- First Quarter 2022 Financial Results
- Revenue of $1,225 million
- Reported Net Income of $48 million, Adjusted Net Income of
$177 million
- Adjusted EBITDA of $339 million or 27.7% of Revenue
- Reported EPS of $0.10, Adjusted EPS of $0.36
- Updating full year 2022 revenue guidance to be $4,700 to
$4,755 million, due to the negative impact of foreign exchange
rates; constant currency revenue growth guidance remains
unchanged.
- Increasing guidance for full year 2022 diluted EPS to $0.02
to $0.09 on a reported basis and updating guidance to $1.15 to
$1.21 on an adjusted basis, due to the negative impact of foreign
exchange rates.
- Providing financial guidance for the second quarter 2022
with revenue of $1,160 to $1,200 million, and diluted EPS of
$(0.05) to $0.02 on a reported basis, or $0.22 to $0.28 on an
adjusted basis.
- Announced strategic alliance with Royal DSM, for exclusive
U.S. rights to Bovaer®, a methane-reducing feed product for
cattle.
Elanco Animal Health Incorporated (NYSE: ELAN) today reported
financial results for the first quarter of 2022, provided guidance
for the second quarter of 2022, and updated guidance for the full
year 2022.
“Our first quarter financial results demonstrate continued
consistent delivery and strong execution across our global
enterprise with revenue, adjusted EBITDA and adjusted EPS all
exceeding the mid-point of our guidance. We are already seeing the
benefits of a leaner, more agile organization, contributing to our
ability to reduce operating expenses sequentially and adapt quickly
to the changing macro environment," said Jeff Simmons, Elanco
president and chief executive officer. "Elanco is well positioned
in the durable Animal Health industry, our strategy is working, and
the team is consistently delivering on the items within our
control, including our company-wide productivity agenda and price.
We remain confident in our guidance after adjusting for the
continued strengthening of the U.S. dollar.”
"Additionally, we continue to strengthen the business and
advance our late-stage pipeline, including achieving two major
milestones for our Pet Health potential blockbuster candidates, and
with our recently announced strategic alliance with Royal DSM for
Bovaer in the U.S. These advances and the execution of the Elanco
team provide a foundation for the next era of growth at Elanco and
continued value for our customers.”
Financial Highlights
First Quarter Results
(dollars in millions, except per share
amounts)
2022
2021
Change (%)
CER(1) Change (%)
Pet Health
$639
$645
(1
)%
2
%
Farm Animal
$569
$578
(2
)%
1
%
Cattle
$247
$261
(5
)%
(3
)%
Poultry
$180
$171
5
%
9
%
Swine
$99
$123
(20
)%
(18
)%
Aqua
$43
$23
87
%
96
%
Contract Manufacturing
$17
$19
(11
)%
(8
)%
Total Revenue
$1,225
$1,242
(1
)%
2
%
Reported Net Income (Loss)
$48
$(61
)
179
%
Adjusted EBITDA
$339
$343
(1
)%
Reported EPS
$0.10
$(0.12
)
183
%
Adjusted EPS
$0.36
$0.37
(3
)%
(1) CER = Constant Exchange Rate,
representing the growth rate excluding the impact of foreign
exchange rates. Certain reclassifications of prior year farm animal
species revenue has been made to conform to the current year's
presentation. Numbers may not add due to rounding.
In the first quarter of 2022, revenue was $1,225 million, a
decrease of 1% on a reported basis, or an increase of 2% excluding
the unfavorable impact of foreign exchange rates, compared with the
first quarter of 2021.
Pet Health revenue was $639 million, a decrease of 1% on
a reported basis or an increase of 2% excluding the unfavorable
impact from foreign exchange rates, with a 2% increase from price.
Seresto® returned to growth in the first quarter, contributing $161
million and growing 6% on a reported basis compared to the first
quarter of 2021. This, and growth from the Credelio franchise and
Galliprant, was partially offset by continued pressure on legacy
parasiticide brands, including prescription products Trifexis and
Advantage Multi. The Advantage® family of products contributed $137
million in the quarter, a decline of 5% on a reported basis
compared to the first quarter of 2021, driven by a decline in the
U.S., including temporary stock-outs for certain retail products,
partially offset by strong growth in several international markets,
including China.
Farm Animal revenue was $569 million, a decrease of 2% on
a reported basis or an increase of 1% excluding the unfavorable
impact from foreign exchange rates, with a 1% increase from price.
Improved producer demand and innovation in poultry as well as
strong aqua demand was partially offset by the continuation of
pressured economics for swine producers in China that began in the
second half of 2021 compared to a strong first quarter of 2021.
Additionally, cattle declined in the quarter primarily driven by
generic competition.
Contract Manufacturing revenue was $17 million, a
decrease of 11% or 8% when excluding the unfavorable impact from
foreign exchange rates.
Reported and adjusted gross profit was $716 million, or 58.4% of
revenue in the first quarter of 2022. Gross profit as a percent of
revenue improved 430 bps on a reported basis, primarily driven by
the amortization of the fair value adjustment of $62 million
recorded from the acquisition of Bayer Animal Health in the first
quarter of 2021. On an adjusted basis, gross profit as a percent of
sales declined 80 bps as compared to the first quarter of 2021,
primarily driven by inflation on input costs, freight, and
conversion costs, partially offset by continued improvements in
manufacturing productivity.
Total operating expense was $401 million for the first quarter
of 2022. Marketing, selling and administrative expenses decreased
8% to $320 million, and research and development expenses decreased
9% to $81 million. The decrease was driven by the disciplined
execution of recent strategic actions more than offsetting cost
inflation and continued investment in key strategic priorities.
Asset impairment, restructuring, and other special charges
decreased to $46 million in the first quarter of 2022 from $108
million in the first quarter of 2021, primarily due to period over
period decreases in overall acquisition and systems implementation
related charges. Net interest expense decreased to $52 million in
the first quarter of 2022 from $61 million in the first quarter of
2021, primarily due to the favorable impact of refinancing debt at
lower interest rates.
The reported effective tax rate increased to 32.1% in the first
quarter of 2022 compared to 23.5% in the first quarter of 2021,
primarily driven by the 2017 U.S. tax law change that became
effective January 1st, 2022, requiring the capitalization of
certain R&D expenses. The adjusted effective tax rate was also
impacted by the tax law change, increasing from 21.3% in the first
quarter of 2021 to 30.4% in the first quarter of 2022.
Net income for the first quarter of 2022 was $48 million and
$0.10 per diluted share on a reported basis, compared with a net
loss of $61 million and $(0.12) per diluted share for the same
period in 2021. On an adjusted basis, net income for the first
quarter of 2022 was $177 million and $0.36 per diluted share,
representing a 3% decrease for each, compared with the same period
in 2021.
Adjusted EBITDA was $339 million in the first quarter of 2022, a
decrease of 1% compared to the first quarter of 2021. Adjusted
EBITDA as a percent of revenue was 27.7% compared with 27.6% for
the first quarter of 2021, an increase of 10 basis points.
Working Capital and Balance
Sheet
Operating cash flow was $(62) million in the first quarter of
2022 compared to $22 million in the first quarter of 2021. The cash
used in the first quarter of 2022 reflects a reduction in accounts
payable and other liabilities, annual bonus payouts, and increased
severance payments.
As of March 31, 2022, Elanco’s net leverage ratio was 5.6x
adjusted EBITDA, an increase of 0.1x compared to December 31, 2021,
driven by higher net debt in 2022 from the expected seasonality of
higher cash outflow in the first quarter. Elanco continues to
expect to end 2022 with a net leverage ratio of 4.75x adjusted
EBITDA.
For further detail of non-GAAP measures, see the Reconciliation
of GAAP Reported to Selected Non-GAAP Adjusted Information tables
later in this press release.
Select Business Highlights Since the
Last Earnings Call
- Announced strategic alliance with Royal DSM for
exclusive rights to seek regulatory approval for, and produce and
commercialize Bovaer® in the U.S. Bovaer, a methane-reducing feed
additive for cattle, is expected to have blockbuster revenue
potential in excess of $200 million annually, with initial
contribution by mid-decade.
- Completed the carve out of our microbiome platform and
pipeline by launching BiomEdit, a company that is expected to
discover, develop and introduce novel probiotics, bioactive
molecules, engineered microbial medicines and microbial monitoring
services for animal health.
- Successfully completed debt tender for $406 million of
the $750 million outstanding 4.272% Senior Notes due 2023. Entered
into a supplemental agreement with Farm Credit for a new
incremental term facility of $250 million.
- Since the beginning of the year, Elanco received 5 portfolio
enhancing product approvals, primarily in Pet Health in major
markets, and remain on track for at least 7 approvals in 2022.
FINANCIAL GUIDANCE
Elanco is updating financial guidance for the full year 2022,
summarized in the following table:
2022 Full Year
(dollars in millions, except per share
amounts)
February 2022
Guidance
May 2022
Guidance
Revenue
$4,745
to
$4,800
$4,700
to
$4,755
Reported Net Income
$4
to
$27
$10
to
$41
Adjusted EBITDA
$1,140
to
$1,180
$1,125
to
$1,165
Reported EPS
$0.01
to
$0.07
$0.02
to
$0.09
Adjusted EPS
$1.18
to
$1.24
$1.15
to
$1.21
For the full year 2022, the company now anticipates revenue
between $4,700 million and $4,755 million, including a headwind of
approximately $140 million from the unfavorable impact of foreign
exchange rates compared to 2021. This represents an incremental $45
million headwind compared to the February guidance. Additionally,
the company has updated its guidance for reported net income,
adjusted EBITDA, reported EPS and adjusted EPS to reflect the
impact of the strengthening U.S. dollar.
Additionally, Elanco is providing financial guidance for the
second quarter of 2022, summarized in the following table:
2022 Second Quarter
(dollars in millions, except per share
amounts)
Guidance
Revenue
$1,160
to
$1,200
Reported Net Income (Loss)
$(23)
to
$6
Adjusted EBITDA
$245
to
$275
Reported EPS
$(0.05)
to
$0.02
Adjusted EPS
$0.22
to
$0.28
For the second quarter of 2022, the company anticipates revenue
between $1,160 million and $1,200 million, with an expected
headwind of approximately $45 million from the unfavorable impact
of foreign exchange rates compared to the second quarter of 2021.
The expected 4% revenue decline at constant currency for the second
quarter 2022 is primarily driven by emerging macro conditions
including the situations in China, Ukraine and Russia, as well as
stock-outs of certain U.S. pet health products and a partial shift
of aqua product demand into the first quarter from the second
quarter as a result of strong underlying salmon market prices.
The implied guidance for the second half of 2022 includes an
acceleration of revenue and profitability growth. The company’s
initial guidance for full year 2022 in February included an
expected second half acceleration of revenue growth from price
increases, the improvement of year over year unfavorable
comparisons across many parts of the business, including contract
manufacturing, and the increasing contribution from innovation. The
company’s updated guidance for full year 2022 now includes expected
benefit from incremental price improvement and sales phasing in
China from the second quarter of 2022 to the second half of 2022
from expected easing of COVID-19 restrictions. Importantly, the
company expects headwinds from the war in Ukraine to continue the
rest of this year.
The financial guidance reflects foreign exchange rates as of the
beginning of May.
Further details on guidance, including GAAP reported to non-GAAP
adjusted reconciliations, are included in the financial tables of
this press release and will be discussed on the company's
conference call this morning.
WEBCAST & CONFERENCE CALL
DETAILS
Elanco will host a webcast and conference call at 8:00 a.m.
Eastern time today, during which company executives will review
first quarter financial and operational results, discuss second
quarter and full year 2022 financial guidance, and respond to
questions from analysts. Investors, analysts, members of the media
and the public may access the live webcast and accompanying slides
by visiting the Elanco website at https://investor.elanco.com and
selecting Events and Presentations. A replay of the webcast will be
archived and made available a few hours after the event on the
company's website, at
https://investor.elanco.com/events-and-presentations/default.aspx#module-event-upcoming.
ABOUT ELANCO
Elanco Animal Health Incorporated (NYSE: ELAN) is a global
leader in animal health dedicated to innovating and delivering
products and services to prevent and treat disease in farm animals
and pets, creating value for farmers, pet owners, veterinarians,
stakeholders, and society as a whole. With nearly 70 years of
animal health heritage, we are committed to helping our customers
improve the health of animals in their care, while also making a
meaningful impact on our local and global communities. At Elanco,
we are driven by our vision of Food and Companionship Enriching
Life and our Elanco Healthy Purpose™ Sustainability/ESG framework –
all to advance the health of animals, people and the planet. Learn
more at www.elanco.com.
Cautionary Statement Regarding
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including,
without limitation, statements concerning product launches and
revenue from such products, our 2022 full year and second quarter
guidance and long-term expectations, our expectations regarding
debt levels, and expectations regarding our industry and our
operations, performance and financial condition, and including, in
particular, statements relating to our business, growth strategies,
distribution strategies, product development efforts and future
expenses.
Forward-looking statements are based on our current expectations
and assumptions regarding our business, the economy and other
future conditions. Because forward-looking statements relate to the
future, by their nature, they are subject to inherent
uncertainties, risks and changes in circumstances that are
difficult to predict. As a result, our actual results may differ
materially from those contemplated by the forward-looking
statements. Important factors that could cause actual results to
differ materially from those in the forward-looking statements
include regional, national, or global political, economic,
business, competitive, market, and regulatory conditions, including
but not limited to the following:
- heightened competition, including from generics;
- the impact of disruptive innovations and advances in veterinary
medical practices, animal health technologies and alternatives to
animal-derived protein;
- changes in regulatory restrictions on the use of antibiotics in
farm animals;
- our ability to implement our business strategies or achieve
targeted cost efficiencies and gross margin improvements;
- consolidation of our customers and distributors;
- an outbreak of infectious disease carried by farm animals;
- the impact on our operations, the supply chain, customer
demand, and our liquidity as a result of the COVID-19 global health
pandemic;
- the potential impact on our business and global economic
conditions resulting from the conflict involving Russia and
Ukraine;
- the success of our R&D and licensing efforts;
- misuse, off-label or counterfeiting use of our products;
- unanticipated safety, quality or efficacy concerns and the
impact of identified concerns associated with our products;
- fluctuations in our business results due to seasonality and
other factors;
- the impact of weather conditions and the availability of
natural resources;
- risks related to the modification of foreign trade policy;
- risks related to currency rate fluctuations;
- our dependence on the success of our top products;
- the impact of customer exposure to rising costs and reduced
customer income;
- the lack of availability or significant increases in the cost
of raw materials;
- use of alternative distribution channels and the impact of
increased or decreased sales to our channel distributors resulting
in fluctuation in our revenues;
- risks related to the write down of goodwill or identifiable
intangible assets;
- risks related to the evaluation of animals;
- manufacturing problems and capacity imbalances;
- the impact of litigation, regulatory investigations, and other
legal matters and the risk that our insurance policies may be
insufficient to protect us from the impact of such matters;
- actions by regulatory bodies, including as a result of their
interpretation of studies on product safety;
- risks related to tax expense or exposure;
- risks related to environmental, health and safety laws and
regulations;
- risks related to our presence in foreign markets;
- challenges to our intellectual property rights or our alleged
violation of rights of others;
- our dependence on sophisticated information technology and
infrastructure and impact of breaches of our information technology
systems;
- the impact of increased regulation or decreased financial
support related to farm animals;
- adverse effects of labor disputes, strikes, work stoppages, and
the loss of key personnel or highly skilled employees;
- risks related to underfunded pension plan liabilities;
- our ability to complete acquisitions and successfully integrate
the businesses we acquire, including KindredBio and the animal
health business of Bayer (Bayer Animal Health);
- the effect of our substantial indebtedness on our business,
including restrictions in our debt agreements that will limit our
operating flexibility; and
- risks related to certain governance provisions in our
constituent documents.
For additional information about the factors that could cause
actual results to differ materially from forward-looking
statements, please see the company’s latest Form 10-K and Form 10-Q
filed with the Securities and Exchange Commission. Although we have
attempted to identify important risk factors, there may be other
risk factors not presently known to us or that we presently believe
are not material that could cause actual results and developments
to differ materially from those made in or suggested by the
forward-looking statements contained in this press release. If any
of these risks materialize, or if any of the above assumptions
underlying forward-looking statements prove incorrect, actual
results and developments may differ materially from those made in
or suggested by the forward-looking statements contained in this
press release. We caution you against relying on any
forward-looking statements, which should also be read in
conjunction with the other cautionary statements that are included
elsewhere in this press release. Any forward-looking statement made
by us in this press release speaks only as of the date thereof.
Factors or events that could cause our actual results to differ may
emerge from time to time, and it is not possible for us to predict
all of them. We undertake no obligation to publicly update or to
revise any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as may be
required by law. Comparisons of results for current and any prior
periods are not intended to express any future trends or
indications of future performance, unless specifically expressed as
such, and should be viewed as historical data.
Use of Non-GAAP Financial
Measures:
We use non-GAAP financial measures, such as revenue excluding
the impact of foreign exchange rate effects, adjusted constant
currency revenue growth, EBITDA, EBITDA margin, adjusted EBITDA,
adjusted EBITDA margin, adjusted net income (loss), adjusted EPS,
adjusted gross profit, adjusted gross margin and net debt leverage
to assess and analyze our operational results and trends as
explained in more detail in the reconciliation tables later in this
release.
We believe these non-GAAP financial measures are useful to
investors because they provide greater transparency regarding our
operating performance. Reconciliation of non-GAAP financial
measures and reported GAAP financial measures are included in the
tables accompanying this press release and are posted on our
website at www.elanco.com. The primary material limitations
associated with the use of such non-GAAP measures as compared to
U.S. GAAP results include the following: (i) they may not be
comparable to similarly titled measures used by other companies,
including those in our industry, (ii) they exclude financial
information and events, such as the effects of an acquisition or
amortization of intangible assets, that some may consider important
in evaluating our performance, value or prospects for the future,
(iii) they exclude items or types of items that may continue to
occur from period to period in the future and (iv) they may not
exclude all unusual or non-recurring items, which could increase or
decrease these measures, which investors may consider to be
unrelated to our long-term operations. These non-GAAP measures are
not, and should not be viewed as, substitutes for U.S. GAAP
reported measures. We encourage investors to review our unaudited
condensed consolidated and combined financial statements in their
entirety and caution investors to use U.S. GAAP measures as the
primary means of evaluating our performance, value and prospects
for the future, and non-GAAP measures as supplemental measures.
Availability of Certain Information
We use our website to disclose important company information to
investors, customers, employees and others interested in Elanco. We
encourage investors to consult our website regularly for important
information about Elanco.
Elanco Animal Health
Incorporated
Unaudited Condensed
Consolidated Statements of Operations
(Dollars and shares in
millions, except per share data)
Three Months Ended March 31,
2022
2021
Revenue
$
1,225
$
1,242
Costs, expenses, and other:
Cost of sales
509
569
Research and development
81
89
Marketing, selling, and administrative
320
348
Amortization of intangible assets
137
147
Asset impairment, restructuring, and other
special charges
46
108
Interest expense, net of capitalized
interest
52
61
Other expense, net
9
—
Income (loss) before income taxes
$
71
$
(80
)
Income taxes
23
(19
)
Net income (loss)
$
48
$
(61
)
Earnings (loss) per share:
Basic
$
0.10
$
(0.12
)
Diluted
$
0.10
$
(0.12
)
Weighted average shares outstanding:
Basic
488.0
486.7
Diluted
492.2
486.7
Elanco Animal Health Incorporated
Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted
Information (Unaudited) (Dollars and shares in
millions, except per share data)
We define adjusted gross profit as total revenue less adjusted
cost of sales and adjusted gross margin as adjusted gross profit
divided by total revenue.
We define adjusted net income as net income (loss) excluding
amortization of intangible assets, purchase accounting adjustments
to inventory, integration costs of acquisitions, severance, asset
impairment, gain on sale of assets, facility exit costs, tax
valuation allowances and other specified significant items, such as
unusual or non-recurring items that are unrelated to our long-term
operations adjusted for income tax expense associated with the
excluded financial items.
We define adjusted EBITDA as net income (loss) adjusted for
interest expense (income), income tax expense (benefit), and
depreciation and amortization, further adjusted to exclude purchase
accounting adjustments to inventory, integration costs of
acquisitions, severance, asset impairment, gain on sale of assets,
facility exit costs and other specified significant items, such as
unusual or non-recurring items that are unrelated to our long-term
operations.
We define adjusted EPS as adjusted net income divided by the
number of weighted average shares outstanding for the periods ended
March 31, 2022 and 2021.
We define net debt as gross debt less cash and cash equivalents
on the balance sheet. We define gross debt as the sum of the
current portion of long-term debt and long-term debt excluding
unamortized debt issuance costs. We define the net leverage ratio
as gross debt less cash and cash equivalents divided by adjusted
EBITDA. This calculation does not include Term Loan B
covenant-related adjustments that reduce this leverage ratio.
The following is a reconciliation of GAAP Reported for the three
months ended March 31, 2022 and 2021 to Selected Non-GAAP Adjusted
information:
Three Months Ended March 31,
2022
Three Months Ended March 31,
2021
GAAP Reported
Adjusted Items (b)
Non- GAAP (a)
GAAP Reported
Adjusted Items (b)
Non- GAAP (a)
Cost of sales (1)
$
509
$
—
$
509
$
569
$
62
$
507
Amortization of intangible assets
$
137
$
137
$
—
$
147
$
147
$
—
Asset impairment, restructuring and other
special charges (2) (3)
$
46
$
46
$
—
$
108
$
108
$
—
Other expense (income), net (4)
$
9
$
—
$
9
$
—
$
(7
)
$
7
Income (loss) before taxes
$
71
$
183
$
254
$
(80
)
$
310
$
231
Provision for taxes (5) (6)
$
23
$
(54
)
$
77
$
(19
)
$
(68
)
$
49
Net income (loss)
$
48
$
129
$
177
$
(61
)
$
242
$
182
Earnings (loss) per share:
basic
$
0.10
$
0.26
$
0.36
$
(0.12
)
$
0.50
$
0.37
diluted
$
0.10
$
0.26
$
0.36
$
(0.12
)
$
0.50
$
0.37
Adjusted weighted average shares
outstanding:
basic
488.0
488.0
488.0
486.7
486.7
486.7
diluted (7)
492.2
492.2
492.2
486.7
488.1
488.1
Numbers may not add due to rounding.
The table above reflects only line items
with non-GAAP adjustments.
(a)
The company uses non-GAAP financial measures that differ from
financial statements reported in conformity with U.S. generally
accepted accounting principles (GAAP). The company believes that
these non-GAAP measures provide useful information to investors.
Among other things, they may help investors evaluate the company’s
ongoing operations. They can assist in making meaningful
period-over-period comparisons and in identifying operating trends
that would otherwise be masked or distorted by the items subject to
the adjustments. Management uses these non-GAAP measures internally
to evaluate the performance of the business, including to allocate
resources. Investors should consider these non-GAAP measures in
addition to, not as a substitute for or superior to, measures of
financial performance prepared in accordance with GAAP.
(b)
Adjustments to certain GAAP reported measures for the three months
ended March 31, 2022 and 2021 include the following:
(1)
2021 excludes amortization of inventory
fair value adjustments recorded from the acquisition of Bayer
Animal Health ($62 million).
(2)
2022 excludes charges associated with
integration efforts and external costs related to the acquisitions
of Bayer Animal Health and KindredBio ($24 million), the
finalization of a write-down charge associated with the sale of our
manufacturing site in Speke, U.K. ($28 million), and facility exit
costs ($1 million), partially offset by adjustments resulting from
the reversal of severance accruals ($7 million).
(3)
2021 excludes charges associated with
integration efforts and external costs related to the acquisition
of Bayer Animal Health, and charges primarily related to
independent stand-up costs and other related activities ($81
million), severance ($26 million), asset impairments ($9 million),
and asset write-downs ($2 million), partially offset by curtailment
gains recognized due to the remeasurement of our pension benefit
obligations resulting from workforce reductions associated with our
recent restructuring programs ($9 million) and the gain recorded on
the divestiture of an early-stage IPR&D asset acquired as part
of the Bayer Animal Health acquisition ($1 million).
(4)
2021 excludes up-front payments received
and equity issued to us in relation to a license agreement ($8
million), partially offset by net losses recorded in relation to
divestitures ($1 million).
(5)
2022 represents the income tax expense
associated with the adjusted items, as well as a decrease in the
valuation allowance recorded against our deferred tax assets during
the period ($16 million).
(6)
2021 represents the income tax expense
associated with the adjusted items, partially offset by an increase
in the valuation allowance recorded against our U.S. deferred tax
assets during the period ($2 million).
(7)
During the three months ended March 31,
2021, we reported a GAAP net loss and thus potential dilutive
common shares were not assumed to have been issued since their
effect is anti-dilutive. During the same periods, we reported
non-GAAP net income. As a result, potential dilutive common shares
would not have an anti-dilutive effect, and diluted weighted
average shares outstanding for purposes of calculating adjusted EPS
include 1.4 million of common stock equivalents.
Q1
2022
Q1
2021
As reported diluted EPS
$
0.10
$
(0.12
)
Cost of sales
—
0.13
Amortization of intangible assets
0.28
0.30
Asset impairment, restructuring and other
special charges
0.09
0.22
Other expense (income), net
—
(0.01
)
Subtotal
0.37
0.64
Tax impact of adjustments (1) (2)
(0.11
)
(0.14
)
Total adjustments to diluted EPS
$
0.26
$
0.50
Adjusted diluted EPS (3)
$
0.36
$
0.37
Numbers may not add due to rounding.
(1) 2022 Includes the unfavorable
adjustment relating to the decrease in the valuation allowance
recorded against our deferred tax assets during the three months
ended March 31, 2022 (impact of $0.03 per share).
(2) 2021 includes the favorable adjustment
relating to the valuation allowance recorded against our U.S.
deferred tax assets during the three months ended March 31, 2021
(impact of less than $0.01 per share).
(3) Adjusted diluted EPS is calculated as
the sum of as reported diluted EPS and total adjustments to diluted
EPS.
For the periods presented, we have not made adjustments for all
items that may be considered unrelated to our long-term operations.
We believe adjusted EBITDA, when used in conjunction with our
results presented in accordance with U.S. GAAP and its
reconciliation to net income, enhances investors' understanding of
our performance, valuation and prospects for the future. We also
believe adjusted EBITDA is a measure used in the animal health
industry by analysts as a valuable performance metric for
investors. The following is a reconciliation of U.S. GAAP net
income for the three months ended March 31, 2022 and 2021 to
EBITDA, adjusted EBITDA, and adjusted EBITDA Margin, which is
adjusted EBITDA divided by total revenue, for the respective
periods:
Three Months Ended March 31,
2022
2021
Reported net income (loss)
$
48
$
(61
)
Net interest expense
52
61
Income tax expense (benefit)
23
(19
)
Depreciation and amortization
176
202
EBITDA
$
298
$
183
Non-GAAP adjustments:
Cost of sales
$
—
$
62
Asset impairment, restructuring and other
special charges
46
108
Other expense (income), net
—
(7
)
Accelerated depreciation and
amortization(1)
(5
)
(3
)
Adjusted EBITDA
$
339
$
343
Adjusted EBITDA margin
27.7
%
27.6
%
Numbers may not add due to rounding.
(1) Represents depreciation and
amortization of certain assets that was accelerated during the
three months ended March 31, 2022 and 2021. This amount must be
added back to arrive at adjusted EBITDA because it is included in
asset impairment, restructuring and other special charges but it
has already been excluded from EBITDA in the "Depreciation and
amortization" row above.
The following is a reconciliation of gross
debt to net debt as of March 31, 2022:
Long-term debt
6,073
Current portion of long-term debt
61
Less: Unamortized debt issuance costs
(78
)
Total gross debt
6,212
Less: Cash and cash equivalents
342
Net Debt
5,870
Elanco Animal Health
Incorporated Guidance
Reconciliation of 2022 full year reported
EPS guidance to 2022 adjusted EPS guidance is as follows:
Full Year 2022 Guidance
Reported earnings per share
$0.02
to
$0.09
Amortization of intangible assets
$1.11
Asset impairment, restructuring, and other
special charges(1)
$0.32
to
$0.36
Other (income) expense, net
$0.03
Subtotal
$1.45
to
$1.49
Tax impact of adjustments
$(0.33)
to
$(0.37)
Total adjustments to EPS
$1.12
to
$1.13
Adjusted earnings per share(2)
$1.15
to
$1.21
Numbers may not add due to rounding.
(1) Asset impairment, restructuring, and
other special charges adjustments primarily relate to integration
efforts of acquired businesses, including the animal health
business of Bayer, and other related activities.
(2) Adjusted EPS is calculated as the sum
of reported EPS and total adjustments to EPS.
Reconciliation of 2022 full year reported
net loss to adjusted EBITDA guidance is as follows:
$ millions
Full Year 2022 Guidance
Reported net income
$10
to
$41
Net interest expense
Approx. $250
Income tax expense
$10
to
$40
Depreciation and amortization
Approx. $710
EBITDA
$975
to
$1,036
Non-GAAP adjustments
Asset impairment, restructuring, and other
special charges
Approx. $165
Accelerated depreciation and other special
charges
Approx. $(20)
Other expense, net
$(5)
Adjusted EBITDA
$1,125
to
$1,165
Adjusted EBITDA margin
24%
to
25%
Reconciliation of 2022 second quarter
reported EPS guidance to 2022 second quarter adjusted EPS guidance
is as follows:
Second Quarter 2022 Guidance
Reported earnings (Loss) per share
$(0.05)
to
$0.02
Amortization of intangible assets
$0.28
Asset impairment, restructuring, and other
special charges(1)
$0.05
to
$0.09
Other expense, net
$0.03
Subtotal
$0.35
to
$0.40
Tax impact of adjustments
$(0.13)
to
$(0.09)
Total adjustments to EPS
$0.26
to
$0.27
Adjusted earnings per share(2)
$0.22
to
$0.28
Numbers may not add due to rounding.
(1) Asset impairment, restructuring, and
other special charges adjustments are related to integration
efforts and external costs related to the acquisition of
businesses, including the acquisition of the animal health business
of Bayer, and charges primarily related to independent stand-up
costs and other related activities, including severance.
(2) Adjusted EPS is calculated as the sum
of reported EPS and total adjustments to EPS.
Reconciliation of 2022 second quarter
reported net loss to 2022 second quarter adjusted EBITDA guidance
is as follows:
$ millions
Second Quarter 2022 Guidance
Reported net income (loss)
$(23)
to
$6
Net interest expense
Approx. $75
Income tax provision
$(22)
to
$6
Depreciation and amortization
Approx. $180
EBITDA
$210
to
$260
Non-GAAP adjustments
Asset impairment, restructuring, and other
special charges
Approx. $35
Accelerated Depreciation and
Amortization
Approx. $(5)
Other expense, net
$(5)
Adjusted EBITDA
$245
to
$275
Adjusted EBITDA margin
21%
to
23%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220509005302/en/
Investor Contact: Kathryn Grissom (317) 273-9284 or
kathryn.grissom@elancoah.com Media Contact: Colleen Parr Dekker
(317) 989-7011 or colleen.dekker@elancoah.com
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