Elanco Animal Health Inc 10-Q for FY2023 Q3

Elanco Animal Health Inc (ELAN)

10-Q 2023-11-07 For: 2023-09-30

Added on April 10, 2026

About this 10-Q

Elanco Animal Health Inc filed this 10-Q on November 7, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.07B; up 4.1% from $1.03B a year earlier
Net loss: $1.1B; compared with a net loss of $65M a year earlier
Diluted EPS: -$2.22; compared with -$0.13 a year earlier

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INDIANA						82-5497352
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, no par value	ELAN	New York Stock Exchange


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	1,068	$	1,026	$	3,382	$	3,426
Costs, expenses and other:
Cost of sales	487		472		1,415		1,465
Research and development	86		78		248		241
Marketing, selling and administrative	313		298		993		963
Amortization of intangible assets	140		128		410		398
Asset impairment, restructuring and other special charges	16		26		91		152
Goodwill impairment	1,042		—		1,042		—
Interest expense, net of capitalized interest	72		60		210		179
Other expense, net	9		8		41		11
	2,165		1,070		4,450		3,409
(Loss) income before income taxes	(1,097)		(44)		(1,068)		17
Income tax (benefit) expense	(1)		21		22		41
Net loss	$	(1,096)	$	(65)	$	(1,090)	$	(24)

Loss per share:
Basic	$	(2.22)	$	(0.13)	$	(2.21)	$	(0.05)
Diluted	$	(2.22)	$	(0.13)	$	(2.21)	$	(0.05)
Weighted-average shares outstanding:
Basic	492.7		488.4		492.1		488.3
Diluted	492.7		488.4		492.1		488.3


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net loss	$	(1,096)	$	(65)	$	(1,090)	$	(24)
Other comprehensive loss:
Cash flow hedges, net of taxes	—		62		(19)		179
Foreign currency translation, net of taxes	(197)		(418)		(65)		(973)
Defined benefit pension and retiree health benefit plans, net of taxes	(4)		(2)		(6)		(4)
Other comprehensive loss, net of taxes	(201)		(358)		(90)		(798)
Comprehensive loss	$	(1,297)	$	(423)	$	(1,180)	$	(822)


	September 30, 2023		December 31, 2022
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	369	$	345
Accounts receivable, net	911		797
Other receivables	224		205
Inventories	1,690		1,538
Prepaid expenses and other	371		394


Total current assets	3,565		3,279
Noncurrent Assets

Goodwill	4,902		5,993
Other intangibles, net	4,475		4,842
Other noncurrent assets	410		378
Property and equipment, net	992		999

Total assets	$	14,344	$	15,491
Liabilities and Equity
Current Liabilities
Accounts payable	$	296	$	390
Sales rebates and discounts	356		324
Current portion of long-term debt	39		388

Other current liabilities	574		600

Total current liabilities	1,265		1,702
Noncurrent Liabilities
Long-term debt	5,870		5,448

Deferred taxes	643		662
Other noncurrent liabilities	432		390
Total liabilities	8,210		8,202
Commitments and Contingencies
Equity


Common stock, no par value, 5,000,000,000 shares authorized, 492,683,420 and 474,237,738 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	8,763		8,738
Accumulated deficit	(2,147)		(1,057)
Accumulated other comprehensive loss	(482)		(392)
Total equity	6,134		7,289
Total liabilities and equity	$	14,344	$	15,491


	Common Stock							Accumulated Other Comprehensive Loss
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Cash Flow Hedge		Foreign Currency Translation		Defined Benefit Pension and Retiree Health Benefit Plans		Total		Total Equity
December 31, 2021	473.1	$	—	$	8,696	$	(979)	$	25	$	(253)	$	19	$	(209)	$	7,508

Net income	—	—		—		51		—		—		—		—		51

Other comprehensive income (loss), net of tax	—	—		—		—		109		(85)		(1)		23		23


Stock-based compensation activity, net	1.0	—		3		—		—		—		—		—		3



March 31, 2022	474.1	—		8,699		(928)		134		(338)		18		(186)		7,585
Net loss	—	—		—		(10)		—		—		—		—		(10)
Other comprehensive income (loss), net of tax	—	—		—		—		8		(470)		(1)		(463)		(463)
Stock-based compensation activity, net	—	—		13		—		—		—		—		—		13

June 30, 2022	474.1	—		8,712		(938)		142		(808)		17		(649)		7,125
Net loss	—	—		—		(65)		—		—		—		—		(65)
Other comprehensive income (loss), net of tax	—	—		—		—		62		(418)		(2)		(358)		(358)
Stock-based compensation activity, net	—	—		12		—		—		—		—		—		12

September 30, 2022	474.1	$	—	$	8,724	$	(1,003)	$	204	$	(1,226)	$	15	$	(1,007)	$	6,714




December 31, 2022	474.2	$	—	$	8,738	$	(1,057)	$	182	$	(672)	$	98	$	(392)	$	7,289

Net income	—	—		—		103		—		—		—		—		103
Other comprehensive income (loss), net of tax	—	—		—		—		(48)		130		—		82		82

Stock-based compensation activity, net	1.0	—		6		—		—		—		—		—		6


Conversion of tangible equity units (TEUs) into common stock	17.2	—		—		—		—		—		—		—		—



March 31, 2023	492.4	—		8,744		(954)		134		(542)		98		(310)		7,480
Net loss	—	—		—		(97)		—		—		—		—		(97)
Other comprehensive income (loss), net of tax	—	—		—		—		29		2		(2)		29		29
Stock-based compensation activity, net	0.2	—		8		—		—		—		—		—		8

June 30, 2023	492.6	—		8,752		(1,051)		163		(540)		96		(281)		7,420
Net loss	—	—		—		(1,096)		—		—		—		—		(1,096)
Other comprehensive income (loss), net of tax	—	—		—		—		—		(197)		(4)		(201)		(201)
Stock-based compensation activity, net	0.1	—		11		—		—		—		—		—		11

September 30, 2023	492.7	$	—	$	8,763	$	(2,147)	$	163	$	(737)	$	92	$	(482)	$	6,134


Up-front cash consideration	$	16
Deferred cash consideration due January 4, 2024	5
Fair value of contingent consideration	37
Total purchase consideration	$	58



Inventories	$	3
Intangible assets:
Marketed products	29
Acquired in-process research and development (IPR&D)	10
Other intangible assets	15

Total identifiable assets	57
Goodwill	1
Total consideration transferred	$	58



Inventories	$	3
Definite-lived intangible assets	15




Total identifiable assets	18
Goodwill	1
Total consideration transferred	$	19










Balance at December 31, 2022	$	36



Cash paid	(29)

Balance at September 30, 2023	$	7


	September 30, 2023		December 31, 2022
Finished products	$	831	$	783
Work in process	772		683
Raw materials and supplies	145		130
Total	1,748		1,596
Decrease to LIFO cost	(58)		(58)
Inventories	$	1,690	$	1,538


	September 30, 2023		December 31, 2022
Incremental Term Facility due 2025	$	175	$	175
Incremental Term Facility due 2028	490		494
Incremental Term Facility due 2029	247		249
Term Loan B due 2027	3,849		3,881
Revolving Credit Facility (1)	297		—
Securitization Facility (2)	153		—
4.272% Senior Notes due 2023 (3)	—		344
4.900% Senior Notes due 2028 (4)	750		750
TEU Amortizing Notes due 2023 (5)	—		7

Unamortized debt issuance costs	(52)		(64)
	5,909		5,836
Less current portion of long-term debt	39		388
Total long-term debt	$	5,870	$	5,448


			Fair Value Measurements Using
Financial statement line item	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
September 30, 2023
Recurring fair value measurements
Prepaid expenses and other - derivative instruments	$	64	$	—	$	64	$	—	$	64
Other noncurrent assets - derivative instruments	32		—		32		—		32
Other noncurrent assets - investments with readily determinable fair value	8		8		—		—		8
Other current liabilities - derivative instruments	(61)		—		(61)		—		(61)
Other current liabilities - contingent consideration	(16)		—		—		(16)		(16)

Other noncurrent liabilities - contingent consideration	(33)		—		—		(33)		(33)
Financial instruments not carried at fair value
Long-term debt, including current portion	(5,961)		—		(5,877)		—		(5,877)






December 31, 2022

Recurring fair value measurements
Prepaid expenses and other - derivative instruments	$	90	$	—	$	90	$	—	$	90
Other noncurrent assets - derivative instruments	10		—		10		—		10
Other noncurrent assets - investments with readily determinable fair value	7		7		—		—		7

Other current liabilities - derivative instruments	(64)		—		(64)		—		(64)

Financial instruments not carried at fair value
Long-term debt, including current portion	(5,900)		—		(5,711)		—		(5,711)






Balance as of December 31, 2022	$	5,993
Additions related to acquisitions	2
Impairment charge	(1,042)
Foreign currency translation adjustments	(51)
Balance as of September 30, 2023	$	4,902


	Nine Months Ended September 30,
		2023		2022
Beginning balance		$	324	$	319

Reduction of revenue		558		524
Payments		(522)		(521)
Foreign currency translation adjustments		(4)		(18)
Ending balance		$	356	$	304


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Pet Health	$	495	$	469	$	1,688	$	1,718
Farm Animal:
Cattle	242		227		700		722
Poultry	184		176		545		529
Swine	93		95		284		284
Aqua	42		47		132		132
Total Farm Animal	561		545		1,661		1,667
Contract Manufacturing (1)	12		12		33		41
Revenue	$	1,068	$	1,026	$	3,382	$	3,426


	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions)	2023			2022			% Change		2023			2022			% Change
Revenue	$	1,068		$	1,026		4	%	$	3,382		$	3,426		(1)	%
Costs, expenses and other:
Cost of sales	487			472			3	%	1,415			1,465			(3)	%
% of revenue	46		%	46		%	—	%	42		%	43		%	(1)	%
Research and development	86			78			10	%	248			241			3	%
% of revenue	8		%	8		%	—	%	7		%	7		%	—	%
Marketing, selling and administrative	313			298			5	%	993			963			3	%
% of revenue	29		%	29		%	—	%	29		%	28		%	1	%
Amortization of intangible assets	140			128			9	%	410			398			3	%
% of revenue	13		%	12		%	1	%	12		%	12		%	1	%
Asset impairment, restructuring and other special charges	16			26			(38)	%	91			152			(40)	%
Goodwill impairment	1,042			—			100	%	1,042			—			100	%
Interest expense, net of capitalized interest	72			60			20	%	210			179			17	%
Other expense, net	9			8			13	%	41			11			NM
(Loss) income before income taxes	(1,097)			(44)			NM		(1,068)			17			NM
% of revenue	(103)		%	(4)		%	NM		(32)		%	—		%	NM

Income tax (benefit) expense	(1)			21			NM		22			41			NM
Net loss	$	(1,096)		$	(65)		NM		$	(1,090)		$	(24)		NM


	Three Months Ended September 30,
	Revenue				% of Total Revenue				Increase (Decrease)
(Dollars in millions)	2023		2022		2023		2022		$ Change		% Change		CC (1)
Pet Health	$	495	$	469	46	%	46	%	$	26	6	%	6	%
Farm Animal	561		545		53	%	53	%	16		3	%	4	%
Subtotal	1,056		1,014		99	%	99	%	42		4	%	5	%
Contract Manufacturing (2)	12		12		1	%	1	%	—		—	%	(2)	%
Total	$	1,068	$	1,026	100	%	100	%	42		4	%	5	%


Three months ended September 30, 2023 (Dollars in millions)	Revenue		Price	FX Rate	Volume	Total	CC
Pet Health	$	495	4%	—%	2%	6%	6%
Farm Animal	561		3%	(1)%	1%	3%	4%
Subtotal	1,056		4%	(1)%	1%	4%	5%
Contract Manufacturing	12		—%	2%	(2)%	—%	(2)%
Total	$	1,068	4%	(1)%	1%	4%	5%


Nine months ended September 30, 2023 (Dollars in millions)	Revenue		Price	FX Rate	Volume	Total	CC
Pet Health	$	1,688	5%	(2)%	(5)%	(2)%	—%
Farm Animal	1,661		4%	(2)%	(2)%	—%	2%
Subtotal	3,349		4%	(2)%	(3)%	(1)%	1%
Contract Manufacturing	33		—%	(2)%	(18)%	(20)%	(18)%
Total	$	3,382	4%	(2)%	(3)%	(1)%	1%


(Dollars in millions)	Nine Months Ended September 30,
Net cash provided by (used for):	2023		2022		$ Change
Operating activities	$	114	$	439	$	(325)
Investing activities	(134)		(103)		(31)
Financing activities	56		(465)		521
Effect of exchange-rate changes on cash and cash equivalents	(12)		(49)		37
Net increase (decrease) in cash and cash equivalents	$	24	$	(178)	$	202



			Exhibit Number						Description














			10.1						Receivables Loan Agreement among Elanco SPEAR LLC, Elanco US Inc., The Various Lenders and Lender Agents from Time to Time Party Thereto and Coöperatieve Rabobank U.A., New York Branch, dated as of August 3, 2023 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on August 7, 2023).























			31.1						Section 302 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

			31.2						Section 302 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

			32						Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

			101						Interactive Data Files.
			104						Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101).


		ELANCO ANIMAL HEALTH INCORPORATED
		(Registrant)

Date:	November 7, 2023	/s/ Jeffrey N. Simmons
		Jeffrey N. Simmons
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	November 7, 2023	/s/ Todd S. Young
		Todd S. Young
		Executive Vice President, Chief Financial Officer
		(Principal Financial Officer)