管理層發言
Ladies and gentlemen, thank you for standing by. Welcome to Elanco Animal Health's Fourth 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. I would now like to hand the call over to Tiffany Kanaga, Head of Investor Relations. You may begin your conference.
Good morning. Thank you for joining us for Elanco Animal Health's fourth quarter 2024 earnings call. I'm Tiffany Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer; Todd Young, our Chief Financial Officer; and Beth Haney from Investor Relations. The slides referenced during this call are available on the Investor Relations section of elanco.com. Today's discussion will include forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the risk factors in today's earnings press release as well as in our latest Form 10-K and 10-Q filed with the SEC. We do not undertake any duty to update any forward-looking statement. The information we provide about our products and pipeline is for the benefit of the investment community; it’s not intended to be promotional and is not sufficient for prescribing decisions. 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 will be happy to take your questions. I will now turn the call over to Jeff.
Thanks, Tiffany. Good morning, everyone. Elanco enters 2025 with momentum. Fourth quarter revenue, adjusted EBITDA, adjusted EPS, and net leverage were all in line with our expectations. We're pleased to report our sixth straight quarter of revenue growth, up 4% on an organic constant currency basis with growth across both our Pet Health and Farm Animal businesses. I want to open by highlighting several accomplishments from the full year, which position us well for accelerating growth into 2025. 2024 organic constant currency revenue growth of 3% represents a meaningful step up from 2022 and 2023, driven by our innovation, a stabilizing base, pricing, and importantly, the durability of our diverse portfolio and balanced geographic presence. That 3% reflects growth in both Pet Health and Farm Animal and market share gains in global pet retail and U.S. farm animal where we hold leadership positions.
Additionally, we experienced broad-based organic constant currency top line growth across our top five product franchises and in nine of our top 10 countries. We have launched our diverse portfolio of innovation with six potential blockbusters now in the market. Through focused commercial execution across global markets, we exceeded our innovation revenue target for 2024. We have also raised the range for 2025, reflecting our confidence in the continued contributions from these new products. Additionally, in 2024, we concentrated our strategic focus on the highest impact opportunities, successfully divesting our aqua business. The sale proceeds combined with more than $0.5 billion in operating cash flow allowed us to pay down approximately 25% of our debt and support increased investments in our strategic product launches. When we started 2024, we highlighted the three value drivers for Elanco: growth, innovation, and cash.
We have made strong progress on each front. We accelerated growth, launched all six key products, exceeded our innovation plan while delivering our biggest year yet of operating cash flow. Looking to 2025, growth, innovation, and cash remain the priorities to expand our value proposition. We continue to anticipate an acceleration in organic constant currency revenue growth of 4% to 6%. Excluding the anticipated impacts of FX and the aqua divestiture, we expect adjusted EBITDA to grow 1% to 5%. With the increasing contribution from innovation and stabilization of our base business, we expect sustained growth over time, while our optimized infrastructure and product mix should enable margin expansion in 2026 and beyond. Notably, like many other global corporations, we are negatively impacted by the stronger dollar. Overall, we are pleased with our fourth quarter performance against this dynamic macroeconomic backdrop and remain confident in accelerating fundamentals in 2025.
Turning to the fourth quarter, we break down the 4% underlying organic constant currency revenue growth, which excludes the impact of the aqua divestiture in prior periods. All four areas delivered growth or were stable in the quarter, marking our best broad-based performance in more than three years. U.S. farm animal was up 6% led by cattle. Experior reached blockbuster status from the U.S. sales alone, benefiting from its use in heifers that began in November after we received FDA Combo clearance. This growth supported demand for Rumensin. International farm animal was flat despite challenging swine economics in Asia. International pet health delivered robust growth of 11%, driven by the continued strength of AdTab and Seresto. We now expect AdTab peak sales to exceed $100 million, reflecting successful DTC efforts in Europe. In U.S. pet health, revenue grew 2%, including early contributions from Zenrelia, which launched in late September.
Importantly, Galliprant posted its best results since the third quarter of 2023 and our vaccine portfolio achieved 8% growth in the quarter. Turning to innovation, Elanco delivered five new U.S. product approvals and market authorizations in 2024 alone. Looking at this progress, we delivered $140 million of innovation revenue in the fourth quarter and $461 million for the full year, surpassing our target. We expect this contribution to increase for 2025. I believe our global team is entering this new era for Elanco equipped with game-changing innovation and comprehensive differentiated portfolios. Our six potential blockbusters are all in the market, and we are in commercial execution mode. Early indicators on these launches are broadly positive, driving our increased expectations around innovation sales and continued confidence in an acceleration of 4% to 6% organic constant currency revenue growth in 2025. With that, I'll hand it over to Todd to discuss our fourth quarter results and outlook in more detail.
Thank you, Jeff, and good morning, everyone. I'll focus my comments on our 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. Our fourth quarter results demonstrated good execution in the face of FX headwinds with revenue, adjusted EBITDA, and adjusted EPS, all in line with our expectations. Starting on Slide 11, we delivered $1.02 billion in revenue, representing a 1% reported decline. Excluding the impact of foreign exchange rates and the divestiture of our aqua business, we achieved organic constant currency growth of 4%. Price contributed 3%, while volume increased 1%. On Slide 12, total Pet Health revenue increased 6% in constant currency in the fourth quarter with price growth of 3%. Moving to Farm Animal, globally, fourth quarter organic constant currency revenue growth was 2%. The U.S. Farm Animal business achieved $223 million in sales, a 6% increase.
This was driven primarily by market expansion and increased share within our cattle business with continued strong demand for Experior and Rumensin. Adjusted EBITDA was $177 million in the quarter, an increase of $12 million on a reported basis. Adjusted EPS grew by $0.06 to $0.14 per share. For the full year 2024, we generated over $4.4 billion in reported revenue. While this is flat year-over-year, it's important to consider the impact of the aqua divestiture, which was a headwind of approximately 200 basis points to growth. Gross margin was 54.9%, a decrease compared to 2023 mainly attributable to the impact of the aqua divestiture and inflation. We ended the quarter with net debt of $3.88 billion and net leverage of 4.3 times. For 2025, we expect mid-single-digit organic constant currency revenue growth and adjusted EBITDA up 1% to 5%, excluding the impact of FX and aqua.
Thanks, Todd. Elanco delivered a strong finish to 2024, achieving our sixth consecutive quarter of organic constant currency revenue growth and building momentum as we head into 2025. This performance with both Pet Health and Farm Animal contributing to this growth in the fourth quarter underscores the effectiveness of our innovation-driven strategy. We are reaffirming our outlook for accelerating organic constant currency revenue growth of 4% to 6%, driven by innovation and focused commercial execution. This is a much-awaited period for Elanco in our strategic trajectory. The energy and enthusiasm within our organization can be felt at every level, evidenced by a four-year high for employee engagement. Thank you to our global teams for your focus and discipline in delivering a successful 2024, positioning us well to create long-term value in 2025 and beyond. With that, I'll turn it over to Tiffany to moderate the Q&A.
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.
分析師問答
Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Jon Block from Stifel. Your line is open.
Great. Thanks. Good morning. Jeff, Zenrelia's U.S. penetration is slightly ahead of our diligence, if you would. So where do you think this can go by year end '25? And maybe more importantly, what about market share at these practices by year end '25? And also curious, any differences in the international markets for Zenrelia where the label is less onerous? And then, Todd, I guess I'll just ask my follow-up here. The accelerating revenue growth of the 1Q ‘25 levels. I think you talked a bit about it, but is that just a function of, call it, Zenrelia and Credelio Quattro, the contribution ramping throughout '25 or anything else to call out to give investors or people more comfort with the accelerating constant currency revenue growth off the 1Q ‘25 guide? Thanks, guys.
Thanks, Jon for the question. Yeah. We're excited about Zenrelia and where we stand and maybe how we're looking at it. And maybe to start with your specific question, we're adding use and growing revenue every week on a relative basis with Zenrelia and we see that trajectory coming. The $1.8 billion derm market, as you know, Jon, has grown 16% in 2024. Since the launch, as I mentioned, we are at 8,000 clinics today, that's about the same number as Credelio. 6,000 clinics have adopted and we've got 2,000 piloting. Probably one of the greatest converters to clinic penetration is a sampling program that's been quite aggressive in the field. Once vet clinics see the efficacy, they begin to bring the product on. Our strategy is to continue this acceleration of vet clinic adoption with a heavy focus on tech-to-tech. We believe that will resonate even more with pet owners. So when we kind of see coming into the season, I do think efficacy continues to resonate. It’s what we hear globally. To answer your international question, we've added Canada to Brazil and Japan. Launches are on or above expectations. We also expect approvals in Europe, the UK, and Australia this year, as part of our fastest globalization rollout to date.
And Jon, to your question on revenue growth, clearly 2% to 4% constant currency in Q1, but then getting to 4% to 6% for the full year. A few one-time items or headwinds from Q1 of last year that we called out at the time may not have the same headwind in Q2 through Q4. Additionally, preparations for the season, especially as we penetrate Zenrelia into the U.S. vet clinics, will be important for revenue growth.
Your next question comes from the line of Michael Ryskin from Bank of America. Your line is open.
Great. Thanks for taking the question, guys. First, maybe this is a follow-up to Jon's question just now on Zenrelia. But just looking at your innovation contribution for 2025, first of all, you came ahead for 2024 fourth quarters, that was really encouraging. But then you raised your '25 innovation numbers by, I think, $30 million at the midpoint. What gives you more confidence in that? Can you particularly call out whether that is Zenrelia or your first month at Credelio Quattro versus what's behind that? And then I've got a follow-up.
Yeah, Michael. I'll start here. I think the momentum at the end of the year, no question our U.S. Farm Animal business led by Experior, which has accelerated use. Our AdTab launch is probably our best in the last five years. These two products are definitely driving growth. The early uptake and interest in Quattro combined with the push from Zenrelia give us a lot of excitement. Bovaer will start to ramp more in the second half, but we like the progress we've made since November.
Your next question comes from the line of Daniel Clark from Leerink Partners. Your line is open.
Great. Thank you for taking the question. I was just curious when you talked about the successes of sampling in Zenrelia thus far, is that causing you to maybe change how you're approaching your sales and marketing strategy for that launch? Thank you.
Yeah. Thank you, Daniel. We feel good about our team preparing for this launch and Quattro helping it as we've seen multifaceted approaches in sales, including DTC and sampling. The sampling program leads to quicker adoption. Our focus will continue to be driving first-line treatment for clinics to become the go-to product as the season ramps up.
Your next question comes from the line of Andrea Alfonso from UBS. Your line is open.
Hi. Good morning, everyone. Thank you so much for taking my question. I wanted to switch gears a little bit to sort of asking about the early launch of Credelio Quattro. You identified that legacy products were experiencing low cannibalization within the portfolio. What is driving initial momentum and how might commercialization strategy differ this time around? Do you have an appetite for partnering with retailers? And I had a follow-up question after that.
Yeah. Thank you, Andrea. It’s really early days with Quattro, but we’re excited. The product is generating interest due to its three dimensions of differentiation. We plan to take an aggressive approach on DTC to engage pet owners and we will utilize omnichannel strategies as we have in the past.
Your next question comes from the line of Erin Wright from Morgan Stanley. Your line is open.
Great. Thanks. A follow-up on derm. Competitive environment in derm—do you anticipate new competitors in 2025? Is that embedded in your guidance at this point? And just how can you better leverage that expanding portfolio with the injectable product? Can you also remind us how differentiated the injectable IL-31 product will be?
We're not seeing anything significantly different on the competitive front; it’s assumed in our guidance. The market continues to have unmet needs, and we will introduce IL-31 as a differentiated asset in our derm portfolio, among others.
As we look at margins, we expect to have better margins going forward. The headwind from the reacquisition of the Speke manufacturing facility will impact us over the next couple of years but represents a good long-term strategy. We expect operational efficiencies as we drive core innovation and revenue growth.
Your next question comes from the line of Balaji Prasad from Barclays. Your line is open.
Hi. Good morning, and two questions from me. Firstly, on IL-31. Are we going to only see an approval in 2025, or is there also a launch? And second, could you provide commentary on the broader poultry market dynamics and expectations?
We expect a Q4 '25 approval for IL-31, but it will not have sales or launch planned in '25. The poultry market continues to be durable, with a current prediction of about 3% growth.
Your next question comes from the line of Mike DiFiore from Evercore ISI. Your line is open.
Hey, guys. This is Mike DiFiore in for Umer. Just looking for more info on Quattro and cannibalization. Is there a distinct strategy to mitigate it? And on tariffs, what effects do potential tariff wars have on input costs?
We have seen minimal cannibalization with Quattro. Our focus initially will be on activating pet owners to build interest in the vet clinic. On tariffs, we are closely monitoring potential impacts from global dynamics; we've factored in a $3 million to $4 million impact on our cost of goods sold in 2025.
Your next question comes from the line of Chris Scott from JPMorgan. Your line is open.
Hi. Great. Thanks so much. Just a couple of questions. Can you talk about how we should think about the cadence of gross margin and operating margin improvement for the business? And just on Bovaer, how do you think about the launch curve versus what we saw with Experior?
We expect gross margins to improve over time. The investment in infrastructure will have a near-term impact but represents a long-term strategy. With Bovaer, we expect a positive ramp, resulting in sticky demand similar to what we have seen with Experior.
Your next question comes from the line of David Westenberg from Piper Sandler. Your line is open.
Hi. Thanks for taking the question. Are you seeing competitors discounting in anticipation of the Quattro launch? Is this dynamic different than in the past? And regarding biologics manufacturing, how do you see the investment there impacting first-to-market products by 2027-2030?
We are not seeing the kind of competitive discounting you may have expected; the market growth reduces that pressure significantly. With respect to biologics, we believe our investments will yield new products by 2027-2030 and are necessary for long-term growth.
And that concludes our question-and-answer session. I will now turn the call back over to Jeff Simmons for closing remarks.
Yes. Thank you, everybody. I want to thank our customers around the world, just the vets, farmers, and pet owners. It's an honor to add value to animal health. Elanco enters 2025 with a lot of momentum. We've kept it real simple; it's all about growth, innovation, and cash. We're guiding 4% to 6% on the top line on a constant currency basis, 1% to 5% on the bottom line. The six blockbusters are performing well, and our confidence has grown since November. We are focused on cash flow and debt paydown while controlling the controllables to continue growing. Thank you for your investments in our company. We look forward to working with you in 2025.
This concludes today's conference call. Thank you for your participation. You may now disconnect.