Elanco (ELAN) Q3 2026 Earnings Call Transcript

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DATE

Friday, Nov. 6, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations and ESG - Tiffany Ann Kanaga
• President and Chief Executive Officer - Jeffrey N. Simmons
• Executive Vice President and Chief Financial Officer - Robert VanHimbergen
• Investor Relations - Beth Haney

TAKEAWAYS

• Revenue -- $1.265 billion, representing an 11% reported increase and 9% organic constant currency growth.
• Price Growth -- 4%, outperforming expectations due to value created by medical differentiation.
• Volume Growth -- 5%, driven by the innovation portfolio and diverse product offerings.
• Adjusted Gross Margin -- 56.1%, expanding 300 basis points through favorable product mix and pricing.
• Net Leverage Ratio -- 2.9x, reaching the sub-3.0x milestone ahead of schedule and increasing capital allocation flexibility.
• Innovation Revenue -- $328 million, increasing 40% year over year and led by the Big 6 portfolio.
• International Pet Health Revenue -- Up 17% in organic constant currency, supported by demand for Zenrelia and AdTab.
• US Pet Health Revenue -- Up 13% in organic constant currency, driven by vet clinic sales of Credelio Quattro and Zenrelia.
• Zenrelia US Market Share -- Increased 7 percentage points year over year, ending the quarter at a record high in September.
• Credelio Quattro US Market Share -- Gained 9 percentage points year over year, surpassing Seresto as the largest US pet health product.
• Vet Clinic Penetration -- Approximately 19,000 US clinics, representing two-thirds of the total clinic base for Zenrelia.
• FY 2026 Innovation Revenue Target -- Raised to $1.275 billion, reflecting momentum for the company's basket of innovation.
• Global Ruminants Revenue -- Increased 12% on an organic constant currency basis, or 17% including the AHV International acquisition.
• Adjusted EBITDA -- $243 million, representing 23% growth and a 19.5% margin.
• Adjusted EPS -- $0.27, reflecting a 42% increase from the prior year.
• Debt Reduction -- $216 million in the third quarter, with a total gross debt reduction of $317 million year to date.
• Free Cash Flow -- $362 million as of the end of the third quarter, tracking ahead of the target for $1 billion through 2028.
• FY 2026 Adjusted EBITDA Guidance -- Increased to a range of $1.05 billion to $1.065 billion, a 17% increase at the midpoint.
• FY 2026 Adjusted EPS Guidance -- Raised to $1.17 to $1.20, representing 26% growth at the midpoint.
• Q4 2026 Revenue Guidance -- Expected between $1.190 billion and $1.215 billion, with organic constant currency growth of 4% to 6%.
• AdTab Sales Growth -- Over 40% in the third quarter, positioning the brand to become the next blockbuster.
• Operating Expense Growth -- 12% in constant currency, driven by an 18% increase in marketing for product launches.
• Elanco Ascend Savings Target -- $200 million to $250 million in total adjusted EBITDA savings by 2030.
• US Farm Animal Revenue -- Up 7%, led by cattle with positive contributions from beef and dairy.
• International Farm Animal Revenue -- Up 1% in organic constant currency, reflecting demand for ruminants in Latin America.

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RISKS

• Simmons stated, "Third quarter Seresto sales were partially impacted by retailer inventory drawdown," noting a temporary dynamic in the retail channel.
• VanHimbergen warned that the company expects a gross margin headwind in 2027 from significant but dilutive ProFenta volume growth.
• Simmons noted that regional farm animal cycles and poultry vaccine declines created volatility in specific international markets.

SUMMARY

Elanco Animal Health Incorporated (NYSE:ELAN) reported growth across its four business segments, citing medical differentiation and innovation as the primary drivers of market share expansion. Management stated that the company is outperforming its financial commitments and is well positioned for the upcoming fiscal year. The company is prioritizing its strategy centered on innovation, portfolio diversity, and productivity through its global efficiency programs. Strategic focus remains on scaling new blockbuster products while maintaining a stable base in international and domestic markets.

• The company integrated a proprietary AI-driven regulatory tool in research and development to accelerate speed to market and increase resource capacity.
• CEO Simmons noted that pets remain a protected budget item, with 93% of surveyed pet owners maintaining or increasing health spending.
• Management indicated that the retail strategy provides a competitive advantage by reaching the one-third of pet owners who do not regularly visit a veterinarian.
• The company's research and development pipeline includes more than 15 clinical candidates, with five to six potential blockbuster innovations expected through 2031.
• CFO VanHimbergen stated that the company held its first supplier day with over 70 strategic partners to collaborate on procurement and offset inflationary pressures.
• Employee engagement reached the highest levels since the company's initial public offering, exceeding enterprise benchmarks across all functions.

INDUSTRY GLOSSARY

• Big 6: A group of six key innovation products, including Zenrelia and Credelio Quattro, identified by Elanco as primary growth drivers.
• Zenrelia: A once-daily oral medication for the treatment of pruritus associated with allergic dermatitis and atopic dermatitis in dogs.
• Credelio Quattro: A broad-spectrum parasiticidal product for dogs that protects against fleas, ticks, heartworm, and internal parasites.
• Elanco Ascend: A multiyear productivity and efficiency program focused on improving gross margins and EBITDA through automation and procurement.
• JAK: Janus kinase inhibitors, a class of drugs used to treat inflammatory conditions like canine atopic dermatitis.
• Befrena: An injectable monoclonal antibody treatment for canine atopic dermatitis.
• AdTab: An over-the-counter chewable treatment for fleas and ticks in dogs and cats, primarily marketed in international regions.
• ProFenta: A product used in the cattle industry that management expects will impact gross margins due to high volume at lower margins.
• Ecto: Ectoparasiticides, products designed to kill parasites that live on the surface of the host, such as fleas and ticks.
• Blockbuster: A product that achieves or is expected to achieve $1 billion or more in annual sales.

Full Conference Call Transcript

Operator: Good day and welcome to Elanco Animal Health Reports Third Quarter 26 Results At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question, you will need to press star 11 on your touch tone telephone. Please note this call may be recorded. I would now like to turn the call over to Tiffany Ann Kanaga, Vice President of Investor Relations. Please go ahead.

Tiffany Ann Kanaga: Good morning. Thank you for joining us for Elanco Animal Health's third quarter 2026 earnings call. I am Tiffany Ann Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeffrey N. Simmons, our president and chief executive officer; Robert VanHimbergen, 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 discussed 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 statements. 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. References to organic performance represent revenue growth, excluding the impacts from royalty revenue and sales based milestones that were sold to a third party, foreign exchange rates, and acquisitions and divestitures. After our prepared remarks, we will be happy to take your questions.

I will now turn the call over to Jeffrey.

Jeffrey N. Simmons: Thanks, Tiffany. Good morning, everyone. Elanco delivered an outstanding third quarter, outperforming our commitments and growing revenue 11% on a reported basis or 9% in organic constant currency. We are growing the right way with accelerating price up 4% and volume up 5%, reflecting the value created by our basket of innovation and our diverse portfolio. This translated to significant gross margin expansion, up 300 basis points and greater free cash flow moving our net leverage ratio under the 3.0x milestone. Growth, innovation, cash. We are consistently executing along these 3 priorities, powered by our balanced business profile, strategically built to produce results as industry and competition evolves.

And we are just getting started with significant runway for share gains off a small base in and large growing global markets. As highlighted on Slide 4, Elanco exceeded the high end of guidance for revenue, adjusted EBITDA and adjusted EPS. Growth was led by International Pet Health up 17% and US Pet Health, up 13%, With positive contributions from Global Farm Animal. In the third quarter, we saw strong veterinarian and pet owner demand for what we believe is best-in-medicine innovation that we are bringing to the table. Zenrelia once again led total Elanco growth with Credelio Cuatro also a major contributor. Both brands achieved record market share in the US in September.

Our Big 6 led by Zenrelia and Quattro helped drive $328 million of third quarter revenue from innovation, up 40% year over year. We are raising our full year innovation revenue target to $1.275 billion to reflect continued momentum for our basket of innovation on a stable base. Looking ahead, Elanco's entered into the final quarter of the year continued momentum from a position of strength. We are meaningfully raising full year guidance by fully passing through the third quarter beat. Moving into 2027, we anticipate building on this year's expected outperformance. We are recommitting to deliver our annual algorithm of mid single digit revenue growth, high single digit adjusted EBITDA growth and low double digit adjusted EPS growth.

Creating sustainable value for our customers and our shareholders. Turning to Slide 5, we break down the third quarter's 9% underlying organic constant currency revenue growth. HV International, our acquisition, which closed April 30th, contributed about 1 point of growth not included in the organic rate. And it further strengthens our global ruminant position. US Pet Health's 13% increase was led by our vet clinic sales of Quattro and Zenrelia with good growth in vaccines and pain, and a strong overall price contribution. We are creating value for pet owners and the industry through our truly differentiated portfolio of innovation, driving market share, and accelerating price gains in what we see as a responsible marketplace and competitive backdrop.

We have observed some pockets of time bound investments from competitors which happens periodically in the animal health industry consistent with past behavior. While these tactics may temporarily shift sales timing, our strength in the quarter and especially in September is evidence of the attractiveness of our portfolio. and there being no fundamental impact on the trajectory of our share gains and revenue from our innovative products in U. S. Retail year to date, we continue to see stable consumer demand for Seresto and the Advantage family. Third quarter Seresto sales were partially impacted by retailer inventory drawdown, while year to date consumption trends for the brand are slightly positive, smoothing out that dynamic.

Zenrelia and Quattro continue to achieve very robust growth outside the vet clinic. Putting it all together, US Pet Health achieved 13% growth despite retail sales being slightly negative in the quarter. We expect our omnichannel leadership new distribution points and OTC innovation to provide durable growth next year and beyond, allowing us to reach the 1/3 of pet owners that do not regularly visit the veterinarian. Moving to international pet health. We delivered 17% organic constant currency revenue growth driven by Zenrelia and AdTab.

Zenrelia is rapidly approaching blockbuster status in international pet health alone with ample room to grow into key category leadership in the $850 million international derm US Farm Animal increased 7% in the quarter, or 10%, including HV. Growth was led by cattle with good contributions from beef and dairy. And for the rest of the portfolio, swine was positive more than offsetting a decline in poultry vaccines. International farm animal grew 1% in organic constant currency or 4% including HV and FX. Also reflecting strength in ruminants with notable demand in LATAM. Poultry and swine were negative in the quarter but combined for positive year to date growth.

Regional farm cycles may create incremental quarter-on-quarter volatility ahead, but our expectations for accelerating global protein consumption underpin long term value for the business. Turning to Slide 6. We delivered $328 million of innovation revenue in the third quarter, led by continued momentum for our Big 6 in aggregate. We are raising our anticipated innovation contribution for 2026. And we are running ahead of our ambition to double the big 6 between 2025 and 2028.

This accelerated pace of innovation sales reflects a competitive advantage in the marketplace that we expect to sustain. it is built on rapid globalization, medically differentiated products with low market share in large categories, our growing commercial strength data driven brand investments that are driving increasing brand loyalty and differentiated distribution partnerships. Let's further discuss the progress of our major innovation products on Slide 7 starting with ZENRELIA. it is an accelerating success story, well exceeding our expectations across geographies even as competition increases. The third quarter was Zenrelia's biggest yet. In both the US and international, with this special product providing its largest ever contribution to total Elanco revenue dollar growth.

Efficacy is the clear driver behind Zenrelia's momentum, creating substantial value for veterinarians and pet owners and translating into strong growth and share gains. Market demand drove US sales to more than double in the quarter versus last year. Vet clinic penetration climbed to approximately 19 thousand or 2-thirds of the total clinic base with steady month to month gains even as new competition entered. US JAK market share improved 7 points year-on-year, ending on a record high in September driven by new users and sticky repeat orders and increased penetration in existing clinics. The average US sales per clinic increased 8% from Q2 to Q3, even with new clinics and a competitive entrant.

Summing up the performance in the US, yes, this quarter was increasingly competitive, but Zenrelia's momentum is stronger than ever. Our expanded sales team is seeing interest in our differentiated medicine, superseding marketplace noise. Our strategy is working, and we do not see that changing. Zenrelia grew even faster internationally than in the US in the third quarter and year to date. Growth has accelerated in Europe, the market with 3 JAK1 products for the longest period. Notably, Zenrelia gained 10 share points in Europe in the first half of 2026, the latest available data. This is 5x the competitive entrant, driven by higher customer satisfaction with the product.

Zenrelia is now in 48 countries outside the US, all without label restrictions. We continue to drive significant share gains across key geographies. For example, Zenrelia has continued to build on its market leading position in Brazil, and has also achieved over 40% share in Japan. Globally, efficacy remains the differentiator. Creating this remarkable performance and long term growth potential. On to our second derm innovation, Befrena. Demand continues to build. We have just opened up access to Befrena to all customers, so our sales team can sell to every clinic, including large corporate accounts.

We expect to fill all outstanding orders by next week and to move Befrena from a phased launch to a full-scale national launch in the first quarter. Befrenna is already showing what our derm portfolio can do together. About 20% of clinics which have purchased Befrena have never used Zenrelia, unlocking a new door for Zenrelia. On supply, we are now making Befrena continually with more than 30 commercial batches produced. We have finished the manufacturing expansion and process scale up and our larger scale test runs have gone well. Although Bifrena did not materially contribute to Q3's 13% growth in US Pet Health, we expect it to be a major revenue growth driver in 2027.

With the potential to be the single largest contributor to US Pet Health growth. Next year. Next, on Credelio Cuatro, we are very pleased with another good quarter of dollar share gains in broad spectrum dispensing sales from the US clinics. QUATRO's market share increased 9 points in Q3 year-over-year. We have continued aggressive clinic expansion reaching about 55% of the US base today, up 15 points since Q1. that is an increase of approximately 4.5 thousand clinics in just 2 quarters. Reflecting strong veterinarian and pet owner demand for the 4 dimensions of differentiation that make Quatro what we believe is best-in-medicine.

Like Zenrelia, Quatro exited the quarter with strength, as September was the largest month of Q3 reaching its highest market share ever. Strategic DTC efforts activated demand into the later months of what we see as becoming a prolonged season. Remember that ticks remain active as long as temperatures are above freezing. Speed of tick kill is not just a clinical metric. it is a household safety requirement, and Quattro's exceptional speed is resonating strongly with pet owners. Qatro's momentum has carried through the typical seasonality to make this Elanco's largest US Pet Health product, surpassing Seresto on a trailing 4 quarter basis.

And we are just getting started with very limited global share compared to the 2 incumbent franchises exceeding $1 billion each. There is ample room for many years of Credelio Quattro growth, through market expansion, deeper clinic penetration, market share gains within the clinic, research demonstrating differentiation and global expansion. There is a significant upside outside the US, which we expect to help Credelio family become our largest global product family ever. So far this year, Quattro has launched in Australia, Canada and Japan. Yesterday, we received a positive opinion for expansion into the EU, the largest geography in the $800 million international broad spectrum market, which is growing double digits.

We expect to launch Credelio Quattro in Europe in Q1 2027 in time for the season. Turning to AdTab, this market leading international OTC parasiticide is positioned to be Elanco's next blockbuster. Sales grew more than 40% in the third quarter. AdTab continues to be the fastest growing major brand in the nearly $600 million OTC ecto category in Europe. Moving to farm animal, Experior has driven strong cattle portfolio synergies year to date. We anticipate Experior to continue to grow and lift the broader portfolio with multiple levers from extending days of use continued adoption, and price. At the same time, we do expect moderating growth rates against challenging comparisons. Lastly, on Bovaer.

Our expectations and trajectory are unchanged from our last update. Year to date growth is good, but off a small base. With continued demand from CPG companies that support relatively consistent cattle numbers. We are investing in long term initiatives to enhance the product value and demonstrate user flexibility. Moving to Slide 8, we provide recent highlights across the 3 parts of our IPP strategy. Innovation, portfolio and productivity. Let's start with innovation. The commercial success of the Big 6 proves that innovation is what drives value and growth in the animal health industry and we are progressing our next wave portfolio without attrition from the 15 plus projects outlined last December.

Our pipeline is significantly greater probability, speed and value since our December 2025 Investor Day, driving our increased confidence behind the 5 to 6 blockbuster potential innovations expected through 2031. Next, portfolio, which provides Elanco's diverse broad based growth. Global Ruminants is a clear example as our fastest growing species year to date, up 12% on an organic constant currency basis or 17% including HV and FX. Global pet health portfolios also have benefited from recent innovation launches lifting US pain, vaccines, and therapeutics up double digits, and driving the EU, Asia, and LATAM each up double digits. Finally, productivity. Through price mix and Elanco Ascend, we achieved significant gross margin expansion in the third quarter, up 300 basis points.

Our strong results and working capital discipline have generated free cash flow tracking ahead of pace in our 3 year algorithm for $1 billion through 2028. It has also allowed us to pay down debt faster than planned with another $216 million in the quarter. At 2.9x net leverage at the end of Q3, we have accelerated capital allocation flexibility. This is an important milestone representing years of consistent execution along our priorities of growth, innovation, and cash. And it opens up new opportunities to drive meaningful long term value. With that, I will pass it to Bob to provide more on our third quarter results financial guidance and early considerations for 2027.

Robert VanHimbergen: Thank you, Jeffrey, and good morning, everyone. My comments today will focus on our adjusted results for the third quarter. Please refer to today's earnings press release for details of our reported year over year results. Starting on Slide 10, we delivered $1.265 billion in revenue, representing an increase of 11% on a reported basis. Organic constant currency revenue growth was 9%, with 5% from volume and 4% from price. Slide 11 provides revenue from the 4 quadrants of our business. Total pet health revenue increased 14% in organic constant currency. Our US business achieved 13% growth driven by strong momentum in the vet channel and continued demand for Zenrelia, and Credelio Quattro.

Internationally, pet health revenue grew 17% in constant currency, driven by the strong demand for ZYNRELIA across multiple geographies. With strength in Europe, Japan, Brazil and Canada. Globally, our farm animal business grew 4% in organic constant currency, led by The U. S. Business at 7%. Results were driven by strong growth in the ruminant portfolio. Turning to Slide 12, Adjusted gross margin expanded to 56.1% this quarter. Representing a 300 basis point increase over the prior year. The outperformance was driven by pricing, favorable product mix, specifically in U. S. Pet health and global ruminants. These factors and our intensified productivity efforts more than offset the impact of inflation related inventory costs.

Operating expenses increased 12% in constant currency, in line with our expectations. Consistent with our long term strategic objectives, the increased investment in marketing, up 18%, is focused on targeted DTC support for our new product launches. We are also progressing our innovation pipeline while Elanco Ascend is resulting in discipline around G&A expenses, up only 2%. These investments are showing strong returns in share and long term brand loyalty. Interest expense for the quarter totaled $41 million consistent with our expectations. On Slide 13, we show an adjusted EBITDA year over year comparison for the quarter. Adjusted EBITDA was $243 million an increase of $45 million or 23%. Adjusted EPS was $0.27 a 42% increase year over year.

Slides 14 and 15 highlight our strengthening balance sheet. During the quarter, we lowered gross debt by $216 million bringing our year to date total reduction to $317 million This execution reflects our strong operational performance improved working capital management. Additionally, we are tracking ahead of schedule toward our cumulative free cash flow target of $1 billion by 2028. With free cash flow reaching $362 million as of the end of the third quarter. Quarter end net leverage was 2.9x, outperforming our previous guidance. Achieving the sub-3.0 times milestone accelerates our capital allocation flexibility, we advance toward our target of 2 to 2.5x. Turning to our financial guidance on slide 17.

Driven by our strong third quarter performance and confidence our momentum for the remainder of the year, we are fully flowing through our third quarter beat into our updated full year outlook. We now expect organic constant currency revenue growth of approximately 8% up from the previous range of 6% to 7%. This translates to reported revenue of $5.155 billion to $5.180 billion with our assumption for foreign exchange tailwinds and HV International contributions remaining unchanged. Our adjusted EBITDA outlook increases by approximately $35 million or 17% growth at the midpoint. For adjusted EPS, are raising our guidance by $0.06 at the midpoint, bringing the new range to $1.17 to $1.20. Representing 26% growth at the midpoint.

With our updated year end cash and balance sheet expectations, we expect a net leverage ratio of approximately 2.9 times. Continue to advance our Elanco Ascend productivity initiatives, targeting $200 million to $250 million in total adjusted EBITDA savings by 2030. In the third quarter, we launched a proprietary AI driven regulatory tool in R&D. By utilizing a human in the loop framework, this system accelerates our speed to market unlocks resource capacity. AI is also now integrated into our discovery activities, is expected to improve lead quality and refill rates for our innovation pipeline. Productivity initiatives like these combined with the growth of our innovation portfolio, position us to deliver substantial margin improvement and ultimately long term shareholder value.

Moving to our fourth quarter guidance on Slide 19. On a reported basis, we expect revenue between $1.190 billion and $1.215 billion representing organic constant currency growth of 4% to 6%. Operating expenses are expected to increase approximately 11% in constant currency, to support our innovation launches and R and D investments. As a result, we anticipate adjusted EBITDA of $185 million to $200 million and adjusted EPS between $0.16 and $0.19 On Slide 20, we highlight the momentum across our US Pet Health business. We remain confident in delivering high single digit to low double digit growth in the fourth quarter despite challenging comparisons.

Growth is driven by continued uptake of Zenrelia and Credelio Quattro, contributions from Befrena and significant corporate account growth. For the full year, continue to expect the US Pet Health business to achieve at least high-single-digit revenue growth. Slide 21 offers an early perspective on the key headwinds and tailwinds we anticipate for 2027. We remain committed to the annual algorithm that we introduced at our December 2025 Investor Day. Which spans through 2028. Aiming to deliver mid single digit organic constant currency revenue growth, high single digit adjusted EBITDA growth, and low double digit adjusted EPS growth. Broadly across our business, expect continued sustainable growth as our innovative products scale globally on top of a stable base.

With ample room for pricing contributions. Our increasingly competitive portfolio positions us well to capture and defend market share while we navigate competitive dynamics. In pet health, we expect our Befrena launch to be a meaningful driver of top line growth. Any Zenrelia label improvement represents upside to our annual algorithm, but is less important given the product's momentum. We also see sustained demand across our leading OTC brands, partly offset primarily in the first quarter by Costco's non renewal. In Farm Animal, we expect to extend our leadership position across cattle and poultry. We expect accelerating global annual protein consumption to serve as a consistent tailwind for our farm portfolio. Balanced against regional farm animal cycles.

Remember that Q1 27 will lap a benefit from customer driven accelerated shipments, primarily to the Middle East. These accelerated shipments contributed 1 percentage point of growth for total Elanco in Q1 2026. Turning to margin, we expect accelerating contributions from Elanco Ascend as automation and productivity initiatives drive structural gains throughout our global footprint. Ascend benefits, plus those naturally captured from increased scale, are expected to provide overall margin tailwinds. As a partial offset, we do anticipate a gross margin headwind from significant but dilutive ProFenta volume growth. As well as persistent inflation pressures. Overall, we expect nice improvements in both adjusted gross margin and adjusted EBITDA in 2027 that track to our algorithm commitments.

Lastly, we expect our strengthening financial profile and accelerating cash flow to unlock accretive capital deployment opportunities, enhancing shareholder value. Now I will hand it back to Jeffrey for closing comments.

Jeffrey N. Simmons: Thanks, Bob. Our third quarter reaffirms our IPP strategy with Elanco well positioned to deliver our algorithm in 2027 and beyond. As I close on slide 23, let me address how Elanco is deliberately built to not just execute, but thrive across market cycles and competitive environments. First, pricing. Innovation creates clear value for pet owners and our basket of innovation drove Elanco global pet health price up 5% in Q3, above expectations. At the same time, volume was robust at 9%. There can be no doubt we are winning through medical differentiation not discounting. While we have observed some pockets of time bound activity in the industry, it is a typical dynamic with an overall responsible competitive backdrop.

Best medicine drives loyalty for pet owners. Not price. So regardless of any short-term and short-sighted competitor conduct, let me be clear that Elanco has not, will not, and does not expect a need for our participation in aggressive price competition to grow and gain share. Our consistent quarterly delivery the last 2 years has proven this point. What will win share is clear. Best medicine in big growing markets, growing share of voice, and a globalizing basket of innovation. Second, channel shift and pet ownership. Elanco has consistently shown that innovation drives our business. At the same time, changing pet owner buying behaviors as consumers prioritize convenience underscore the importance of omnichannel leadership.

Elanco's results have decoupled from vet visit volumes or puppy cohorts as we bring our comprehensive portfolio of differentiated products and strong share of voice with an omni channel advantage to drive our industry-leading pet health growth. With a long runway ahead. Third, pet owner spend, which remains resilient as a protected budget item, with pets at the center of the family. Our latest survey work across over 1.5 thousand US pet owners detailed in a press release issued this morning reinforces the thesis of durable growing pet health spend. Today, an expected to continue into the future. Industry vet-channel revenue is up low single digits year to date, reinforcing our proprietary research.

Moreover, the US consumer has shown resilience evidenced by solid trends in monthly retail sales and credit card data even as gas prices and interest rates have risen. Finally, US pet health is just 1/3 of the diverse animal health industry, expected to grow at a mid-single-digit CAGR to $60 billion in the next decade. The durability is clear in 2026, as 9 out of 10 top animal health companies grew global revenue in the first half, with trends extending into the third quarter. And we believe no 1 is more central to society's needs for pets and protein than Elanco. With our balanced profile and all 4 businesses growing in Q3 and year to date.

Our October pet owner survey on Slide 24 underscores what we are seeing in the marketplace and is remarkable in the consistency of the results throughout 2026. Pet Health is fundamentally protected from economic pressure. 93% of pet owners maintained or increased spending in the past 3 months and plan to keep doing so. Yet, where their spending is clearly shifting towards more convenient options. Pet owners prioritize their pet's health, and that gives our business exceptional resilience. Turning to Slide 25, we expect Elanco's innovation to drive many years of material share gains in large growing global markets.

We have made rapid progress to gain a foothold in the broad spectrum in decto and derm, with each market over $2 billion in size. This is just beginning. As these charts are representative of our limited market position. Significant white space provides a multiyear path for continued high quality growth through medical differentiation, share of voice, clinical penetration, preference within those clinics, and globalization. Wrapping up on slide 26. I believe no other animal health company is as well positioned as Elanco. We believe our differentiated innovation and durable business model provide a compelling investment opportunity. We have a long runway to win share while the markets continue to grow.

Consistent reliable growth is already fueling margin expansion and accelerating cash flow as demonstrated in the third quarter. With a clear path to significant value creation throughout the rest of the decade. With that, I will turn it over to Tiffany to moderate the Q and A.

Tiffany Ann Kanaga: Thanks, Jeffrey. We would like to take questions from as many callers as possible, so we ask that you limit yourself to 1 question and 1 follow-up. Operator, please provide the instructions for the Q and A session, and then we will take the first caller.

Operator: Thank you. Press star 11 again. Our first question comes from Jonathan Block with Stifel. Your line is open.

Jonathan Block: Gross margin was up 300 bps year over year. So really big step up. Maybe Bob, if you can provide some color on the track of gross margin, if you can. I do not know if you gave an implied Q4. And then maybe more importantly, Jeffrey, any timing behind that 60% goal that you have thrown out there, less than 5 years, less than 3 years, but maybe some framing would be helpful. And then I will just ask a quick follow-up. Thank you.

Robert VanHimbergen: Good morning, John. Hey, thanks for the question. Yeah. So I will give some color on margin. So Q3, as we highlighted, increased 300 basis points over the prior year. Really led by a couple of things. 1, strong price. Number 2, favorable mix with US pet health and international pet. And then number 3, our manufacturing improvements, really with Elanco Ascend and that team focused on conversion cost. We are seeing productivity gains across the company with Elanco Ascend. I would highlight is we did flow through those higher inventory costs that I have highlighted over the past couple of quarters that is now fully behind us. Now with that being said, we are not taking a victory lap.

Opportunity exists to do more. As we think about Elanco Ascend, not only through procurement and the 4 walls of our manufacturing facilities, but also through G and A, we will see continued absorption benefits as we see volume improve and then natural mix benefits with our basket growing is, again, those margins are accretive to our overall corporate average. Now as you think about really moving forward, let me just give you an update on Elanco Ascend. So I am really, really pleased with the progress we have achieved so far in 2026. You have seen the benefits come through in Q2 and Q3 as we have accelerated some of those projects.

I have shared a couple examples over the last few quarters about process improvements, how we are leveraging AI and automation, not only within our shared-service center, but also within R&D. And now we are continuing to focus on building stronger relationships with our strategic partners particularly on the procurement side, and that has been a key priority. And so even this week, we have hosted our first-ever supplier day. We have brought in over 70 of our key suppliers and strategic partners to discuss how we can better collaborate I have personally sat in several of those meetings this week and we know we are in an inflationary environment.

But we are working together to collaborate and grow together and then push to offset some of that inflation. And then I would highlight, you know, we are going to see margin enhancement over the next several years both gross margin and EBITDA improvement because it is a total global Ascend program. We are seeing benefits not only from our procurement team, but we are seeing it in our manufacturing capabilities. We are seeing it in our R&D team who is more and more efficient in getting more throughput through their processes. We are seeing G&A effectiveness. And even on cash flows, we do not talk a lot about cash flows.

With Ascend, but look at our trade working capital improvement we saw in Q3 versus prior quarters in last year. So, you know, you know, the takeaway here, John, is that we are going to have several continued years of improvement in both gross margins, EBITDA margins, and cash flows.

Jonathan Block: Your John? Yeah. Jeffrey, I guess I will be the 1 to ask is, can you just briefly touch on the Costco non-renewal? Maybe if you want to address why I do not think there is much revenue exposure there. If I have got this right, you just entered into that. In 1 q 26, and I do think you called out still expecting retail growth in 2027 versus 2026. But maybe just clean that up or frame that for us. Thank you.

Jeffrey N. Simmons: Yeah. I just back up. Our retail business continues good strong underlying demand globally. You see the ad tab success that is very close to becoming our next blockbuster. And, you know, our strategy that Bobby and the team have put together in Robert, adding distribution points, adding innovation, globalizing, it is continuing to be a really competitive advantage for us. We can meet and reach more pet owners where they want to shop than any other company. But, John, as you can see, I mean, we are constantly adding distribution points. Some stick. The majority have stuck with us. And some will, you know, ebb and flow year to year.

We expect a long term relationship with Costco, but we do expect them to pull back next year. That impact is mostly gonna be in Q1. Gonna be offset you know, by other distribution partners that we picked up. So again, feel real good about the overall retail business. Thanks, John.

Jonathan Block: Fair enough. Thank you.

Operator: Thank you. Our next question comes from Glen Santangelo with Barclays. Your line is open.

Glen Santangelo: Yes, thanks. Good morning, and thanks for taking the question. Yeah. I just wanted to sort of, you know, talk about 2 areas of pushback that we sort of get, Jeffrey. And I just want to get your quick take on it. It feels like a lot of people are concerned that maybe Elanco, while doing well today, maybe in the midst of the sort of peak share shift. And I know in your prepared remarks, you talked about some of the improvements you made in your commercial infrastructure. Maybe could you just talk about how that could continue to benefit you in 2027?

And then secondly, you know, everyone is concerned about the macro. there is always conversations around the decline in vet visits since COVID, really. So the question is, is anything getting worse in your mind? And I am just trying to contextualize those 2 areas of pushback relative to the initial 2027 revenue stake that you sort of put in the ground. So any comments around those will be helpful, and I will stop there. Thanks so much.

Jeffrey N. Simmons: Yeah. Thanks, Glen. Look. At a high level, and we put out this market research this morning, I think that I will take your second question first. I mean, we believe that visits are not the lead economic indicator of pet health. We believe it is all about the willingness to spend and convenience. And the market research was very clear today that we shared that is been consistent with our February, May surveys and now the October survey is that we have got over 90% of pet owners it is been consistent all year. that are protecting their spend.

They are going to spend the same amount or spend more going forward that is represented in the 9 out of 10 companies. that have actually grown there. So we say that is the lead economic indicator. it is not vet visits. Vet visits, we believe, is more a result of a changing buying behavior of people going more outside the clinic. that is that is the answer. Look. I. We put in slide 25. We continue to try to be very transparent. that is representative of scale of the 2 major markets. That I really gotta call out. Excuse me, Glen. On the marketplace. And I will just make a couple comments because I think these details really matter.

Animal health continues to be extremely durable, and here's the data very quickly. Animal health markets growing mid single digit. Farms up 8, Pets up 2. Internationals faster than The US. The 9 out of 10 companies that I mentioned in innovation is the differentiator between those companies. So Specifically, yes, the US Pet Health market has slowed, but let's double click on the 2 major markets that we are playing in that are represented on slide 25. Broad spectrum and ecto and derm. And broad-spectrum and ecto, some interesting dynamics and data here. 1, broad-spectrum and ecto-parasiticides is growing mid-single-digit in the US, double-digit outside the US.

Interesting dynamic in this market is really there is been a shift there is kind of a changing of the guard. The top 3 products, Trio, NexGard Plus, and Bravecto, trailing 12 months, have lost 10 points of share. Meanwhile, new innovation, over 70% of that new innovation is from Quattro, has picked up 9 points of share. while the market is growing. So, really, we are excited that we got 3 $1 billion competitors and we are demonstrating best medicine to these players we have got a long runway to grow. Market's growing. We have a small share. And this has been 1 of the most durable markets even during this downturn. Second is derm. Derm growing high-single-digit internationally.

Thus, innovation is growing the market, both in para and derm. US revenue is down, or flat in derm, but more dogs in The US are on for derm than they were a year ago. And recent VetCov data showed that, actually, US derm doses are up double digit in the US. So the market's expanding. Launch offers and 1-time gross-to-nets maybe have made the market temporarily become flat in the US. But we see great share opportunities for us. So, Glen, long runway We are committing today to continue our algorithm in 2027. And we are confident in that. You saw Bob's pluses and minuses relative to the year. We feel very good going into next year.

Glen Santangelo: Thanks for all the details, Jeffrey.

Operator: Thank you. Our next question comes from Matt Dellatore with Goldman Sachs. Your line is open.

Analyst: Great. Good morning. Thanks for the question and congrats on all the progress. Maybe just another on the outlook for 2027. Obviously, you are seeing strong momentum across key product launches, and you reiterated the long term growth algorithm. But could you speak a little further about how we should think about the breakdown of that mid single digit top line between pet and farm next year? I realize you called out the harder comps for farm. So I assume pet above that and maybe farm a little bit below. And then maybe just on pet specifically in the context of clearly a really strong quarter. On both price and volume. But also the broader market dynamics.

Is there just anything you can share in terms of how we should think about the split between price and volume next year for pet? Thanks so much.

Robert VanHimbergen: Yeah, thanks Matt. So love to provide some color on what we see going into 2027. And I will expect and I do expect Pet to outperform versus Farm as we do get back to a mid-single-digit growth for Farm in 2027, especially really with some tough comps in 2026. But let me provide, just a couple comments overall on 2027. And Slide 21 in our deck really shows some of the pushes and pulls But we have a tremendous amount of clarity going into the year. We finished our business plan. We will be sharing that with the board here. A couple weeks. But a high degree of confidence.

And that is why we are sticking with our algorithm that we laid out in Investor Day in December 2025 with mid single digit growth high single digit EBITDA growth and low double digit EPS growth. And I continue to expect net leverage to improve throughout the year. We will see a normal spike up in Q1 that is normal with our timing of cash flows. But leverage will continue to improve throughout 2027. And our strategy is working, creating growth, innovation and cash. Jeffrey highlighted in his remarks that the Big 6 we are ahead of schedule, and we expect the Big 6 to double in revenues by 2028.

I have provided color on Elanco Ascend, but we are just getting started with margin expansion on that front as well. So a lot of confidence going into the year, look forward to sharing more details with you all in February when we give formal guidance.

Jeffrey N. Simmons: And Matt, I would just make 1 comment. I think price is a measure of value. Right? So you are discounting, you probably have a value product challenge. Our representation of 5% growth in pet is, I think, medical differentiation being proven out in the marketplace. We have very really, no major customer has left a Credelio Quattro and gone to a product, say, with 3 active ingredients. So we are retaining customers. We are able to take price because it represents value. And then when you jump over why we still feel good about price even in farm animal, is today our value proposition with this protein demand they are as great as they have ever been.

So it gives us some price leverage also on the farm animal side.

Analyst: Great. Thanks so much.

Operator: Thank you. Our next question comes from Erin Wilson Wright with Morgan Stanley. Your line is open.

Erin Wilson Wright: Outside of what you saw, I guess, at retail in some of the relationship dynamics there. I guess I am trying to parse out, you know, how you think about the quarterly progression from a stocking/destocking standpoint across the core business? Anything at distributors, to call out? And any sort of changes we should anticipate as you enter those new distributors into next year in terms of pricing and promotion dynamics? Any new tactics that you are kind of taking on that front? As we head into next year that would be great. Thanks.

Jeffrey N. Simmons: Yeah. Erin, we are, again, very consistent. In clinic, out of clinic demand is matching. Days of inventory has remained very steady. No changes relative to that at all. Again, you know, there is there is, you know, spotty different places where there is but it is nothing unusual. We see really a responsible backdrop overall in the marketplace. So as a whole, again, we are we are winning with best medicine. We are winning with share of voice. Our targeted media is building brand loyalty. We are starting to really see that brand loyalty grow, which is gonna create a stickiness and long term growth. In some of these big products that we have.

And that is really been the essence. Today, we have got more share of voice more stability, which you and I have talked about in our teams than we have ever had, more expertise, We just finished a survey, the highest engagement score since the IPO across the Elanco. And while we see some of our competitors restructuring and downsizing, our share of voice is up substantially, and that is that is a factor we have not talked a lot about that I think is playing out. When you put best medicine, share of voice, and brand loyalty together, we have got competitive advantage, and we see a long runway of share taking ahead here. So I hope that helps.

Erin Wilson Wright: I guess a clarification. Like, was there a stocking benefit at all in the in the quarter across the core business?

Robert VanHimbergen: Yeah, Erin, simple answer is no. We have not had any unusual stocking since I have been here, and it is been, what, 6 quarters or so. Nothing in Q3, very clean quarter. Q4, expect very clean, and into 2027, same thing.

Erin Wilson Wright: Perfect. Okay. Great. Thank you so much.

Operator: Thank you. Our next question comes from Umer Raffat with Evercore ISI. Your line is open.

Umer Raffat: So looking at some of the Credelio Quattro commentary and I recall you had mentioned a 3 point gain in market share back in 1Q and another 4 point gain back in 2 q, meaning those 2 quarters alone was about 7 points in gain. I am assuming it was something comparable last year in 4 q as well. So knowing that, that in the last 3 quarters, prior to Q3, you had gained something like 8 to 9 points in market share. I was a little surprised to see that the Credelio Quattro market share gain year-over-year is 9 points, Because that is sort of the number I had in market share gain by the end of 2 q.

Was the market share flat Q3 versus Q2? And if you could just speak to what the sales trend was for the quarter. I realize you said it was the strongest September, but I just wanna sort of put the market share in perspective.

Jeffrey N. Simmons: Yeah. Thank you, Umer. First of all, as we highlighted, we did see share gain. There is less switching. So there is dollar share and clinic share. So what I would say I would highlight is there is a lot less switching late Q3 into Q4 as corporates and all clinics are switching less getting ready for actually the next season. So where we have seen, you know, the growth is actually inside the clinics as we are, you know, continuing to grow actual use inside the clinics. So, again, we see tremendous demand for the product We see a 2027 that is gonna bring not just share growth, but overall market growth, as I mentioned in this para market.

We have got 3 $1 billion competitors that we are showing best medicine against. So again, it is it is common late in the year as you get into the late fall and winter That you are gonna see a little bit less of that and less switching overall. So. And market share, I mean, if I emphasize, it did grow sequentially quarter to quarter. Thank you.

Operator: Thank you. Our next question comes from Brandon Vazquez with William Blair. Your line is open.

Brandon Vazquez: Congrats on a nice quarter. I wanted to start first on Zenrelia. Jeffrey, you had mentioned that you guys were executing well through what is an increasingly competitive market. I was hoping you spend a minute on what you are seeing on the 2 other players there in the JAK market. And then I had 1 other follow-up in derm as well. And just basically on the Xenrelia question, like, how are you guys executing through that? Yeah.

Jeffrey N. Simmons: Thank you, Brandon. Yeah. Again, our single largest brand, again, contributor to total growth, lot of momentum. Efficacy continues to be the differentiator. We are seeing a little bit of a prolonged season too with itching. that is been positive. We also have seen the JAK market take a little share from the incumbent MAB product just with more convenience and better economics, the market has expanded with the entry of innovation. Double digit growth in the international market, and as I mentioned, dose is actually up in the US. So again, I see that. And look, we have we have competed very well in Europe, 5-to-1, with a new market incumbent coming in.

And, here in the US, Bobby and the team are excited. Befrena will be additive to ZENRELIA. 1 out of 5 clinics going on Befrena have not used Zenrelia, so we do see a positive there as well.

Brandon Vazquez: Okay. And, as a follow-up here on Bifrenna, 2 quick questions on Befrena. Jeffrey, can you help us explain a little bit-- you made 2 comments on the call about the product kind of being open to all of your sales reps to sell it, but then not going into a full launch until Q1? Like, what is the delta on a full launch and all reps being able to sell it over the next couple of months just help bridge that gap? And then also, is Befrenna kind of a key lever for you guys to go after corporate accounts? Is. Have corporate accounts kind of been moving forward without Befrena?

Just talk a little bit about whether or not that is a catalyst on the corporate side as well. Thanks.

Jeffrey N. Simmons: Yeah. Thank you. Yeah. Very big quarter progress with Bifrenna. And I will just emphasize again as we are kind of coming to the end of the season, the end of the year, we are ramping up. So, yes, big news last week, having reps go out and start to take orders across the US marketplace. Demand continues to be high. We expect to have all the backorders completed by next week. So the manufacturing process has been very successful since last quarter just in terms of the ramping. We produced over 30 commercial batches. and the remaining item is really just the larger scale test lots and validation.

But, we do expect with the trend we are on and seeing the demand line that we are gonna be able to be in the market in a full launch Again, we are we are months from that right now as we get into to Q1. So, again, good strong overall. Relative to Corporates, yes, we do believe that this will be an unlock. It already has been. We are offering this to corporates now. This is of high interest to corporates. Corporate sales in US pet health are outpacing our total pet health. Year to date. So we have we have ramped up nicely, and that is been a benefit to our business.

Operator: Our next question comes from Andrea Alfonso with UBS. Your line is open.

Analyst: Hi, guys. Thank you so much for taking the question. I wanted to circle back on some of the questions around gross margin. You talked in the slides about the gross margin mix from impact from the Befrena growth. How do we think about the directional improvement there over time for that product? Is that simply just a transitory drag from early promotions? And how do we think about that trending at steady state versus the company average? And then separately, I will just squeeze my follow-up in. Sorry about this. But as a follow-up to the earlier question on Costco, just a clarification. Does this nonrenewal completely nullify the agreement you inked in Q1 completely? Thanks so much.

Robert VanHimbergen: Hi, Andrew. I will take the first 1. I will let Jeffrey take the second 1. Yeah. Margin trajectory for 2027, I think we have covered that. We will see improvement there. As I think about Befrena, we are going to be ramping, obviously, production and scaling there. And so it will be dilutive to margins to start off. And it will accelerate throughout 2027. We expect that to be an accelerator in 2028. And overall, our basket of innovation keep in mind, that is part of our basket. The basket of innovation continues to carry a higher gross margin than our corporate average.

Jeffrey N. Simmons: And yes, that our-- we will be out on the contract we had from this year, next year. But, again, as I said, there is there is quite a large number of major retail buyers. We have picked up significant numbers. We have mentioned companies like Dollar General and others. We picked up some even since, last quarter. And, again, we do not see. We see net being positive on the retail side in 2027 but Costco will not be a player in that. And, again, it will impact Q1 a little bit, as I mentioned.

Analyst: Thanks so much.

Operator: Thank you. Our next question comes from the Navann Ty Dietschi with BNP Paribas. Your line is open.

Analyst: Hi, good morning. Just 1 follow-up on the Zenrelia, if you would, have handy the US reorder rate in first-line use? And then 1 on Befrena, what is your full launch strategy versus your competitor launching their long acting IL-31 around the same time? And then I just have 1 more on the farm animal environment. If you can comment on the. Your views on cattle producer, profitability and the poultry supply inventory dynamics? Thank you.

Jeffrey N. Simmons: Yeah. Thank you. We continue to pick up first line treatment with Zenrelia in a really nice way. I mean, it is again, Zenrelia number 1 growth driver for the company, outgrowing even in the markets. It is making the markets get bigger. And we have moved to first line more and more. I would point to the data to say, you know, we are we are picking up 400 to 500 clinics per month in the US. We are at 19 thousand. I think what is more important, as Bobby highlights, is the penetration in the clinic. So average sales per clinic rose 8%.

From Q2, and that is a key metric for us, and that will be a multiyear you know, growth, runway for us as we pick up more penetration and that is a signal that more and more clinics are going to first line treatment. Look, on Befrena, we are excited to be in the marketplace. We have differentiation. We believe on value, convenience, efficacy. there is a lot of interest. Over 80% of vets have said they wanna use this product. We are seeing that play out in the orders that are there. More and more use and very satisfied customers that are using it. We are gonna focus on our product, and the offering that we have.

We do believe that this is a nice play in terms of our derm portfolio and more to come with Ellen's pipeline. But Befrena will be focusing on that differentiation as we have and we. We have seen with the other 2 products, that is what takes share. We believe we have got a great, runway with Befrena on that. And then look, we have had a really strong protein demand. that is drawing poultry up single digit, dairy up single digit, and then you have got, you know, a shortage of beef. Which is really helping the international beef markets.

We have seen great strength in our LatAm markets and even the European beef markets because of the shortage in the US. So we see a nice tailwind overall to beef profitability, and poultry is probably the most steady You are gonna see some moderation on our farm animal business, and you are gonna see quarter to quarter variation. That just happens with weather, seasonality, and some portfolio effects. Thank you.

Operator: Thank you. Our next question comes from Daniel Christopher Clark with Leerink. Your line is open.

Daniel Christopher Clark: Wanted to ask on the potential Zenrelia label improvement in the US next year. Just where are we with that And how are you thinking about the puts and takes to guide next year if we do get a cleaner label? I have a follow-up as well. Thanks.

Jeffrey N. Simmons: Yeah. The label continues. No new news. The research, is being completed. We will plan to make a submission at the end of the year. And we should hear with the Atufa timeline midyear. So that is the plan. And as Bob highlighted, real simple. it is it is not in our guide. It is not expected. We actually see less dependency on this. The label's not being talked about. Really in the US with 19 thousand clinics on and all penetration and the movement to first line treatment. So it is becoming less important. Although we are pursuing it. We will keep you updated when we have something new to report.

Daniel Christopher Clark: Got it. Thank you. And then my follow-up, just curious, like sitting here in November, how the level of competition has kind of played out relative to your initial expectations that you set kind of when you rolled out guidance last year? Obviously, you have raised the guide, but just curious how that is evolved relative to your initial thoughts. And then just maybe next year, like, how you are thinking about the level of competition versus what you have seen in recent and sort of like what is embedded kind of in the high and low end of those expectations? Thank you.

Jeffrey N. Simmons: Yes. Thank you for this question. I was going to actually wanted to just highlight a little bit of details. I think details matter here overall. The pet health situation. Again, we are seeing some time bound and targeted promotions, mostly in general practices. Remember, this just shifts volume from 1 month to the next, but it is not changed, and we do not see a change in the trajectory of our share gains. We also see some investments with corporate accounts, gross to net offers, Most of the corporates, remember, have 2 animal health partners. We are winning to be 1 of those 2, which means we do not to be as aggressive on price, and we have not.

And, you know, there is. if you look at these big corporates, you know, they are there is very few and even all the practices we have had very few really no material customer leave our new products and go back to a competitor. So we are not seeing switching away from us. that is why our share gains grow. Best medicine is being demanded as 1 of those 2 animal health options. In the vet clinics, and that is where we are winning. So remember, Elanco's being selective with corporates. We are under indexed. it is upside for us, but that is probably where the competition has been in a spotted way.

And we are not gonna participate in a competitive price, when someone is working to-- they are really competing to try to hold clinics. And remember, there is more than 1 player in this space beyond even us, and a competitor. So best medicine continues to take share. It has for many years in this industry. And best medicine and innovation is winning. So that is what we see. No change to our expectations, actually. it is been a very responsible market overall, and, we feel very good about that even as we go into 2027. Thank you.

Operator: Our next question comes from Christopher Scott with JPMorgan. Your line is open.

Christopher Schott: Great. Thanks so much. Just 2 for me. Jeffrey, just come back to some of the pricing-versus-value comments you made earlier. I think you heard about 4% price this quarter. Is a 3% to 4% price increase a reasonable baseline to think about for Elanco going forward, just given the differentiation of the portfolio at this point? And then my second question, you are obviously in the middle of a very healthy new launch cycle. But just on the pipeline front, can you just remind us what you are most excited about as you think about the pipeline and kind of what is up next for Elanco? Thanks so much.

Robert VanHimbergen: Hey, Christopher. I will take the first 1 on pricing. So obviously, a very strong Q3. We did expect and we landed exactly where we expected where pricing would be accretive in the half and especially in Q3. But I would just remind you, pricing does fluctuate quarter-by-quarter. Influenced by customer mix and product mix. This quarter was influenced by scaling back launch offers, which we said we are gonna do. Right? So I think about moving forward, Q4, we expect pricing to be closer to the 2% to 3% historical rate we have seen.

But we are confident in that pricing coming through as we continue to pull back launch offers, and we continue to scale innovation, which has pricing in that, as Jeffrey highlighted, best-in-medicine.

Jeffrey N. Simmons: And just-- boy, I have to say it is probably been our best quarter, by far our best year in R&D. it is about a year, Christopher, now since the Investor Day. No attrition. Our models are working. We have got 1 of the most stable We are adding to the team pretty significantly in R&D. And the team is just. it is humming right now. So we have got over 15 candidates in clinical right now moving Things like dog enrollment, etcetera, are ahead of schedule.

So our 5 to 6 potential blockbusters through 2031 we are more confident than we were last quarter and definitely last year. and I credit Ellen and the entire team We know we cannot have an air pocket. We are confident in that. As we double down on the algorithm, bridging ourselves to the next generation of innovation, am I excited about? Well, first is just the big existing markets having you know, the next generation of portfolio ads of better medicine.

The second is pain. there is no question CKD, some of these other markets that are being created we are gonna come in and be a formidable competitor then our farm animal portfolios from farms-- food safety to vaccines to productivity. We have got some really nice blockbuster products that are coming. So no air pockets. Ellen and the team, consistent flow of innovation. Elanco is going to bring that next generation of innovation right behind this basket of 6 products.

Operator: Our next question comes from Steven Dechert with KeyBanc Capital Markets. Your line is open.

Steven Dechert: Great. Thanks guys for the question. I just have 1. On the COGS side, I guess, with procurement, I guess, like, what inning are you in on that? I thought from the 25 investor day, that is kind of more of a 2027-2028 type of event. So how much more room for improvement is there Thanks.

Robert VanHimbergen: Yeah. So I would say it is early innings still, Steven. I mean, the 1 thing to keep in mind is as contracts are negotiated, we do not get that benefit until inventory flushes through. And you saw a little bit of that in the first half of this year. We had good procurement execution, but we had to flush through that higher cost inventory. So as I think about going forward, we are going to start seeing the benefits, and we saw a little bit of it in Q3 and Q4. We will see the benefits of the procurement actions throughout 2027 and beyond, but there is a great hunger within our procurement team.

And as I mentioned, the supplier day here, we held for 2 days, the last 2 days here this week. With our key suppliers in house, and there is just a lot of runway and continued partnership to continue to improve, what the procurement team can bring for us.

Jeffrey N. Simmons: And we are committed to that 60% runway, and we know we have got a portfolio and a plan with Bob's leadership to hit that 60% over time.

Steven Dechert: Alright. Thanks.

Operator: And our last question comes from Daniel Grosslight with TD Cowen. Your line is open.

Analyst: Thanks guys for fitting us on. We had 1 question on livestock. So the slides noted regional farm animal cycles as a potential headwind in 2027. Can you provide any color on what specific species and countries could represent headwinds in 2027? Thank you.

Jeffrey N. Simmons: Yeah. Thank you for the question. Think overall, again, we see protein being stable all as a whole. We are seeing low single digit, mid single digit animal numbers that are that are growing. But, you know, as you point to cycles, you are gonna have them. So right now, dairy is seeing a little bit of a cycle where we had high, high production and there is places where there is a little bit of an oversupply. So look for dairy to be a little cyclical. Swine also has been We see still some challenging over breakeven. Struggle to get over breakevens in swine in China overall. But as a whole, look for poultry, dairy to lead.

The beef shortage will create a global opportunity and, again, it will be it will be regional opportunity overall. Swine. But we like the business. As you look at 2027, farm animal will be a really strong, durable business for us in our portfolios will add more value than they ever have. With that, I will close and just want to say thank you to everybody for joining us today. As I close, I just want to extend a deep appreciation to the Elanco team.

All my years in Elanco, this has definitely been the best year that I have seen across the company just in terms of the culture, the 1 Elanco mindset, the ability to execute, the level of energy and focus in this company is historical right now, and we are focused on our customers to add value. that is going to translate into value for you as a shareholder And I want to just say that, you know, in these dynamic times right now in capital markets, I believe Elanco is a stock of choice We are uniquely positioned as highlighted on slide 26 as we close.

We are set up and I think the metrics that came out of and proof points of Q3 are gonna be what is representative of the rest of this year and into 2027. Thanks for your interest. Know that we are available for all of you at any time. Again, have a great day.

Operator: Thank you for your participation. You may now disconnect.

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