as the latest Form 10-K, and 10-Q filed with the SEC, we do not undertake any duty to update any forward looking statement.

Katy Grissom: We do not undertake any duty to update any forward-looking statement. Our remarks today will focus on our non-GAAP financial measures. Reconciliations of these non-GAAP measures are included in the appendix of today's slides and in the earnings press release. After our prepared remarks, we'll be happy to take your questions. I'll now turn the call over to Jeff.

Our remarks today will focus on our non-GAAP financial measures reconciliations of these non-GAAP measures are included in the appendix of todays slides and in the earnings press release.

After our prepared remarks, we'll be happy to take your questions I will now turn the call over to Jeff.

Jeffrey N. Simmons: Thanks, Katy. Good morning, everyone. Elanco is poised for a very exciting 2024. Our strong business momentum continued in the first quarter, reinforced by the diversity of our portfolio and geographic results. In the quarter, we exceeded the top end of our guidance range on our key metrics, revenue, adjusted EBITDA, and adjusted EPS. We are encouraged by the strong progress of our late-stage pipeline, which has advanced significantly over the last several months. The OneElanco approach to collaboration and decision-making is driving positive and productive outcomes across the world.

Jeffrey N. Simmons: Thanks, Katie and good morning, everyone Atlantic Coast poised for a very exciting 2024, our strong business momentum continued in the first quarter reinforced by the diversity of our portfolio and geographic results in the quarter, we exceeded the top end of our guidance range on our key metrics revenue adjusted EBITDA and adjusted <unk>.

Jeffrey N. Simmons: We are encouraged by the strong progress of our late stage pipeline, which has advanced significantly over the last several months. The one <unk> approach to collaboration and decision, making is driving positive and productive outcomes across the world energy resiliency and creativity are filling our halls and permeating our convert.

Jeffrey N. Simmons: Energy, resiliency, and creativity are filling our halls and permeating our conversations with customers. Our focus for the year remains on growth, innovation, and cash, with many proof points to start the year. Beginning on slide four, our underlying business is off to a very encouraging start in 2024. As you may remember, our quarterly results in the first half of last year were impacted by a shift in customer purchasing related to our ERP system integration from the second quarter into the first quarter of 2023. As determined last year, we estimate the shift was $90 to $110 million. I will focus my comments on our underlying growth, excluding the estimated impact of the shift.

Jeffrey N. Simmons: Patients with customers our focus for the year remains on growth innovation and cash with many proof points to start the year.

Jeffrey N. Simmons: Beginning on slide four our underlying business is off to a very encouraging start in 2024 as you may remember our quarterly results in the first half of last year were impacted by a shift in customer purchasing related to our ERP system integration from the second quarter into the first quarter of 2023 as did.

Jeffrey N. Simmons: Chairman last year, we estimate the shift was $90 million to $110 million I will focus my comments on our underlying growth excluding the estimated impact of the shift.

Jeffrey N. Simmons: For the first quarter, underlying revenue growth continued in the mid-single-digit range, estimated at 3 to 5 percent in the first quarter, building on the 5 percent constant currency growth in both the third and fourth quarters last year. We remain confident in our late-stage innovation. Based on our dialogue with the FDA and the status of the packages submitted, we have increased certainty in the expected approval timing for Bovair, Xenrelia, and Credelio

Jeffrey N. Simmons: For the first quarter underlying revenue growth continued in the mid single digit range estimated at 3% to 5% in the first quarter building on the 5% constant currency growth in both the third and fourth quarters last year.

Jeffrey N. Simmons: We remain confident in our late stage innovation based on our dialogue with the FDA and the status of the packages submitted we have increased certainty and the expected approval timing for <unk>, then rally and credit Leo Cuatro, we continue to expect to bring differentiated products to the market with revenue contribution expected from <unk>.

Jeffrey N. Simmons: We continue to expect to bring differentiated products to the market, with revenue contribution from all three products expected in the second half of the year. On cash, in the quarter, we reduced net debt and improved operating cash flow by nearly $150 million year-over-year as a result of our disciplined focus on improving networking capital and the benefit of completing our ERP system integration. We reduced balance sheet inventory even as we built inventory for new products.

Jeffrey N. Simmons: All three products in the second half of the year.

Jeffrey N. Simmons: On cash in the quarter, we reduced net debt and improved operating cash flow by nearly a $150 million year over year as a result of our disciplined focus on improving net working capital and the benefit of completing our ERP system integration.

Jeffrey N. Simmons: We reduced balance sheet inventory, even as we built inventory for new products. We continue to expect the sale of our Aqua business to close around mid year.

Jeffrey N. Simmons: We continue to expect the sale of our aqua business to close around midyear. Finally, we're increasing our expectations for constant currency revenue growth for the full year, now at 2% to 3% growth. We are updating our key guidance metrics to reflect the unfavorable impact of the increased strength of the U.S. dollar since February, with constant currency expectations improving on both adjusted EBITDA and adjusted EPS. Moving to slide five, I'll review our business performance in the first quarter.

Jeffrey N. Simmons: Finally, we're increasing our expectations for constant currency revenue growth for the full year now at 2% to 3% growth. We are updating our key guidance metrics to reflect the unfavorable impact of increased strength of the U S. Dollar since February with constant currency expectations, improving on both adjusted EBITDA.

Jeffrey N. Simmons: And adjusted EPS.

Jeffrey N. Simmons: Moving to slide five I'll review, our business performance in the first quarter, we delivered revenue of $1 $205 billion with both sides of our business performing well in the first quarter for pet health, we estimate constant currency underlying growth was 5% to 7% globally. This includes approximately 3% on.

Jeffrey N. Simmons: We delivered revenue of $1.205 billion, with both sides of our business performing well in the first quarter. For pet health, we estimate constant currency underlying growth of 5% to 7% globally. This includes approximately 3% underlying revenue growth in the U.S. with improved supply and increased innovation sales partially offset by competitive and macro headwinds. Reduced consumer activity as a result of adverse weather was felt in the industry in January, and as expected, dispensing improved sequentially in both February and March as we see this momentum also carrying into the second quarter.

Jeffrey N. Simmons: Your line revenue growth in the U S with improved supply and increased innovation sales, partially offset by competitive and macro headwinds.

Jeffrey N. Simmons: <unk> consumer activity as a result of adverse weather was felt in the industry in January and as expected dispensing improved sequentially in both February and March as we see this momentum also carrying into the second quarter.

Jeffrey N. Simmons: Our OTC retail business is performing well. Based on our market analysis of the retail channel, our Advantage Classic brands for dogs and cats were both top $3 growth brands in the quarter. Our portfolio has benefited from increased physical availability and higher-than-expected overall market share for the Advantage family and retail channels. In addition, we're encouraged by Thrust.

Jeffrey N. Simmons: Our OTC retail business is performing well based on our market analysis of the retail channel our advantaged classic brands for dogs and cats were both top three dollar growth brands in the quarter. Our portfolio has benefited from the increased physical availability and higher than expected overall market share for the advantage family and retail.

Jeffrey N. Simmons: Channels and.

Jeffrey N. Simmons: In addition, we are encouraged by <unk> or.

Jeffrey N. Simmons: Our investment in the new bold DTC advertising campaign this season drove a five-point improvement and unaided awareness for the brand. This is an important leading indicator for share growth. Broadly across our OTC portfolio, we are leveraging our market leadership to drive growth by implementing key initiatives in-store and online across brands and retailers as we enter the heart of the North American parasiticide season. In the U.S. veterinary clinic market, visits continue to be pressured primarily as a result of labor and capacity constraints.

Jeffrey N. Simmons: Our investment in our new bold DTC advertising campaign. This season drove a five point improvement in unaided awareness for the brand. This is an important leading indicator to share growth.

Jeffrey N. Simmons: Broadly across our OTC portfolio, we are leveraging our market leadership to drive growth by implementing key initiatives in store and online across brands and retailers as we enter the heart of the North American Parasiticide season.

Jeffrey N. Simmons: In the U S. Vet clinic market visits continued to be pressured primarily as a result of labor and capacity constraints. Despite this impact and continued competitive innovation the consistent execution of our strategy is strengthening <unk> position driving in line or better than expected market share perf.

Jeffrey N. Simmons: Despite this impact and continued competitive innovation, the consistent execution of our strategy is strengthening Elanco's position, driving in-line or better than expected market share performance. Our expanded veterinary sales force has significantly increased our share voice, an important leading indicator expected to lift the portfolio as the year progresses. Additionally, our innovation is elevating the relevance of our portfolio. We are focused on enhancing our partnership with strategic corporate accounts while also investing in key platforms used by veterinarians.

Jeffrey N. Simmons: <unk>, our expanded that Salesforce has significantly increased our share of voice and important leading indicators are expected to lift the portfolio as the year progresses.

Jeffrey N. Simmons: Additionally, our innovation is elevating the relevance of our portfolio. We are focused on enhancing our partnership with strategic corporate accounts, while also investing in key platforms used by the veterinarians.

Jeffrey N. Simmons: Our Canine Parvovirus Monoclonal Antibody, or CPMA, continues to ramp, with sales improving sequentially each month to start the year. In late April, we launched a new marketing campaign geared towards both pet owners and veterinarians to raise awareness of the virus, how it spreads, and the effectiveness of Elanco's breakthrough treatment. These efforts include the first-ever online Parvo tracking tool, empowering pet owners and the veterinary community with game-changing intelligence to help keep puppies safe.

Jeffrey N. Simmons: Our canine parvovirus monoclonal antibody or C. PMA continues to ramp with sales improving sequentially each month to start the year and late April we launched a new marketing campaign geared towards both pet owners and veterinarians to raise awareness of the virus, how it spreads and the effectiveness of <unk> breakthrough treatment.

Jeffrey N. Simmons: These efforts include the first ever online parvo tracking tool empowering pet owners and veterinary community with game changing intelligence to help keep puppy safe.

Jeffrey N. Simmons: With expanded supply capacity, we are enhancing our targeting efforts to drive penetration. Early data shows that when clinics have the product in the freezer, outcomes for puppies, pet owners, and the clinic staff are improved, leading to reordering. We expect continued growth for the product throughout the year. Now moving to International Pet Health, where we estimate underlying constant currency revenue growth was approximately 9% in the first quarter on a year-over-year basis. In line with our expectations, growth was driven by improved demand for OTC parasiticide products, led by Soresto in certain European markets, including Spain.

Jeffrey N. Simmons: With expanded supply capacity, we are enhancing our targeting efforts to drive penetration early data shows when clinics have the product in the freezer outcomes for puppies pet owners in the clinic staff or improved leading to reordering, we expect continue to ramp for the product throughout the year.

Jeffrey N. Simmons: Now moving to international Pet Health, where we estimate underlying constant currency revenue growth was approximately 9% in the first quarter on a year over year basis in line with our expectations growth was driven by improved demand for OTC parasiticide products led by <unk> in certain European markets, including Spain.

Jeffrey N. Simmons: Additionally, we continue to see increased demand for the Cordelio family and a strong ramp for ADTAB in Europe. We are meaningfully investing in the launch of ADTAB, including point of sale as well as digital and traditional direct-to-consumer advertising, which is permitted for OTC products in the region. Employing the same principles as the U.S., our strategic focus on physical availability and share voice is driving a strong launch curve with limited cannibalization of our existing leading portfolio of collars and topicals in Europe, now shifting to farm animals.

Jeffrey N. Simmons: Additionally, we continue to see increased demand for the <unk> family and a strong ramp for AD tab in Europe, we are meaningfully investing in the launch of that tap, including point of sale as well as digital and traditional direct to consumer advertising, which is permitted for OTC products in the region.

Jeffrey N. Simmons: Employing the same principles as the U S. Our strategic focus on physical availability and share of voice is driving a strong launch curve with limited cannibalization of our existing leading portfolio of collars and topical in Europe.

Jeffrey N. Simmons: Globally, we estimate underlying constant currency revenue growth of one to two percent. In the U.S., approximately 11 percent of underlying growth was driven by poultry and cattle. In poultry, we benefited from the rotations and extended use of our products in the quarters. Going forward this year, we expect increased use of our onophores as the market continues to shift from no-antibiotic-ever programs to no-antibiotics-important-to-human-medicine programs. In cattle, while there was a slight uptick in cattle on feed in March, we continue to see increased days on feed, broadly benefiting our medicated feed additive portfolio in beef. Medicated feeds are the cornerstone of Elanco's diverse farm animal portfolio, and innovation is enabling us to gain market share at this opportune time.

Jeffrey N. Simmons: Now shifting to farm animal globally, we estimate underlying constant currency revenue growth was 1% to 2% in the U S. Approximately 11% of underlying growth was driven by poultry and cattle and poultry we benefited from the rotations and extended use of our products in the quarter.

Jeffrey N. Simmons: Going forward. This year, we expect increased use of <unk> as the market continues to shift from no antibiotic ever programs to no antibiotics important to human medicine programs.

Jeffrey N. Simmons: In cattle, while there was a slight uptick in cattle on feed in March we continue to see increased days on feed broadly benefiting our medicated feed additive portfolio in beef med.

Jeffrey N. Simmons: Medicated feed additives are the cornerstone of <unk> diverse farm animal portfolio and innovation is enabling us to gain market share. This opportune time.

Jeffrey N. Simmons: We continue to be pleased with the trajectory of Xperia in the U.S. Continued adoption and expected increased use in heifers in the U.S., as well as the strength in Canada, is giving us increased confidence that the product will approach blockbuster status globally in 2024. The demand for Elanco's livestock sustainability portfolio with Xperia and anticipation of Bovair is driving sales growth for Rembrant across both beef and dairy, further strengthening one of our largest brands. And finally, for our farm animal business outside the U.S., we estimate a decline of approximately 2%.

Jeffrey N. Simmons: We continue to be pleased with the trajectory of experience in the U S continued adoption and expected increased Houston heifers in the U S as well as the strength in Canada is giving us increased confidence that the product will approach blockbuster status globally in 2020 for.

Jeffrey N. Simmons: The demand for <unk> livestock sustainability portfolio with experience and anticipation of Beauvais Air is driving sales growth for <unk> and across both beef and dairy further insulating one of our largest brands and.

Jeffrey N. Simmons: And finally for our farm animal business outside the U S. We estimate a decline of approximately 2%.

Jeffrey N. Simmons: Continued demand growth for poultry was more than offset by volatility in China, notably in swine, and we continue to take a cautious approach with regard to our expectations for China for the year. Overall, in the first quarter for our global business, our launched innovation and base portfolio growth drivers delivered. We have raised our expectations for the full year constant currency revenue growth to 2-3% before the contributions of our late stage pipeline. Moving now to slide six.

Jeffrey N. Simmons: Continued demand growth for poultry was more than offset by volatility in China, notably in swine and we continue to take a cautious approach with regards to our expectations in China for the year.

Jeffrey N. Simmons: Overall in the first quarter for our global business are launched innovation and base portfolio growth drivers delivered.

Jeffrey N. Simmons: We have raised our expectations for the full year constant currency revenue growth to 2% to 3% before the contributions of our late stage pipeline.

Jeffrey N. Simmons: Moving now to slide six we made progress across our innovation portfolio and productivity strategy in the first quarter.

Jeffrey N. Simmons: We made progress across our innovation portfolio and productivity strategy in the first quarter. For the portfolio, we saw 2% price growth, and the core business continues to stabilize. Regarding productivity, operating cash flow improved, and the first quarter restructuring and aqua divestiture are progressing as planned. Now, let's get into innovation, starting on slide seven.

Jeffrey N. Simmons: Portfolio, we saw a 2% price growth in our core business continues to stabilize regarding productivity operating cash flow improved in the first quarter restructuring and Aqua divestiture are progressing as planned.

Jeffrey N. Simmons: Now, let's get into innovation, starting on slide seven in.

Jeffrey N. Simmons: In late 2020, we shared our expectations to deliver high-impact innovation to the market by 2025. Over the last three years, we've delivered over 10 innovations, in addition to numerous regional products and lifecycle management improvements. Importantly, we remain on track to generate an expected $600 to $700 million of revenue from new product innovations in 2025. Moving to slide 8, launch new products led by Xperia, NutriQuest, AdTab, Credelio Plus, and Credelio Cat are performing in line with or better than expectations. This portfolio delivered $275 million in 2023, more than doubling 2022. Today, we're introducing a new quarterly disclosure of our innovation. In the first quarter, new product sales contributed $100 million.

Jeffrey N. Simmons: In late 2020, we shared our expectations to deliver high impact innovation to the market by 2025.

Jeffrey N. Simmons: Over the last three years, we have delivered over 10 innovations. In addition to numerous regional products and lifecycle management improvements importantly, we remain on track to generate an expected $600 million to $700 million of revenue from new product innovations in 2025.

Jeffrey N. Simmons: Moving to slide eight launch new products led by experienced neutral quest add tab, <unk>, plus and <unk> cat are performing in line with or better than expectations.

Jeffrey N. Simmons: This portfolio delivered $275 million in 2023 more than doubling 2022 today, we are introducing a new quarterly disclosure of our innovation sales.

Jeffrey N. Simmons: In the first quarter, new product sales contributed $100 million. We now expect this basket of products to deliver $375 million to $410 million for this year, excluding any contribution from our late stage pipeline.

Jeffrey N. Simmons: We now expect this basket of products to deliver $375 to $410 million for this year, excluding any contribution from our late-stage pipeline. We are encouraged by the innovation already in the market and are thrilled that the next phase of our historic launch window is right in front of us. As we have shared previously, the U.S. regulatory process is rolling and iterative.

Jeffrey N. Simmons: We are encouraged by the contribution of our innovation already in the market and are thrilled that the next phase of our historic launch window is right in front of US as we have shared previously the U S. Regulatory process is rolling and iterative we've had productive engagement with the FDA Center for veterinary medicine over the last several years and more specifically the.

Jeffrey N. Simmons: We have had productive engagement with the FDA Center for Veterinary Medicine over the last several years, and more specifically, the last several months, on all three key late-stage programs. Since we started submissions for these products in late 2022, the majority of the technical sections and subsections have been approved by the agency, and we continue to be very confident in the approvability of these differentiated products. Moving to slide 9, both Senrelia and Cordelia quattro have progressed since February, and we believe the FDA has all the data necessary to complete its review of these products.

Jeffrey N. Simmons: The last several months on all three key late stage programs. Since we started submissions for these products in late 2022, the majority of the technical sections and subsections had been approved by the agency and we continue to be very confident in the approve ability of these differentiated products.

Jeffrey N. Simmons: Moving to slide nine both Centralia and Codelco Quadro have progressed since February and we believe the FDA has all the data necessary to complete its review of these products for both products, we expect that all technical sections, including labels will be approved by the FDA before the end of June.

Jeffrey N. Simmons: For both products, we expect that all technical sections, including labels, will be approved by the FDA before the end of June. After the approval of all technical sections, each new animal drug application or NADA undergoes an expected 60-day final administrative review, putting our full approval expectations in Q3. Now a little more on each product specifically. Xenrelia is our JAK inhibitor targeting the control of pruritus and atopic dermatitis in dogs at least 12 months of age.

Jeffrey N. Simmons: After the approval of all technical sections, each new animal drug application or <unk>.

Jeffrey N. Simmons: Undergoes an expected 60 day final administrative review, putting our full approval expectations in Q3.

Jeffrey N. Simmons: Now a little more on each product specifically Zen rally here is our JAK inhibitor targeting to control of pruritus in atopic dermatitis in dogs at least 12 months of age. We remain confident this product will be differentiated from the current market option. Our market research shows clear interest and desire for additional options is.

Jeffrey N. Simmons: We remain confident this product will be differentiated from the current market option. Our market research shows clear interest and desire for additional options, as we will continue to prioritize the optimization of the label to provide the most meaningful differentiation. We expect to have a very efficient approval to launch window targeting product in the market before the end of the third quarter. Additionally, we expect approval for Zenrelia in several international markets starting late in 2024, our fastest globalization effort ever.

Jeffrey N. Simmons: We will continue to prioritize the optimization of the label to provide the most meaningful differentiation, we expect to have a very efficient approval to launch window targeting product in the market before the end of the third quarter. Additionally, we expect approval for Zen rally in several international markets starting late in 'twenty.

Jeffrey N. Simmons: 24, our fastest globalization effort ever.

Jeffrey N. Simmons: Now moving to Cordelio quattro, our broad-spectrum parasiticide targeting coverage for fleas, ticks, heartworms, and other internal parasites in a single monthly dose. As we have shared previously, we expect Cordelio quattro will be differentiated from incumbent products in the market with broader coverage. Specifically, we expect to have coverage of tapeworms, including those known to be zoonotic or posing a risk to humans, that cannot effectively be prevented by eliminating fleas.

Jeffrey N. Simmons: Now moving to Codelco Cuatro are broad spectrum parasiticide targeting coverage for fleas tick heartworm and other internal parasites and a single monthly dose as we've shared previously we expect cuatro will be differentiated from incumbent products in the market with broader coverage, specifically, we expect to have coverage.

Jeffrey N. Simmons: If tapeworms, including those known to be synodic or posing risk to humans, they cannot effectively be prevented by eliminating fleece. We expect this broader coverage and the ability to prevent heartworm. After the first monthly dose that we are seeking to demonstrate to the FDA will position codelco quadro uniquely in the market.

Jeffrey N. Simmons: We expect this broader coverage and the ability to prevent heartworms after the first monthly dose, which we are seeking to demonstrate to the FDA, will position Cordelio quattro uniquely in the market. For quattro, we're targeting launch in the fourth quarter of this year. Finally, Bovair, our first-in-class methane-reducing feed ingredient for the U.S. dairy market, is in the final stage of review with the FDA, with completion expected before the end of May.

Jeffrey N. Simmons: For Cuatro, we're targeting launch in the fourth quarter of this year.

Jeffrey N. Simmons: Finally, <unk>, our first in class methane, reducing feed ingredient for the U S. Dairy market is in the final stage of review with the FDA with completion expected before the end of May we appreciate the fda's commitment to maintaining high standards for risk and science based review, while balancing the need to quickly bring solutions to the market.

Jeffrey N. Simmons: We appreciate the FDA's commitment to maintaining high standards for risk- and science-based review while balancing the need to quickly bring solutions to the market. The regulatory process for Bovair underscores the need for the FDA's innovation agenda to modernize our regulatory process. We are continuing to help shape the ecosystem for an inset carbon market to support progression towards the opportunity for climate neutral farming while also creating a revenue stream for dairy farms across the country. Several large CPG companies have indicated interest in partnering with their dairies and milk co-ops to reduce on-farm greenhouse gas emissions in their supply chains.

Jeffrey N. Simmons: The regulatory process for <unk> underscores the need for the Fda's innovation agenda to modernize our regulatory process.

Jeffrey N. Simmons: We are continuing to help shape the ecosystem for an inset carbon market to support progression towards the opportunity for climate neutral farming, while also creating a revenue stream for dairy farms across the country. Several large CPG companies have indicated interest in partnering with their dairies and mill co ops to <unk>.

Jeffrey N. Simmons: Reduced on farm greenhouse gas emissions and their supply chains, the expected U S clearance above there will mark a significant milestone and opening up the next major market opportunity in animal health livestock sustainability, we look forward to integrating <unk> into our portfolio and expect to begin to sell.

Jeffrey N. Simmons: The expected U.S. clearance of Beauvair will mark a significant milestone in opening up the next major market opportunity in animal health, livestock sustainability. We look forward to integrating Beauvair into our portfolio and expect to begin selling the product in the third quarter. These three late-stage products, all with blockbuster potential, are very meaningful to Elanco's growth opportunities in the near and medium term and are expected to drive adjusted EBITDA growth over time.

Jeffrey N. Simmons: <unk> the product in the third quarter.

Jeffrey N. Simmons: These three late stage products, all with blockbuster potential are very meaningful to <unk> growth opportunity in the near and medium term and are expected to drive adjusted EBITDA growth over time.

Jeffrey N. Simmons: Based on the launch timing we shared today, the expected ramp curve and peak sales for all three products continue to support our goal of $600 to $700 million of innovation revenue in 2025, with continued growth expected in the second half of the decade. We have an exciting few quarters ahead of us from a product approval and launch perspective. Meanwhile, Ellen DeBras Bander and her team remain focused on advancing all phases of the pipeline, from replenishing the early stage projects to progressing our later stage programs.

Based on the launch timing, we shared today the expected ramp curve and peak sales for all three products continue to support our goal of $600 million to $700 million of innovation revenue in 2025 with continued growth expected in the second half of the decade.

Jeffrey N. Simmons: We have an exciting few quarters ahead of us from a product approval and launch perspective. Meanwhile, Alan to broadband her and her team remain focused on advancing all phases of the pipeline from refilling. The early stage projects to progressing our later stage programs. We continue to believe that our IL 31 monoclonal <unk>.

Jeffrey N. Simmons: We continue to believe that our IL-31 monoclonal antibody for canine dermatology will be approved in 2025, and we are progressing many differentiated assets in both research and development. We continue to see a robust pipeline supporting our ambition to deliver consistent, high-impact innovation. With that, I'll pass it to Todd to provide more on our first quarter results and financial guidance.

Body for canine dermatology will be approved in 2025, and we are progressing many differentiated assets in both research and development. We continue to see a robust pipeline supporting our ambition to deliver consistent high impact innovation with that I'll pass it to Todd to provide more on our <unk>.

Todd S. Young: First quarter results and financial guidance.

Todd S. Young: Thank you, Jeff, and good morning, everyone. Today, I will focus my comments on our first quarter adjusted measures, so please refer to today's earnings press release for a detailed description of the year-over-year changes in our reported results. Starting on slide 11, in the first quarter, we delivered $1.205 billion of revenue, a reported and constant currency decline of 4%. Price contributed 2% in the quarter. As Jeff referenced, the year-over-year comparisons for the first quarter are impacted by the ERP system blackout that occurred in 2023.

Todd S. Young: Thank you, Jeff and good morning, everyone. Today I'll focus my comments on our first quarter adjusted measures. So please refer to today's earnings press release for a detailed description of the year over year changes in our reported results.

Todd S. Young: On slide 11 in the first quarter, we delivered $1 $205 billion of revenue a reported and constant currency decline of 4% price contributed 2% in the quarter.

Todd S. Young: Jeff referenced the year over year comparisons for the first quarter are impacted by the ERP system blackout that occurred in 2023 last year, we estimated sales of $90 million to $110 million shifted from the second quarter into the first quarter, reflecting a seven to nine percentage point detriment to group and the <unk>.

Todd S. Young: Last year, we estimated sales of $90 to $110 million shifted from the second quarter into the first quarter, reflecting a 7 to 9 percentage point detriment to growth in the first quarter of this year. With limited impact from foreign exchange rates, we estimate the underlying business grew 3 to 5 percent, slightly ahead of our expectations. The estimated impacts are noted on slide 12 for each business area.

Todd S. Young: First quarter of this year.

Todd S. Young: With limited impact from foreign exchange rates, we estimate the underlying business grew 3% to 5% slightly ahead of our expectations.

Todd S. Young: The estimated impacts are noted on slide 12 for each business area.

Todd S. Young: For pet health, constant currency decline was 5%, with an estimated headwind to year-over-year growth of 10 to 12 percentage points from the ERP blackout. In the U.S., pet health revenue declined 8 percent, including a headwind to year-over-year growth of approximately 11 percentage points from the ERP blackout. The return to underlying growth was driven by price, resupply of certain vaccines that were out of stock last year, a one-time benefit related to moving certain legacy bear products into distribution, and sales of new products.

Todd S. Young: Proposed health constant currency decline was 5% with an estimated headwind to year over year growth of 10 to 12 percentage points from the ERP blackout.

Todd S. Young: The U S pet health revenue declined 8%, including a headwind to year over year growth of approximately 11 percentage points from the ERP blackout.

Todd S. Young: Returned to underlying growth was driven by price resupply as certain vaccines that were out of stock last year, a one time benefit related to moving certain legacy bear products and the distribution and sales of new products.

Todd S. Young: In the quarter the business also face headwinds from the weather impacted January competitive innovation and lower vet visits.

Todd S. Young: In the quarter, the business also faced headwinds from the weather-impacted January, competitive innovation, and lower debt. Outside the US, our pet health business declined 3% in constant currency, with an estimated headwind to year-over-year growth of approximately 12 percentage points from the ERP blackout. Underlying growth in the quarter was driven by a return to more normalized demand patterns in Spain, the ramp-up of innovation products led by ADTAP, and higher demand for Cordelio family products and Soresto across Europe.

Todd S. Young: Outside the U S. Our pet health business declined 3% in constant currency with an estimated headwind to year over year growth of approximately 12 percentage points from the ERP blackout.

Todd S. Young: Underlying growth in the quarter was driven by a return to more normalized demand patterns in Spain.

Todd S. Young: Ramp up of innovation products led by Ed tab of higher demand for crude oil family products answer resto across Europe.

Todd S. Young: Globally, our farm animal business declined 3% in constant currency, with an estimated headwind to year-over-year growth of 4 to 5 percentage points from the ERP blackout. In the U.S., our farm animal business grew 8%, with an estimated headwind to year-over-year growth of approximately 3 percentage points from the ERP blackout. The growth in the underlying business was driven by expanded expiry adoption, vaccine resupply, and demand for Elanco poultry products. Outside the U.S., our farm animal business declined 8% in constant currency with an estimated headwind to year-over-year growth of approximately 6 percentage points from the ERP blackout. The decline in the underlying business was driven by weakness in Asian swine markets, partially offset by increased demand for poultry in Europe.

Todd S. Young: Globally, our formidable business declined 3% in constant currency with an estimated headwind to year over year growth of four to five percentage points from the ERP blackout.

Todd S. Young: In the us are far metal business grew 8% with an estimated headwind to year over year growth of approximately three percentage points from the ERP blackout.

The growth in the underlying business was driven by expanded experience adoption vaccine re supply and demand for our Lego poultry products.

Todd S. Young: Outside the U S. R farm animal business declined 8% in constant currency with an estimated headwind to year over year growth of approximately six percentage points from the ERP blackout. The decline in the underlying business was driven by weakness in Asia, and swine markets, partially offset by increased demand for poultry in Europe. The majority of the year over year decline in the Aqua.

Todd S. Young: The majority of the year-over-year decline in the aqua business was a result of the ERP blackout. Continuing down the income statement on slide 13, gross margin declined 350 basis points to 57.3%, in line with our expectations. The estimated impact on the year-over-year growth of gross margin from the ERP blackout was 130 to 200 basis points, as more sales of high-margin, legacy bear animal health products were realized in the first quarter of 2023.

Todd S. Young: Business was a result of the ERP blackout continuing.

Todd S. Young: Continuing down the income statement on slide 13, gross margin declined 350 basis points to 57, 3% in line with our expectations. We estimate the impact on the year over year growth of gross margin from the ERP blackout was 130 to 200 basis points as more sales of higher margin legacy bear animal.

Todd S. Young: <unk> products were realized in the first quarter of 2023.

Todd S. Young: The remaining decline was driven by an approximate 170 basis point headwind from slowing manufacturing output as we worked to reduce balance sheet inventory and inflation, partially offset by price growth. Operating expenses increased 4% year-over-year in the quarter.

Todd S. Young: The remaining decline was driven by an approximate 170 basis point headwind from slowing manufacturing output as we work to reduce balance sheet inventory and inflation, partially offset by price growth.

Todd S. Young: Operating expenses increased 4% year over year in the quarter R&D expenses increased $6 million, primarily driven by employee related expenses and timing of project expenses SG&A expense grew 3%, primarily driven by the expanded U S sales force increased promotional activity across targeted pet health brands and employ.

Todd S. Young: R&D expenses increased $6 million, primarily driven by employee-related expenses and timing of project expenses. SG&A expense grew 3%, primarily driven by the expanded U.S. Pet Sales Force, increased promotional activity across targeted pet health brands, and employee-related expenses partially offset by IT-related savings as a result of consolidating to one ERP system. Interest expense was $66 million compared to $64 million last year.

Todd S. Young: <unk> related expenses, partially offset by IP related savings as a result of consolidated into one ERP system.

Todd S. Young: <unk> expense was $66 million compared to $64 million last year.

Todd S. Young: Additionally, other expenses declined from $11 million in the first quarter last year to $4 million this year, driven by our simplified operations in certain volatile markets, including Argentina. Moving to slide 14, adjusted EBITDA was $294 million in the quarter. The year-over-year comparison is negatively impacted by an estimated $70-90 million benefit from the ERP blackout in the first quarter of last year. For the underlying business, the decline was driven by higher sales more than offset by our decision to increase commercial investments to drive long-term revenue growth in pet health.

Todd S. Young: Italy other expenses declined from $11 million in the first quarter last year before million dollars. This year, driven by our simplified operations in certain volatile markets, including Argentina.

Todd S. Young: Moving to slide 14, adjusted EBITDA was $294 million in the quarter.

Todd S. Young: The year over year comparison is negatively impacted by an estimated $70 million to $90 million benefit from the ERP blackout in the first quarter of last year.

Todd S. Young: The underlying business the decline was driven by higher sales more than offset by our decision to increase commercial investments to drive long term revenue growth and pet health.

Todd S. Young: Adjusted EPS was $0.34 in the quarter. The year-over-year comparison is negatively impacted by an estimated $0.11 to $0.14 benefit from the ERP blackout in the first quarter of last year. The slight increase to underlying performance was primarily driven by a favorable tax rate.

Todd S. Young: Adjusted EPS was <unk> 34 cents in the quarter the year over year comparison was negatively impacted by an estimated 11% to 14 benefit from the ERP blackout in the first quarter of last year. The slight increased underlying performance was primarily driven by a favorable tax rate.

Todd S. Young: Before moving to our guidance, let me offer a few words on our cash, debt, and working capital. On slide 15, cash from operations was $2 million in the quarter. The $147 million year-over-year improvement in operating cash flow reflects improvement in inventory and savings from the reduction in project spend from the completion of our Bayer ERP integration. We ended the quarter with net debt of $5.466 billion, as we paid down $13 million of debt, enabled by improvements in both operating and investing cash flow.

Todd S. Young: Before moving to our guidance, let me offer a few words on our cash debt and working capital on slide 15.

Todd S. Young: Cash from operations was $2 million in the quarter, the $147 million year over year improvement in operating cash flow reflects improvement in inventory and savings from a reduction in project spend from the completion of our ERP integration.

Todd S. Young: We ended the quarter with net debt of $5 $466 billion as.

Todd S. Young: As we paid down $13 million of debt enabled by improvements in both operating and investing cash flow.

Todd S. Young: At the end of March, our net leverage ratio was 6.1 times as our trailing 12-month EBITDA was negatively impacted by the ERP blackout from last year, which drove an estimated 0.4 to 0.6 times of the increase. We continue to expect between $280 and $320 million of free cash flow available for debt paydown this year.

Todd S. Young: At the end of March our net leverage ratio was six one times, our trailing 12 month EBITDA was negatively impacted by the ERP blackout from last year, which drove an estimated four to six turns of the increase.

Todd S. Young: We continue to expect between 280 and $320 million of free cash flow available for debt Paydown. This year.

Todd S. Young: We anticipate the year-end net leverage ratio to be between 5.2 and 5.5 times before considering the expected debt pay-down from the net proceeds from the AQUA divestment. We continue to expect net proceeds to be between $1.05 to $1.1 billion, which we intend to use primarily for debt repayment, leading to an expected net debt to adjust the EBITDA ratio in the mid 4 times range at the end of this year. Now, let's move to our financial guidance, starting on slide 17.

Todd S. Young: We anticipate the year end net leverage ratio to be between five two and five five times before considering the expected debt paydown from the net proceeds from the Aqua divestiture.

Todd S. Young: We continue to expect net proceeds to be between 1.05 to $1 1 billion.

Todd S. Young: Which we intend to use primarily for debt paydown, leading to an expected net debt to adjusted EBITDA ratio in the mid four times range at the end of this year.

Todd S. Young: Now, let's move to our financial guidance, starting on slide 17 for.

Todd S. Young: For the full year, we are tightening our guidance range to reflect first quarter outperformance and the impact of the strengthening U.S. dollar. We are raising the bottom end of our constant currency revenue growth to 2% and updating adjusted EBITDA and adjusted EPS to reflect FX rates as of early May. As a reminder, our guidance does not include contribution from our anticipated late-stage pipeline products and does not account for the expected impacts of the aqua divestment.

Todd S. Young: For the full year, we are tightening our guidance range to reflect first quarter outperformance and the impact of the strengthening U S. Dollar.

Todd S. Young: We are raising the bottom end of our constant currency revenue growth to 2% and updating adjusted EBITDA and adjusted EPS to reflect FX rates as of early may.

Todd S. Young: As a reminder, our guidance does not include contributions from our anticipated late stage pipeline products does not account for the expected impacts of the Aqua divestiture.

Todd S. Young: On slide 18, we provide further details on our updated revenue expectations. The raised cost and currency growth is primarily driven by the U.S. farm animal and international pet health businesses, both from higher innovation sales and the base portfolio. The improved outlook also accounts for expected reduced sales for Tekstone, a European cattle product. We have paused sales of the product while the manufacturing process is under review by the EMA.

Todd S. Young: On slide 18, we provide further details on our updated revenue expectations. The raised constant currency growth was primarily driven by the U S farm animal and international Pet health businesses, both from higher innovation sales and the base portfolio.

Todd S. Young: The improved outlook also accounts for the expected reduced sales for textile European cattle product, we have Paul sales of the product while the manufacturing process is under review by the EMA.

Todd S. Young: We expect the full-year impact to be approximately $20 million of revenue and $18 million of adjusted EBITDA compared with our February guidance. Regarding FX, we now expect a $35 million headwind for the full year, $30 million higher than our February guidance. On slide 19, we provide the bridge for adjusted EBITDA and adjusted EPS compared to our February guidance. We now expect adjusted EBITDA to be between $960 million and $1 billion, inclusive of an incremental $15 million headwind from the unfavorable impact of foreign exchange rates.

Todd S. Young: We expect the full year impact to be approximately $20 million of revenue and $18 million of adjusted EBITDA compared with our February guidance.

Todd S. Young: Regarding FX, we now expect a $35 million headwind for the full year $30 million higher than our February guidance.

Todd S. Young: On slide 19, we provide a bridge for adjusted EBITDA and adjusted EPS compared to our February guidance.

Todd S. Young: We now expect adjusted EBITDA to be between $960 million to $1 billion in.

Todd S. Young: Inclusive of an incremental $15 million headwind from the unfavorable impact of foreign exchange rates.

Todd S. Young: Excluding the FX impact, we are increasing the bottom end of our adjusted EVADOG guidance by $15 million and the top end by $5 million. Our approved cost and currency assumptions reflect the Q1 overperformance and increased confidence in the full year. For adjusted EPS, we are raising our expectations to $0.88 to $0.96 for the full year despite unfavorable effects as a result of Q1 overperformance compared to our February guidance and improvements in both interest expense and tax. Slide 26 in the appendix provides updates to several of our additional assumptions.

Todd S. Young: Excluding the FX impact we are increasing the bottom end of our adjusted EBITDA guidance by $15 million and the top end by $5 million, our improved constant currency assumptions reflect the Q1 over performance and increased confidence in the full year for adjusted EPS, we are raising our expectations to 88 to 96.

Todd S. Young: For the full year, despite unfavorable FX as a result of Q1 over performance compared to our February guidance and improvements in both interest expense and tax slide 26 in the appendix provides updates to several of our additional assumptions.

Todd S. Young: On slide 20, we provide our financial guidance for the second quarter. We expect revenue of $1.145 billion to $1.17 billion, adjusted EBITDA of $240 million to $260 million, and adjusted EPS of $0.23 to $0.26. As we shared last year and in the first quarter, as a result of the ERP system blackout in 2023, approximately $100 million of revenue, $80 million of adjusted EBITDA, and 13 cents of adjusted EPS shifted into the first quarter from the second quarter of 2023, which will impact the reported growth rates for the second quarter of 2024.

Todd S. Young: On slide 20, we provide our financial guidance for the second quarter, we expect revenue of 1.15 billion to $1 7 billion.

Todd S. Young: Adjusted EBITDA of $240 million to $260 million and adjusted EPS of <unk> 23 to 26 cents as.

Todd S. Young: As we shared last year and in the first quarter as a result of the ERP system blackout in 2023, approximately $100 million of revenue $80 million of adjusted EBITDA and 13 of adjusted EPS shifted into the first quarter from the second quarter of 2023, which will impact our reported growth rates for the second quarter of 2008.

Todd S. Young: 24.

Todd S. Young: As shown on slide 21, the estimated headwind to year-over-year revenue growth from the ERP blackout in the first quarter will unwind, contributing approximately 9 to 11 percentage points to second quarter revenue growth. Excluding the estimated impact of the ERP blackout, we expect underlying constant currency revenue growth will be 1% to 3%. The shift is also expected to positively impact year-over-year growth of adjusted EBITDA and adjusted EPS in the second quarter, as shown on slide 22.

Todd S. Young: As shown on slide 21, the estimated headwind to year over year revenue growth from the ERP blackout in the first quarter will unwind contributing approximately nine to 11 percentage points to second quarter revenue growth.

Todd S. Young: <unk> the estimated impact of the ERP blackout, we expect underlying constant currency revenue growth will be 1% to 3%.

Todd S. Young: The shift is also expected to positively impact year over year growth of adjusted EBITDA and adjusted EPS.

Todd S. Young: In the second quarter as shown on slide 22.

Todd S. Young: In line with our results in the first quarter, our EVDA expectations reflect manufacturing headwinds from slowing down the plants and increased investment in our pet health business. Overall, we are executing ahead of our initial expectations for the year and look forward to delivering on the opportunity to launch exciting new products later this year. Now I'll hand it back to Jeff for closing comments.

Todd S. Young: In line with our results in the first quarter, our EBITDA expectations reflect manufacturing headwinds from slowing down the plants and increased investment in our pet health business. Overall, we are executing ahead of our initial expectations for the year I look forward to delivering on the opportunity to launch exciting new products. Later this year that I will hand, it back to Jeff for closing.

Todd S. Young: Comments.

Jeffrey N. Simmons: Thanks, Todd. This is a very exciting time at Elanco, and we have momentum across our business. Our global team is highly engaged, intensely focused, and deeply committed to building on the positive trajectory we've set over the past three quarters. The strategic actions taken to sharpen our focus and invest in our commercial growth drivers are delivering results. Our focus on consistent high-impact innovation is driving immense progress. We have two potential blockbusters, Xperia and CPMA, already in the market, with three more expected in the coming months.

Jeffrey N. Simmons: Thanks, Todd this is a very exciting time at <unk>, we have momentum across our business. Our global team is highly engaged intensely focused and deeply committed to building on our positive trajectory. We've said over the past three quarters, the strategic actions taken to sharpen our focus and invest in our commercial growth drivers are delivering results.

Jeffrey N. Simmons: Our focus on consistent high impact innovation is driving immense progress we have two potential blockbusters experience <unk> already in the market with three more expected in the coming months with these and our IL 31 product Thats slated for next year, we are on track to deliver meaningful growth from innovation sales.

Katy Grissom: With these and our IL-31 product that's slated for next year, we are on track to deliver meaningful growth from innovation sales over the next several years. As we enter this pivotal moment in Elanco's trajectory, the stability within our leadership team and consistency of our strategy are paying off. Our base business is growing, operating cash flow is improving, and contributions from new products are exceeding expectations. These factors, combined with the durability of our diverse portfolio and balanced geographic presence, give us the confidence to increase our expectations for constant currency growth for the full year. Elanco is on track to deliver a strong 2024, and we look forward to continuing to engage with you all throughout the year. With that, I'll turn it over to Katy to moderate the Q&A. Thanks, Jeff.

Jeffrey N. Simmons: Over the next several years.

Jeffrey N. Simmons: As we enter this pivotal moment in a language trajectory that stability within our leadership team and consistency of our strategy is paying off our base business is growing operating cash flow is improving and contributions from new products are exceeding expectations. These factors combined with the durability of our diverse portfolio.

Jeffrey N. Simmons: Folio and balanced geographic presence give us the confidence to increase our expectations for constant currency growth for the full year <unk> is on track to deliver a strong 2024, and we look forward to continuing to engage with you all throughout the year with that I'll turn it over to Katie to moderate the Q&A.

Operator: Thanks, Jeff. We'd like to take questions from as many callers as possible, so we ask that you limit yourself to one question and one follow-up. Operator, please provide the instructions for the Q&A session, and then we'll take the first caller.

Katy Grissom: Thanks, Jeff we'd like to take questions from as many callers as possible. So we ask that you limit yourself to one question and one follow up.

Katy Grissom: Operator, please provide the instructions for the Q&A session and then we'll take the first caller.

Operator: Thank you. At this time, we'll begin the question and answer session. If you have dialed in and would like to ask a question, please press the star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening through the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We will pause for just a moment while we compile the Q&A roster.

Operator: Thank you at this time, we will begin the question and answer session.

Speaker Change: If you have done it and I would like to ask a question. Please persist one on your telephone key Pennsylvania Youll have to join the queue.

Katy Grissom: So your question simply press Star one again.

Katy Grissom: Called upon to ask a question on our listing biologic only device. Please pickup your handset and ensure that you've found is not on mute when asking a question, we'll pause for just a moment, while we compile the Q&A roster.

Operator: You can go ahead and take the first question.

Speaker Change: So you can go ahead and take the first question.

Operator: Thank you. Our first question comes from the line of John Block from Stifle. Please go ahead.

Katy Grissom: Thank you. Our first question comes from the line of Jon Block from Stifel. Please go ahead.

Jonathan David Block: Great, guys. Thanks, and good morning.

Jonathan David Block: Great guys, Thanks, and good morning.

Jonathan David Block: Jeff interesting comments on the OTC para market why do you think the market's weak if the consumer is seemingly under pressure sometimes that pressure causes a trade down I just want to make sure I understand it does seem like you.

Jeffrey N. Simmons: Jeff, interesting comments on the OTC power market. Why do you think the market's weak if the consumer is seemingly under pressure? Sometimes that pressure causes a trade down.

Jeffrey N. Simmons: And I just want to make sure I understand, it does seem like you're gaining share within that market performance, even if we normalize for some of the stocking commentary. Maybe you can elaborate on that. And then I'll just ask my follow-up. For Zinrelli, it looks like you're gonna compress the launch timing. Initially, you called it out two to four months. It seems like it's gonna move to something shorter than that. So just what changed, or what will you change? Talk to us about your confidence in that, and then how do we think about the launch timing internationally for Zinrelli as well? Thanks for your time. Yeah, thanks, John.

Jonathan David Block: Youre gaining share within that market performance, even if we normalize for some of the stocking commentary maybe if you could elaborate on that and I'll just ask my follow up for <unk>. It looks like Youre going to compress the launch timing initially you called out two to four months. It seems like it's going to move to something shorter than that so just what changed or what will you change.

Jonathan David Block: Can you talk to us about your confidence there and then how do we think about the launch timing internationally for us in Raleigh as well thanks for your time.

Jeffrey N. Simmons: Yeah, thanks, John. Let me start with that second question first. Again, Xenrelia, we're looking at technical sections approved, as we said, in the second quarter. The administrative process is 60 days, typically, and that would go into the third quarter.

Speaker Change: Yes, Thanks, John Let me start with that second question first again and really we're looking at technical sections.

Speaker Change: Approved as we said in the second quarter the administrative process of 60 days.

Speaker Change: Typically and that would go into the third quarter.

Jeffrey N. Simmons: As you know, we have been, and we've said very clearly that the production line and process for Xenrelia very much fits into what we do with other products, like our parasiticides, and it is made in our own facilities. So we've been preparing. We have a product that is manufactured, that is ready. Of course, we'll wait for the labeling, but we do believe that we've created additional efficiencies from the time from approval to launch, and that's why we have our current expectation to bring that product to the market in Q3. So, that is our current plan.

Speaker Change: As you know we have been and we've said very clearly that.

Speaker Change: The production line and process for Zen rally very much fits into what we do with other.

Speaker Change: Products like.

Speaker Change: Like our parasiticide and made in our own facilities. So we've been preparing we have product that is manufactured that is ready of course, we'll wait for the labeling but we do believe that we've created additional efficiencies from the time from approval to launch and Thats why we have our current expectation is to bring that product to the market actually.

Speaker Change: And in Q3.

Speaker Change: So that is our current current plan relative to OTC just real quickly.

Jeffrey N. Simmons: You know, relative to OTC, just real quickly, fundamentally, yes, we see strong demand for our OTC products. That market is quite resilient, even in the midst of some of the dynamics. We also, I think, we see a little bit of the continuum pull back from after the innovation entered the market inside the vet clinic to now we're seeing, you know, the more robust demand kind of coming back to the OTC products.

Speaker Change: Fundamentally yes, we see strong demand for our OTC products.

Speaker Change: Market is quite resilient, even in the midst of some of the dynamics. We also I think we see a little bit of.

Speaker Change: The continuum pulled back from after the innovation entered the market inside the vet clinic too we're seeing.

Speaker Change: The more robust demand kind of coming back to the OTC products. Our portfolio is strong and we've put our strategy to work, which I think.

Jeffrey N. Simmons: Our portfolio is strong, and we've put, you know, our strategy to work, which I think is what's driving a lot of this is the expanded, you know, physical availability. We're now in club, dollar, grocery, and share of voice.

Speaker Change: What's driving a lot of this is the expanded physical availability. We're now in club dollar grocery as share of voice I think I really want to point to the <unk> seen probably the most jump in brand awareness on Sorrento since owning the product and owning bear as we've seen unaware unaided awareness up 5% and a lot of that is.

Jeffrey N. Simmons: I think I really want to point to Soresto, seeing probably the biggest jump in brand awareness for Soresto since owning the product and owning Bayer, as we've seen unaided awareness up 5%. A lot of that is, you know, the bolder campaign that I mentioned in my comments. And then we're constantly optimizing price volume, and then just overall innovation from the classic brands in the U.S. to even I want to note AdTab is one of the fastest rising products we have over in Europe in the retail market. But look, I think to your specific question, we saw the weather impact overall.

Speaker Change: The Boulder campaign that I mentioned in my comments and then we're constantly optimizing price volume and then just overall the innovation from the classic brands in the U S. Stephen I want to note add tab is one of the fastest ramping products, we have over in Europe in the retail market, but look I think as to your specific question we saw the <unk>.

Speaker Change: Weather impact overall, we have seen some trade down occur in the OTC space. We now have a portfolio that can handle both the trade down as well as the premium products. So that portfolio is playing out and we've seen a pretty nice jump back January weather took it down we've seen sequential improvement we saw 10%.

Jeffrey N. Simmons: We have seen some trade-down occur in the OTC space. We now have a portfolio that can handle both the trade-down as well as the premium products. So that portfolio is playing out, and we've seen a pretty nice jump back. January weather took it down.

Jeffrey N. Simmons: We've seen sequential improvement. We saw a 10% increase in March, actually, and we see that momentum carrying into the second quarter. So, again, the omni-channel approach that we took when we purchased Bayer is paying off. The strategy that Bobby and Romero have in place is paying off. And we continue to see this diversity as a really nice tailwind as we go into the veterinary channel.

Speaker Change: That increase in March actually and we see that momentum carrying into the second quarter. So again omnichannel approach that we took when we purchased there is paying off the strategy to Bobby and Ramiro had in place is paying off and we continue to see this diversity is a really nice tailwind as we go into the vet clinic market now launching this.

Speaker Change: New products.

Speaker Change: Thank you.

Erin Elizabeth Wilson Wright: Thank you. Our next question comes from the line of Erin Wright of Morgan Stanley. Please go ahead.

Speaker Change: Thank you. Our next question comes from the line of Kevin <unk> of Morgan Stanley. Please go ahead.

Jeffrey N. Simmons: Great, thanks. Can you remind us, I'll ask two up front here because they're a little bit related, but can you just remind us what's embedded in the guidance as it relates to the expenses associated with the upcoming Blockbuster launches and does this sort of increase certainty around these launches? Does that change how you're thinking about those investments that you're making ahead of those launches? And then second, your conversations with the FDA and what changed, or what are some of the next milestones that give you that sort of clarity on the launch timing? And for instance, could you actually see approval before those timelines, and would that change your launch timeline at all? Thanks.

Kevin: Great. Thanks can you remind us I will ask two upfront here, because they're a little bit related but can you just remind us on what's embedded in the guidance as it relates to the expenses associated with the accrual blockbuster launches in that they saw the increased certainty around.

Kevin: These launches does that change how you're thinking about those investments that youre, making ahead of those launches.

Kevin: And then second would be fine.

Speaker Change: Congress issue with the FDA and in what changed or what are some of the next milestones that that give you that sort of clarity on the launch timing and for instance, could you actually be approval before those timelines and would that change your life launch timeline at all thanks.

Speaker Change: Sure. Thanks for the question on the large side.

Todd S. Young: Great, thanks for the question on the launch side. We feel very good about the timing as we've laid out today. The teams are preparing everything from training the sales force to preparing marketing materials to be ready to go. At the same time, the biggest cost is really TV ads and running those TV ads, and so we've not included those expenses in the guide, just like we haven't included the sales of Bovares and Relia or Crudella Quattro in the guide.

Speaker Change: Feel very good about the timing as we've laid out today. The teams are preparing from training the sales force to preparing marketing.

Speaker Change: Materials to be ready to go.

Speaker Change: At the same time the biggest cost is really TV ads are running those TV ads and so we've not included those expenses in the guide just like we haven't included the sales of <unk>.

Speaker Change: <unk> and <unk> or crude oil quadro into the guide we continue to believe there'll be EBITDA positive relative to the guidance. We've laid out today I'll turn it back to Jeff for the FDA questions. Yeah, Aaron I might just brought in your question a little bit and I'll get to it I think it's really important I know innovation and these blockbuster products, specifically Zen rally in crude Leo.

Todd S. Young: We continue to believe they'll be even positive relative to the guidance we've laid out today. I'll turn it back to Jeff for the FDA question. Yeah, Erin, I might just broaden your question a little bit.

Jeffrey N. Simmons: Yeah, Erin, I might just broaden your question a little bit, and I'll get to it. I think it's really important.

Jeffrey N. Simmons: I know innovation and these Blockbuster products, specifically Zenreli and Credelio, are important to all of us, so let me just add a little context to the comments I made when I opened the call here. First, we are very pleased with the progress we've made on these key assets. Since February, actually, a lot of progress has happened, and that's driven our increased certainty as we move closer to the end of this approval process.

Speaker Change: Important to all of US So let me just add a little framing to the comments I made when I opened the call here first we are very pleased with the progress. We've made in these key assets since February actually a lot of progress has happened and that's driven our increased certainty as we move closer to the end of this approval process, yes, the dialogue with the FDA has been.

Jeffrey N. Simmons: Yes, the dialogue with the FDA has been rolling and iterative. We've been in a productive engagement with them, Erin. It's been fair, constructive, frequent, and really, over the last several months, we've been responding to questions from the agency, which is very common. I believe the Animal Drug User Fee Act, or ADUFA, is working specifically on these assets.

Speaker Change: <unk> and <unk>, we've been in a productive engagement with them Erinn, it's been fair constructive frequent and really over the last several months, we've been responding to the questions from the agency, which is very common and I believe the animal drug user fee Act or <unk> is working specific on these assets it's been constructive.

Jeffrey N. Simmons: It's been constructive. So, what has changed and what has not changed since February? What has changed is that many sections and subsections of these submissions have been approved. Both products have progressed. Simply though, the back and forth interactions have taken slightly more time than when we estimated this path to first half approval. Thus, we're now moving the final 60-day administrative review into the third quarter.

Speaker Change: So what's changed and what has not changed since February what has changed is many sections and subsections of the submissions have been approved both products had progressed simply though the back and forth interactions have taken slightly more time than when we estimated this path to first half approval.

Speaker Change: Thus, we're now moving the final 60 day administrative review into the third quarter.

Jeffrey N. Simmons: And I think, you know, importantly, we have increased certainty in the timing of all of this interaction that you mentioned. But I think it's also important to say what hasn't changed. What hasn't changed is that we continue to expect the products to be differentiated versus the current offering. We still expect all the technical sections, including the label, to be approved in the first half or by the end of June. And we expect that revenue contribution is still expected in the second half for these two products, as well as BoBear.

Speaker Change: And I think importantly, we have increased certainty and the timing from all of this interaction that you mentioned I think it's also important to say what hasnt changed.

Speaker Change: It Hasnt changed as we continue to expect the products to be differentiated versus the current offering we still expect all technical sections, including the label to be approved in the first half or by the end of June and we expect that the revenue contribution is still expected in the second half for these two products as well as both there.

Jeffrey N. Simmons: And again, importantly, we believe the FDA has what they need for the approvals and the launch planning to your question on that. And marketing is well underway. U.S. Pet Health is well positioned right where we believe it needs to be relative to the launches. We're as competitive as we've ever been. A good, nice lead indicator is that engagement scores in U.S. Pet Health are as high as they've probably been in years and the highest, I think, in the global company. So that's a nice lead indicator that our preparedness is ready.

Speaker Change: And again importantly, we believe the FDA has what they need for the approvals and the launch planning to your question on that and the marketing is well underway. The U S. Pet health is as well positioned right, where we believe it needs to be relative to the launches we're as competitive as we've ever been.

Speaker Change: Nice lead indicators engagement scores and U S pet health or as high as they've probably been in years and the highest I think in a global company. So that's a nice lead indicator that our preparedness is ready we will launch as soon as possible. As we've noted we expect that right now to be Q3 for US then rally here Q4 for <unk> Cuatro.

Speaker Change: Okay.

Operator: Thanks, we'll take the next question.

Speaker Change: Thanks, we'll take the next question.

Michael Leonidovich Ryskin: Thank you. Our next question comes from the line of Michael Ryskin of Bank of America. Please go ahead.

Speaker Change: Thank you. Our next question comes from a lot of Michael Rifkin of Bank of America. Please go ahead.

Michael Rifkin: Great. Thanks for taking my question and congrats on the quarter enough to I'll ask both at the same time as well.

Michael Rifkin: So following up on the new product approvals, especially because in Raleigh and crossroads.

Michael Rifkin: <unk> been very transparent with us in terms of timing both approval and launch in terms of expectations for label differentiation things like that.

Michael Rifkin: As you get closer to the expected date are.

Michael Rifkin: Are you seeing any change in the marketplace from the.

Michael Rifkin: From the existing players so it is for derm and so it would be our four.

Michael Rifkin: Doug a trio of Nexstar plus are they doing anything to build inventory are they having any different conversations with distributors that I was just wondering sort of how the market that you are.

Michael Rifkin: Going to be entering is evolving as you approach. The go live date and <unk> and then my.

Michael Rifkin: Follow up which will be a little bit quicker I hope, it's going to be on tech stone.

Michael Rifkin: You update you provided.

Michael Rifkin: Seems like a pretty meaningful flow through there. So obviously it seems that youre just cutting that off could you give us.

Michael Rifkin: A little bit more color on what exactly happened in the EU is there any chance that comes back at some point just sort of.

Michael Rifkin: What we should look forward from that.

Michael Rifkin: Next 12 months thanks.

Katy Grissom: Yeah, very good questions, John. Thank you. Excuse me, Mike. I'm sorry, Mike. Thanks, Katie. Sorry about that. So listen, Mike, real quick.

Speaker Change: Yes, very good questions John Thank you.

Speaker Change: Excuse me, Mike I'm sorry.

Speaker Change: Thanks, David sorry about that.

Speaker Change: So listen Mike real quick.

Speaker Change: We do anticipate and we see competitive reactions in the marketplace.

Speaker Change: This marketplace has seen a lot of innovations come in we've made a lot of decisions over the last couple of years relative to launch we've taken this very seriously. This is not new we've been preparing for some time and we've had a lot of products to be testing and building the muscle of launch absorbing <unk> cat know parvo.

Speaker Change: So I would say, we are really well well prepared.

Speaker Change: So look I think the first thing that I would emphasize as it comes back to a couple basics share of voice to create clinical awareness that then leads to clinic penetration. That's why we've added the sales force our share of voice metrics are high they've they've grown dramatically. The last two quarters. That's a key lead indicator that we're looking at we know thats.

Speaker Change: Important and it's with credible experienced people that have a lot of deep relationships and territories.

Speaker Change: Key number one and then look the differentiation.

Speaker Change: Working to optimize these labels because we know differentiation also impacts adoption.

Speaker Change: I also would note. This four pillar approach we've talked about.

Speaker Change: And Thats why <unk> for us really helps it'll help cuatro, but it'll also help centralia and our existing portfolio to be able to say have therapeutics vaccines derm now and parasiticide, So I point to those things as well as what we're kind of calling next generation sales and launch from digital to campaigns the thing.

Speaker Change: No two on term because it's all accretive to us its new its a big market. We're excited about <unk>.

Speaker Change: Also excited about the IL 31, that's coming is look few things I look to the dairy market is large it's growing meaningfully not just in international but U S and even this last quarter, we expect it to be differentiated Zen rally here and our market research continues to indicate that theyre looking for more options. So this.

Speaker Change: <unk> will be a key fourth pillar for us on our offering that we believe puts us in a really good place and as I mentioned the engagement is high and going back to the earlier question is then rally or globally, we're positioned to see Zen rally or come into the marketplace. We believe late this year and some of the international Mark.

Speaker Change: <unk> to be our fastest global launch ever so.

Speaker Change: That's a little bit of a launch side jumping to capstone capstone of key cattle product in Europe.

Speaker Change: As a controlled release capsule that treats ketosis enrollment of cattle.

Speaker Change: There's about a manufacturing process. It is a key product.

Speaker Change: We we have <unk>.

Speaker Change: This product off the market.

Speaker Change: Our focus and we did that with the MAA and we believe that our manufacturing team is working very hard on the manufacturing process, we see the product coming back to the market, but don't anticipate that probably until late into 2025, and that's why we felt it was prudent to highlight that product and to remove alon.

Jeffrey N. Simmons: And Mike, the impact is both gross margin but also some inventory write-offs as well.

Speaker Change: On the market.

Speaker Change: The impact is both gross margin, but also some inventory write offs as well.

Speaker Change: Thanks, we'll take the next question.

Operator: Thank you. Our next question comes from the line of Balaji Prasad of Barclays. Please go ahead.

Speaker Change: Thank you. Our next question comes a lot of the larger plus up of Barclays. Please go ahead.

Speaker Change: Shoot.

Operator: Shoot, Balaji, looks like we are not hearing you. Let's go on to the next one.

Barclays: It looks like we are not hearing you.

Speaker Change: Let's go on to the next caller and then we'll get them back in the queue.

Barclays: Certainly.

Operator: Our next question comes from Lionel Umer Raffat of Evercore. Please go ahead.

Speaker Change: Our next question comes a lot of inertia of.

Ethical: Ethical. Please go ahead.

Michael Gennaro DiFiore: Hi, good morning guys. This is Mikey Fiore on for Umer.

Ethical: Hi, Good morning, guys. This is.

Ethical: It might be Fury in for Omar. Thanks, So much for taking my question.

Jeffrey N. Simmons: Thanks so much for taking my question. Two for me; I'll ask the first one first. Regarding bundling, you've consistently said that having a DERM asset in your portfolio will greatly enhance your bundling capabilities and, therefore, enhance your competitiveness in pet health. My question is, have those bundling discussions happened yet, or do you need to wait for launch and pricing to kind of get established? I mean, you mentioned in your prepared remarks that you continue to solidify partnerships with corporate accounts, and then I have a follow-up.

Fury: Two for me I'll ask the first one first regarding bundling.

Ethical: You've consistently said that having a derm asset.

Fury: In your portfolio will greatly enhance your bundling capabilities and therefore enhance our competitiveness in pet health and my question is have those bundling discussions happened yet or do you need to wait for launch.

Fury: And pricing to kind of get get established I mean, you mentioned in your prepared remarks that you continue to solidify partnerships with corporate accounts.

Speaker Change: And then I have a follow up.

Jeffrey N. Simmons: Yeah, Mike, that's exactly right. I mean, this is quite common in the marketplace. You know, any veterinary practice, whether they're corporate or general practitioner, is only going to carry a certain number of products. And as you bring in a wider portfolio as a company, that's going to help across the board; that fundamental kind of principle plays out no matter what the size of the clinic. And then as you get to, you know, other groups that are larger, you know, corporately, there's no question having another alternative on the derm side is going to help overall.

Speaker Change: Yes, Mike that's exactly right I mean, this is quite common in our marketplaces.

Speaker Change: Any vet practice, whether they're corporate or general practitioner is only going to carry a certain number of products and as you bring in a wider portfolio is a company that's going to help across the board that fundamental kind of principle plays out no matter what the size of the clinic and then as you get to.

Speaker Change: Other groups that are larger corporately.

Speaker Change: There is no question, having another alternative on the derm side is going to help overall in the market research shows that there's a high interest in that so those two principles play out Mike can we see that happening today in a high desire for more of that going forward.

Jeffrey N. Simmons: And the market research shows that there's a high interest in that. So those two principles play out, Mike, and we see that happening today and a high desire for more of that going forward. Yeah, Mike. You know, we provide incentives.

Jeffrey N. Simmons: We provide incentives to all of our customers based on the volumes they purchase from us. So by them being able to purchase DERM from us now, that just gives them more ability to get savings as well as incentives to buy other products from us as they increase that volume. So that's really the incentive structure we're talking about by having a full portfolio and being only one of the four major companies to have that on the U.S. pet site.

Speaker Change: We provide incentives to all of our customers based off volumes they purchased from us so by them being able to purchase from US now that just gives them more ability to get savings and also the incentives to buy other products from us as they increase that volume. So thats really the incentive structure, we are talking about by having.

Speaker Change: Our full portfolio and being only one of the four major companies to have that in the U S side.

Speaker Change: Okay.

Speaker Change: Got it Thats helpful.

Jeffrey N. Simmons: And then my follow-up question is a brief one, and I may have missed this. Could you quantify how much of the one-time Bayer channel stocking amounted to in the quarter? It was about 10 to 15 million dollars.

Speaker Change: And then my final question is a brief one.

Speaker Change: And then maybe I missed this could you quantify how much of the one time they are channel stocking.

Speaker Change: Amount to two in the quarter it.

Jeffrey N. Simmons: It was about 10 to 15 million dollars. 15, Thanks. We'll take the next caller. Thank you. Our next question comes from the line of Ekaterina Kriskova from J.P. Morgan. Please go ahead.

Speaker Change: It was about $10 million to $15 million.

Jeffrey N. Simmons: 15, okay.

Jeff Simmons: Okay.

Speaker Change: Yeah.

Ekaterina V. Knyazkova: Thanks, we'll take the next caller.

Ekaterina V. Knyazkova: Thank you. Our next question comes from the line of Caterina, Chris <unk> from JP Morgan. Please go ahead.

Ekaterina V. Knyazkova: Okay. Thank you. So much. So first question is on <unk> can you just remind us where you stand at this point in terms of manufacturing capacity and how we should think about capacity also for 2025.

Ekaterina V. Knyazkova: What are the implications as we kind of think about the launch of that product and.

Ekaterina V. Knyazkova: And then the second question is just on the bird flu epidemic in the U S. Any thoughts on how that could impact producers and anything that youre watching are particularly concerned about thank you so much.

Ekaterina V. Knyazkova: Yeah, thank you for the question. At Bovair Manufacturing, we have product here in the United States that is ready to be labeled, and it's bagged, ready to go. And that has been purchased from a partnering contract manufacturer in Europe. So we do have the product ready. And again, that's why we've targeted a Q3 launch of the product. And then, relative to H5N1, we continue to monitor this closely, work with our customers to make sure there are heightened, you know, biosecurity measures.

Ekaterina V. Knyazkova: Yes. Thank you for the question on <unk> manufacturing and we have product here in the United States that is ready to be labeled in its bagged ready to go and that has been purchased from a partnering contract manufacturer in.

Ekaterina V. Knyazkova: In Europe, So we do have product ready and again, that's why we've targeted a Q3 launch of the product.

Ekaterina V. Knyazkova: And then relative to the H five N. One we're continuing to monitor this closely and work with our customers to make sure. There is heightened biosecurity measures I think a couple of things we look to and we don't see this issue increasing over the last couple of weeks, but pretty stable. It is something we want to keep our eyes on I think producer profitability and also especially the <unk>.

Ekaterina V. Knyazkova: I think a couple things we've looked at, and we don't see this issue increasing over the last couple weeks, but it is something we want to keep our eyes on. I think producer profitability and also, you know, especially the dairy consumer response are the lead indicators that we'll keep our eyes on. And I'll just emphasize overall that we've not seen and do not see any impact on our business results at this point in time from the H5N1 virus.

Ekaterina V. Knyazkova: Aerie consumer response are the lead indicators that we'll keep our eyes on and I'll just emphasize overall, we've not seen and do not see any impact on our business results at this point in time from the H five N. One.

Operator: Great, thanks. We'll take your next caller. Thanks.

Speaker Change: Great. Thanks, we'll take your next caller thanks.

Brandon Vazquez: Thank you. Our next question comes from Brandon Vazquez of William Blair. Please go ahead.

Operator: Thank you. Our next question from Brandon Vazquez from William Blair. Please go ahead.

Todd S. Young: Hi everyone, thanks for taking the question. First on guidance, you know, I was really encouraging you guys to put up a nice feed here, and then I'll raise the guidance a little bit, especially in uncertain macro times. Can you just talk about what so far in the first quarter specifically is kind of outperforming that gives you confidence in raising that guidance, especially on the EPS line? I think on top of FX headwinds, you're still able to increase it by just about a penny or so.

Brandon Vazquez: Hi, everyone. Thanks for taking the question.

Todd S. Young: First on the guidance.

Todd S. Young: <unk> you guys put up a nice beat here in the room.

Todd S. Young: The guidance, a little bit, especially in uncertain macro times can you just talk about what so far in the first quarter, specifically just kind of outperforming that gives you confidence in raising that guidance, especially also on the EPS line I think on top of FX headwinds Youre still able to increase that just about a penny or so and then the follow up is just a quick clarification.

Jeffrey N. Simmons: And then the follow-up is just a quick clarification on the pipeline. I think in your prepared remarks, you mentioned that you think you can get one month of heartworm efficacy with quattro. Can you just confirm that is because the FDA has already approved that, or is that just how the clinical data is looking, and you feel comfortable that you will get approval for that?

Jeffrey N. Simmons: On the pipeline.

Jeffrey N. Simmons: The prepared remarks, you mentioned that you think you can get one month heartworm efficacy with Cuatro can you just confirm is that because the FDA has already approved that.

Jeffrey N. Simmons: Or is that just how the clinical data is looking and you feel comfortable that you will get approval for that thank you.

Todd S. Young: Brandon, thank you for the question. Q1 was really a great performance by our U.S. farm business. We're seeing accelerating adoption of Xperia, and with that, continued growth in Rumensan. This is the portfolio effect we talk about with having broad-based solutions for our customers, both on the pet side and the farm side. By bringing those together, we continue to get the ability to offset generic competition and drive growth. Poultry was really strong, and we've got a PERS vaccine called Preficent that continues to do very well in the U.S. farm market.

Speaker Change: Hey, Brian and thank you for the question.

Todd S. Young: Q1 was really great performance by our U S farm business, we're seeing.

Todd S. Young: Accelerating adoption of expire and with the continued growth in <unk>.

Todd S. Young: This is the portfolio effect, we've talked about with having a broad based solutions for our customers both on the pet side and the farm side by bringing those together we continue to get <unk>.

Todd S. Young: The ability to offset generic competition and drive growth poultry was really strong and we've got a <unk> vaccine called processes that continues to do very well in the U S far market.

Todd S. Young: Then, it was really an international pet brand, and it continued to see strong momentum both in Brazil as well as in Europe. ADTAB, as Jeff mentioned earlier, is doing a great job of gaining sales across the European countries as it launches, and what we're seeing is less cannibalization of our topicals and collars in Europe from that launch than we originally expected.

Todd S. Young: It was really international pet.

Todd S. Young: Are you going to see strong momentum both in Brazil, as well as in Europe.

Todd S. Young: As Jeff mentioned earlier.

Todd S. Young: Great job of gaining sales across the European countries as it launches and what we're seeing is less cannibalization of our topical <unk> collars in Europe from that launch than we originally expected. So those are the big drivers of our confidence to raise the constant currency guidance.

Todd S. Young: So, those are the big drivers of our confidence to raise the cost and currency guidance. At EPS, one, better cash performance than we expected in Q1. Teams did a really good job of focusing on improving our networking capital and delivering on cash.

Todd S. Young: And the EPS.

Todd S. Young: One better cash performance that we expected in Q1 team has done a really good job of focusing on improving our net working capital.

Jeffrey N. Simmons: That allowed us not to borrow cash in Q1, which we typically do as we pay out corporate bonuses as well as some other sort of seasonal effects with rebates. That means we don't have to pay interest on that borrowing for the rest of the year. That allows us to reduce interest expense. And then, finally, on taxes, the tax credits we're receiving from the state of Indiana are allowing us to have a little better tax expectations than we thought originally and pick up a penny there on the full-year guide.

Todd S. Young: In delivering on cash that allowed us not to borrow cash in Q1, which we typically do as we pay out corporate bonuses as well as some other sort of seasonal effects with rebates.

Jeffrey N. Simmons: That means we don't have to pay interest on that borrowing for the rest of the year that allows us to reduce interest expense and then finally on the taxes. The tax credits we are receiving from the state of Indiana is allowing us.

Jeffrey N. Simmons: Little better tax expectations than we thought originally and pick up a penny there on a full year guide with that I will transfer Jeff for the second half of your question. Yes. Thank you Brandon relative to Cuatro that is correct. We've said early on that we have passed the heartworm threshold so to have heartworm control with it high parameter that.

Jeffrey N. Simmons: With that, I'll transfer to Jeff for the second half of your question. Yeah, thank you, Brandon. Relative to Quatro, that is correct. We said early on that we had passed the heartworm threshold, so to have heartworm control with that high parameter that the CBM has. And yes, we're making an assumption on the one-month control from the data package that we've submitted as well as the dialogue that we've had with the CBM. Thank you.

Jeff: <unk> has and yes, we're making an assumption on the one month control from the data package that we've submitted as well as the dialogue that we've had with the Cvs. Thank you.

Speaker Change: Thanks, we'll take the next caller.

Operator: Thank you. Our next question comes from Lionel Nathan Rich of Goldman Sachs. Please go ahead.

Jeff: Thank you. Our next question comes from a lot of Nathan Rich of Goldman Sachs. Please go ahead.

Nathan Allen Rich: Hi, good morning, and thanks for the questions. I had a few on the DERM products, and I'll ask them up front. On the international approvals for Zinrilea, it seems like the timing maybe shifted a little bit earlier than you anticipated. I guess, any details on what changed there, and are there certain markets where approval is expected before year end? And then also on the IL-31 monoclonal antibody, I know the timing was unchanged on the slide, but I think the submission was made maybe a quarter after Zinrilea.

Speaker Change: Hi, good morning, and thanks for the questions.

Nathan Allen Rich: I had a few on.

Nathan Allen Rich: The derm products and I'll ask them upfront on the international approvals for Zen really it seems like the timing maybe shifted a little bit earlier than what you anticipated.

Nathan Allen Rich: Any details on what changed there and are there certain markets where approval is expected before year end and then also on the IL 31 monoclonal antibody.

Nathan Allen Rich: I know the timing was unchanged on the slide but I think the submission was made maybe a quarter. After then really is there any difference in sort of the timeline of review by the USDA versus the FDA that we should keep in mind in terms of when in 2025, we might see that product approved.

Nathan Allen Rich: Is there any difference in the sort of timeline for review by the USDA versus the FDA that we should keep in mind in terms of when in 2025 we might see that product approved? Yeah, thank you.

Jeffrey N. Simmons: Yeah, thank you, Nate, for the question. Relative to Let me just hit the IL-31 first.

Speaker Change: Yes. Thank you.

Speaker Change: For the question.

Speaker Change: Relative to.

Jeffrey N. Simmons: We just confirmed that this product is expected in 2025, and that's all we've noted. We've made nice progress since, and we're just highlighting that it's going to be part of the $600 to $700 million as a key contribution to our DERM portfolio. Internationally for Xenrelia, you know, this is something that we've been working hard on relative to, you know, as Bayer came in, it built a greater presence, more pet presence, more regulatory presence, and all of that just to increase the capability of regulatory submissions quicker.

Speaker Change: Let me just hit the IL 31 first we just confirm that this product is expected in 2025 and that's all we've noted we've made nice progress.

Jeffrey N. Simmons: And we're just highlighting that that's going to be part of the 6% to $700 million in it.

Jeffrey N. Simmons: Key contribution to our derm portfolio internationally present rally. This is something that we've been working hard on relative to Bayer.

Jeffrey N. Simmons: Bayer came in at built greater presence more pad presence more regulatory as well presence and all of that just to increase the capability of our regulatory submissions quicker and then Ellen's team has worked hard in terms of globalizing those packages and then customizing them into key countries.

Jeffrey N. Simmons: And then Ellen's team has worked hard in terms of, you know, globalizing those packages and then customizing them in the key countries. And then we've added, you know, Tim Bennington on the marketing side, really being able to target which markets matter, especially earlier. All of those things have come together to really accelerate. We haven't mentioned specifically, but you can imagine these are the big pet markets, the submissions have been made, and from the dialogues with the regulatory authorities, we're confident that we're going to see this product come into international markets in Q4, all really as an outcome from the capabilities that we've built over the last two years on global regulatory.

Jeffrey N. Simmons: And then we've added 10, Bennington and on the marketing side really being able to target which markets matter.

Jeffrey N. Simmons: Especially earlier all of those things have come together to really accelerate we haven't noted specifically, but you can imagine these are the big Pat markets. The submissions have been made and from the dialogues with the regulatory authorities. We are confident that we're going to see this product come into international markets in Q4, all really as an outcome from the.

Jeffrey N. Simmons: Abilities that we built over the last two years on global regulatory.

Speaker Change: Thank you.

Speaker Change: Thanks, we'll take the next caller. Thank you.

Operator: Thank you. Our next question comes from the line of David Westenberg of Piper Sandler. Please go ahead.

Jeffrey N. Simmons: Our next question comes from the line of David Whiston Bank of Piper Sandler. Please go ahead.

David Michael Westenberg: Hi, thanks for taking the question, and congrats on the quarter. Just a couple on the innovation front. First on the Quatro product, can you talk about a little bit about the white space for the product specifically, and then maybe just kind of talk about category growth? Namely, I'm just kind of thinking, you know, as we see Quatro play out, the differentiation on the tapeworm, you know, broader coverage, are we seeing this as taking share from other broad-spectrum parasiticides?

David Michael Westenberg: Hi, Thanks for taking the question and congrats on the quarter just a couple on the innovation front first on the QUADRA product can you talk about a little bit on the white space for the product specifically and then maybe just kind of talk about the category growth, namely I'm just kind of thinking.

David Michael Westenberg: Are we seeing this growing from the old-generation oral parasiticides, or do you just kind of see this as more of a market-taking, market growth, you know, from maybe topicals, OTC, that kind of product? And then, just secondly, on the injectable or monoclonal derm, you know, these products have been in the pipeline of Kindred, of course, it was not, you know, you guys only inherited that You know, is there something that you had to fix?

David Michael Westenberg: C Cuatro play out the differentiation on the tape worm.

David Michael Westenberg: Broader coverage are we seeing this is taking share from other broad spectrum parasiticide are we seeing this growing from <unk>.

David Michael Westenberg: All generation oral parasiticide that or do you just kind of see this as more of a market taking market growth.

David Michael Westenberg: For maybe topical is OTC that kind of product and then just secondly on the injectable or monoclonal derm.

David Michael Westenberg: These products have been in the pipeline of Kindred of course, it was not you guys only inherited that later.

David Michael Westenberg: Is there something that you had to fix.

David Michael Westenberg: Is there other kind of products I know they had an IL four that could be coming in maybe 2026 2027, maybe not ready to talk about pipeline, but I'd be curious because I do think those injectable berms have.

David Michael Westenberg: Is there other kind of products? I know they had an IL-4 that could be coming in maybe 2026, 2027, you know, maybe not ready to talk about the pipeline, but I'd be curious because I do think those injectable derms have incredibly good market potential. Thank you. Yeah, thank you.

David Michael Westenberg: Incredibly good market potential.

Jeffrey N. Simmons: Yeah, thank you for the questions. Great, great questions.

Speaker Change: Yes. Thank you for the questions great Great questions, Let me just start with that derm.

Jeffrey N. Simmons: Let me just start with that DERM product. Yes, there was lots of work to do relative to the technologies inside of Kindred Bio. We're very happy with that acquisition. The manufacturing plant that came with it is now making Parvo and will make the other monoclonal antibodies as well.

Jeffrey N. Simmons: Product, yes, there was lots of work to do relative to the.

Jeffrey N. Simmons: The technologies inside of Kindred bio, we're very happy with that acquisition the manufacturing plant that's come with it it's now making parvo and will make the other monoclonal antibodies as well and.

Jeffrey N. Simmons: And we continue to progress the pipeline. We've not noted a lot of details relative to that, but as we've highlighted, we do have a long acting pipeline, and we do have the next generation of DERM products that follow behind that. And Kindred's portfolio will play into that. But there was, you know, continued work to do. And as we've noted, the USDA asked us to increase the number of dogs and the number of, you know, treatments. And so that actually is what extended the timeline. It wasn't product-specific; it was really requirements-specific.

Jeffrey N. Simmons: And we continue to progress the pipeline, we have not noted a lot of details relative to that but as we've highlighted we do have a long acting and we do have the next generation of derm products that followed behind that in kindred portfolio will play into that but there was continued work to do and as we've noted the USDA had asked us to increase.

Jeffrey N. Simmons: The number of dogs and the number of <unk>.

Jeffrey N. Simmons: Treatments and so that actually is what extended the timeline. It wasn't product specific it was really requirement specific relative to the parasiticide market. It's a great question look this is the largest market in animal health and a couple of principles play out very consistently as it seemed the most innovation come in first is.

Jeffrey N. Simmons: Relative to the parasiticide market, it's a great question. Look, this is the largest market in animal health, and a couple of principles play out very consistently as it's seen the most innovation come in. First, innovation usually increases the size of the market. We've seen that with the last couple of innovations that have come in recently. We believe our innovation will do the same. The second is that you see legacy innovation get impacted the soonest and the most rapidly.

Jeffrey N. Simmons: Innovation user increases the size of the market we've seen that over the last couple of innovations that have come in recently, we believe our innovation will do the same this second as you see legacy innovation get impacted the soonest and the most rapidly and we've seen that in our own portfolio and others have as well so.

Jeffrey N. Simmons: And we've seen that in our own portfolios, and others have as well. So, you know, we see that it's important. The third one is that the oral broad spectrum is growing the fastest. So when you combine these three things together, we believe Quatro having the broadest coverage, being differentiated, combined with our omni-channel approach inside the clinic and being able to, you know, drop ship it to homes and to have this four pillar approach with Zenrelia, it puts Quatro in a very strong position. You know, why wouldn't you want the broadest coverage if it's available?

Jeffrey N. Simmons: We see that as important the third one is the oral broader spectrum is growing the fastest so when you combine these three things together, we believe cuatro, having the broadest coverage being differentiated combined with our omnichannel approach inside the clinic and being able to drop ship it to homes and <unk>.

Jeffrey N. Simmons: This four pillar approach with Zen rally here, it puts quadro and a very strong position why wouldn't you want the broadest coverage. If it's available and we believe that we have that and we have Chris <unk> brand awareness that continues to climb across the marketplace. So these are all factors that we play as we bring the broadest <unk>.

Jeffrey N. Simmons: Coverage product into the largest animal health market here over the second half of this year and we're excited to do that.

Jeffrey N. Simmons: And we believe that we have that. And we have Credelio brand awareness that continues to climb across the marketplace. So these are all factors that we play as we bring the broadest coverage product into the largest animal health market here in the second half of this year. And we're excited to do that. All right, thanks. We'll take the next one. Thank you, our next question comes from the line of Stephen Scala from TD Cowen. Please go ahead. Hi, this is Chris. I'm here with Steve Scala.

Speaker Change: Alright, Thanks, we'll take the next one.

Operator: Thank you. Our next question comes from the line of Stephen Scala from TD Cowen. Please go ahead. Hi, this is...

Chris: Thank you. Our next question comes from the line of statements Scala from TV Cowen. Please go ahead.

Operator: Hi, This is Chris on for Steve Scala, maybe just had one question on the technical people.

Stephen Michael Scala: So what level of risk associated with FDA administrated.

Chris: Technically it was granted.

Stephen Michael Scala: Can you undertake any market promotional activities once technical approval was granted and finally will you disclose once those technical duvelisib with it hopefully in June thank you.

Stephen Michael Scala: Yes, you know we will wait, of course, for final approval, and final approval is when everything will be public on the label, and so there's nothing that will come between the technical sections being approved and the final approval, which is after that 60-day administrative side, and then, relative to informing you, if and when we have material news on any of these products, we will share promptly and appropriately. Thank you.

Operator: Yes.

Chris: We will wait of course for final approval and final approval is when everything will be public on label and so there's there is nothing that will come between the technical section is being approved in the final approval that is after that 60 day administrative side, and then relative to informing if and when we have material news.

Stephen Michael Scala: On any of these products, we will share promptly and appropriately. Thank you.

Stephen Michael Scala: Yeah.

Operator: Thank you. Our next question comes on the line from Navann Cai of BNP Baraba. Please go ahead.

Stephen Michael Scala: Thank you. Our next question comes from the line of Navann Cai of BNP Paribas. Please go ahead. Hi, good morning. I have two questions, please. The first one is on innovation. So, from your early discussions of the Salesforce switch.

Speaker Change: Thank you. Our next question comes a lot of tie of BNP Paribas. Please go ahead.

Navann Cai: Hi, Good morning, I have two questions. Please.

Stephen Michael Scala: First one on <unk>.

Stephen Michael Scala: Innovation, so from early discussions of the Salesforce websites.

Stephen Michael Scala: Coming innovation.

Stephen Michael Scala: Do you expect incrementally stronger pricing power with the hi, everybody.

Stephen Michael Scala: <unk> portfolio.

Navann Cai: And then I had a separate question.

Navann Cai: Investor If you could discuss your dialogue and interaction in Colorado to date and fulfill appointment.

Speaker Change: Totally well suitable since late March thank you.

Jeffrey N. Simmons: Thank you for the questions. You know, as we've said with the launch, we will look at this holistically. We will take, of course, we know that the market rewards innovation on the pet side especially, and we will take a value-based approach, a holistic approach, looking at not only the product and the differentiation of the new innovation but also the portfolio. And we will, you know, as Todd mentioned earlier, we will also look at this from the standpoint of offering now all four pillars of the portfolio in certain clinics.

Speaker Change: Thank you for the questions.

Jeffrey N. Simmons: As we've said with launching we will look at this holistically.

Jeffrey N. Simmons: We will take of course, we know that the market rewards innovation on the pet side, especially and we will.

Jeffrey N. Simmons: Take a value based approach a holistic approach looking at not only the product and the differentiation of the new innovation, but also the portfolio.

Jeffrey N. Simmons: We will as Todd mentioned earlier, we will also look at this from the standpoint of offering now all four pillars of the portfolio into certain clinics, we will look at potentially volume opportunities, but we'll take a value based approach.

Jeffrey N. Simmons: You know, we will look at potential volume opportunities, but we'll take a value-based approach on the pricing side of the products. You know, relative to investors and the investor that you mentioned, our focus here is that we've come to an agreement that we've publicly communicated, and that was all around the principle of keeping the energy inside the company with a concentrated focus to execute against this, you know, value agenda that's in front of us. And that was, you know, the rationale behind the decision, and we're happy to continue to be implementing it as we go into the rest of 2024.

Jeffrey N. Simmons: On the pricing side of the products relative.

Jeffrey N. Simmons: Relative to <unk>.

Jeffrey N. Simmons: Investors in the Investor that you mentioned.

Jeffrey N. Simmons: Our focus here is that we've.

Jeffrey N. Simmons: Come to an agreement that we've publicly communicated and that was all around the principle of keeping the energy inside the company with a concentrated focus to execute against this.

Jeffrey N. Simmons: <unk> agenda, that's in front of us and that was that was the rationale behind the decision and where we're happy to continue to be executing as we go into the rest of 2024.

Speaker Change: Thanks, we'll take the last caller.

Operator: Thank you. Our last question for the day comes from Balaji Prasad of Barclays. Please go ahead.

Barclays: Thank you our last question for the day comes from the larger percent of Barclays. Please go ahead.

Balaji V. Prasad: Good morning, and thank you for having me back again. So, a couple of questions. Firstly, on the significance of technical approval and then administrative review, is there scope for any of the technical approvals to be rescinded during this administrative review period, and can you clarify what exactly happens here?

Balaji V. Prasad: Good morning, and thank you far I'm going back again.

Balaji V. Prasad: Couple from me firstly on the significance of technical approval and then administrative view and our view is this go for any of the technical approval to meet a center during this administrative review period.

Balaji V. Prasad: Can I clarify what exact Catherine zero one.

Jeffrey N. Simmons: One. Two, on the parasitic side, obviously, I've seen your competitor post a pretty strong number on some paracatrio. I'm trying to gauge what part of this is from market expansion or market dislocation and what you have seen within the parasitized market and what kind of link to this is any incremental color on the label expectations from your discussions with FDA. Thank you.

Balaji V. Prasad: Two on the <unk> side.

Jeffrey N. Simmons: A senior competitor posted a pretty strong number and backup shale I'm.

Jeffrey N. Simmons: Trying to gauge what part of business from the market expansion, our market dislocation and what you have seen within the classroom size market and kind of linked to the is any incremental color on the label expectations from your discussions with FDA. Thank you.

Jeffrey N. Simmons: Yeah, Balaji, thanks for the questions. You know, in the regulatory process, there are always nuances and changes, but as we've highlighted, we believe the CBM has all the information that they need for approval. We are on a path, we believe, for the technical sections to be approved by the end of June, and then the administrative process will follow. And typically, the administrative process is pretty straightforward.

Speaker Change: Yes, <unk>, thanks for the questions and the regulatory process, there's always nuances and changes, but as we've highlighted we believe the Cvs has all the information that they need for approval. We are on a path we believe four.

Jeffrey N. Simmons: The technical sections to be approved by the end of June.

Jeffrey N. Simmons: And then the administrative process will follow and typically the administrative process is pretty straightforward and on the <unk> timeline. It is noted for 60 days.

Jeffrey N. Simmons: And on the ADUFA timeline, it's noted for 60 days. And we, you know, do not expect any other new dynamics there. And then, relative to the TRIO market and market growth, you know, as I've highlighted, and we won't get into any more detail than we've already disclosed relative to our Quattro label, but we do believe the broader coverage is valued in the marketplace. We do believe our capability with one of the broadest inside the vet clinic, outside the vet clinic, parasiticide capabilities globally gives us a great opportunity here. And the market is desiring this, as you see in the shift. So, thank you again for the question.

Jeffrey N. Simmons: And we do not expect any any other new dynamics there.

Jeffrey N. Simmons: And then relative to the trio market end market growth as I've highlighted and we won't get into any more detail than we've already disclosed relative to our cuatro label, but we do believe the broader coverage is valued in the marketplace. We do believe our capability with one of the broadest inside the vet clinic outside the bed.

Jeffrey N. Simmons: Clinic.

Jeffrey N. Simmons: Parasiticide capabilities globally gives us great opportunity here in the market.

Jeffrey N. Simmons: Desire in this as you see in the shift.

Jeffrey N. Simmons: So thank you again for the question.

Jeffrey N. Simmons: And Jeff, I'll send it to you when it is close.

Speaker Change: And we will send it to you to close yes, just very quickly. Thank you. Thanks for your interest in <unk>, we continue to stay inside the company and outside the company the three key drivers.

Jeffrey N. Simmons: Yeah, just very quickly, thank you, thanks for your interest, Elanco. We continue to say inside the company and outside the company that the three key drivers for this company through 24 and 25 are growth, innovation, and cash. And I believe this quarter, again, showed proof points for the third consecutive quarter of nice, solid growth from our diverse portfolio, both farm animal, pet health, U.S., international, and even price and volume. On the innovation side, I really want to note existing innovation, $100 million in the quarter. We've got nice momentum in innovation. We're increasing our guidance there.

Jeffrey N. Simmons: For this company through 24, and 25% as growth innovation cash and I believe this quarter again showed proof points really for the third quarter in a row.

Jeffrey N. Simmons: Third consecutive quarter of nice solid growth from our diverse portfolio, both farm animal Pet health U S International and even price and volume on the innovation side I really want to note the existing innovation $100 million in the quarter. We've got nice momentum in innovation, we're increasing our guide there and our late stage we highly.

Jeffrey N. Simmons: And in our late stage, you know, we highlight increased certainty and the proof points that we have noted all the progress since February. And then, as Todd has mentioned, as inventories come down, networking capital has gone up, the cash conversion is on track, and the aqua sale for midyear is also tracking. And ultimately, I think inside Elanco, engagement is high. Our energy is on executing quarter to quarter. We've delivered another quarter, and our focus is to continue to do that going forward and keep anchoring back to growth, innovation, and cash. Thank you again for your time today. We look forward to engaging with you throughout the quarter.

Jeffrey N. Simmons: <unk> increased certainty and the proof points. So we noted all of the progress in February and then as Todd has mentioned as inventories come down net working capital has gone up and the cash conversion is on track and the Aqua sale for mid year is also tracking so and ultimately I think inside the Langkow engagement is high our energy is on executing core.

Jeffrey N. Simmons: Year to quarter, we've delivered another quarter and our focus is to continue to do that going forward.

Jeffrey N. Simmons: And keep anchoring back to growth innovation and cash. Thank you again for the time today, we look forward to engaging with you throughout the quarter.

Operator: Thank you. This concludes today's conference call. We thank you for participating, and you may now disconnect.

Speaker Change: This concludes today's conference call. We thank you for participating you may now disconnect.

Jeffrey N. Simmons: and keep anchoring back to growth, innovation, and cash. Thank you again.

Operator: And keep anchoring back to growth innovation and cash thank you again.