b33c5e64c9171428f33a9915da036ff4164962f564d40b97e700a298cf5cf9b8

**Elanco Animal Health** experienced a significant decline in **total assets** in Q3 2023 primarily due to a **$1,042 million goodwill impairment charge**. This non-cash charge was triggered by a sharp increase in long-term U.S. treasury rates, which led to a higher discount rate assumption in the company's goodwill impairment analysis, reducing the goodwill balance on the balance sheet.  **[0001739104-23-000021_elanco-20230930exhibit991.htm:1]** **[0001739104-23-000023_elan-20230930.htm:34]** **[0001739104-23-000023_elan-20230930.htm:44]** **[0001739104-23-000023_elan-20230930.htm:28]** 

Why did Total assets drop so significantly in Q3 2023?

The current portion of long-term debt is so low in Q2 2023 because **Elanco Animal Health redeemed its 4.272% Senior Notes due 2023**, which significantly reduced the debt balance from **$388 million (as of December 31, 2022)** to **$39 million (as of June 30, 2023)**. This redemption, involving **$344 million** in notes retired on **August 7, 2023** as part of the company's debt refinancing activities, is the primary reason for the lower balance.  **[0001739104-23-000013_elan-20230630.htm:12]** 

Why is the Current portion of long-term debt so low in Q2 2023?

The accumulated deficit nearly doubled in Q3 2023 because the company recorded a **non-cash goodwill impairment charge of $1,042 million**—triggered by higher long-term U.S. treasury rates affecting the discount rate—and a **net loss of $1,096 million** during the quarter, which together significantly increased the deficit.  **[0001739104-23-000023_elan-20230930.htm:5]** **[0001739104-23-000021_elanco-20230930exhibit991.htm:1]** **[0001739104-23-000021_elanco-20230930exhibit991.htm:2]** **[ELAN_3364676_5]** **[0001739104-23-000021_elanco-20230930exhibit991.htm:0]** 

Why did the Accumulated deficit nearly double in Q3 2023?

The sharp decline in **Goodwill** in Q3 2023 was primarily caused by a **$1,042 million non-cash goodwill impairment charge**. This impairment was triggered by a **sharp increase in long-term U.S. treasury rates**, which led to an increased discount rate assumption in the impairment test. As a result, the estimated fair value of the company’s reporting unit fell below its carrying amount, necessitating the impairment charge.  **[0001739104-23-000023_elan-20230930.htm:20]** **[0001739104-23-000023_elan-20230930.htm:38]** **[0001739104-23-000021_elanco-20230930exhibit991.htm:1]** 

What caused the sharp decline in Goodwill in Q3 2023?

ebc4606dd1d00c932e9d4cc5386da343e77cd63497880374b842d2f4739629fe

The sharp turnaround in **Net Income** in Q3 2024 was driven by a **pre-tax gain of $640 million from the divestiture of the aqua business**, which substantially offset the heavy negative impact of the **$1,042 million goodwill impairment charge** experienced in Q3 2023. In addition, a decrease in **net interest expense by $14 million** and a shift in the **effective tax rate from 0.2% in Q3 2023 to 34.8% in Q3 2024** also contributed to the improved profitability in Q3 2024.  **[0001739104-24-000036_elanco-20240930exhibit991.htm:2]** **[20241107DE50229:2]** 

What drove the sharp turnaround in Net income in Q3 2024?

The jump in **Income Tax Expense** in **Q3 2024** was primarily driven by the **taxable gain on the aqua business divestiture**. In this quarter, ELAN recorded a **$640 million pre-tax gain** from the divestiture, which resulted in an **income tax expense of $171 million**, contributing significantly to the total tax expense of **$195 million**. Additionally, the comparison with **Q3 2023**—which featured a **$1,042 million non-deductible goodwill impairment charge** that generated an income tax benefit—highlights how the shift from a tax benefit to a substantial expense led to the pronounced increase in the tax line item.  **[0001739104-24-000039_elan-20240930.htm:34]** **[0001739104-24-000039_elan-20240930.htm:19]** **[20241107DE50229:2]** 

Why did Income Tax Expense jump so high in Q3 2024?

The higher asset impairment charges in Q2 2024 were primarily driven by two factors. First, there was a **$53 million impairment charge** on the Pet Health IPR&D asset (IL-4R) acquired from Kindred Biosciences, which was recorded after future R&D activities were terminated due to the asset not meeting commercial viability expectations. Second, an additional **$10 million** was incurred in transaction costs associated with the divestiture of Elanco's aqua business.  **[20240808DE79287:3]** **[0001739104-24-000027_elan-20240630.htm:29]** **[0001739104-24-000027_elan-20240630.htm:10]** 

What drove the higher asset impairment charges in Q2 2024?

The spike in **Other Expense, net** for Q4 2023 was primarily caused by a **$12.5 million accrual** for a potential resolution or settlement relating to a previously disclosed SEC matter, as well as the impact from **foreign currency transaction losses**, particularly from the Argentina subsidiary.  **[0001739104-24-000004_elanco-12312023exhibit991.htm:2]** 

What led to the spike in Other Expense in Q4 2023?

The large **$1,042 million goodwill impairment** recognized in FY 2023 was primarily due to a **sharp increase in long-term treasury rates** during the third quarter of 2023. This rise led to a higher discount rate being used in the income approach (via a discounted cash flow model), which in turn reduced the estimated fair value of the reporting unit below its carrying value. In addition, significant management judgment involving historical experience, market size, pricing, and expected industry trends further contributed to this impairment trigger.  **[0001739104-24-000009_elan-20231231.htm:111]** **[0001739104-24-000009_elan-20231231.htm:93]** **[0001739104-24-000009_elan-20231231.htm:80]** 

What explains the large Goodwill Impairment recognized in FY 2023?

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Cash and cash equivalents (USD, millions)

Accounts receivable, net (USD, millions)

Other receivables (USD, millions)

Inventories (USD, millions)

Prepaid expenses and other (USD, millions)

Total current assets (USD, millions)

Goodwill (USD, millions)

Other intangibles, net (USD, millions)

Other noncurrent assets (USD, millions)

Property and equipment, net (USD, millions)

Total assets (USD, millions)

Accounts payable (USD, millions)

Sales rebates and discounts (USD, millions)

Current portion of long-term debt (USD, millions)

Other current liabilities (USD, millions)

Total current liabilities (USD, millions)

Long-term debt (USD, millions)

Deferred taxes (USD, millions)

Other noncurrent liabilities (USD, millions)

Total liabilities (USD, millions)

Additional paid-in capital (USD, millions)

Accumulated deficit (USD, millions)

Accumulated other comprehensive loss (USD, millions)

Total equity (USD, millions)

Total liabilities and equity (USD, millions)

9a225ea99f34fc18e2de8b5b7b73146251c8a3cba1c119e6d3fd0d21824367bf

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Income tax expense (benefit) (USD, millions)

Net income (loss) (USD, millions)

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SG&A (USD, millions)

R&D (USD, millions)

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Operating Income (EBIT) (USD, millions)

Net Income (USD, millions)

EPS - Basic (USD)

EPS - Diluted (USD)

ee13d2e135030cd333d4be1df6142841a19f00b9bbd75b9fdd5332ded0aea313

Current Assets (USD, millions)

Cash and Cash Equivalents (USD, millions)

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Non-Current Assets (USD, millions)

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Intangible Assets (USD, millions)

Current Liabilities (USD, millions)

Accounts Payable (USD, millions)

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Non-Current Liabilities (USD, millions)

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Lease Liabilities (USD, millions)

Deferred Tax Liabilities (USD, millions)

Shareholders' Equity (USD, millions)

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Additional Paid-in Capital (USD, millions)

bae8bb409b17602cc2c5c27425b4fa232182cd674be08a8ab7d62e3c58d38df3

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221b49ed043ef429854b9b091526f30018f4695d46b147c65b2364a298cc8bab

Total Revenue

Pet Health

Farm Animal

Cattle

Poultry

Swine

Aqua

Contract Manufacturing

1cff0fce43ec19a052fcfab22ffa509e54936650fc6fa6c4d3c10be59211a533

United States

International

Q1 2023

Q4 2022

cabf7c82a9cbddb59e1e952fb1a9202c0788d0ed9b94ebabb7664d34b26d1afe

Elanco Animal Health (ELAN)

Financials