All right, guys, good morning and welcome to day two of the 2025 Stifel Jaws and Paws conference, John Block with Stifel. We really got another great day: 13 total panels, including some of our covered companies, a few veterinarian physician panels, and some highly innovative private players as well. Opening up our conference today, we're pleased to have Elanco Animal Health and their CEO, Jeff Simmons. Jeff, thanks for participating again in Jaws and Paws this year. You know, I'll call it a quick audible just based on the news from yesterday morning, and I'll start there regarding the change with the CFO. Jeff, can you just briefly address that change? The most common question I'm getting is sort of, why now? Was this from a position of strength? I'll turn it over to you. Yeah, thanks, John. Thanks for your coverage. You do this as well as anybody, and we're excited to be here at Stifel. As I've shared with you, this was an intentional move. It was proactive. It was initiated by myself and in collaboration with Todd, as you all know, six years. Todd has never worked with somebody more collaboratively and been through more. Any key roles, you want to be intentional, prudent, proactive. He's been in the role for over six years and is going to lean in and look at opportunities himself. I started a little over six months ago looking at who would be the right candidate for the next era that would be a cultural fit that can have the energy to lean in on value creation and work in partnership with me. I believe Bob VanHimbergen from Hillenb rand, with his 30 years experience, brings exactly what we need. Great developer of people, great value creator, got a real excitement about coming into this space. He's helped transform two of the companies he's been in. He's spent a lot of time in China, a global guy. It is the right opportunity. We'll talk a little bit today, a little bit of the next era for Elanco and where we're going and the continuum we're on. I think it's a great opportunity. Todd will be with us till the end of August, be a nice smooth transition. Again, I'm a big endorser of the guy. I think any good company should make intentional moves at the right time. This is the right time for Todd and the right time for us. Okay, that was great. That was a great recap. I'm sure we'll go back there a couple of times throughout the conversation. I'll move on to the first quarter results. Posted a solid beat. You absorbed the tariff hit, earmarked $25 million of sort of FX EBITDA tailwind for future potential pharma tariffs. Why don't we start just maybe the top two or three highlights that you see from the quarter? I'm guessing though, I think it was the $198 million in innovation revenue might be one of them. Yeah, so we've been very consistent internally and externally the last two years. You've been listening to me. Growth, innovation, cash, they're the value drivers. It was probably the most robust, holistic quarter of proof points that we've ever had. Seven quarters of growth, accelerating growth, so 1% two years ago, 3% constant currency. We had a 4% quarter. We're guiding 4%-6% for the year. As you and I have talked, John, it was farm animal, it was pet, it was international, it was U.S., it was price and volume. I think the story behind the story, what we're seeing behind the curtain is innovation in each portfolio is driving the core. You've been asking me for two years, hey, will the core be stable? What Experior is doing for our cattle portfolio, it's making Rumensin grow. What AdTab is doing for Seresto and AdTab in Europe and the pet business has made the core grow. We're seeing that now. Credelio Quattro's got 500 new clinics in the U.S. buying Elanco products that have never bought Elanco products. I think the innovation is accelerating. It is the contributor of growth. We are not a one innovation story. Some of us had dinner together last night. It's the basket of six blockbusters followed by the six to ten that came over the last three years. We've raised innovation guidance. We've raised revenue guidance for the year on the FX. We've kept back the FX $25 million on the EBITDA line for tariffs, which we can talk about. The big news a couple of days before earnings was we, for the very first time that I'm aware of in 35 years in animal health, we took an animal health asset into human health with a lot of lantern Credelio compound. We monetized those royalties with Blackstone and that allowed us to come into the year. We raised our cash debt pay down from $150 million to $450 million to $500 million. Growth's accelerating. Innovation is raising with the basket of innovation led by Experior, Credelio, and AdTab. The cash pay down continues to be a key point with a path to 3.9 leverage EBITDA to debt by the end of the year. That was great. Let me ask one more, a little bit more near-term question, and then I want to zoom out and maybe talk bigger picture. In the quarter, you talked about a soft sort of OTC January and February. That was partially a function of comps in the market, I believe. You alluded to a big step up in March. You guys also called out on the earnings call a solid April as well. I can pull scanner data, which we do. It's never spot on, but it's certainly been directionally accurate. It appears OTC momentum persisted, continued into May. Did I lay that out correctly? Any thoughts on if we did see a continuing to May? Yes. I'll just back up on Elanco. You did. That's exactly right. We saw the coldest January, February. My team that's in the room here, they gave me tick bites from the CDC, were the lowest since 2008. That's the first time I've ever put that on an earnings call. The cold weather definitely impacts the OTC business. I will back up, John, as we've talked. The Bayer acquisition has really, really given us everything and more than we wanted. A third of pet owners don't go to the vet. They either can't afford it, they don't have access, or it's just something they don't desire. That OTC business has continued to grow, but it's probably the most temperature seasonal sensitive. We did see a decline in January, February. We've seen a really nice rebound in March, April, we said, and that's continued into May. Weather dependent. I would say our distribution points, we're now in Tractor Supply, in Target, and we can go down. What that is allowing us to do is meet more pet owners where they want to shop and more price points than any other animal health company. That has worked well. We got to watch the weather. I mean, that is a factor. Yep. Okay. I'm going to get pretty granular on some of the innovation products, and I'll start with Credelio Quattro. Before I do that, I thought from dinner last night, there were really some themes that came up that were really important that certainly make sense to set aside time if you want to address maybe four or five initiatives at Elanco that you're feeling good about and share with the audience. We're not letting up here. The growth innovation cash, the seven quarters of growth, our board has leaned in heavy as I've asked them to. Think about us as a continuum of increasing value creation. Let me double down a little bit on the growth innovation cash and just say, what can you see from Elanco in the rest of 2025 and 2026? I think you're going to start to see proof points on every quarter going forward. One is accelerating revenue growth. That's in our guide, and we continue to see growth accelerating. Two is the globalization of our innovation. We have six blockbusters, and those are going to globalize. Let me point to Zenrelia Europe, U.K., and Australia coming up next. Durham International is a $600 million-$700 million business. We've got less restrictive labels. We see this as one of our key growth drivers. We're also globalizing Experior and Credelio Quattro. That's the second. I think third is the new, which we can talk about, is really a company-wide margin expansion approach. We brought in PwC, and we're looking at everything from gross to net on the commercial side to we sold a New Zealand manufacturing plant last quarter. We're going to continue to really look at a margin expansion, what's in our control beyond the mix benefit we're going to get, initiatives to drive margin expansion. That's third. I think the fourth is the next round of innovation. The IL-31 Durham product is coming. We expect it from the USDA by the end of the year. That will help Zenrelia. We will be then at parity, and we believe it's differentiated from Cytopoint, but at parity with the current Durham player. You know, I think lastly is just the balance sheet. The continued focus on cash pay down and really, really driving ourselves. We think the investor base has changed a lot the last six months, and a lot of that is a path to a three lever on debt. We expect rating agencies and things to continue to work to allow us. That gives you accelerated growth, globalizing innovation, margin, the next round of innovation, and a better balance sheet is really our increase. That is where Bob, as a new CFO, is coming in, heavy focus on how we invest right and how we go after this margin expansion, which we have said will expand in 2026. Okay, great. Great Great projects to work on. Notably, I think the EBITDA margin expansion to 2026 and what that can do to the leverage ratios. I'll shift gears. Credelio Quattro, we had some solid checks on CQ ahead of the quarter, but I think your 10% share comments were certainly better than investors expected. Let me take a moment. Jeff, what do you think sort of led to the fast start? I think it even might have positively surprised you guys a bit. I think first the category. There is no faster category right now in animal health than broad spectrum and decto products. You have two products in that category now. We are the third product in the category. 70% of puppies in the U.S. are being started on an oral broad spectrum. It is a fast-growing market, which we are coming into. That is number one. Number two is we think we are best medicine with really now four dimensions of differentiation, and that is getting played back to us. I will start with the one that we may have underestimated, and that is just some of the independent research on tick kill. We have seen actually the speed of tick kill on the lotilaner asset has been a differentiator. One-month heartworm control against one of the incumbents is another differentiator. The broader spectrum, we're the first FDA product with four active ingredients in a pill. That CMC was difficult work, but we've conquered it, and that's given us what we believe differentiation. The new one is the palatability. The acceptance by a dog matters. I'm getting videos sent to me where us versus an incumbent, the palatability and acceptance by the dog. Category growth, differentiation, and we're leaning in. We increased our sales force 25%. We've shifted most of our DTC money heavy and multimedia approach to Credelio Quattro. We've said we captured 10% share out of the gate quickly in the first couple of months of dollar share in clinic. What we're saying is vet clinics are saying, "I'm bringing this on as one of my one or two products," and that's been beneficial. Let me build off that 10% comment. We're all trying to quantify certain parts of the innovation bucket. I know you guys aren't going to spell that out for us, but when I just look at my Zoetis model, Zoetis US Trio, I have over $1 billion this year. They did $240 million in the first quarter. Next Guard Plus probably pushes it between those two players, $1.2 billion-$1.3 billion U.S.. We hear that 10% number. Is Credelio Quattro blockbuster status here in 2025? Yeah, you know I'm going to stay away from by product, by quarter, by year. I think there's no value in that. I will keep coming back to the basket that we're measuring and raising guidance on. I do believe the way the framework, the way you're looking at those numbers is exactly right. I think what we got to watch is I like this puppy start data, which says the category continues to have legs and a long runway of growth. The pet category continues to grow really robustly. I think that's important. Look, I've said from the beginning, John, we are not going to have any regrets on these launches. Why did we actually hold back on EBITDA guide in the second quarter? It's because of spend primarily on AdTab in Europe and Quattro in the U.S.. We believe we're best medicine. We're going to act that way, and we're going to lean in heavily. We are third to market. We got to remember that. I do think the differentiation, the category growth gives us more upside, and we're ahead of expectations early. Ahead of expectations, certainly the main question I'm getting from investors, and again, everyone was surprised to the upside is, hey, you guys mentioned the inventory at the distributors appears lean. We know it's going from you guys to dists, dists to the practice per your prior comments, right? The distributors have reordered multiple times. Your confidence, Jeff, it's just not the stock into the vet practice and that you're seeing it go out of the practice to the actual pet owner. Yeah. I think the first is exactly right. We were very clear to say lean inventories in the system is this is not a loading deal. I mean, we've seen distributors order multiple times. That's continued here in the second quarter. The pull-through is key. You have to activate pet owners with multimedia done very differently than we did it five years ago. We're looking at that data very carefully to get pet owners activated to say it's an uninvolved category. People do not think about their heartworm, their tick, their flea. They're a little bit in the spring, but it is to activate them to get in. We're investing accordingly. We're seeing that, and that's the next key metric that we're looking at. Things are trending well. We reiterated our guidance yesterday in the press release on the CFO change. That is the next thing, is the pull-through. We are confident we are seeing that. I like the differentiation. Vets are seeing this. Vets are pulling this into their clinic. They only pull it into their clinic if they are going to push it out. Does that make sense? Certainly does. Another key theme coming off the one Q earnings call I thought was, let's move to Zenrelia. And a lot to talk about. There was sort of the language versus label. One is more near-term being the language. One's a little bit longer-term being the label. Let's start with the language for Zenrelia. Can you give us some color on that? What do you think would actually change? Do you expect it to have a commercial impact, if you would? Yeah. The language change with the CVM is we've made a submission with existing data to look at changing wording on the label that also we think vets are looking for. We can't be any more specific than that. That is on an ADUFA timeline, which would be 180 days. The intention would be in the second half, we would get some response to that. If so, that would move quite quickly. The second is actually taking vaccine naive dogs and starting a more robust study that would be a longer period of time. That is a more wholesale label change. Both of those paths are already started and activated, and we should have a signal. I back that up. What does that mean? What's the meaning of that? The so what is really this? If you think about 30,000 vet clinics right now in the U.S., 11,000 have brought Zenrelia on. 8,000, it is part of the formulary. 3,000 are trialing the product. One out of three. That is more than Credelio today. I am happy with that. We are going deeper with those one-third clinics. The remaining two-thirds are either saying, "Boy, you got to show me more," or "I want to get into the Durham season." We get 25% more dogs that have an itching response in this June, July to September period. As we lean in there, we have 26% in our market research saying, "We will script this product," or "We have a belief we are going to script this product." A language change, I think, will really mean a lot to that 26% that maybe are not scripting at this point in time. Our real focus right now is going deeper and expanding more use with the third that have put this into their clinics. Language might give you some tailwinds on the commercial side. I do have a clarifying question on label. I think on the earnings call, you talked about, "Look, that's going to take some time. It's beyond one year, likely closer to two years." Is that benchmarked as of the earnings call, or is that benchmarked as of label date, if you would? Yeah. There's about a nine-month spread in there. That's why I'm taking time to ask that. I say, "Let's talk about the things that are really material, like international approvals of Zenrelia." I think that's going to be what's material. You're thinking about it right. We aren't going to get into designating the exact timeline. We continue to believe that even with all the changes in the FDA right now, we've got good stability around the reviewers. People ask me that on a common basis. I would point to Zenrelia. There are three things that matter. This Durham category continues to grow at double digit. It's $1.8 billion. We'll eclipse $2 billion. With us coming in, the category is only growing. We're bringing IL-31. We hope to have that by the end of the year. We have a differentiated competitor product, and we'll launch that in 2026. Third is international approvals. We are expecting Zenrelia to come into that $600 million-$700 million. When you get Europe and the U.K., you've got a very big opportunity. We intend and we're hopeful for less restrictive labels. I never know what you do, but at this point in time, we're feeling very good. All of that is second half loaded. Hopefully a label improvement in the U.S. would be our intention. We're set up well, and I don't see why in this decade Elanco can't be the Durham leader or a very major player in Durham, given our monoclonal antibody background. Just to ask for a little further clarity, that was one of the parts coming off the call. I had a little bit of uncertainty was on Zenrelia and some of those international markets, the type of label. U.S. was restrictive. Canada seemingly stepped out from the U.S. They did. Less restrictive. Brazil, less restrictive. In your ongoing dialogues with EU, Australia, you feel, again, you never know, but it's going down more the less restrictive route than U.S. per se. Yes. Relative to our experiences with the FDA, we're in a different place on the other markets. Again, we don't want to be definitive until that. Is there a question? Yeah. Please. Sorry. Jeff, just on that, your optimism for EU, maybe U.K. less restricted, is that based on new data that you're providing them? The faster way in the U.S., is that based on that same data, not the long version, which is much better? Are they all sort of tied in? Yeah, I think you're thinking about it right. I think Europe has a different approach, a different regulatory process, a little different than ADUFA. Their initial requests were different. I think with our history, we have probably a better approach to the response. Yes, I would say all of that. We wouldn't be at this stage saying what we're saying without what we believe is what they've requested and what they've asked has given us the confidence relative to the label. If you do get a more harmonized label with industry standard in the U.S., would you then consider harmonizing the price to capture the full value of Zenrelia? It's the right question. At this point in time, we haven't really talked about the medium and long-term pricing strategy. Right now, it still is about 20% discount to the incumbent. That's playing nicely. I think the one pill convenience, the price, and the efficacy. I haven't really talked about, but the Zenrelia efficacy has been very consistent in terms of its differentiated, more response. We got thrown into the tough cases early. It's definitely something we will look at. Right now, I want more global approvals in this $600 million-$700 million. Our pet team internationally has done really well. AdTab's an example. It might be our best launch we've ever had is AdTab. It's now going to be a blockbuster in Europe. That team is ready to launch Zenrelia. They're trained. They're ready. The sales forces are right-sized. We're ready to go. Can I just sneak in one more? Please, go right ahead. Any anecdotes from U.S. veterinarians? Are they actually implementing the Zenrelia dose holiday around vaccinations, or are they not? Yeah, a lot of differing opinions. I would say the anecdotes, and you're hearing them, and you see them on Chewy, and you can go out and look at the commentary. The efficacy and the consistency of the efficacy of this product, Zenrelia, is truly a highly efficacious product. That is bringing the willingness in to say, "Hey, how do we manage this within a one-year, two-year regime with a vaccine program?" I think there's much more willingness to determine that. Different approaches taken, but the willingness is increasing given the efficacy. Thanks. That That was great. Maybe 10 minutes left. Let's see what we can get to. I do want to pivot to 2026 leverage. I know we're not going to get full 2026 guidance this morning, but you did talk to margin expansion next year. Where should our heads be at? Should it be a function of gross margin expansion? You've got these new products that might have with them greater price realization, and/or you're also spending with no regrets in 2025 behind some of these launches, and we see OpEx leverage coming to the equation next year, both one or the other. Please elaborate. Yeah, I think what's exciting about our margin story is it's multi-levers and a lot of controllables, so one is mix. I think everything but Bovaer, and Bovaer will get there, but everything in our basket today of innovation is accretive to the current gross margin of Elanco. So that's one. Two is Grace has come into manufacturing, and really we are looking across the board company-wide at saying, "Hey, fuller plants, you take our Hénin, France plant that makes Zenrelia, that makes Credelio, now making Credelio Quattro, our absorption factor is really a key driver right now." You saw that in the quarterly results and a driver. That's the second. Now we're looking at company-wide margin, and what PwC did for us is we've done it many times is, "Hey, how do we look at the thresholds of our footprint? How do we look at gross to net? Pet continues to be an opportunity to actually manage that difference between gross and net on pricing. That is another pocket. Procurement is another pocket of opportunity. Look for Bob coming in as CFO fresh, looking at a company-wide margin expansion opportunity. You have seen us do this over the years with many acquisitions. Margin always comes at a little bit of a cost. Is there a restructuring cost? Is there a get rid of a couple of products and what that does? We will be careful and measured relative to the cost versus the margin. Multiple levers, think about it as mix and controllable margin actions would be the two big ones that I think are the opportunity. You combine that with just an accelerating growth line with more pet, U.S. pet business, it puts us in a much better position. You know, and we had IDEXX up here yesterday. We'll have Zoetis in a bit. It seems like their price realization, if anything, is subsiding a bit. It was sort of hyper-pricing back in 2023, 2024. You were never at their level of price realization. I think it's like about 2% this year. Can you actually move a little bit the other way, Jeff, because you're going to have these innovative products out there in 2025, a full year in 2026? If we look at where Zoetis took price in the past, it wasn't uniform across the board. It was outsized price specific to innovation. So do you think you can move almost the opposite way within the industry? Yeah, I think it's our time, and we are lapping. Right now, I'm getting no pricing on these new products. You'll get that as you come into 2026, a comparison. Our percentage of our portfolio will be higher innovation. I do come back, though, to the simple fundamental. The willingness to spend for something differentiated and valuable continues to be very buoyant and resilient. I was yesterday talking to Bloomberg and economists and everything. This is the one trend to watch is less kids, the Gen Zs and the Alphas, and the willingness to spend, the data is very consistent. I'm not worried about vet visits and probably wouldn't need to be as much as a diagnostic company, but if we execute our innovation and show a differentiation and have strong portfolios, absolutely. Here we are with four minutes to go, and we haven't talked about farm animal, maybe our most valuable part. We're about to get there. I would say we're adding a lot of value on the protein side, and that's very value-based. What we're doing right now in the cattle industry gives us also the liberty and the ability to take more price than maybe we have. Let's spend a couple of minutes there, and maybe we'll conclude with tariffs if we get there. Bovaire, in your mind, a question of when, not if, and maybe if you want to elaborate. Let's quickly pivot to Experia. Let's make sure we hit on what Experia is doing to the overall portfolio, not just the product. Yeah. $104 billion in animal protein last year in the U.S., the most in history. We've consumed more animal protein. The animal protein alternatives are down 20%. The Maha report that came out over the weekend shows, you know, you need about a gram of protein for every pound of weight of a body. Look at cottage cheese growth. The dairy industry just added $10 billion. We have a tailwind in animal protein, and animal health can play a major role. Giving consumers what they want, cottage cheese, milkshakes, and animals what they need. What we're seeing with an Experior is you get in a feeding program, you can be the difference between a high percentage of the margin and the EBITDA of these major companies. We like the cattle shortage, and the cattle herd coming back has helped Experior, helped the portfolio of global poultry business, number one in poultry, number one in the US farm animal. Now Bovaire is really allowing CPG companies to say, "Hey, we can help." This next generation that is leaning back into animal protein wants the animal taken care of and wants less environment. The money's coming from CPG companies, not the government. That's the key thing. Bovaer will ramp. We doubled cows. Watch for that on every earnings call. It will be sticky like Experior. Nobody that's gone on to Bovaer is coming off. We got to lean in. We got to take up the manufacturing capacity a little bit more. I love farm animal because it's sticky and the ramps are a lot longer and a lot more steady. It is really our marketplace. How about for Experior? I mean, you're further along in that ramp and further inflection that we saw in 1Q. Yeah. We see a $350 million North American market. We will expand that beyond what Elanco does well as we put the analytics with the feed formulas and we show and demonstrate the value. Again, we see, as we said, a 200% growth in Experior. Again, that is really kind of our market. The heifer clearance really allowed more feed yards to say, "Now I can put it in everything. The 200% number was huge in 1Q. Anything that we should be cognizant of? I think the heifer clearance, I believe, was fall of 2024. It's like, "Look, John, it's all incremental." I mean, I don't mind if you desell from 200% to 150%, but anything that you want to call out that we should be cognizant of once you begin to lap that later this year? Yeah, you need more head of cattle. You need more days of duration. You need to continue to look at dose and then price. Those are always the four levers in farm animal, and those would be the things that we'll be leaning into. Okay. A quick one with a minute or so left. Can you talk about what's going on in Washington? I know that can change by the 2nd, as we saw last night. Maybe just the industry working together in hopes of getting an exemption from pharma tariffs and update us there, please. Our animal health agenda, very aligned. All of the major companies, the ones you'll hear from today, we're all aligned on really two big initiatives. We have a very agenda that I think is working right now. On regulatory reform, we like the streamlined regulatory efforts, but we will say the FDA has to do better. I mean, we are not at the parity. I mean, Europe approved twice as many drugs as the U.S. last year, and they're 13 months faster. I think that we need a more efficient, predictable body, both at CVM and CVB. I think there's a willingness within that to streamline. Less is okay if it's streamlined. We need predictable. That's key. The second is the exemption. I mean, we are different than pharma. We're more like feed and food maybe than pharma. We're a cash-based business. We're smaller. We can help the American economy by the vibrancy of farms and vet clinics. I believe we're being heard, and we're attempting to be separated from that. Elanco, let me emphasize, we've taken a holistic approach on these tariffs. It's inside the guidance, really. Any scenario we see is inside the current tariff guidance that we put out. I think you've written about that appropriately. If we don't get an exemption or there are some things beneficial, like China, we'll be given back some of that $25 million of EBITDA that we had from the FX. Based on where you were on the FX rates as of 1Q. I think you can say, "Hey, there's not a lot of scenarios that change. This presentation has now finished. Please check back shortly for the archive.