Elanco Animal Health Reports Second Quarter 2026 Results
Rhea-AI Summary
Elanco Animal Health (NYSE: ELAN) reported second quarter 2026 revenue of $1.368 billion, up 10% year-over-year, or 8% on an organic constant currency basis. Pet Health rose 12% to $718 million and Farm Animal 9% to $633 million, with global ruminants the fastest-growing species.
Reported net income was $54 million (EPS $0.11) versus $11 million (EPS $0.02) a year ago. Adjusted net income reached $174 million (EPS $0.34), up 31%, and adjusted EBITDA was $288 million, up 21%, lifting adjusted EBITDA margin to 21.2%. Gross margin expanded about 80 basis points, supported by U.S. Pet Health and pricing.
Cash from operations increased to $277 million, and net leverage improved to 3.1x adjusted EBITDA, 0.5x lower than year-end 2025. Elanco raised its 2026 guidance, now expecting revenue of $5.09–$5.14 billion, adjusted EBITDA of $1.01–$1.035 billion, and adjusted EPS of $1.10–$1.16, alongside an improved year-end net leverage target of roughly 3.0x.
Positive
- Total revenue $1.368 billion, up 10% YoY; organic CC +8%
- Pet Health revenue $718 million, up 12% reported and 11% organic CC
- Adjusted EPS $0.34, up 31% versus Q2 2025
- Adjusted EBITDA $288 million, up 21%; margin improved to 21.2%
- Cash from operations $277 million vs. $237 million in Q2 2025
- 2026 guidance raised: revenue $5.09–$5.14B, adj. EPS $1.10–$1.16, adj. EBITDA $1.01–$1.035B
Negative
- Total operating expenses up 10% YoY to $541 million
- Marketing, selling and administrative costs up 12% to $449 million
- Reported net interest expense increased by $11 million to $59 million
- Swine revenue declined 3% reported and 4% on an organic constant currency basis
- Asset impairment, restructuring and special charges rose to $9 million from $1 million
- Q3 2026 operating expenses expected up about 10% YoY in constant currency
News Explained
Elanco raised its innovation-revenue target to $1.25 billion, adding a longer-term operating target beyond the reported quarter.
It also raised its 2026 innovation-revenue target to
Market Reaction – ELAN
Following this news, ELAN has gained 0.16%, reflecting a mild positive market reaction. Our momentum scanner has triggered 11 alerts so far, indicating notable trading interest and price volatility. The stock is currently trading at $25.64. Trading volume is above average at 1.6x the average, suggesting increased trading activity.
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Key Figures
Previous Earnings Reports
| Date | Event | Sentiment | 24h Move | Catalyst |
|---|---|---|---|---|
| May 06 | Q1 earnings | Positive | +13.9% | First-quarter results and raised full-year guidance supported a positive earnings reaction |
| Feb 24 | Q4 earnings | Positive | +6.6% | Fourth-quarter and full-year results included higher innovation targets and 2026 guidance |
| Nov 05 | Q3 earnings | Negative | -4.0% | Third-quarter results and raised full-year guidance preceded a negative 24-hour reaction |
| Aug 07 | Q2 earnings | Positive | +18.1% | Second-quarter results and raised 2025 guidance preceded a positive reaction |
| May 07 | Q1 earnings | Positive | +26.3% | First-quarter results and higher revenue guidance preceded a positive reaction |
24h Move is the share-price change in the day after each event; other market factors may also have contributed.
Tag-specific earnings history was mostly positive but included one negative 24-hour reaction.
Key Terms
organic constant currency growth financial
adjusted EBITDA financial
net leverage ratio financial
non-GAAP financial
AI-generated analysis. How Rhea-AI works. Not financial advice.
Raising Full Year Outlook and Innovation Target, Improving Year-End Net Leverage Ratio Target
- Second Quarter 2026 Financial Results:
- Revenue of
$1,368 million 10% year-over-year;8% organic constant currency growth - Reported Net Income of
$54 million $174 million - Adjusted EBITDA of
$288 million 21.2% - Reported EPS of
$0.11 $0.34 - Net leverage ratio of 3.1x Adjusted EBITDA
- Revenue of
- Full Year 2026 Guidance:
- Raising innovation revenue target to
$1.25 billion - Raising revenue guidance to
$5.09 billion $5.14 billion 6% to7% organic constant currency growth - Raising Adjusted EBITDA to
$1.01 billion $1.035 billion 13% at midpoint - Raising Adjusted EPS to
$1.10 $1.16 20% at midpoint - Improving year-end net leverage ratio target to approximately 3.0x Adjusted EBITDA
- Raising innovation revenue target to
"Elanco's second quarter results demonstrate our momentum and leadership in the attractive animal health industry," stated Jeff Simmons, President and CEO of Elanco. "Organic constant currency revenue growth of
Select Business Highlights Since the Last Earnings Call
- Zenrelia™ achieved blockbuster status July YTD; efficacy driving use in approximately 18,000
U.S . clinics;U.S . JAK market share up 9 points year-over-year with gains versus Q1**; up to40% + JAK market share in key European markets, outperforming the competitive entrant*** - Credelio Quattro™ accelerated dollar share gains of broad-spectrum sales out
U.S . vet clinics in Q2, up 4 points versus Q1**; penetrated over50% of theU.S . clinic base, up approximately 3,000 clinics representing 10 points versus Q1; launched inAustralia ,Canada , andJapan to date - Befrena™ shipped to nearly 1,400
U.S . clinics to date; ramping capacity to meet high customer demand 2x above expectations, with weekly increases in supply - Global ruminants was Elanco's fastest growing species, up
12% in the quarter on an organic constant currency basis or17% including AHV International and FX, as innovation fortified the company's beef and dairy portfolio - The company released its 2025 Impact Report, celebrating Elanco's leadership with purpose, and culture of 'Going Beyond' for animals, customers, society, and its people
**Per Kynetec data
***Internal estimates based on multiple data sources
Financial Results
Second Quarter Results (dollars in millions, except per share amounts) | 2026 | 2025 | Change (%) | Organic CC |
Pet Health | 12 % | 11 % | ||
Farm Animal | 9 % | 5 % | ||
Cattle | 17 % | 12 % | ||
Poultry | 4 % | 2 % | ||
Swine | (3) % | (4) % | ||
Contract Manufacturing and Other (2) | 13 % | |||
Total Revenue | 10 % | 8 % | ||
Gross Profit | 12 % | |||
Reported Net Income | 391 % | |||
Adjusted EBITDA | 21 % | |||
Reported EPS | 450 % | |||
Adjusted EPS | 31 % |
(1) | Organic CC Growth represents revenue growth excluding royalty revenue that was sold to a third party, the impact of foreign exchange rates, and revenue attributable to AHV International B.V., which was acquired on April 30, 2026. |
(2) | Primarily represents revenue from arrangements in which we manufacture products on behalf of a third party and royalty revenue. Royalty revenue sold to a third party, to which we are no longer entitled but is still required to be recognized as revenue under GAAP, totaled |
In the second quarter of 2026, revenue was
Pet Health revenue was
Farm Animal revenue was
Gross profit was
Total operating expenses were
Asset impairment, restructuring and other special charges were
Reported net interest expense was
The reported effective tax rate was
Net income for the second quarter of 2026 was
Adjusted EBITDA was
Working Capital and Balance Sheet
Cash provided by operations was
As of June 30, 2026, Elanco's net leverage ratio was 3.1x adjusted EBITDA, a decrease of 0.5x compared to December 31, 2025.
Financial Guidance
Elanco is updating financial guidance for the full year 2026, summarized in the following table.
2026 Full Year (dollars in millions, except per share amounts) | May Guidance | August Guidance | ||||||
Revenue (1) | to | to | ||||||
Adjusted EBITDA | to | to | ||||||
Adjusted Earnings per Share | to | to | ||||||
(1) | Revenue guidance excludes royalty revenue that was sold to a third party. |
"Our strong second quarter performance allows us to both raise our full-year outlook and continue to invest in our innovation products, driving market share gains while expanding the total animal health industry," said Bob VanHimbergen, Executive Vice President and CFO of Elanco Animal Health. "Our faster than expected margin expansion includes good early progress on our Elanco Ascend productivity initiatives, on track to
The company anticipates a tailwind to revenue of approximately
Elanco expects adjusted gross margin of
Additionally, the company is providing guidance for the third quarter of 2026, as summarized in the following table:
2026 Third Quarter (dollars in millions, except per share amounts) | Guidance | |||
Revenue (1) | to | |||
Adjusted EBITDA | to | |||
Adjusted Earnings per Share | to | |||
(1) | Revenue guidance excludes royalty revenue that was sold to a third party. |
In the third quarter, the company anticipates a neutral impact from foreign exchange rates compared to prior year. Excluding the impacts of foreign exchange rates, the AHV International acquisition that closed in April 2026, and royalty revenue sold to a third party, the company expects
The 2026 full year and third quarter financial guidance reflects foreign exchange rates as of the end of July. Further details on guidance, including GAAP reported to non-GAAP adjusted reconciliations, are included in the financial tables of this press release and will be discussed on the company's conference call this morning.
WEBCAST & CONFERENCE CALL DETAILS
Elanco will host a webcast and conference call at 8:00 a.m. Eastern Time today, during which company executives will review second quarter financial and operational results, discuss third quarter and full year 2026 financial guidance, and respond to questions from analysts. Investors, analysts, members of the media and the public may access the live webcast and accompanying slides by visiting the Elanco website at https://investor.elanco.com and selecting Events and Presentations. A replay of the webcast will be archived and made available a few hours after the event on the company's website, at https://investor.elanco.com/events-and-presentations/default.aspx#module-event-upcoming.
ABOUT ELANCO
Elanco Animal Health Incorporated (NYSE: ELAN) 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, creating value for farmers, pet owners, veterinarians, stakeholders and society as a whole. With more than 70 years of animal health heritage, we are committed to breaking boundaries and going beyond to help our customers improve the health of animals in their care, while also making a meaningful impact on our local and global communities. At Elanco, we are driven by our vision of Food and Companionship Enriching Life and our purpose – to Go Beyond for Animals, Customers, Society and Our People. Learn more at www.elanco.com.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements concerning product launches and revenue from such products, our 2026 full year and third quarter guidance and long-term expectations, our expectations regarding debt levels, and expectations regarding our industry and our operations, performance and financial condition, and including, in particular, statements relating to our business, growth strategies, distribution strategies, product development efforts and future expenses.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important risk factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions, including but not limited to the following:
- operating in a highly competitive industry;
- the success of our research and development (R&D), regulatory approval and licensing efforts;
- the impact of disruptive innovations and advances in veterinary medical practices, animal health technologies and alternatives to animal-derived protein;
- competition from generic products that may be viewed as more cost-effective;
- changes in regulatory restrictions on the use of antibiotics in farm animals;
- an outbreak of infectious disease carried by farm animals;
- risks related to the evaluation of animals;
- consolidation of our customers and distributors;
- an increased use of alternative distribution channels or changes within existing distribution channels;
- our dependence on the success of our top products;
- our ability to complete acquisitions and divestitures and to successfully integrate the businesses we acquire;
- our ability to implement our business strategies or achieve targeted cost efficiencies and gross margin improvements;
- manufacturing problems and capacity imbalances, including at our contract manufacturers;
- fluctuations in inventory levels in our distribution channels;
- risks related to the use of artificial intelligence in our business;
- our dependence on sophisticated information technology systems and infrastructure, including the use of third-party, cloud-based technologies, and the impact of outages or breaches of the information technology systems and infrastructure we rely on;
- the impact of weather conditions, including those related to climate change, and the availability of natural resources;
- demand, supply and operational challenges associated with the effects of a human disease outbreak, epidemic, pandemic or other widespread public health concern;
- the loss of key personnel or highly skilled employees;
- adverse effects of labor disputes, strikes and/or work stoppages;
- the effect of our substantial indebtedness on our business, including restrictions in our debt agreements that limit our operating flexibility and changes in our credit ratings that lead to higher borrowing expenses and restrict access to credit;
- changes in interest rates that adversely affect our earnings and cash flows;
- risks related to the write-down of goodwill or identifiable intangible assets;
- the lack of availability or significant increases in the cost of raw materials;
- risks related to foreign and domestic economic, political, legal and business environments;
- risks related to foreign currency exchange rate fluctuations;
- risks related to underfunded pension plan liabilities;
- our current plan not to pay dividends and restrictions on our ability to pay dividends;
- the potential impact that actions by activist shareholders could have on the pursuit of our business strategies;
- risks related to tax expense or exposures;
- actions by regulatory bodies, including as a result of their interpretation of studies on product safety;
- the possible slowing or cessation of acceptance and/or adoption of our farm animal sustainability initiatives;
- the impact of increased regulation or decreased governmental financial support related to the raising, processing or consumption of farm animals;
- risks related to tariffs, trade protection measures or other modifications of foreign trade policy;
- the impact of litigation, regulatory investigations and other legal matters, including the risk to our reputation and the risk that our insurance policies may be insufficient to protect us from the impact of such matters;
- challenges to our intellectual property rights or our alleged violation of rights of others;
- misuse, off-label or counterfeiting use of our products;
- unanticipated safety, quality or efficacy concerns and the impact of identified concerns associated with our products;
- insufficient insurance coverage against hazards and claims;
- compliance with privacy laws and security of information;
- risks related to environmental, health and safety laws and regulations; and
- inability to achieve our aspirations or meet the expectations of stakeholders with respect to environmental, social and governance matters.
For additional information about the factors that could cause actual results to differ materially from forward-looking statements, please see the company's latest Form 10-K and Form 10-Qs filed with the Securities and Exchange Commission. Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this press release. If any of these risks materialize, or if any of the above assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this press release. We caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this press release. Any forward-looking statement made by us in this press release speaks only as of the date thereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should be viewed as historical data.
Use of Non-GAAP Financial Measures:
We use non-GAAP financial measures, such as revenue growth excluding the impact of acquisitions and divestitures, foreign exchange rate effects, royalty revenue sold to third party, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, net debt and net debt leverage to assess and analyze our operational results and trends as explained in more detail in the reconciliation tables later in this release.
We believe these non-GAAP financial measures are useful to investors because they provide greater transparency regarding our operating performance. Reconciliation of non-GAAP financial measures and reported U.S. generally accepted accounting principles (GAAP) financial measures are included in the tables accompanying this press release and are posted on our website at www.elanco.com. The primary material limitations associated with the use of such non-GAAP measures as compared to GAAP results include the following: (i) they may not be comparable to similarly titled measures used by other companies, including those in our industry, (ii) they exclude financial information and events, such as the effects of an acquisition or divestiture or amortization of intangible assets, that some may consider important in evaluating our performance, value or prospects for the future, (iii) they exclude items or types of items that may continue to occur from period to period in the future and (iv) they may not exclude all unusual or non-recurring items, which could increase or decrease these measures, which investors may consider to be unrelated to our long-term operations. These non-GAAP measures are not, and should not, be viewed as substitutes for GAAP reported measures. We encourage investors to review our unaudited consolidated financial statements in their entirety and caution investors to use GAAP measures as the primary means of evaluating our performance, value and prospects for the future, and non-GAAP measures as supplemental measures.
Availability of Certain Information
We use our website to disclose important company information to investors, customers, employees and others interested in Elanco. We encourage investors to consult our website regularly for important information about Elanco, including an Investor Overview presentation containing a general overview of the business, which can be found in the Events and Presentations page of our website.
Additional Information
We define innovation revenue as revenue from new products, lifecycle management and certain geographic expansions and business development transactions that is incremental in reference to product revenue in 2020 and does not include the expected impact of cannibalization on the base portfolio.
We define organic constant currency revenue growth as revenue growth excluding royalty revenue that was sold to a third party, the impact of foreign exchange rates, and revenue attributable to AHV International B.V., which was acquired on April 30, 2026.
Elanco Animal Health Incorporated Unaudited Condensed Consolidated Statements of Operations (Dollars and shares in millions, except per share data)
| |||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2026 | 2025 | 2026 | 2025 | ||||
Revenue | $ 1,368 | $ 1,241 | $ 2,739 | $ 2,434 | |||
Cost of sales | 570 | 528 | 1,156 | 1,037 | |||
Gross profit | 798 | 713 | 1,583 | 1,397 | |||
Research and development | 92 | 92 | 189 | 186 | |||
Marketing, selling and administrative | 449 | 400 | 830 | 741 | |||
Amortization of intangible assets | 139 | 136 | 277 | 264 | |||
Asset impairment, restructuring and other special charges | 9 | 1 | 25 | 10 | |||
Interest expense, net of capitalized interest | 59 | 48 | 116 | 88 | |||
Other (income) expense, net | (6) | 11 | 3 | 23 | |||
Income before income taxes | 56 | 25 | 143 | 85 | |||
Income tax expense | 2 | 14 | 32 | 7 | |||
Net income | $ 54 | $ 11 | $ 111 | $ 78 | |||
Earnings per share: | |||||||
Basic | $ 0.11 | $ 0.02 | $ 0.22 | $ 0.16 | |||
Diluted | $ 0.11 | $ 0.02 | $ 0.22 | $ 0.16 | |||
Weighted-average shares outstanding: | |||||||
Basic | 499.5 | 496.6 | 498.6 | 495.9 | |||
Diluted | 505.9 | 500.1 | 505.9 | 499.6 | |||
Elanco Animal Health Incorporated
Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information
(Unaudited)
(Dollars and shares in millions, except per share data)
We use non-GAAP financial measures, such as organic constant currency revenue growth, adjusted gross profit, adjusted gross margin percentage, adjusted net income, adjusted EPS, EBITDA, adjusted EBITDA and adjusted EBITDA margin and net debt and net debt leverage, that differ from financial measures reported in conformity with GAAP. The company believes these non-GAAP measures provide useful information to investors. Among other things, they may help investors assess and analyze our operational results and trends of our ongoing operations. Management also uses these non-GAAP measures internally to evaluate the performance of the business and in making resource allocation decisions. Investors should consider these non-GAAP measures in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. Reconciliation of non-GAAP financial measures and reported GAAP financial measures are included in the tables below.
Adjusted Gross Profit and Gross Margin Percentage
We define gross profit as total revenue less cost of sales. We define adjusted gross profit as gross profit less royalty revenue sold to a third party, less cost of sales adjustments. We define adjusted gross margin percentage as adjusted gross profit divided by total revenue, less royalty revenue sold to a third party. The following is a reconciliation of GAAP reported gross profit for the three and six months ended June 30, 2026 and 2025, to adjusted gross profit and adjusted gross margin percentage:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2026 | 2025 | 2026 | 2025 | ||||
GAAP reported gross profit | $ 798 | $ 713 | $ 1,583 | $ 1,397 | |||
Sold royalty revenue | (9) | (4) | (18) | (4) | |||
Cost of sales adjustments | — | — | — | 1 | |||
Adjusted gross profit | $ 789 | $ 709 | $ 1,565 | $ 1,394 | |||
Adjusted gross margin percentage | 58.1 % | 57.3 % | 57.5 % | 57.4 % | |||
Adjusted Net Income and Earnings Per Share
We define adjusted net income as net income excluding amortization of intangible assets, purchase accounting adjustments to inventory, acquisition and divestiture-related charges, including integration and separation costs, severance, goodwill and other asset impairments, gains on sales of assets and related costs, facility exit costs, the impacts from sales of future revenues, gains and losses on mark-to-market adjustments on equity securities, tax valuation allowances, certain litigation-related settlements that we consider to be unusual or infrequent and significant, and other specified significant items, such as unusual or non-recurring items that are unrelated to our long-term operations adjusted for income tax expense associated with the excluded financial items. We define adjusted earnings per share as adjusted net income divided by the number of weighted-average diluted shares outstanding for the applicable period. The following is a reconciliation of GAAP reported net income and EPS for the three months ended June 30, 2026 and 2025, to adjusted net income and EPS:
Three Months Ended June 30, 2026 | Three Months Ended June 30, 2025 | ||||||
Net income (a) | EPS | Net income (a) | EPS | ||||
GAAP reported net income and EPS | $ 54 | $ 0.11 | $ 11 | $ 0.02 | |||
Amortization of intangible assets | 139 | 0.27 | 136 | 0.27 | |||
Asset impairment, restructuring and other special charges (1) | 9 | 0.02 | 1 | 0.00 | |||
Sold royalty revenue | (9) | (0.02) | (4) | (0.01) | |||
Interest expense, net of capitalized interest (2) | 15 | 0.03 | 10 | 0.02 | |||
Other (income) expense, net | 2 | 0.00 | (1) | 0.00 | |||
Income tax expense (3) | (36) | (0.07) | (22) | (0.04) | |||
Adjusted net income and EPS | $ 174 | $ 0.34 | $ 131 | $ 0.26 | |||
(a) | Adjustments to GAAP reported net income to arrive at adjusted net income for the three months ended June 30, 2026 and 2025, included the following: | |
(1) | Adjustments of | |
(2) | Adjustments of | |
(3) | Adjustments of | |
The following is a reconciliation of GAAP reported net income and EPS for the six months ended June 30, 2026 and 2025, to adjusted net income and EPS:
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | ||||||
Net income (a) | EPS | Net income (a) | EPS | ||||
GAAP reported net income and EPS | $ 111 | $ 0.22 | $ 78 | $ 0.16 | |||
Cost of sales | — | — | 1 | 0.00 | |||
Amortization of intangible assets | 277 | 0.55 | 264 | 0.53 | |||
Asset impairment, restructuring and other special charges (1) | 25 | 0.05 | 10 | 0.02 | |||
Sold royalty revenue | (18) | (0.04) | (4) | (0.01) | |||
Interest expense, net of capitalized interest (2) | 29 | 0.06 | 10 | 0.02 | |||
Other expense, net (3) | 15 | 0.03 | 4 | 0.01 | |||
Income tax expense (4) | (61) | (0.12) | (48) | (0.10) | |||
Adjusted net income and EPS | $ 378 | $ 0.75 | $ 315 | $ 0.63 | |||
(a) | Adjustments to GAAP reported net income to arrive at adjusted net income for the six months ended June 30, 2026 and 2025, included the following: | |
(1) | Adjustments of | |
(2) | Adjustments of | |
(3) | Adjustments of | |
(4) | Adjustments of | |
Adjusted EBITDA and Adjusted EBITDA Margin
We define adjusted EBITDA as net income (loss) adjusted for interest expense (income), which includes debt financing charges and imputed interest on our liability for sale of future revenue, income tax expense (benefit) and depreciation and amortization, further adjusted to exclude purchase accounting adjustments to inventory, acquisition and divestiture-related charges, including integration and separation costs, severance, goodwill and other asset impairments, gains on sales of assets and related costs, facility exit costs, revenue sold to a third party, gains and losses on mark-to-market adjustments on equity securities, certain litigation-related settlements which we consider to be unusual or infrequent and significant, and other specified significant items, such as unusual or non-recurring items that are unrelated to our long-term operations.
For the periods presented, we have not made adjustments for all items that may be considered unrelated to our long-term operations. We believe adjusted EBITDA, when used in conjunction with our results presented in accordance with GAAP and its reconciliation to net income (loss), enhances investors' understanding of our performance, valuation and prospects for the future. We also believe adjusted EBITDA is a measure used in the animal health industry by analysts as a valuable performance metric for investors. The following is a reconciliation of GAAP reported net income for the three and six months ended June 30, 2026 and 2025, to EBITDA, adjusted EBITDA and adjusted EBITDA margin, which we define as adjusted EBITDA divided by total revenue, less royalty revenue sold to a third party, for the respective periods:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2026 | 2025 | 2026 | 2025 | ||||
GAAP reported net income | $ 54 | $ 11 | $ 111 | $ 78 | |||
Net interest expense | 59 | 48 | 116 | 88 | |||
Income tax expense | 2 | 14 | 32 | 7 | |||
Depreciation and amortization | 171 | 169 | 341 | 330 | |||
EBITDA | $ 286 | $ 242 | $ 600 | $ 503 | |||
Non-GAAP adjustments: | |||||||
Cost of sales | $ — | $ — | $ — | $ 1 | |||
Asset impairment, restructuring and other special charges | 9 | 1 | 25 | 10 | |||
Sold royalty revenue | (9) | (4) | (18) | (4) | |||
Other (income) expense, net | 2 | (1) | 15 | 4 | |||
Adjusted EBITDA | $ 288 | $ 238 | $ 622 | $ 514 | |||
Adjusted EBITDA margin | 21.2 % | 19.2 % | 22.9 % | 21.2 % | |||
Numbers may not add due to rounding. |
Gross and Net Debt and Net Leverage Ratio
We define gross debt as the sum of the current portion of long-term debt and long-term debt excluding unamortized debt issuance costs. We define net debt as gross debt less cash and cash equivalents and finance lease liabilities on the balance sheet. We define our net leverage ratio as net debt divided by our trailing twelve month adjusted EBITDA. We believe our net debt and net leverage ratio are important measures to monitor our financial flexibility, liquidity and capital structure and may enhance investors' understanding of our ability to meet future financial obligations. In addition, a net leverage ratio is a financial measure that is frequently used by investors and creditors. The below calculations do not include covenant-related adjustments that reduce our net leverage ratio. The following is a reconciliation of gross debt to net debt as of June 30, 2026:
Long-term debt | $ 3,845 | |
Current portion of long-term debt | 73 | |
Less: Unamortized debt issuance costs | (26) | |
Total gross debt | 3,944 | |
Less: Cash and cash equivalents | 530 | |
Less: Finance lease liabilities | 255 | |
Net debt | $ 3,159 |
The following table presents a calculation of our net leverage ratio as of June 30, 2026:
Net debt | $ 3,159 | |
Trailing twelve month adjusted EBITDA | 1,008 | |
Net leverage ratio | 3.1 |
Investor Contact: Tiffany Kanaga (765) 740-0314 or tiffany.kanaga@elancoah.com
Media Contact: Colleen Parr Dekker (317) 989-7011 or colleen.dekker@elancoah.com
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SOURCE Elanco Animal Health