Good day and welcome to Elanco Animal Health Report's third quarter 2026 results. At this time, all participants are on listen-only mode. After the speaker's 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 like to turn the call over to Tiffany Kanaga, Vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining us for Elanco Animal Health's third quarter 2026 earnings call. I'm Tiffany Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer, Bob 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'll be happy to take your questions. I will now turn the call over to Jeff.

Thanks, Tiffany. Good morning, everyone. Elanco delivered an outstanding third quarter, outperforming our commitments in growing revenue 11% on a reported basis, or 9%. 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 three times milestone. Growth, Innovation, Cash. We are consistently executing along these three priorities, powered by our balanced business profile, strategically built to produce results as industry and competition evolves. And we're just getting started with significant runway for share gains off a small base and large growing global market. As highlighted on slide four, Elanco exceeded the high end of guidance for revenue, adjusted EBITDA, and adjusted EPS. Growth was led by international pet health up 17% and U.S. 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 medicine innovation that we're bringing to the table. Zanrelia once again led Total Elanco growth with Cordelio Cuatro also a major contributor. Both brands achieved record market share in the U.S. in September. Our Big Six, led by Zanrelia and Cuatro, 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 has entered into the final quarter of the year with continued momentum from a position of strength. We are meaningfully raising full-year guidance by fully passing through the third quarter B. 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 five, we break down the third quarter's 9% underlying organic constant currency revenue growth. HV International, our acquisition which closed April 30th, contributed about a point of growth not included in the organic rate, and it further strengthens our global ruminant position. U.S. 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. Thank you for joining us. Thank you for joining us. 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. Senreli and Quattro continue to achieve very robust growth outside the vet clinic. Putting it all together, U.S. Pet Health achieved 13% growth despite retail sales being slightly negative in the quarter. We expect our omni-channel leadership New Distribution Points, and OTC Innovation to provide durable growth next year and beyond, allowing us to reach the one-third of pet owners that don't regularly visit the veterinarian. Moving to International Pet Health, we delivered 17% organic constant currency revenue growth, driven by Zenrelia and ADTAP. Zanrelia 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 market. U.S. farm animal increased 7% in the quarter, or 10%, including AHV. 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 and 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 six, we delivered $328 million of innovation revenue in the third quarter, led by continued momentum for our big six in aggregate. We are raising our anticipated innovation contribution for 2026. and we are running ahead of our ambition to double the big six between 2025 and 2028. This accelerated pace of innovation sales reflects a competitive advantage in the marketplace that we expect to sustain. It's built on rapid globalization, medically differentiated products with low market share and 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 seven, starting with Zenrelia. It's 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 U.S. 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 U.S. sales to more than double in the quarter versus last year. Vet clinic penetration climbed to approximately 19,000 or two-thirds of the total clinic base with steady month-to-month gains even as new competition entered. US Jack market share improved seven 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 U.S., 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 don't see that changing. Zenrelia grew even faster internationally than in the U.S. in the third quarter and year to date. Growth has accelerated in Europe, the market with three Jack One 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 five times the competitive entrant, driven by higher customer satisfaction with the product. Zenrelia is now in 48 countries outside the U.S., all without label restrictions. We continue to drive significant share gains across key geographies. For example, Senreli 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, Bofrena. Demand continues to build. We have just opened up access to Bofrena 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 Bafrena from a phased launch to a full-scale national launch in the first quarter. Bafrena is already showing what our DERM portfolio can do together. About 20% of clinics which have purchased Bafrena have never used Xenrelia, unlocking a new door for Xenrelia. On supply, we're now making Bufrena 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 Bufrena did not materially contribute to Q3's 13% growth in U.S. pet health, we expect it to be a major revenue growth driver in 2027 with the potential to be the single largest contributor to U.S. pet health growth next year. Next, on Cordelio Quattro, we are very pleased with another good quarter of dollar share gains and broad spectrum dispensing sales from the U.S. clinics. Quattro's market share increased nine points in Q3 year over year. We have continued aggressive clinic expansion, reaching about 55% of the U.S. base today, up 15 points since Q1. That's an increase of approximately 4,500 clinics in just two quarters, reflecting strong veterinarian and pet owner demand for the four dimensions of differentiation that make Quattro what we believe is best medicine. Like Xenrelia, Quattro 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 isn't just a clinical metric, it's a household safety requirement. And Quatro's exceptional speed is resonating strongly with pet owners. Quattro's momentum is carried through the typical seasonality to make this Elanco's largest U.S. pet health product, surpassing Seresto on a trailing four-quarter basis. And we're just getting started with very limited global share compared to the two incumbent franchises exceeding $1 billion each. There is ample room for many years of Cordelio 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 U.S., 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 Crudelio 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, Xperia has driven strong cattle portfolio synergies year to date. We anticipate Xperia 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 Bovair, 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 supports relatively consistent cattle numbers. We are investing in long-term initiatives to enhance the product value and demonstrate user flexibility. Moving to slide eight, we provide recent highlights across the three parts of our IPP strategy, innovation, portfolio, and productivity. Let's start with innovation. The commercial success of the Big Six 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 has significantly greater probability, speed, and value since our December 2025 Investor Day, driving our increased confidence behind the five to six 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 U.S. 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 three-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 2.9 times net leverage at the end of Q3, we've 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'll pass it to Bob to provide more on our third quarter results, financial guidance, and early considerations for 2027.

Thank you, Jeff, 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 four quadrants of our business. Total pet health revenue increased 14% in organic constant currency. Our U.S. business achieved 13% growth driven by strong momentum in the vet channel and continued demand for Xenorelia and Crudelio Quatro. Internationally, pet health revenue grew 17% in constant currency driven by the strong demand for Xenorelia 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 and 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 Lenco 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 27 cents, 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 and 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 2.9 times. outperforming our previous guidance. Achieving this sub three times milestone accelerates our capital allocation flexibility as we advance toward our target of two to two and a half times. Turning to our financial guidance on slide 17. Driven by our strong third quarter performance and confidence in 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 6-7%. This translates to reported revenue of $5.155 billion to $5.18 billion, with our assumption for foreign exchange tailwinds and AHV international contributions remaining unchanged. Our adjusted EBITDA outlook increases by approximately $35 million, or 17% growth at the midpoint. For adjusted EPS, we are raising our guidance by 6 cents at the midpoint, bring 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. We continue to advance our Lenco Ascent 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 submission tool in R&D. By utilizing a human-in-the-loop framework, this system accelerates our speed to market and unlocks resource capacity. AI is also now integrated into our discovery activities and 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 first quarter guidance on slide 19. On a reported basis, we expect revenue between $1.19 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&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 U.S. 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 Xenrelia and Cordelia Quatro, contributions from Befrenna, and significant corporate account growth. For the full year, we 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, we 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 befriended launch to be a meaningful driver of top-line growth. Any Xenrelia 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 2027 will lap a benefit from customer-driven, accelerated shipments primarily to the Middle East. These accelerated shipments contributed one 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 per front of 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'll hand it back to Jeff for closing comments.

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've 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 and aggressive price competition to grow and gain share. Our consistent quarterly delivery the last two years has proven this point. What will win share is clear. Best Medicine and 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 strong growth in the overall U.S. pet health market. At the same time, changing pet owner buying behaviors as consumers prioritize convenience underscore the importance of omni-channel 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 omnichannel 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 1,500 U.S. pet owners Detailed in a press release issued this morning reinforces the thesis of durable growing pet health spend today and expected into the future. Industry vet channel revenue is up low single digits year to date, reinforcing our proprietary research. Moreover, the U.S. 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, U.S. pet health is just one-third of the diverse animal health industry expected to grow at 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 one is more central to society's needs for pets and protein than Elanco with our balanced profile and all four businesses growing in Q3 and year to date. Our October pet owner survey on slide 24 underscores what we're 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 three months and plan to keep doing so. Yet, where they're 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 and 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 multi-year 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'll turn it over to Tiffany 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. As a reminder, to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, press star 11 again. Our first question comes from John Block with Stiefel. Your line is open.

Thanks, guys. Good morning. Gross margin was up 300 pips year over year, so a really big step up. Maybe, Bob, if you can provide some color on the traction with gross margin, if you can. I don't know if you gave an implied 4Q. And then maybe more importantly, Jeff, you know, Any timing behind that 60% goal that you've thrown out there, you know, less than five years, less than three years, but maybe some framing would be helpful, and then I'll just ask a quicker follow-up. Thank you.

Good morning, John. Hey, thanks for the question. Yeah, so I'll give some color on margins. So Q3, as we highlighted, increased 300 basis points over the prior year, really led by a couple things. One, strong price. Number two, favorable mix with U.S. Pet Health and International Pet. Number three are manufacturing improvements, really with Elanco Ascend and that team focused on conversion costs. We are seeing productivity gains across the company with Elanco Ascend. The thing I'd highlight is we did flow through those higher inventory costs that I've highlighted in the past couple of quarters. That's 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 four walls of our manufacturing facilities, but also through G&A, we'll see continued absorption benefits as we see volume improve, and then natural mixed benefits with our basket of innovation growing, as again, those margins are accretive to our overall corporate average. Now, as we think about really moving forward, let me just give you an update on Elanco Ascend. So I'm really, really pleased with the progress we've achieved so far in 2026. You've seen the benefits come through in Q2 and Q3 as we've accelerated some of those projects. I've shared a couple examples over the last few quarters about process improvements, how we're leveraging AI and automation, not only within our shared service center, but also within R&D. and now we'll continue 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've hosted our first ever supplier day. We've brought in over 70 of our key suppliers and strategic partners to discuss how we can better collaborate. I've personally sat in several of those meetings this week and we know we're in an inflationary environment but we are working together to collaborate and grow together and then push to offset and some of that inflation. And I would highlight, you know, we're 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're seeing

benefits not only from our procurement team, but we're seeing in our manufacturing capabilities, we're seeing in our R&D team who's more and more efficient in getting more throughput through their processes. We're seeing G&A effectiveness. And even on cash flows, we don't 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 the key takeaway here, John, is that we're going to have several continued years of improvement in both gross margins, EBITDA margins, and cash flows.

Your follow-up, John?

Yeah. You know, Jeff, I guess I'll be the one to ask this. Can you just briefly touch on the Costco non-renewal, maybe if you want to address why? I don't think there's much revenue exposure there. If I've got this right, you just entered into that in 1Q26, and I do think you called out you're still expecting retail growth 27 versus 26, but Maybe just, you know, clean that up or frame that for us. Thank you.

Yeah, I just back up. Our retail business continues good, strong, underlying demand globally. You see the ad tab success that's very close to becoming our next blockbuster. And, you know, our strategy that Bobby and the team have put together in Ramiro, adding distribution points, adding innovation, globalizing, it's 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. John, as you can see, we're constantly adding distribution points. Some stick. The majority have stuck with us, and some will 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 going to be in Q1, going to be offset by other distribution partners that we've picked up. Again, feel real good about the overall retail business. Thanks, John. Fair enough. Thank you.

Thank you. Our next question comes from Glenn Santangelo with Barclay. Your line is open.

Yeah, thanks. Good morning and thanks for taking the question. I just wanted to sort of talk about two areas of pushback that we sort of get, Jeff, 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, may be in the midst of sort of the 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, everyone is concerned about the macro. There's always conversations around the declines. in vet visits since COVID, really. So the question is, is anything getting worse in your mind? And I'm just trying to contextualize those two 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'll stop there. Thanks so much.

Yeah, thanks, Glenn. Look, at a high level, and we put out this market research this morning, I think that I'll 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's been consistent in our February, May surveys and now the October survey is that we've got over 90% of pet owners, and it's been consistent all year, that are protecting, are going to spend the same amount or spend more going forward. And that's represented in the 9 out of 10 companies. that have actually been there. So we say that's the lead economic indicator. It's not vet visits. Vet visits, we believe, is more a result of a changing buying behavior of people going more outside the clinic. That's the answer. Look, we put in slide 25. We continue to try to be very transparent. That's representative of scale of the two major markets that I really got to call out. Excuse me, Glenn. on the marketplace. And I'll just make a couple of 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 eight, pets up two, internationals faster than the U.S. The nine out of 10 companies that I mentioned in innovation is the differentiator between those companies. Specifically, yes, the U.S. pet health market has slowed, but let's double click on the two major markets that we're playing in that are represented on slide 25, broad spectrum and DECTO and DERM. In broad spectrum and DECTO, some interesting dynamics and data here. One, broad spectrum and DECTO parasiticides is growing mid-single digit in the U.S., double digit outside the U.S. Interesting dynamic in this market is really there's been a shift. There's kind of a changing of the guard. The top three products, Trio, Nexgard Plus, and Brevecto, trailing 12 months, have lost 10 points of share. Meanwhile, new innovation, over 70% of that new innovation is Quattro, has picked up nine points of share, all while the market is growing. So really, we're excited that we got three $1 billion competitors, and we're demonstrating best medicine to these players. We've got a long runway to grow. Market's growing. We got a small share. and this has been one of the most durable markets even during this downturn. Second is Derm. Derm growing high single digit internationally, excuse me, thus innovation is growing the markets both in Para and Derm, it is. U.S. revenue is down, we're flat in Derm but more dogs in the U.S. are on for Derm than they were a year ago. And recent Vetco data showed that actually U.S. Derm doses are up double digit in the U.S. So the market's expanding. Launch offers and one-time gross to nets maybe have made the market temporarily become flat in the U.S., but we see great share opportunities for us. So, Glenn, long runway. We're committing today to continue our algorithm in 2027, and we're confident in that. You saw Bob's pluses and minuses relative to the year. We feel very good going into next year.

Thanks for all the details, Jeff.

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

Great. Good morning. Thanks for the question and congrats on all the progress. Maybe just another on the outlook for 2027. Obviously, you're 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 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 Thanks so much.

Yeah, thanks, Matt. So love to provide some color on what we see going into 2027. And I will expect and do expect, Pat, 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. We have a tremendous amount of clarity going into the year. We finished our business plan. We'll be sharing that with the board here in a couple of weeks, but a high degree of confidence. And that's why we're 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'll see a normal spike up in Q1, that's 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. Jeff highlighted in his remarks that the big six, we're ahead of schedule and we expect the big six to double in revenues by 2028. I've provided color on Elanco Ascend, but we're just getting started with margin expansion on that front as well. So a lot of confidence going into the year and look forward to sharing more details with you all in February when we give formal guidance.

And Matt, I would just make one comment. I think price is a measure of value, right? So if you're discounting, you probably have a value product challenge. Our representation of 5% growth in pet is I think medical differentiation proven out in the marketplace. We have very You know, really, really no major customer has left a Cordellio Quattro and gone to a product, say, with three active ingredients. So we're retaining customers. We're 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're as great as they've ever been. So it gives us some price leverage also on the farm animal side.

Great. Thanks so much.

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

Great, thanks. Outside of what you saw, I guess, at retail and some of the, you know, relationship dynamics there, I guess I'm 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 kind of enter those new distributor relationships into next year in terms of pricing, promotion dynamics, any new tactics that you're kind of taking on that front as we head into next year. That'd be great. Thanks.

Yeah, Erin, we're again, very consistent in clinic out of clinic demand is matching days of inventories remained very steady. No changes relative to that at all. Again, There's spotty different places where there's competition, but it's nothing unusual. We see really a responsible backdrop overall in the marketplace. So as a whole, again, we're winning with Best Medicine. We're winning with Share a Voice. Our targeted media is building brand loyalty. We're starting to really see that brand loyalty grow, which is going to create a stickiness and long-term growth in some of these big products that we have. and that's really been the essence. Today we've got more share of voice, more stability, which you and I have talked about in our teams than we've ever had, more expertise. We just finished a survey, the highest engagement score since the IPO across Elanco and while we see some of our competitors restructuring and downsizing, our share of voice is up substantially and that's a factor we haven't talked a lot about that I think is is playing out. When you put best medicine, share a voice, and brand loyalty together, we've got competitive advantage and we see a long runway of share taking ahead here. So I hope that helps.

I guess a clarification, like was there a stocking benefit at all in the quarter and across the quarter?

No. Simple answer is no. We haven't had any stocking, unusual stocking since I've been here and it's been, what, six quarters or so. Nothing in Q3, very clean quarter. Q4, expect very clean and into 27, same thing.

Perfect. Okay, great. Thank you so much.

Thank you. Our next question comes from Uma Rafat with Evercore. Your line is open.

Hi, guys. Thanks for taking my question. So I was looking at some of the Cordelio Cuatro commentary, and I recall you had mentioned a three-point gain in market share back in 1Q and another four-point gain back in 2Q, meaning those two quarters alone was about seven points in gain. I'm assuming it was something comparable last year in 4Q as well. So knowing that, that in the last three quarters prior to 3Q, you had gained something like eight to nine points in market share, I was a little surprised to see that the Cordelia Quattro market share gain year over year is nine points because that's sort of the number I had in market share gain by the end of 2Q. Was the market share flat 3Q versus 2Q? And if you could just speak to what the sales trend was quarter over quarter. I realize you said it was the strongest September, but I just want to sort of put the market share in perspective.

Yeah, thank you, Amar. You know, first of all, as we highlighted, we We did see share gain. There is less switching. So there's dollar share and clinic share. So what I would say I would I would highlight is there's a lot less switching late Q3 into Q4 as corporates are and all clinics are are switching less getting ready for actually the next season. So where we've seen, you know, the growth is actually inside the clinic's as we're you know continuing to to grow actually use inside the clinic so again we we see tremendous demand for the product we we see a 2027 that's going to bring not just share growth but overall market growth as I mentioned in this pair of market we've got three one billion dollar competitors that we're showing best medicine against so again it's it's common late in the year as you get into the late fall winter that you're going to see a little bit less of that and um Less switching overall. And market share, if I emphasize, it did grow sequentially quarter to quarter.

Thank you.

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

Hey, guys. Congrats on a nice quarter. I wanted to start first on Zenrelia. Jeff, you had mentioned that you guys were executing well through what is an increasingly competitive market. I was hoping you could spend a minute on what you are seeing on the two other players there in the Jack market. And then I had one other follow-up in Durham as well. And just basically on the Zenrelia question, how are you guys executing through that?

Yeah, thank you, Brandon. Yeah, again, our single largest brand, again, contributor to total growth, a lot of momentum. efficacy continues to be the differentiator. We're seeing, you know, a little bit of a prolonged season two with itching. That's been positive. We also have seen the Jack 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 in the international market. And as I mentioned, doses actually up in the U.S. So again, I see that. And look, we've competed very well in Europe, five to one with a new market incumbent coming in. And here in the U.S., Bobby and the team are excited. Bofrena will be additive to Zenrelia. One out of five clinics going on Bofrena have not used Zenrelia. So we do see a positive there as well.

Okay. And as a follow-up here on Bofrena, Two quick questions on Befrenna. Jeff, can you gap us a little bit or help explain? You made two 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's 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? Have corporate accounts kind of been moving forward with Al Profena. Just talk a little bit about whether or not that's a catalyst on the corporate side as well. Thanks.

Yeah, thank you. Yeah, very big quarter progress with Profena. And I'll just emphasize again, as we're kind of coming to the end of the season, the end of the year, we're ramping up. So yes, big news last week, having reps go out and start to take orders across the U.S. marketplace. Demand continues to be high. Thank you for joining us. We do expect with the trend we're on and seeing the demand line that we're going to be able to be in the market in a full launch. Again, we're months from that right now as we get into Q1. So again, good, good, strong overall. Relative to corporates, yes, we do believe that this will be an unlock. It already has been. We're offering this to corporates now. And this is of high interest to corporates. Corporate sales in U.S. pet health are outpacing our total pet health. Thank you. Our next question comes from Andrea Alfonso with UBS. Your line is open.

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 of the front of growth. How do we think about, you know, the directional improvement there over time for that product? Is that simply just a transitory drag from early promotions? And, you know, how do we think about that trending steady state versus the company average? and then separately, I'll 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 non-renewal completely nullify the agreement you inked in one queue completely? Thanks so much.

Hi, Andrea. I'll take the first one. I'll let Jeff take the second one. Yeah, margin to directory for 27, you know, I think we've covered that. We'll see improvement there. As I think about Perfreno, we're going to be ramping obviously production and scaling there and so it'll be dilutive to margins to start off and it'll accelerate throughout throughout 2027 we expect that to be an accelerator in 2028 and overall our basket innovation keep in mind that is part of our basket the basket innovation continues to carry a higher gross margin than our corporate average and and yes that will uh our we will be out on the contract we had from this year next year but again

As I said, there's quite a large number of major retail buyers. We've picked up significant numbers. We've mentioned companies like Dollar General and others. We've picked up some even since last quarter. And again, we see net-net being positive on the retail side in 27, but Costco will not be a player in that. And again, it will impact Q1 a little bit, as I mentioned.

Thanks so much.

Thank you.

Our next question comes from Navan Tai with BNP Paribus. Your line is open.

Hi, good morning. Just one follow-up on those, and really if you would have handy the U.S. reorder rate and the first line used, and then one on the FRENA, what is your full launch strategy versus your competitor launching their long-acting IL-3 around the same time, and then I just have one more on the farm animal Thank you.

Yeah, thank you. We continue to pick up first-line treatment with Xenrelia in a really nice way. I mean, it's, you know, again, Xenrelia, number one growth driver for the company, outgrowing even in the international markets. It is making the markets get bigger, and we've moved to first line more and more. I would point to the data to say, you know, we're picking up 400 to 500 clinics per month in the U.S. We're at 19,000. I think what's more important, as Bobby highlights, is the penetration in the clinic. So average sales per clinic rose 8% from Q2, and that's a key metric for us, and that will be a multi-year, you know, growth runway for us as we pick up more penetration in and that is a signal that more and more clinics are going to first-line treatment. Look, on Bufrena, we're excited to be in the marketplace. We have differentiation, we believe, on value, convenience, efficacy. There's a lot of interest. Over 80% of vets have said they want to use this product. We're seeing that play out in the orders that are there. More and more and very satisfied customers that are using it. So we're going to 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 Bofrena will be focusing on that differentiation as we have. And we've seen with the other two products, that's what takes share. And we believe we've got a great runway with Bofrena on that. and then look, we've had a really strong protein demand that's drawing poultry up single digit, dairy up single digit and then you've got a shortage of beef which is really helping the international beef markets. We've seen great strength in our LATAM markets and even the European beef markets because of the shortage in the U.S. So we see a nice tailwind overall to beef markets and Poultry is probably the most steady. You are going to see some moderation on our farm animal business and you're going to see quarter to quarter variation. That just happens with weather, seasonality and some of our portfolio effects.

Thank you.

Thank you. Our next question comes from Daniel Clark with Lyrinc. Your line is open.

Great. Thank you. Good morning. I wanted to ask on the potentials and really a label improvement in the U.S. 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? And I have a follow up as well. Thanks.

Yeah, the label continues. No new news. The research is being completed. We'll plan to make a submission at the end of the year. and we should hear with you do timeline mid-year so that's the plan and as Bob highlighted real simple it's uh 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 U.S. with 19,000 clinics on and all the penetration in the movement to first-line treatment so it's becoming less important although we're pursuing it and uh we'll keep you updated we have something new to report.

got it thank you and then my follow-up just curious like sitting here in November how you know the level of competitions kind of played out relative to your initial expectations that you you set kind of when you rolled out guidance last year obviously you've raised the guide but just just curious how that's evolved relative to your initial thoughts and then just just maybe next year like how you're thinking about the level of competition versus what you've you've seen in recent months and sort of like what's what's embedded kind of in the high and low end of those expectations thank you

Yeah, thank you for this question. I was going to actually wanted to, you know, just highlight a little bit of I think details matter here overall, the pet health situation. Again, we're seeing some time bound and targeted promotions, mostly in general practices. Remember, this just shifts volume from one month to the next, but it is not changed and we don't see it changing the trajectory of our share gains. We also see some investments with corporate accounts, gross to net offers. Most of the corporates, remember, have two animal health partners. We're winning to be one of those two, which means we do not have to be as aggressive on price, and we haven't. And, you know, there's, if you look at these big and corporates, you know, there's very few and even all the practices we've had very few if really no material customer leave our new products and go back to a competitor. So we're not seeing switching away from us. That's why our share gains grow. Best medicine is being demanded as one of those two animal health options in the vet clinics and that's where we're winning. So remember, Elanco's being selective with corporates. We're under indexed. It's upside for us. But that's probably where the competition has been in a spotted way. And we're not going to participate in a competitive price when someone is working to really they're really competing to try to hold clinics. And remember, there's more than one 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 innovations winning. So that's what we see. No change to our expectations, actually. It's been a very responsible market overall, and we feel very good about that even as we go into 2027.

Thank you. Our next question comes from Chris Scott with J.P. Morgan. Your line is open.

Great, thanks so much. Just two for me. Jeff, just coming back to some of the pricing versus value comments you made earlier, I think you had 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're obviously in the middle of a very healthy new launch cycle, but just on the pipeline front, can you just remind us, what are you most excited about as you think about the pipeline and kind of what's up next for Elanco? Thanks so much.

Chris, I'll take the first one 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 second half and especially in Q3. But I just remind you, pricing does fluctuate quarter by quarter. It's influenced by customer mix and product mix this quarter. was influenced by scaling back launch offers, which we said we're going to do, right? So I think about moving forward, Q4, we expect pricing to be closer to the two to three historical rate we've seen, but we're 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 Jess highlighted, best medicine.

And just, boy, I have to say, it's probably been our best quarter, by far our best year in R&D. It's about a year, Chris, now since the investor day. No attrition. Our models are working. We've got one of the most stable. We're adding to the team pretty significantly in R&D. And the team is just, it's humming right now. So we've got over 15 candidates in clinical right now moving. Things like, you know, dog enrollment, et cetera, are ahead of schedule. So our five to six potential blockbusters through 2031 are Thank you so much for joining us. The second is pain. There's no question pain, CKD, some of these other markets that are being created. We're going to come in and be a formidable competitor. And then our farm animal portfolios from farms, you know, food safety to vaccines to productivity. We've 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 six products.

Thank you. Our next question comes from Steven Deckard with KeyBank Capital Markets. Your line is open.

Great. Thanks, guys, for the question. I just have one. On the COG side, I guess with procurement, I guess what ending are you in on that? I thought from the 2025 investor day that was kind of more of a 27, 28 type of event. So how much more room for improvement is there? Thanks.

So I'd say it's early innings still, Steve. I mean, the one thing to keep in mind is as contracts are negotiated, we don't 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're going to start seeing the benefits, and we saw a little bit of it in Q3 and Q4. We're going to see the benefits of the procurement actions throughout 27 and beyond. But there's a great hunger within our procurement team. And as I mentioned, the supplier day here, we held two days, the last two days here this week with our key suppliers in-house. And there's just a lot of runway and continued partnership to continue to improve what the procurement team can bring for us.

And we're committed to that 60% runway. And we know we've got a portfolio and a plan with Bob's leadership to hit that 60% over time.

All right, thanks.

Thank you. And our last question comes from Chris Lobianco with TD Cowan. Your line is open.

Thanks, guys, for fitting us on. We had one 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.

Yeah, thank you for the question. I think overall, again, we see protein being stable as a whole. We're seeing low single digit, mid single digit animal numbers that are growing. But, you know, as you point to cycles, you're going to have them. So right now, dairy is seeing a little bit of a cycle where we had high, you know, high production. And there's places where there's a little bit of an oversupply. So look for dairy to be a little cyclical. Swine also has been cyclical. We see still some challenging over break even struggle to get over break evens in 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'll be regional opportunity overall in swine but we like the business as you look at 2027 farm animal will be a really strong durable business for us and our portfolios will add more value than they ever have with that I'll 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've seen across the company just in terms of the culture, the one Elanco mindset, the ability to execute, the level of energy and focus in this company is historical right now. And we're focused on our customers to add value. And that's 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're uniquely positioned. as highlighted on slide 26 as we close. You know, we are set up and I think the metrics that came out of and proof points of Q3 are going to be what's 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. And again, have a great day.

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