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Good morning, my name is Krista and I’ll be your conference Operator today. At this time, I would like to welcome everyone to the Elanco Animal Health fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad, and if you’d like to withdraw your question, again press star, one. Thank you. I would now like to turn the conference over to Katy Grissom, Head of Investor Relations. Katie, you may begin.

Good morning. Thank you for joining us for Elanco Animal Health’s fourth quarter and full year 2023 earnings call. I’m Katie Grissom, Head of Investor Relations. Joining me on today’s call are Jeff Simmons, our President and Chief Executive Officer, Todd Young, our Chief Financial Officer, and Scott Purucker from Investor Relations. The slides referenced during this call are available on the Investor Relations section of elanco.com. Today’s discussion will contain forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the Risk Factors in today’s earnings press release, as well as 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 sides and in the earnings press release. After our prepared remarks, we’ll be happy to take your questions. I’ll now turn the call over to Jeff.

Thanks Katy. Good morning everyone. Today Elanco reported fourth quarter and full year results for 2023. Our strong performance last year gives us confidence that are innovation, portfolio and productivity strategy is working and that our actions and investments to launch our new innovations and optimize our core portfolio are paying off. As we enter 2024, we are focused on advancing our strategy to deliver these three priorities: sustained revenue growth, innovation, and improved cash conversion. Starting on Slide 4 with revenue growth, in the fourth quarter we delivered 5% constant currency revenue growth, in line with our performance in the third quarter. Fourth quarter growth was driven by innovation, strength across our farm animal business, improved conditions in the European pet health retail market, and increased price. While we exceeded our sales expectations and demonstrated strong operating expense management for the quarter, adjusted EBITDA was adversely impacted by approximately $18 million of unexpected items, primarily related to the 54% devaluation of the Argentinean peso that occurred in December. Our fourth quarter sales growth drivers, along with the strength in our U.S. pet health retail business led to a return to full year constant currency sales growth at 1%. Importantly, we expect growth to continue in 2024 at 1% to 3%, even before the potential upside of our late stage pipeline. On innovation, we made significant progress in 2023 with the approval and launch of our canine parvovirus monoclonal antibody, or CPMA, and AdTab, our new over-the-counter oral parasiticide in Europe, as well as the submissions to our three late stage potential blockbuster products that have a path towards approval in the first half of 2024. We exceeded our expectations for innovation revenue in 2023 and our outlook for 2024 puts us on track to deliver our expected $600 million to $700 million of contribution by 2025. We continue to prioritize free cash flow improvements, paying down debt and reducing leverage, and exceeded our debt pay down expectations from our November guidance. In 2024, we expect cash available for debt pay down to be approximately $300 million, four times that of 2023. Earlier this month, we announced the sale of our aqua business to Merck Animal Health, allowing us to prioritize our investments going forward in larger markets with greater earnings potential and meaningfully improve our leverage profile. We expect net debt to adjusted EBITDA to be in the mid-4 times range by the end of this year and the high 3 times to low 4 times range by the end of 2025. Importantly, we are making disciplined decisions and taking actions to reallocate capital within our operations and invest for the future. Today we announced a strategic restructuring that will allow us to do three things: first, shift resources from farm animal to pet health across the international business as we drive adoption of innovation products and prepare to globalize our late stage pipeline. It also allows us to capitalize on efficiencies resulting from the completion of our ERP system integration and concentrate roles into strategic locations. Lastly, it allows us to transition our business model to distribution or other third party models in certain markets, notably Argentina. The restructuring will impact approximately 420 personnel or about 4% of the global workforce and is expected to deliver net savings of $20 million to $25 million in 2024, annualized the $30 million to $35 million of savings in 2025 and beyond. The savings will be reinvested in areas with more significant value creation opportunity, specifically in pet health globally and livestock sustainability. While we expect a limited amount of top line headwind from the shift to distribution markets, we do not expect our restructuring efforts to have a meaningful downside to sales otherwise, notably in international farm animal markets where we expect to realize savings. We have a strong track record of delivering productivity and will continue to look for additional opportunities to more efficiently allocate capital. I credit our senior leadership with these proactive actions that we believe will set Elanco up to deliver our next era of growth. Moving to Slide 5, our full year constant currency revenue growth of 1% was led by farm animal, but we saw marked improvement in our pet health business as well. Starting in farm animal, 4% constant currency revenue growth for the full year for farm animal represented accelerated growth rates for poultry, cattle and swine compared to 2022. The team executed across the business, but especially in places where we have strong market positions, notably international poultry and U.S. cattle. International farm animal, the largest revenue contributor of our four quadrants delivered 4% constant currency revenue growth, primarily driven by increased price and strength in poultry, a result of robust underlying demand and share growth in key markets like the U.K., Brazil and China. Our U.S. farm animal business also delivered 4% growth for 2023, driven by increased price and strength in cattle and swine, with poultry improving in the fourth quarter. Experior delivered $18 million in the fourth quarter, above the expected annualized run rate of $70 million that we shared in November. We remain encourage by Experior’s progress and expect continued growth for the product globally in 2024. Moving to pet health, global revenue declined 1% in constant currency, representing an encouraging improvement from the 5% constant currency decline in 2022. For the U.S. pet health business, revenue declined 1%, a significant improvement from the 9% decline in 2022. Enhancements in share of voice, physical availability, innovation contribution and increased price were more than offset by competitive pressure in the vet clinic market. Our OTC parasiticide business had a strong year in 2023, growing net sales 11% in retail channels as our top six retailers grew dispensing sales in both units and dollars. In the vet clinic, we’re encouraged by the growth of Credelio and new products like CPMA,

Thank you Jeff, and good morning everyone. I will focus my comments on our fourth quarter and full year adjusted measures, so please refer to today’s earnings press release for a detailed description of the year-over-year changes in our reported results. Starting on Slide 11, in the fourth quarter, revenue was $1.035 billion, a 5% increase with price growing 3%. Slides 12 and 13 break down our revenue performance in the quarter by price, rate and volume, as well as species and region. For pet health globally, we declined 1% in constant currency in the quarter. Our U.S. business declined 5% as competitive pressure in the veterinary clinic was partially offset by innovation revenue, increased price, and an improved retail inventory situation compared to the reduced purchasing we experienced in the fourth quarter of last year. Our international pet health business grew 4% in constant currency, primarily driven by the economic rebound in Europe compared to the back half of last year and innovation revenue, partially offset by soft market dynamics in several Asian countries. Globally, sales of Seresto grew 25% in the quarter, driven by the U.S., which implemented a lower list price starting in December to maximize elasticity of the brand and the rebound in Europe I just described. The Advantage family sales declined 8% in the quarter, primarily driven by international markets. Both products benefited from the improved retail inventory situation in the U.S. in the quarter compared to last year. Shifting to farm animal, global revenue grew 10% in constant currency in the fourth quarter. As anticipated in our November guidance, U.S. farm animal growth was driven by resupply for cattle vaccines, strong Experior growth, and favorable timing of poultry rotations. While we expected U.S. farm animal to have a strong quarter, the 28% growth was significantly higher than we expected, which was the key contributor to us delivering above the top end of our revenue guidance. Solid international farm animal growth of 3% was driven by continued strength in international poultry. Continuing down the income statement on Slide 14, gross margin decreased 440 basis points to 50.1%. The decline was driven by an approximate 150 basis point headwind from slowing manufacturing output as we worked to reduce balance sheet inventory, as well as unfavorable manufacturing performance, including higher than expected inflation on certain key inputs and higher affiliate expenses, including a recently implemented higher import duty rate in Argentina, partially offset by improved price. Operating expenses declined 3% year-over-year in the quarter. R&D expenses were largely in line year-over-year, while SG&A declined 3% driven by disciplined cost management across the business and savings from completing our systems integration, partially offset by higher employee-related expenses. Moving to Slide 15, where we bridge adjusted EBITDA and adjusted EPS to our guidance from November, adjusted EBITDA was $165 million in the quarter. Along with the gross margin headwinds from unfavorable mix and manufacturing performance, this was adversely impacted by approximately $18 million of unexpected items primarily relate to Argentina. Adjusted earnings per share was $0.08 in the quarter. Our adjusted effective tax rate in the fourth quarter was 39.7%, primarily as a result of unfavorable return to provision adjustments partially offset by the benefit of certain refundable state income tax credits. On Slide 16, I’ll provide a few comments on our 2023 full year performance. We delivered just over $4.4 billion in sales with 1% constant currency growth, driven by improved price, adoption of new products, and strength in international poultry. These were partially offset by competitive pressure in the U.S. vet clinic, a soft European economic environment in the first half of last year, and generic pressure and changes in regulatory requirements in the U.S. farm business. On Slides 27 to 28, we have provided additional revenue breakdowns, including by top affiliates and certain products. Continuing down the P&L, gross margin was 56.3%, a decrease of 30 basis points compared to last year. The impact of slowing down manufacturing output and inflation was partially offset by improved price. These factors combined with a 2% increase in operating expenses and the fourth quarter impact of the devaluation and duty rate in Argentina resulted in adjusted EBITDA of $979 million for the full year. Adjusted earnings per share was $0.89 compared to $1.11 last year, with $0.14 coming from higher interest expense and tax. Our non-GAAP tax rate increased from 17.7% in 2022 to 22.3% in 2023, primarily driven by the items I described impacting the fourth quarter. Before moving to our 2024 guidance, let me offer a few words on our cash, debt and working capital on Slide 18. Operating cash flow was $271 million for the full year and $157 million in the fourth quarter. The year-over-year increase in the fourth quarter reflects improved net working capital performance, specifically on inventory and receivables, partially offset by higher cash interest costs. We ended the year with net debt of $5.472 billion and a net leverage ratio at 5.6 times. We reduced gross debt by $76 million for the full year, exceeding our November expectations of $50 million. In a moment, I’ll touch on our expectations for debt pay down in 2024 and the factors improving our cash outlook. Now let’s move to our 2024 financial guidance, starting on Slide 20. As Jeff mentioned, today’s guidance includes full year contribution from our aqua business but excludes contribution from our three key late stage pipeline assets: Credelio Quattro,

Thanks Todd. As we enter our 70th year as a company and as the longest standing brand in animal health, we are humbled by the opportunity to serve our customers around the globe, the farmers, veterinarians and pet owners, and the animals in their care. As we enter 2024, we are laser focused on three priorities: sustained revenue growth, innovation, and improved cash conversion. Importantly, this management team is taking disciplined, decisive actions to improve our earnings potential and leverage profile over time, as evidenced by the sale of our aqua business for over a billion dollars of net proceeds, the restructuring announced today to reallocate resources to higher value creation areas, our investment in expanding our U.S. pet health field force to enhance share of voice and maximize innovation in our highest margin business area, and our focused efforts to manage manufacturing throughput to improve net working capital performance while investing to support the launch of differentiated products in years to come. These are difficult but the right decisions. We are executing on our IPP strategy. Our investments, our improved capabilities and experienced team delivered a return to top line growth in 2023, and that growth will continue in 2024. We are encouraged by our strong pipeline and the next wave of innovation which we expect to fuel long term sustainable growth for Elanco. With that, I’ll turn it over to Katy to moderate the Q&A.

Thanks Jeff. We’d like to take questions from as many callers as possible, so we ask that you limit yourself to one question and one follow-up. Operator, please provide the instructions for the Q&A session, and then we’ll take the first caller.

Thank you. [Operator instructions] Your first question comes from the line of Jon Block from Stifel. Please go ahead.

Thanks guys, and good morning. Jeff, it was good to see the filings that you mentioned for

Yes, thanks Jon. We’ve made a lot of progress and would say that

Got it, helpful. Then for the second question, it might be a little bit of a two-parter, but my thought was that the ADUFA date for

Yes Jon, no update today on the

Jon, thanks for the question on gross margin. As you know, for the full year we expect gross margin to be pretty close to the same in ’24 as ’23. The cadence of that will be a little different. We’ll still have higher gross margins in the first half of the year, but just not as high as we would have had last year because of the plant slowdown, so it’s a first half of the year slightly lower than last year, Q3 becomes pretty much in line, and then Q4, we get a tailwind as we started to slow down the plant during Q3 of ’23, such that we don’t have that same headwind in the fourth quarter of ’24.

Thanks. Next caller? Thanks Jon.

Your next question comes from the line of Erin Wright from Morgan Stanley. Please go ahead.

Great, thanks. Another one on

Yes, thanks Erin, and thank for the focus from you and Jon. As you know, we’re excited about entering the derm market. It will be a new market for us. We’ve got

Okay, thanks. Then just on restructuring and the bigger picture around the sale of aqua too, are you just continuing to evaluate other parts of your businesses here, or what other segments could you evaluate as potential divestitures?

Yes, maybe just a comment here. Here’s how we’re looking at it. I mean, we are concentrating our focus, let me be very clear, on pet health and livestock sustainability, and both of these decisions, both the sale of our aqua business and the restructuring we announced today, is all around creating enough resources to win and align to our pipeline in these bigger markets with greater earnings potential with these large blockbuster differentiated assets that we have. We have no intention of making any more strategic decisions here relative to other segments. Really, I would highlight coming to the restructuring, we’re doing really three things, as my comments that I made this morning. We’re shifting resources into these markets, pet health and livestock sustainability. Think in Europe - we’re going to move to much more of a B2B approach in pigs and put a lot more resources in pets. Second is we’re going to capitalize on this ERP implementation that’s now done and concentrate roles in strategic areas, and then lastly and importantly is we’re going to transition our business model in non-strategic markets, like Argentina. We’ve got about 90 countries we’re in, about 45 of them we’re in with people, and we’re moving some additional markets like Argentina into what we’re doing in the other 45, which is we’re using a distribution model. All of this allows us more resources that we can double down on these big areas, pet health and livestock sustainability.

Thank you. Our next question comes from the line of Michael Ryskin from Bank of America Securities. Please go ahead.

Great, thanks for taking the question. Can you guys hear me?

Yes.

Great, thanks guys. First, I want to clarify a question on the guide for you, Todd. I think you were really clear that the revenues from the

Mike, those will also be incremental, but what we did say in the prepared remarks is that we expect it to be accretive to EBITDA, so the EBITDA guidance you have will get better with the launch of the big three.

Got it, okay. That’s helpful. I just wanted to get that clarification on how the model would change as the products get approved, so appreciate that. Then a follow-up question, again on the guide for ’24. I think you talked about 3% price to revenues and up 2% to 3% from existing innovation, so from regular Credelio and Galliprant, things like that, but key percentile business constant currency, so volumes--another year of down volumes. Could you break that out again into what you’re expecting from end market versus specific headwinds to the legacy portfolio, and maybe headwinds from competition? Just help us de-convolute the volume expectations for ’24 a little bit, thanks.

Sure Mike. We do expect volumes down in 2024. Volumes were down in 2023, but less than they were in 2022. Some of this is just the competition inside the vet clinic that we’ve called out previously. You’ll see Trifexis declined 21% in ’23, it’s down to being about $82 million in total revenues, so still a big product for us but one that we just know has greater competition there. You’ll also see both Ceresto and Advantage family were down last year - again, a lot of that’s in the vet clinic. The retail side of our business in the U.S. grew double digits. It was really strong as Bobby and his team got to more points of distribution, more physical availability, the share of voice and all of the work they’re doing, so some of the volumes are that legacy. Experior ramp is great - as you know, that generally takes out Optiflex, which is a different part of the portfolio, and so that impacts volumes as Experior ramps. Overall, we continue to feel very good about the sales momentum we have, the acceleration in ’23 versus ’22, and so as we move forward, we have that. There’s also an impact from these different countries on volume as we exit some of the low margin distribution and flip Argentina and a few other markets to using a third party distributor, versus our own internal people on the ground.

Your next question comes from the line of Balaji Prasad from Barclays. Please go ahead.

Good morning and thanks for the questions. Firstly with regard to the decline in pet health in 4Q and outlook, you spoke about competitive pressure in veterinary clinics. Can you help us understand if this is transient or otherwise, is it driven by new launches from competitors, or are there some other factors at work? Also on 2024, as you speak about enhancing the sales force, could you quantify the sales force add, and do you think you’ll be adequately staffed to support the new launches? Thank you.

Yes, thank you very much. At the highest level just on the U.S. pet, I would step back and say we’ve made a lot of progress in U.S. pet overall. At the highest level, I think we’re much more competitive today. We’ve seen significant improvement in our overall engagement, our team, and I think the strategy is working that Todd just highlighted in terms of share of voice, physical availability, innovation and price, so we’re much more competitive as an organization today. 2023 was a strong year. If you step back and look, we saw an eight-point improvement sequentially from down minus-9 in 2022 to minus-1 overall, and I see this from the standpoint of stronger portfolios, more share of voice, a stronger team. We changed incentives for the sales force and just our overall portfolio is stronger when you start adding Bexacat,

Your next question comes from the line of Umer Raffat from Evercore ISI. Please go ahead.

Hi guys, thanks for taking my question. Just two here, if I may. First, there’s some language on distribution model changes. Could you just confirm there’s no change on distributor strategy in the U.S., nor are there any payment term extensions in the U.S. for 2024? Then secondly, on heading into the Quattro launch, there’s some feedback that [indiscernible] is starting to preempt that potentially by making free tapeworm treatments available in case a dog does contract tapeworms. How are you thinking about that relative to your differentiation and expectations for launch?

Well, let me take the first one, Umer, and then I’ll pass over to Jeff on tapeworm. With respect to distribution, we’re really speaking in this case to Argentina. As Jeff mentioned, we’re in 90 countries in total with people on the ground in about 45. Those other countries, we use distributors to take our products to market and we just sell to them, so that’s what we’re speaking to. With respect to the U.S., we are bringing some bear products into the U.S. distribution channel. It’s reflected in the guidance - it’s not material, but with our system consolidation, we’re able to now be more efficient and do it one way, versus having two different models that we’ve been running the last few years. Jeff?

Yes, thanks Umer. Yes, we’re excited about Credelio Quattro, and again, no update - the timeline continues, we continue to have productive dialog with the FDA. I think I would just back up and just make a couple comments. I think we know parasiticides is really an uninvolved category for pet parents and vets. Vet recommendation is key, so I come back to the core strategy, which is marking sure share of voice is high, and noted, yes, we’ve added our 75 reps, they’ve got experience, they’re in the field right now, and they’re trained and they’re adding value as we speak, selling parvo and other products, so we’ve got the share of voice. Then the second is, yes, differentiation. We believe there’s a few fundamentals that are key as you look at differentiation. One is broader coverage is always better, and full solutions are definitely preferred by the veterinarian. The second is diagnostics that can match the disease, and there is evidence today with increased diagnostics Idexx and others around tapeworm, that this concern is there, and it’s a zoonotic concern as well, so I think that’s second. With more people and more focus, both on the diagnostic side and the animal health side, the awareness is higher, and that usually leads to more prevalence. I think the last trend is zoonotic concerns, Umer, continue to be there, especially after COVID, and specific to tapeworms, look - one common tapeworm is transmitted by fleas, but there’s many tapeworms relevant to domestic dogs and have the potential to carry tapeworms, and that’s a serious disease impact, so we always say that if all else is equal, why wouldn’t you use a product with more coverage? So that’s our approach. Again, we’ve got the right teams in place preparing for the launch, we’ve had a long history in parasiticides with the broadest portfolio in and outside the vet, and we’re excited to be bringing Quattro to the market.

Just one thing, Umer, on your payment terms, payment terms generally stay the same. There are always different things with different customers, but overall accounts receivable was a big inflow of cash in Q4 as we had strong operating cash flow performance relative to previous quarters, and a lot of that was just the work done by our teams around the globe to collect cash and really focus with our one system to get after A/R in a better way.

Your next question comes from the line of Glen Santangelo from Jefferies. Please go ahead.

Yes, thanks for taking my questions. Just two quick ones from me. I just wanted to follow up on the competitive pressure in the vet clinics. It sounds like you’re certainly making some progress, and I’m just kind of curious about your confidence in the ability to take those 3% price increases this year that you’re forecasting in the guidance. Have you taken those already, and has there been any pushback as far as those are concerned?

Yes, first of all, Glen, thank you for the coverage and joining the interest in research on Elanco. Yes, absolutely - the competitive pressure is there. I would believe, as I’ve said, we’re in a much stronger position with stronger teams, stronger portfolio, and I think a lot of the tactics that we’re doing relative to this. I think the anticipation of our innovation as well, Glen, really creates partnerships with distributors, corporate clinics and others. It’s opened a lot more doors, which has been strong. I would say even the introduction--and an example, a proof point, if you point to the introduction of the latest broad spectrum parasiticide, what we’re actually seeing is more share taken within those and actually less share compared to other competitive launches taken from us, and I think that shows our differentiation, our segmentation, digital, all these things are working, so we’re set up well. Relative to price, we’ve continued to execute price in a very value-based way, and more innovation always allows us to bring those prices, and we’ve not seen a pushback on price and continue to see strong resilience for the market and a lot of interest and adoption from the vet side of our products and our portfolio.

Perfect. Maybe if I can ask just one revenue follow-up here, I’m just trying to triangulate your comments on innovation sales in 2025. I appreciate you don’t want to talk about 2025 at this point, but you’re sort of guiding people to $600 million to $700 million of sales from new innovation products, and if I sort of back out what you’ve done so far in ’23 and what you’re expecting in ’24, is it fair to say that we can triangulate what you’re sort of talking about with respect to the three pending launches?

Yes, we have, again, been very consistent to the commitment of $600 million to $700 million. It isn’t all exact math, as you do see us--Todd, as a reference, you’re going to have Experior climb and you’re going to have some overlap in products that come out, such as an Optiflex. But yes, as we start to guide to the $350 million, $400 million this year before the new products, then with the launches of the new products and our IL-31 that we have coming in 2025, those products will contribute and, yes, we’re staying and feel very confident in our commitment to the $600 million to $700 million by the end of ’25. That is correct.

Your next question comes from Chris Schott from JP Morgan. Please go ahead.

Great, thanks so much. Just two questions from me. Maybe first on just the parvo opportunity in 2024, just any additional color of how much inventory you have this year and how big of a product that could become, and maybe just as you’re thinking about longer term with that, just update us on the ex-U.S. opportunity for parvo. My second question was just on gross margins. Any color you can provide on how much some of these inventory and manufacturing slowdown actions are having on gross margins in 2024? I’m really just trying to get some color on what the underlying trends are as we start to think about beyond this year of where gross margins can go. Thanks so much.

Yes, thanks Chris for the question on parvo. I’ll take that one first. It did land in line with our expectations in the quarter, but the bigger news is, yes, we’ve demonstrated the ability to scale our 2000 liter, which gives us confidence that we’ve got the capacity and the supply to really go into the marketplace full force, and we’re doing that with our new sales force right now. The product is performing well - that’s very important. I think another important note, Chris, is the product’s already in about 3,300 clinics, and more so with the general practitioners, which demonstrates that this is out there, there’s prevalence, and many clinics are seeing this. 73% of the adoption of those clinics is in general practitioners, 12 or so is in the shelter market, so we see the uptake initially. We’re seeing reorders as well, so we see this product being a key contributor to growth and a real step-up this year. Then yes, we would--and we’ve launched also, just to highlight, we’ve launched a pretty significant defender campaign to really drive just awareness of parvo. Right out of the gate, we’ve got about 1.2 billion impressions in a social media marketing campaign that we’re doing. We’ve set a charge with the vet clinic industry and a pledge to save a million puppies by the end of the decade, so all of that, I think is just creating awareness, strong marketing, more share of voice. Then yes, the next thing is we are starting to target key markets internationally where we can actually bring that product in, where there’s a higher prevalence of parvo. It might not be always the typical just a European market - there are other emerging markets as well with higher parvo, and we see blockbuster here potential as we globalize the product, so off to a good start. We’ll definitely be updating you quarter to quarter on some of the key metrics and the adoption.

Chris, with respect to the manufacturing slowdown, embedded in our guidance for 2024 is a 150 to 170 basis point headwind from those plant slowdowns.

Your next question comes from Steve Scala from TD Cowen. Please go ahead.

Hi, this is Chris on for Steve. Thanks for taking our questions. We had two. First on the new launches, are there any other gating factors for U.S. launch post FDA approval, like state-level approvals, building inventory, or contracting with distributors? Then second on the U.S. sales force, what sort of initial feedback have you received, and has that had any positive impact on the positioning of the company’s current portfolio? Thank you.

Yes, thanks Chris. Real quick, as we’ve noted here on gating factors, we expect that upon approval, there’s typically a couple months before actually, you know, there is a launch, and that’s driven heavily by manufacturing, packaging, labeling, and that’s the typical gating factor. Then a lot of positive feedback, we had a tremendous interest and many, many applications and believe we selected a very experienced, strong sales force, and actually the transition has gone faster ad we don’t believe the distraction factor may be as high as we expected. We’re looking forward to that sales force with that added investment in the first half to help us ramp our existing sales here in the first half.

Your next question comes from the line of Neven Tai [ph] from BNP Paribas. Please go ahead.

Hi, good morning. Thanks for taking my questions. My first one is you touched base on pricing for

Let me take the first one, Neven, and welcome back to coverage. We have not reduced interest expense in our guidance for the aqua sale, so that interest expense is as if the aqua sale doesn’t happen. We’ll update all the guidance for aqua post conclusion of that sale on the quarterly call.

Yes Neven, on all of our products, actually, we see the future blockbusters with the differentiation, with our portfolio, we intend to price for value. We see this in past innovations that have been launched and we believe that innovation will be rewarded, and that will be part of our offering.

Your next question comes from Nathan Rich from Goldman Sachs. Please go ahead.

Great, thanks for the questions. Just a few quick ones at the end here. Todd, you highlighted the $20 million to $25 million of investment in pet health in the first quarter. Can you give us a rough split between what’s related to the field force expansion versus what might be promotional dollars focused on parasiticides, just as we think about maybe what the underlying expense base goes up in 2024? Then on the OTC growth for ’24, anything more specific you could share on your expectations for Advantage and Ceresto here? Then lastly, Jeff, maybe just going back to your comments on having that fuller, more innovative portfolio in pet health with derm and parvo, could you maybe talk about what that means in the market and the flexibility that gives you? Is that better access to corporate accounts, the ability to use volume discounts? Just any additional color there would be great.

Sure Nate, thanks for the question. Yes, there’s about--the total investment for the sales force is about $20 million on a full year basis, so essentially that’s pretty--given it’s people, it’s pretty standard over the course of the year, so about 5 in Q1. Then the investments in pet heath are really about the promotional spend, and a lot of that is to drive AdTab, which we’re excited about. It’s the first oral parasiticide in the OTC market in Europe, and part of our oddity of first half-second half is the restructuring we announced today, that’s going to provide a lot of savings that we’re using to fund these incremental investments behind big opportunities, but that savings is more second half loaded, where with the northern hemisphere parasiticide season, we’ve really got to make the investments in the first half to drive the uptake of those products. With respect to Ceresto and A-family, we’re not guiding by product today, but overall we are feeling good about the positioning of those in retail, and that’s a big place where we have leadership and we expect that leadership to continue.

Then relative to just the overall portfolio, I would say no matter the segment, when you enter a clinic and have all four dimensions that I just mentioned, and derm will be the new one for us, it really puts us in a unique position as the next company to be able to do that, and that just gives that optionality to the vet. We’ll be looking at that against all segments, but I do think that will be a major factor and a major differentiator to most of the major animal health companies, to be able to have the breadth of the portfolio that we do have with the derm addition.

Thanks. We’ll take the last caller.

Your last question today comes from Brandon Vazquez from William Blair. Please go ahead.

Hey everyone. Thanks for taking the questions and sneaking me in. If I could just ask one--I’ll ask two upfront here first on the FDA conversation that you guys are having. I guess as you get closer to an approval here in first half ’24, that you’re reiterating, I think maybe I would have expected you could give a little bit more confidence or a little narrowing of the time frame. One, am I over-reading that? Is there anything going on in conversations? Do you guys feel more confident as you’re going through these discussions? Then maybe the second one is just highlight a couple key products within innovation, that bucket, that are driving growth into ’24. Thank you.

Yes, let me take the second one first. There’s no question we’re excited about Experior. Experior exceeded our $70 million run rate, it ended the year at $54 million, and with that growth and that trajectory we see and a shortage of cattle numbers, Experior plays into all of that relative to the value proposition, and then of course parvo will be a driver. One we don’t talk as much about, but with this restructuring we’re really adding significant investment in AdTab in Europe that had a good strong finish to the year, so those would be the three key that I would point to. Look Brandon, I wouldn’t read into anything. Our confidence remains, our confidence in the differentiation remains. These are great assets. Our regulatory team is doing a great job and we’re in a very proactive, productive dialog with the CBM, and we’ll update you if anything does change.

Thank you. Ladies and gentlemen, I will now turn the conference over to Jeff Simmons for closing remarks.

I know we’re on time here, but I just want to say to everybody, thank you for the time. I think 2023, the second half really marks progress and momentum - two quarters at 5% constant currency growth, we doubled our innovation, we increased our debt pay down beyond our expectations, and as you look to ’24, the priorities remain the same - sustained growth on the top line, innovation and bringing innovation forward, and cash. Against all of those metrics, we have inside the guide strong expectations to continue to make great progress. Thank you for your interest and your investment in Elanco. We look forward to a very exciting year and a year with high engagement with all of you.