ELAN - NYSE

Ladies and gentlemen, thank you for standing by. Welcome, everyone, to the Elanco Animal Health's First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Katy Grissom, Head of Investor Relations. You may begin your conference.

Good morning. Thank you for joining us for Elanco Animal Health's First Quarter 2024 Earnings Call. I'm Katy Grissom, Head of Investor Relations. Joining me on the call today 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 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 the 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. 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. Elanco is poised for a very exciting 2024. Our strong business momentum continued in the first quarter, reinforced by the diversity of our portfolio and geographic results. In the quarter, we exceeded the top end of our guidance range on our key metrics, revenue, adjusted EBITDA and adjusted EPS. We are encouraged by the strong progress of our late-stage pipeline, which has advanced significantly over the last several months. The One Elanco approach to collaboration and decision-making is driving positive and productive outcomes across the world. Energy, resiliency and creativity are filling our halls and permeating our conversations with customers. Our focus for the year remains on growth, innovation and cash, with many proof points to start the year. Beginning on Slide 4. Our underlying business is off to a very encouraging start in 2024. As you may remember, our quarterly results in the first half of last year were impacted by a shift in customer purchasing related to our ERP system integration from the second quarter into the first quarter of 2023. As determined last year, we estimate the shift was $90 million to $110 million. I will focus my comments on our underlying growth, excluding the estimated impact of the shift. For the first quarter, underlying revenue growth continued in the mid-single-digit range, estimated at 3% to 5% in the first quarter, building on the 5% constant currency growth in both the third and fourth quarters last year. We remain confident in our late-stage innovation. Based on our dialogue with the FDA and the status of the packages submitted, we have increased certainty in the expected approval timing for Bovaer,

Thank you, Jeff, and good morning, everyone. Today, I will focus my comments on our first quarter adjusted measures, so please refer to today's earnings press release for a detailed description of the year-over-year changes and our reported results. Starting on Slide 11. In the first quarter, we delivered $1.205 billion of revenue, a reported and constant currency decline of 4%. Price contributed 2% in the quarter. As Jeff referenced, the year-over-year comparisons for the first quarter are impacted by the ERP System Blackout that occurred in 2023. Last year, we estimated sales of $90 million to $110 million shifted from the second quarter into the first quarter, reflecting a 7 to 9 percentage point detriment to growth in the first quarter of this year. With limited impact from foreign exchange rates, we estimate the underlying business grew 3% to 5%, slightly ahead of our expectations. The estimated impacts are noted on Slide 12 for each business area. For Pet Health, constant currency decline was 5%, with an estimated headwind to year-over-year growth of 10 to 12 percentage points from the ERP Blackout. In the U.S., Pet Health revenue declined 8%, including a headwind to year-over-year growth of approximately 11 percentage points from the ERP Blackout. The return to underlying growth was driven by price, resupply of certain vaccines that were out of stock last year, a onetime benefit related to moving certain legacy Bayer products into distribution and sales of new products. In the quarter, the business also faced headwinds from the weather-impacted January, competitive innovation and lower vet visits. Outside the U.S., our Pet Health business declined 3% in constant currency, with an estimated headwind to year-over-year growth of approximately 12 percentage points from the ERP Blackout. Underlying growth in the quarter was driven by a return to more normalized demand patterns in Spain, ramp of innovation products led by AdTab and higher demand for Credelio family products and Seresto across Europe. Globally, our Farm Animal business declined 3% in constant currency, with an estimated headwind to year-over-year growth of 4 to 5 percentage points from the ERP Blackout. In the U.S., our Farm Animal business grew 8%, with an estimated headwind to year-over-year growth of approximately 3 percentage points from the ERP Blackout. The growth in the underlying business was driven by expanded Experior adoption, vaccine resupply and demand for Elanco poultry products. Outside the U.S., our Farm Animal business declined 8% in constant currency, with an estimated headwind to year-over-year growth of approximately 6 percentage points from the ERP Blackout. The decline in the underlying business was driven by weakness in Asian swine markets, partially offset by increased demand for poultry in Europe. The majority of the year-over-year decline in the Aqua business was a result of the ERP Blackout. Continuing down the income statement on Slide 13. Gross margin declined 350 basis points to 57.3%, in line with our expectations. The estimated impact on the year-over-year growth of gross margin from the ERP Blackout was 130 to 200 basis points, as more sales of high-margin, legacy Bayer Animal Health products were realized in the first quarter of 2023. The remaining decline was driven by an approximate 170 basis point headwind from slowing manufacturing output as we work to reduce balance sheet inventory and inflation, partially offset by price growth. Operating expenses increased 4% year-over-year in the quarter. R&D expenses increased $6 million, primarily driven by employee-related expenses and timing of project expenses. SG&A expense grew 3%, primarily driven by the expanded U.S. pet sales force, increased promotional activity across targeted pet health brands and employee-related expenses, partially offset by IT-related savings as a result of consolidating to one ERP system. Interest expense was $66 million compared to $64 million last year. Additionally, other expenses declined from $11 million in the first quarter last year to $4 million this year, driven by our simplified operations in certain volatile markets, including Argentina. Moving to Slide 14. Adjusted EBITDA was $294 million in the quarter. The year-over-year comparison is negatively impacted by an estimated $70 million to $90 million benefit from the ERP Blackout in the first quarter of last year. For the underlying business, the decline was driven by higher sales, more than offset by our decision to increase commercial investments to drive long-term revenue growth in Pet Health. Adjusted EPS was $0.34 in the quarter. The year-over-year comparison is negatively impacted by an estimated $0.11 to $0.14 benefit from the ERP Blackout in the first quarter of last year. The slight increased underlying performance was primarily driven by a favorable tax rate. Before moving to our guidance, let me offer a few words on our cash, debt and working capital on Slide 15. Cash from operations was $2 million in the quarter. The $147 million year-over-year improvement in operating cash flow reflects improvement in inventory and savings from the reduction in project spend from the completion of our Bayer ERP integration. We ended the quarter with net debt of $5.466 billion, as we paid down $13 million of debt, enabled by improvements in both operating and investing cash flow. At the end of March, our net leverage ratio was 6.1x, as our trailing 12-month EBITDA was negatively impacted by the ERP Blackout from last year, which drove an estimated 0.4 to 0.6 turns of the increase. We continue to expect between $280 million and $320 million of free cash flow available for debt paydown this year. We anticipate the year-end net leverage ratio to be between 5.2 and 5.5x before considering the expected debt paydown from the net proceeds from the Aqua divestiture. We continue to expect net proceeds to be between $1.05 to $1.1 billion, which we intend to use primarily for debt paydown, leading to an expected net debt to adjusted EBITDA ratio in the mid-4x range at the end of this year. Now let's move to our financial guidance, starting on Slide 17. For the full year, we are tightening our guidance range to reflect first quarter outperformance and the impact of the strengthening U.S. dollar. We are raising the bottom end of our constant currency revenue growth to 2%, and updating adjusted EBITDA and adjusted EPS to reflect FX rates as of early May. As a reminder, our guidance does not include contribution from our anticipated late-stage pipeline products and does not account for the expected impacts of the Aqua divestiture. On Slide 18, we provide further details on our updated revenue expectations. The raised constant currency growth is primarily driven by the U.S. Farm Animal and International Pet Health businesses, both from higher innovation sales and the base portfolio. The improved outlook also accounts for expected reduced sales for Kexxtone, a European cattle product. We have paused sales of the product, while the manufacturing process is under review by the EMA. We expect the full year impact to be approximately $20 million of revenue and $18 million of adjusted EBITDA, compared with our February guidance. Regarding FX, we now expect a $35 million headwind for the full year, $30 million higher than our February guidance. On Slide 19, we provide the bridge for adjusted EBITDA and adjusted EPS compared to our February guidance. We now expect adjusted EBITDA to be between $960 million to $1 billion, inclusive of an incremental $15 million headwind from the unfavorable impact of foreign exchange rates. Excluding the FX impact, we are increasing the bottom end of our adjusted EBITDA guidance by $15 million and the top end by $5 million. Our improved constant currency assumptions reflect the Q1 overperformance and increased confidence in the full year. For adjusted EPS, we are raising our expectations to $0.88 to $0.96 for the full year despite unfavorable FX, as a result of Q1 overperformance compared to our February guidance and improvements in both interest expense and tax. Slide 26 in the appendix provides updates to several of our additional assumptions. On Slide 20, we provide our financial guidance for the second quarter. We expect revenue of $1.145 billion to $1.17 billion, adjusted EBITDA of $240 million to $260 million and adjusted EPS of $0.23 to $0.26. As we shared last year and in the first quarter as a result of the ERP system blackout in 2023, approximately $100 million of revenue, $80 million of adjusted EBITDA and $0.13 of adjusted EPS shifted into the first quarter from the second quarter of 2023, which will impact the reported growth rates for the second quarter of 2024. As shown on Slide 21, the estimated headwind to year-over-year revenue growth from the ERP Blackout in the first quarter will unwind, contributing approximately 9 to 11 percentage points to second quarter revenue growth. Excluding the estimated impact of the ERP Blackout, we expect underlying constant currency revenue growth will be 1% to 3%. The shift is also expected to positively impact year-over-year growth of adjusted EBITDA and adjusted EPS in the second quarter, as shown on Slide 22. In line with our results in the first quarter, our EBITDA expectations reflect manufacturing headwinds from slowing down the plants and increased investment in our Pet Health business. Overall, we are executing ahead of our initial expectations for the year and look forward to delivering on the opportunity to launch exciting new products later this year. Now I'll hand it back to Jeff for closing comments.

Thanks, Todd. This is a very exciting time in Elanco, and we have momentum across our business. Our global team is highly engaged, intensely focused and deeply committed to building on the positive trajectory we've set over the past 3 quarters. The strategic actions taken to sharpen our focus and invest in our commercial growth drivers are delivering results. Our focus on consistent high-impact innovation is driving immense progress. We have 2 potential blockbusters, experienced CPMA already in the market, with 3 more expected in the coming months. With these and our IL-31 product that's slated for next year, we are on track to deliver meaningful growth from innovation sales over the next several years. As we enter this pivotal moment in Elanco's trajectory, the stability within our leadership team and consistency of our strategy is paying off. Our base business is growing, operating cash flow is improving and contributions from new products are exceeding expectations. These factors, combined with the durability of our diverse portfolio and balanced geographic presence, give us the confidence to increase our expectations for constant currency growth for the full year. Elanco is on track to deliver a strong 2024, and we look forward to continuing to engage with you all throughout the year. 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.

[Operator Instructions] Our first question comes from the line of Jon Block from Stifel.

Jeff, interesting comments on the OTC Para market. Why did the market's weak if the consumer is seemingly under pressure, sometimes that pressure causes a trade down. And I just want to make sure I understand, it does seem like you're gaining share within that market performance even if we normalize for some of the stocking commentary. Maybe if you can elaborate on that? And then I'll just ask my follow-up. For

Yes. Thanks, Jon. Let me start with that second question first. Again,

Our next question comes from the line of Erin Wright of Morgan Stanley.

Can you remind us -- I'll ask 2 upfront here because they're a little bit related. But can you just remind us on what's embedded in the guidance as it relates to the expenses associated with the upcoming blockbuster launches? And does this sort of increase certainty around -- of these launches? Does that change how you're thinking about those investments that you're making ahead of those launches? And then second would be on your conversations with the FDA. And what changed or what are some of the next milestones that give you that sort of clarity on the launch timing? And for instance, could you actually see approval before those time lines? And would that change your launch time line at all?

Erin, thanks for the question on the launch side. We feel very good about the timing as we've laid out today. The teams are preparing from training the sales force to preparing marketing materials to be ready to go. At the same time, the biggest cost is really TV ads and running those TV ads. And so we've not included those expenses in the guide, just like we haven't included the sales of Bovaer,

Yes, Erin. I might just broaden your question a little bit, and I'll get to it. I think it's really important. I know innovation and these blockbuster products, specifically

Our next question comes from the line of Michael Ryskin of Bank of America.

Great. Congrats on the quarter and update. I'll ask both at the same time as well. So following up on the new product approvals, especially

Yes. Very good questions, John. Thank you.

Mike, Mike.

Excuse me, Mike, I'm sorry, Mike.

Thanks, Katy.

Sorry about that. So listen, Mike, real quick. Look, we do anticipate and we see competitive reactions in the marketplace. And this marketplace has seen a lot of innovations come. And we've made a lot of decisions over the last couple of years relative to launch. We've taken this very seriously. This is not new. We've been preparing for some time. And we've had a lot of products to be testing and building the muscle of launch from

And Mike, the impact is both gross margin but also some inventory write-offs as well.

Our next question comes from the line of Balaji Prasad of Barclays.

Balaji, it looks like we are not hearing you. Let's go on to the next caller, and then we'll get him back in the queue.

Certainly. Our next question comes from the line of Umer Raffat of Evercore.

This is Mike DiFiore in for Umer. Two for me. I'll ask the first one first. Regarding bundling. You've consistently said that having a derm asset in your portfolio will greatly enhance your bundling capabilities and, therefore, enhance your competitiveness in Pet Health. My question is, have those bundling discussions happened yet? Or do you need to wait for launch and pricing to kind of get established? I mean you mentioned in your prepared remarks that you continue to solidify partnerships with corporate accounts? And then I have a follow-up.

Yes, Mike, that's exactly right. I mean this is quite common in the marketplace is, any vet practice, whether they're corporate or general practitioner, is only going to carry a certain number of products. And as you bring in a wider portfolio as a company, that's going to help across the board. That fundamental kind of principle plays out no matter what the size of the clinic. And then as you get to other groups that are larger corporately, there's no question. Having another alternative on the derm side is going to help overall and the market research shows that there's a high interest in that. So those 2 principles play out, Mike, and we see that happening today and a high desire for more of that going forward.

Yes. Mike, we provide incentives to all of our customers based off volumes they purchase from us. So by them being able to purchase derm from us now, that just gives them more ability to get savings and also then incentives to buy other products from us as they increase that volume. So that's really the incentive structure we're talking about by having a full portfolio and being only 1 of the 4 major companies to have that in the U.S. Vet side.

Got it. That's helpful. And then my follow-up question is a brief one, and I may have missed this. Could you quantify how much of the onetime Bayer channel stocking amounted to in the quarter?

It was about $10 million to $15 million.

$15 million? Okay.

Our next question comes from the line of Ekaterina Knyazkova from JPMorgan.

So first question is on Bovaer. Can you just remind us where you stand at this point in terms of manufacturing capacity and how we should think about capacity also for 2025 and where the implications and kind of think about the launch of that product? And then the second question is just on the bird flu epidemic in the U.S. Any thoughts on how that could impact producers? And anything that you're watching or particularly concerned about?

Yes. Thank you for the question. On Bovaer manufacturing, we have product here in the United States that is ready to be labeled and it's bagged, ready to go, and that has been purchased from a partnering contract manufacturer in Europe. So we do have product ready. And again, that's why we've targeted a Q3 launch of the product. And then relative to the H5N1, we're continuing to monitor this closely, work with our customers to make sure there's heightened biosecurity measures. I think a couple of things we look to and we don't see this issue increasing over the last couple of weeks, but pretty stable. It is something we want to keep our eyes on. I think producer profitability and also especially the dairy consumer response are the lead indicators that we'll keep our eyes on. And I'll just emphasize, overall, we've not seen and do not see any impact on our business results at this point in time from the H5N1.

Our next question comes from the line of Brandon Vazquez from William Blair.

First on guidance. It was really encouraging. You guys put up a nice speed here and then raise the guidance a little bit, especially in uncertain macro times. Can you just talk about what so are in the first quarter specifically is kind of outperforming that gives you confidence in raising that guidance, especially also on the EPS line. I think on top of FX headwinds, you're still able to increase it just about $0.01 or so. And then the follow-up is just a quick clarification on the pipeline. I think in the prepared remarks, you mentioned that you think you can get one-month heartworm efficacy with Quattro. Can you just confirm, is that because the FDA has already approved that? Or is that just how the clinical data is looking and you feel comfortable that you will get approval for that?

Brandon, thank you for the question. Q1 was really great performance by our U.S. Farm business. We're seeing accelerating adoption of Experior and with that, continued growth in Rumensin. This is the portfolio effect we talked about with having broad-based solutions for our customers, both on the pet side and the farm side, is by bringing those together, we continue to get ability to offset generic competition and drive growth. Poultry was really strong, and we've got a PRRS vaccine called Prevacent that continues to do very well in the U.S. farm market. Then it was really International Pet, continue to see strong momentum, both in Brazil as well as in Europe. AdTab, as Jeff mentioned earlier, is doing a great job of gaining sales across the European countries as it launches. And what we're seeing is less cannibalization of our topicals and collars in Europe from that launch than we originally expected. So those are the big drivers of our confidence to raise the constant currency guidance. At EPS, one, better cash performance than we expected in Q1. Team has done a really good job of focusing on improving our net working capital and delivering on cash. That allowed us not to borrow cash in Q1, which we typically do as we pay our corporate bonuses as well as some other sort of seasonal effects with rebates. That means we don't have to pay interest on that, borrowing for the rest of the year. That allows us to reduce interest expense. And then finally, on the taxes, the tax credits we're receiving from the state of Indiana is allowing us to have a little better tax expectations than we thought originally and pick up a $0.01 there on the full year guide. With that, I'll transfer to Jeff for the second half of your question.

Yes. Thank you, Brandon. Relative to Quattro, that is correct. We've said early on that we have passed the heartworm threshold. So to have heartworm control with a high parameter that the CBM has. And yes, we're making an assumption on the 1-month control from the data package that we've submitted as well as the dialogue that we've had with the CBM. Thank you.

Our next question comes from the line of Nathan Rich of Goldman Sachs.

I had a few on the derm products, and I'll ask them upfront. On the international approvals for

Yes. Thank you, Nate, for the question. Relative to -- let me just hit the IL-31 first. We just confirmed that this product is expected in 2025. And that's all we've noted. We've made nice progress since and we're just highlighting that that's going to be part of the $600 million to $700 million in a key contribution to our derm portfolio. Internationally for

Our next question comes from the line of David Westenberg of Piper Sandler.

Congrats on the quarter. Just a couple on the innovation front. First on the Quattro product. Can you talk about a little bit on the white space for the product specifically? And then maybe just kind of talk about the category growth, namely, I'm just kind of thinking, if we see Quattro play out, the differentiation on the tapeworm, broader coverage. Are we seeing this as taking share from other broad spectrum parasiticides? Are we seeing this growing from the old-generation, oral parasiticides or you just kind of see this as more of a market -- taking market growth from maybe topicals, OTC, that kind of product? And then just secondly, on the injectable or monoclonal derm. These products have been in the pipeline of Kindred, -- of course, it was not -- you guys only inherited that later. Is there something that you had to fix? Is there other kind of products? I know they had an IL-4 that could be coming in maybe 2026, 2027, maybe not ready to talk about pipeline, but I'd be curious because I do think those injectable derms have incredibly good market potential.

Yes. Thank you for the questions. Great. Great questions. Let me just start with that derm product. Yes, there was lots of work to do relative to the technologies inside of KindredBio. We're very happy with that acquisition, the manufacturing plant that's come with it. It's now making Parvo and will make the other monoclonal antibodies as well and we continue to progress the pipeline. We've not noted a lot of details relative to that. But as we've highlighted, we do have a long-acting and we do have the next generation of derm products to follow behind that and Kindred's portfolio will play into that. But there was continued work to do. And as we've noted, the USDA had asked us to increase the number of dogs and the number of treatments. And so that actually is what extended the time line. It wasn't product specific. It was really requirement specific. Relative to the parasiticide market, it's a great question. Look, this is the largest market in animal health. And a couple of principles play out very consistently as it's seen the most innovation come in. First is innovation usually increases the size of the market. We've seen that over the last couple of innovations that have come in recently, we believe our innovation will do the same. The second is you see legacy innovation get impacted the soonest and the most rapidly. And we've seen that in our own portfolio and [ Heather's ] had as well. So we see that as important. The third one is the oral broader spectrum is growing the fastest. So when you combine these 3 things together, we believe Quattro, having the broadest coverage, being differentiated, combined with our omnichannel approach inside the clinic and being able to drop ship it to homes and to have this 4-pillar approach with

Our next question comes from the line of Stephen Scala from TD Cowen.

This is Chris on for Steve Scala. We just had one question on the technical approval aspect. So what level of risk is associated with FDA administrative review once technical group was granted? Can you undertake any launch and promotional activities once technical approval was granted? And finally, will you disclose once those technical approvals are granted, hopefully in June?

Yes. We will wait, of course, for final approval, and final approval is when everything will be public on label. And so there's nothing that will come between the technical sections being approved and the final approval that is after that 60-day administrative side. And then relative to informing if and when we have material news on any of these products, we will share promptly and appropriately. Thank you.

Our next question comes from the line of Navann Ty of BNP Paribas.

I have 2 questions, please. The first one on innovation. So from your early discussions of the sales force we've tried to discuss upcoming innovations, do you expect incrementally stronger pricing power with the higher relevance of Elanco's portfolio? And then I have a separate question on activist investor. If you could discuss your dialogue and interactions with Ancora to date and since the appointment of Turner and Wallace to the Board since late March.

Thank you for the questions. As we've said with launching, we will look at this holistically. We will take, of course, we know that the market rewards innovation on the pet side, especially, and we will take a value-based approach, a holistic approach, looking at not only the product and the differentiation of the new innovation but also the portfolio. And we will -- as Todd mentioned earlier, we will also look at this from the standpoint of offering now all 4 pillars of the portfolio into certain clinics. We will look at potentially volume opportunities, but we'll take a value-based approach on the pricing side of the products. Relative to investors and the investor that you mentioned, our focus here is that we've come to an agreement that we've publicly communicated, and that was all around the principle of keeping the energy inside the company, with a concentrated focus to execute against this value agenda that's in front of us, and that was that was the rationale behind the decision, and we're happy to continue to be executing as we go into the rest of 2024.

Our last question for the day comes from Balaji Prasad of Barclays.

So a couple for me. Firstly, on the significance of technical approval and an administrative review. Is this goal for any of the technical approvals to be rescinded during this administrative review period? And can you clarify what exactly happens here? One. Two, on the parasiticide side, obviously, you'd have seen your competitor posted a very strong number on Simparica Trio. I'm trying to gauge what part of this is from the market expansion or market dislocation and what you have seen within the parasiticide market. And kind of linked to this, is there any incremental color on the label expectations from your discussions with FDA?

Yes, Balaji, thanks for the questions. On the regulatory process, there's always nuances and changes. But as we've highlighted, we believe the CBM has all the information that they need for approval. We are on a path, we believe, for the technical sections to be approved by the end of June. And then the administrative process will follow. And typically, the administrative process is pretty straightforward. And on the ADUFA time line, it's noted for 60 days. And we do not expect any other new dynamics there. And then relative to the trio market and market growth, as I've highlighted, and we won't get into any more detail than we've already disclosed relative to our Quattro label, but we do believe the broader coverage is valued in the marketplace. We do believe our capability with one of the broadest inside the vet clinic, outside the vet clinic, parasiticide capabilities globally gives us great opportunity here. And the market is desiring this as you see in the shift. So thank you again for the question.

And we'll -- Jeff, I'll send it to you to close.

Yes. Just very quickly, thank you. Thanks for your interest in Elanco. We continue to say inside the company and outside the company, the 3 key drivers for this company through '24 and '25 is growth, innovation, cash, and I believe this quarter again showed proof points, really for the third quarter in a row, third consecutive quarter of nice solid growth from our diverse portfolio, both Farm Animal, Pet Health, U.S. International and even price and volume. On the innovation side, I really want to note the existing innovation, $100 million in the quarter. We've got nice momentum in innovation. We're increasing our guide there and our late-stage we highlight increased certainty and the proof points that we noted all the progress in February. And then as Todd has mentioned, as inventories come down, net working capital has gone up and the cash conversion is on track and the Aqua sale for midyear is also tracking. So -- and ultimately, I think inside Elanco, engagement is high, our energy is not executing quarter-to-quarter. We've delivered another quarter and our focus is to continue to do that going forward, and keep anchoring back to growth, innovation and cash. Thank you again for the time today. We look forward to engaging with you throughout the quarter.