Elanco Animal Health Inc.

11/06/2026 | Press release | Distributed by Public on 11/06/2026 08:11

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Management's discussion and analysis of financial condition and results of operations (MD&A) is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operation and financial position. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying footnotes in Item 1 of Part I of this Form 10-Q. Certain statements in this Item 2 of Part I of this Form 10-Q constitute forward-looking statements. Various risks and uncertainties, including, but not limited to those discussed in "Forward-Looking Statements" of this Form 10-Q, in Item 1A, "Risk Factors" of Part II of this Form 10-Q and in Item 1A, "Risk Factors" of Part I of our 2025 Form 10-K, may cause our actual results, financial position and cash flows to differ materially from these forward-looking statements.
Business Overview
Elanco is a global leader in animal health, dedicated to innovating and delivering products and services to prevent and treat disease in farm animals and pets. We partner with farmers, pet owners, veterinarians and society to create value and help our customers improve the health of animals in their care, while also making a meaningful impact on the communities we serve. Our diverse, durable product portfolio is sold in more than 90 countries and serves animals across many species, primarily: dogs and cats (collectively, pet health) and cattle, poultry, swine, and sheep (collectively, farm animal). Our purpose - making life better for animals makes life better - inspires us to Go Beyond for animals, customers, society and our people.
With a heritage dating back to 1954, we operate our business in a single segment within the animal health industry, offering a diverse product portfolio of approximately 200 brands, which helps make us a trusted partner to pet owners, veterinarians and farm animal producers. Our products are generally sold worldwide to third-party distributors and independent retailers and directly to farm animal producers and veterinarians. Our omnichannel presence extends to both the veterinary clinic and retail markets, including e-commerce.
Product Development and Regulatory Update
A key element of our targeted value creation strategy is to drive revenue growth through portfolio development and product innovation. We continue to pursue the development of new chemical and biological molecules, as well as additional registrations and indications for current products. Our future growth and success depend on both our pipeline of new products, including new products we develop internally, with partners or obtain through licenses or acquisitions, and the life cycle management of our existing products. We believe we are an industry leader in animal health R&D, with a track record of successful product innovation, business development and commercialization. Recent new product development, regulatory and product launch highlights include the following:
Zenrelia: We received final FDA approval for Zenrelia®, a JAK inhibitor targeting control of pruritus and atopic dermatitis in dogs, in September 2024. We launched Zenrelia in the U.S. shortly after final approval and have also commercialized Zenrelia in Australia, Brazil, Canada, the European Union (EU), Japan and the U.K. Additional reviews are ongoing in other markets.
Credelio Quattro: In October 2024, we received final approval from the FDA for Credelio Quattro®, a monthly chewable tablet for dogs that protects against fleas, ticks, heartworms, roundworms, hookworms and three different species of tapeworms. Credelio Quattro was launched in January 2025 and in December 2025 we also received conditional approval for treatment of the New World screwworm. Credelio Quattro was launched in Australia, Canada and Japan during the second quarter of 2026. Additional submissions have been made in other key markets, including the EU and the U.K.
Befrena: In December 2025, we received final approval from the USDA for Befrena®, a new anti-IL31 monoclonal antibody injection targeting canine allergic and atopic dermatitis. We continue the phased launch of Befrena, which was initiated during the second quarter of 2026.
2026 Q3 Form 10-Q | 20
Other Key Trends and Factors Affecting Our Results of Operations
Restructuring Activities: In December 2025, our Board of Directors authorized a restructuring plan (the 2025 Restructuring Plan) to support margin expansion, optimize our global footprint and further invest in innovation. Specifically, the 2025 Restructuring Plan targeted an expected 2026 closure of the animal studies portion of our R&D facilities in Monheim, Germany, while also expanding our R&D organization in Indianapolis, Indiana, among other changes to our R&D organization. The 2025 Restructuring Plan is also expected to result in our exit from certain farm animal implant products and the related closure of our manufacturing facility in Kansas City, Kansas, in 2026. In total, the 2025 Restructuring Plan is expected to result in a global headcount reduction of approximately 300 employees, with an additional approximately 300 employees whose positions will be replaced with positions in growth areas or in lower-cost geographies.
In connection with the 2025 Restructuring Plan, we incurred charges of $155 million in the fourth quarter of 2025. Expected pre-tax charges associated with the 2025 Restructuring Plan total $25 million to $30 million in 2026, of which $18 million was incurred during the nine months ended September 30, 2026, primarily related to the remaining shut-down costs for our Monheim, Germany, facility. The 2025 Restructuring Plan is expected to result in savings of approximately $25 million in 2026 and approximately $60 million in 2027.
Trade Environment and Other U.S. Government Initiatives: Changes to U.S. trade policy continued throughout the first nine months of 2026. On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not provide authority for the President to impose tariffs. Subsequently, new tariffs were imposed under Section 122 of the Trade Act of 1974; however, these Section 122 tariffs expired on July 24, 2026. Following this expiration, the U.S. government implemented new tariffs under Section 301 of the Trade Act of 1974, which specifically target products associated with forced labor concerns.
On April 2, 2026, the President issued a proclamation under Section 232 of the Trade Expansion Act of 1962 imposing tariffs on certain imported patented pharmaceuticals and active pharmaceutical ingredients. While these tariffs target certain patented pharmaceutical products, the proclamation and subsequent regulatory guidance include significant carve-outs, including for certain animal-health pharmaceutical products. To date, neither these measures nor recent Section 301 tariff announcements have had a material impact on our operations. We continue to monitor ongoing trade developments.
While the ultimate financial impact of these and other decisions cannot be reasonably estimated at this time, we will continue to closely monitor the trade policies in countries in which we operate and/or from which we import products and continue to take actions, where possible, to mitigate the impacts on our business.
As disclosed in Item 1A, "Risk Factors - Tariffs, trade protection measures or other modifications of foreign trade policy may harm us or our customers", of our 2025 Form 10-K, our business is subject to risks related to, among other factors, tariffs, trade and monetary policies and economic conditions and events. We do not believe the previously enacted tariffs had a material impact on our results of operations for the nine months ended September 30, 2026. However, while animal-health pharmaceutical products are largely exempt from the U.S. tariffs imposed to date, it remains uncertain if this will continue to be the case, and pharmaceutical products are not exempt from all tariffs imposed outside of the U.S. Following the February 2026 U.S. Supreme Court ruling, we filed for refunds of certain IEEPA tariffs previously paid. While the timing and extent of any recoveries remain uncertain, we do not believe the impact of these potential refunds will be material to our business or financial statements.
Further, the U.S. presidential administration has sought to implement significant changes to the size and scope of the federal government. Among these changes, certain previously authorized government incentives focused on the adoption of new products for the sole purpose of sustainability have been frozen or rescinded. As disclosed in Item 1A, "Risk Factors - If the acceptance and/or adoption of our farm animal sustainability initiatives do not continue, our future results may be materially impacted", of our 2025 Form 10-K, we have made significant progress in recent years in gaining acceptance of farm animal sustainability products. However, we believe the adoption rate of Bovaer, one of our farm animal sustainability products, has been tempered given the absence of government incentives focused on such adoption. We continue to monitor the impact these changes are having on our current business and on the adoption ramp of Bovaer, although the potential longer-term impact to us remains uncertain.
Sale of Future Revenue: In May 2025, we executed a PSA with affiliates of Blackstone, pursuant to which we received proceeds of $295 million in exchange for the rights to the proceeds from qualifying future royalties and sales milestone payments owed to us by Tarsus based on their net sales of XDEMVY® (lotilaner ophthalmic solution) 0.25%, a medical treatment for Demodex blepharitis in humans. These net proceeds were utilized to repay previously outstanding debt. See Note 10. Liability for Sale of Future Revenue for further information.
Acquisition and Integration: On April 30, 2026, we completed the acquisition of AHV, along with selected assets of AHV's affiliates necessary for the ongoing operations of the business. AHV is an innovative, farm animal health company incorporated in the Netherlands focused on solutions to improve animal welfare and productivity, while reducing the need for antibiotics. The acquisition of AHV is expected to accelerate our strategy to grow our industry
2026 Q3 Form 10-Q | 21
leadership in farm animal products, particularly for cattle, by expanding our product portfolio, primarily throughout Europe and the U.S. We expect AHV to contribute modestly to revenue in 2026, with a more meaningful impact beginning in 2027 as we integrate the business and realize commercial synergies. This transaction was funded utilizing cash on hand and by borrowing $50 million on our Securitization Facility, which was subsequently repaid during the second quarter of 2026. This acquisition is not expected to materially affect our deleveraging timeline or overall liquidity position.
Macroeconomic Factors: Our operations are exposed to, and impacted by, various global macroeconomic factors, including emerging global armed conflicts and related government responses to them. While our business has not been materially impacted by any such conflicts to date, conflict escalation or prolonged international tensions could result in economic slowdown, volatility in consumer behavior, increased shipping costs or materials costs and/or supply chain disruptions, any one of which could have a material negative impact on our results of operations.
Seasonality: While many of our products are sold consistently throughout the year, we do experience seasonality in our pet health business due to increased demand for certain parasiticide product offerings in the first half of the year. For example, in 2025 approximately 70% and 60% of total annual revenue generated by our higher-margin parasiticide products Seresto and Advantage Family, respectively, occurred during the first half of the year, which is reflective of the flea and tick season in the Northern Hemisphere.
Results of Operations
The following discussion and analysis of our results of operations should be read along with our condensed consolidated financial statements and the notes thereto. Our results of operations for the periods presented below may not be comparable with prior periods or with our results of operations in the future due to many factors, including but not limited to the factors identified above.
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Revenue $ 1,265 $ 1,137 11% $ 4,004 $ 3,571 12%
Cost of sales 545 530 3% 1,701 1,567 9%
Gross profit 720 607 19% 2,303 2,004 15%
Research and development 99 89 11% 288 275 5%
Marketing, selling and administrative 393 351 12% 1,223 1,092 12%
Amortization of intangible assets 144 140 3% 421 404 4%
Asset impairment, restructuring and other special charges 3 25 NM 28 35 (20)%
Interest expense, net of capitalized interest 59 52 13% 175 140 25%
Other (income) expense, net (2) - NM 1 23 NM
Income (loss) before income taxes 24 (50) NM 167 35 377%
Income tax expense (benefit) 6 (16) NM 38 (9) NM
Net income (loss) $ 18 $ (34) NM $ 129 $ 44 193%
Certain amounts and percentages may reflect rounding adjustments.
NM - Not meaningful
Revenue
Our products are sold in more than 90 countries, and as a result, a significant portion of our revenue is recorded in currencies other than the U.S. Dollar. Because of this, our revenue is influenced by changes in foreign currency exchange rates. During the nine months ended September 30, 2026 and 2025, approximately 52% and 51%, respectively, of our revenue was denominated in foreign currencies.
Further, increases or decreases in inventory levels in our distribution channels can positively or negatively impact our periodic revenue results, leading to variations in revenue. This can be a result of various factors, such as end customer demand, new customer contracts, initial stocking of new products, heightened and generic competition, the need for certain inventory levels, our ability to renew distribution contracts with expected terms, our ability to implement commercial strategies, regulatory restrictions, unexpected customer behavior, proactive measures taken by us in response to shifting market dynamics, payment terms we extend, which are subject to internal policies, blackout shipping periods due to system downtime, implementations and integrations and procedures and environmental factors beyond our control.
2026 Q3 Form 10-Q | 22
Our revenue by product category for the three and nine months ended September 30, 2026 and 2025, was as follows:
Three Months Ended September 30,
Revenue % of Total Revenue
(Dollars in millions) 2026 2025 2026 2025 $ Change % Change
Pet Health $ 608 $ 533 48 % 47 % $ 75 14 %
Farm Animal 631 593 50 % 52 % 38 6 %
Contract Manufacturing and Other (1)
26 11 2 % 1 % 15 136 %
Total $ 1,265 $ 1,137 100 % 100 % $ 128 11 %
Nine Months Ended September 30,
Revenue % of Total Revenue
(Dollars in millions) 2026 2025 2026 2025 $ Change % Change
Pet Health $ 2,036 $ 1,811 51 % 51 % $ 225 12 %
Farm Animal 1,906 1,722 48 % 48 % 184 11 %
Contract Manufacturing and Other (1)
62 38 1 % 1 % 24 63 %
Total $ 4,004 $ 3,571 100 % 100 % $ 433 12 %
Note: Numbers may not add due to rounding.
(1)Represents royalty revenue, sales-based milestones and revenue from arrangements in which we manufacture products on behalf of a third party. Royalty revenue and sales-based milestones sold to a third party in May 2025 totaled $21 million and $6 million for the three months ended September 30, 2026 and 2025, respectively, and $39 million and $10 million for the nine months ended September 30, 2026 and 2025, respectively. While we are no longer entitled to these royalties and sales-based milestones, we are required under GAAP to continue recognizing them as revenue. See Note 10. Liability for Sale of Future Revenue for additional information.
The effects of price, foreign currency exchange rates and volume on changes in revenue for the three and nine months ended September 30, 2026, compared to three and nine months ended September 30, 2025, were as follows:
Three months ended September 30, 2026
(Dollars in millions)
Revenue Price FX Rate Volume
Acquisition (1)
Total
Pet Health $ 608 5% -% 9% -% 14%
Farm Animal 631 3% -% 1% 2% 6%
Contract Manufacturing and Other 26 136%
Total $ 1,265 4% -% 5% 1% 11%
Nine months ended September 30, 2026
(Dollars in millions)
Revenue Price FX Rate Volume
Acquisition (1)
Total
Pet Health $ 2,036 3% 2% 7% -% 12%
Farm Animal 1,906 3% 2% 5% 1% 11%
Contract Manufacturing and Other 62 63%
Total $ 4,004 3% 2% 6% 1% 12%
Note: Numbers may not add due to rounding.
(1)Includes revenues contributed by the AHV business acquired on April 30, 2026. Revenues attributable to AHV during the nine months ended September 30, 2026, were approximately $22 million.
Pet health revenue increased $75 million, or 14%, for the three months ended September 30, 2026, compared to the same period in 2025, driven primarily by higher volumes and increased pricing. Higher volumes were primarily driven by Zenrelia, Credelio Quattro and AdTab, partially offset by smaller declines in certain legacy parasiticide products. A portion of the higher volumes were attributable to adoption of Zenrelia and Credelio Quattro by new customers.
Pet health revenue increased $225 million, or 12%, for the nine months ended September 30, 2026, compared to the same period in 2025, primarily driven by higher volumes, increased pricing and the impacts from foreign currency exchange rate movements. Higher volumes were primarily driven by Zenrelia, Credelio Quattro and AdTab. A portion of the higher volumes were attributable to adoption of Zenrelia and Credelio Quattro by new customers.
2026 Q3 Form 10-Q | 23
Farm animal revenue increased $38 million, or 6%, for the three months ended September 30, 2026, compared to the same period in 2025, driven by increased pricing and higher volumes in ruminants, partially offset by decreased poultry volumes. The increase in ruminant volumes was primarily driven by Rumensin, which was impacted by certain customer buying patterns, and contributions from the acquisition of AHV.
Farm animal revenue increased $184 million, or 11%, for the nine months ended September 30, 2026, compared to the same period in 2025, driven primarily by increased volumes in ruminants and poultry, increased pricing and the impacts from foreign currency exchange rate movements. Higher volumes in ruminants were primarily led by Rumensin.
Contract manufacturing and other revenue increased $15 million and $24 million for the three and nine months ended September 30, 2026, respectively, compared to the same period in 2025. The increases were driven primarily by higher royalties and a $10 million sales-based milestone recognized during the three months ended September 30, 2026. No such sales-based milestone was recognized in the comparative periods.
Gross Profit
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Gross profit $ 720 $ 607 19 % $ 2,303 $ 2,004 15 %
Gross margin % 56.9 % 53.4 % 57.5 % 56.1 %
Gross profit increased $113 million and $299 million for the three and nine months ended September 30, 2026, respectively, corresponding to increased revenues. Gross margin percentage (gross profit as a percentage of total revenue) increased compared to the three months ended September 30, 2025, driven primarily by favorable pricing and product mix.
Research and Development
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Research and development $ 99 $ 89 11 % $ 288 $ 275 5 %
% of revenue 8 % 8 % 7 % 8 %
Research and development expenses increased $10 million and $13 million for the three and nine months ended September 30, 2026, as compared to the same period in the prior year. The increases were primarily driven by increased spending on global research and development projects and foreign currency exchange rate movements.
Marketing, Selling and Administrative
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Marketing, selling and administrative $ 393 $ 351 12 % $ 1,223 $ 1,092 12 %
% of revenue 31 % 31 % 31 % 31 %
Marketing, selling and administrative expenses increased $42 million and $131 million for the three and nine months ended September 30, 2026, as compared to the same period in the prior year. The increases were driven by higher compensation expense, strategic investments in the global launches of new products and foreign currency exchange rate movements, partially offset by decreases in certain general and administrative expenses.
Amortization of Intangible Assets
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Amortization of intangible assets $ 144 $ 140 3 % $ 421 $ 404 4 %
Amortization of intangible assets increased $4 million and $17 million for the three and nine months ended September 30, 2026, as compared to the same period in the prior year. The increases were primarily driven by changes in foreign currency exchange rates and amortization of finite-lived intangibles recognized as part of the acquisition of AHV not included in the comparative period (see Note 4. Acquisitions and Divestitures for further information).
2026 Q3 Form 10-Q | 24
Asset Impairment, Restructuring and Other Special Charges
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Asset impairment, restructuring and other special charges $ 3 $ 25 NM $ 28 $ 35 (20) %
Asset impairment, restructuring and other special charges decreased $22 million and $7 million for the three and nine months ended September 30, 2026, respectively, as compared to the same period in the prior year. Asset impairment, restructuring and other special charges during the nine months ended September 30, 2026, included $18 million of charges related to the 2025 Restructuring Plan ($15 million of which was non-cash shut-down costs for the animal studies portion of our R&D facilities in Monheim, Germany) and $5 million of costs associated with our acquisition of AHV. Amounts recorded to asset impairment, restructuring and other special charges during the three and nine months ended September 30, 2025, included asset impairments of $24 million, primarily comprised of $16 million related to two early-stage capital projects that we indefinitely suspended during the third quarter of 2025. Additional amounts recorded primarily consisted of upfront payments made during the first quarter of 2025 in relation to new licensing arrangements.
Interest Expense, Net of Capitalized Interest
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Interest expense, net of capitalized interest $ 59 $ 52 13 % $ 175 $ 140 25 %
Interest expense, net of capitalized interest increased $7 million and $35 million for the three and nine months ended September 30, 2026, respectively, as compared to the same period in the prior year. These increases were principally due to increased imputed interest on our liability for the sale of future revenue of $3 million and $24 million for the three and nine months ended September 30, 2026, respectively (see Note 10. Liability for Sale of Future Revenue for further information). The remaining increase during the nine months ended September 30, 2026, was due to interest expense related to our corporate headquarters finance lease (which commenced in June 2025), partially offset by lower average outstanding debt balances.
Other (Income) Expense, Net
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Other (income) expense, net $ (2) $ - NM $ 1 $ 23 NM
Other income, net for the three months ended September 30, 2026, primarily consisted of foreign currency exchange gains. Other expense, net for the nine months ended September 30, 2026, primarily consisted of currency translation losses reclassified from accumulated other comprehensive loss to the condensed consolidated statements of operations in conjunction with the substantial liquidation of dormant legal entity, a litigation settlement and mark-to-market adjustments on equity investments, partially offset by foreign currency exchange gains. Other expense, net for the nine months ended September 30, 2025, primarily consisted of foreign currency exchange losses.
Income Tax Expense (Benefit)
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2026 2025 % Change 2026 2025 % Change
Income tax expense (benefit) $ 6 $ (16) NM $ 38 $ (9) NM
Effective tax rate 25.7 % 30.9 % 22.8 % (24.5) %
We recognized income tax expense of $6 million and income tax benefit of $16 million for the three months ended September 30, 2026 and 2025, respectively. Our effective tax rate of 25.7% for the three months ended September 30, 2026, differed from the statutory income tax rate primarily due to the tax impact from the jurisdictional mix of projected earnings. Our effective tax rate of 30.9% for the three months ended September 30, 2025, differed from the statutory income tax rate primarily due to the tax impact from the jurisdictional mix of income and losses in non-U.S. jurisdictions. We also recognized a tax benefit of $16 million related to the remeasurement of certain deferred tax positions due to a foreign tax rate change during the three months ended September 30, 2025.
2026 Q3 Form 10-Q | 25
We recognized income tax expense of $38 million and income tax benefit of $9 million for the nine months ended September 30, 2026 and 2025, respectively. Our effective tax rate of 22.8% for the nine months ended September 30, 2026, differed from the statutory income tax rate primarily due to the tax impact from the jurisdictional mix of projected earnings as well as the utilization of net operating losses and a valuation allowance release in the U.S. Our effective tax rate of (24.5)% for the nine months ended September 30, 2025, differed from the statutory income tax rate primarily due to the tax benefit of $16 million related to the remeasurement of certain deferred tax positions during the three months ended September 30, 2025, as well as due to the jurisdictional mix of income and losses in non-U.S. jurisdictions.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash flows from operations and funds available under our credit facilities. As a significant portion of our business is conducted internationally, we hold a significant portion of cash outside the U.S. We monitor and adjust the amount of foreign cash based on projected cash flow requirements. Our ability to use foreign cash to fund cash flow requirements in the U.S. may be impacted by local regulations and, to a lesser extent, the income taxes associated with transferring cash to the U.S. We intend to indefinitely reinvest substantially all foreign earnings for continued use in our foreign operations. As our business evolves, we may change that strategy, particularly to the extent we identify tax-efficient reinvestment alternatives for our foreign earnings or change our cash management strategy.
We believe our primary sources of liquidity are sufficient to fund our short-term and long-term existing and planned capital requirements, which include working capital obligations, funding existing marketed and pipeline products, capital expenditures, business development in our targeted areas, short-term and long-term debt obligations, including both principal and interest payments, as well as interest rate swaps, lease payments, purchase obligations and costs associated with mergers, acquisitions, divestitures, business integrations and/or restructuring activities. As of September 30, 2026, we had cash and cash equivalents of $465 million and unused borrowing capacity on our Revolving Credit Facility of approximately $750 million. In addition, our Securitization Facility provides for additional borrowing capacity based on our U.S. Net Eligible Receivable Balances. As of September 30, 2026, we had approximately $170 million in undrawn borrowing capacity on this facility. We also have the ability to access capital markets to obtain debt financing for longer-term funding, if required. Further, we believe we have sufficient cash flow and liquidity to remain in compliance with our debt covenants.
Our ability to meet future funding requirements may be impacted by macroeconomic, business and financial volatility. As market conditions change, we will continue to monitor our liquidity position. However, a challenging economic environment or an economic downturn may impact our liquidity or ability to obtain future financing. See "Item 1A. Risk Factors - We have substantial indebtedness" in Part I of our 2025 Form 10-K.
Cash Flows
The following table provides a summary of cash flows from operating, investing and financing activities for the nine months ended September 30, 2026 and 2025:
(in millions)
Net cash provided by (used for): 2026 2025 $ Change
Operating activities $ 506 $ 452 $ 54
Investing activities (232) (215) (17)
Financing activities (355) (257) (98)
Effect of exchange rate changes on cash and cash equivalents 1 57 (56)
Net (decrease) increase in cash and cash equivalents $ (80) $ 37 $ (117)
Operating activities
Cash provided by operating activities was $506 million for the nine months ended September 30, 2026, compared to cash provided by operating activities of $452 million for the nine months ended September 30, 2025. The $54 million increase in cash provided by operating activities was primarily driven by an increase in cash earnings and changes in working capital.
Investing activities
Cash used for investing activities was $232 million for the nine months ended September 30, 2026, compared to cash used for investing activities of $215 million for the nine months ended September 30, 2025. This increase was primarily driven by $76 million paid in April 2026 in relation to our acquisition of AHV (see Note 4. Acquisitions and Divestitures for further information), offset by an approximately $70 million decrease in purchases of property and equipment. This decrease relates to the timing of spending for the ongoing expansion of our monoclonal antibody manufacturing facility in Elwood, Kansas, which was completed in August 2026, as well as capital projects at our Fort Dodge, Iowa, and Huningue, France, manufacturing facilities.
2026 Q3 Form 10-Q | 26
Financing activities
Cash used for financing activities was $355 million for the nine months ended September 30, 2026, compared to cash used for financing activities of $257 million for the nine months ended September 30, 2025. Cash used for financing activities during the nine months ended September 30, 2026, included $304 million of early and scheduled repayments of long-term borrowings and $36 million of purchases of common stock for employee tax withholding obligations. Cash used for financing activities during the nine months ended September 30, 2025, included $562 million in scheduled and early repayments of long-term borrowings, partially enabled by net proceeds of $290 million from the sale of qualifying future royalties and sales milestone payments (see Note 10. Liability for Sale of Future Revenue for further information).
Description of Indebtedness
For a complete description of our existing debt and available credit facilities as of September 30, 2026 and December 31, 2025, see Note 7. Debt and Finance Lease Liability within Item 8, "Financial Statements and Supplementary Data," of Part II of our 2025 Form 10-K. New developments are discussed in Note 7. Debt and Finance Lease Liability of this Form 10-Q.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of the financial statements and during the reporting period. Certain of our accounting estimates are considered critical because they are the most important to the fair presentation of our financial statements, including the disclosures thereto, and often require significant, difficult or complex judgments, probabilities and assumptions.
While we believe our critical accounting estimates to be reasonable based on all relevant information available, given their inherent uncertainty, if our estimates and assumptions are not representative of actual outcomes, our results could be materially impacted. We regularly evaluate our estimates and assumptions and adjust them when facts and circumstances indicate the need for change, and such changes generally would be reflected in our condensed consolidated financial statements in the period they are determined. We apply estimation methodologies consistently from year to year. Our critical accounting estimates are summarized in Item 7, "Management's Discussion & Analysis of Results of Financial Condition and Results of Operations," of our 2025 Form 10-K. There were no significant changes or developments in the application of our critical accounting estimates during the nine months ended September 30, 2026.
Elanco Animal Health Inc. published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 14:11 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]