Elanco Animal Health Inc

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 of 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, such as principal and interest payments, as well as interest rate swaps, operating lease payments, purchase obligations and costs associated with mergers, acquisitions, divestitures and business integrations and/or restructuring activities. As of March 31, 2024, we had cash and cash equivalents of $345 million and unused borrowing capacity on our Revolving Credit Facility of approximately $550 million. In addition, our Securitization Facility provides additional borrowing capacity in the event our borrowing capacity on this facility, which is correlated to our U.S. Net Eligible Receivables Balances, exceeds our outstanding borrowings on the facility. As of March 31, 2024, we had undrawn borrowing capacity of $114 million on our Securitization 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 2023 Form 10-K.

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Cash Flows

The following table provides a summary of cash flows from operating, investing and financing activities for the three months ended March 31, 2024 and 2023:

Operating activities

Cash provided by operating activities was $2 million for the three months ended March 31, 2024, compared to cash used for operating activities of $145 million for the three months ended March 31, 2023. The change in cash provided by (used for) operating activities was driven by a year-over-year improvement in changes in operating assets and liabilities, partially offset by lower net income.

Investing activities

Cash provided by investing activities was $37 million for the three months ended March 31, 2024, compared to cash used for investing activities of $55 million for the three months ended March 31, 2023. Cash provided by investing activities during the three months ended March 31, 2024, was driven by the collection of a $66 million receivable related to our previous divestiture of our Shawnee and Speke locations (see Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for additional information). These proceeds were partially offset by net purchases of property and equipment and software and a deferred cash payment related to our prior year acquisition of NutriQuest. Cash used for investing activities during the three months ended March 31, 2023, primarily related to net purchases of property and equipment and software, $16 million paid for the acquisition of NutriQuest and $14 million for the purchase of intangible assets.

Financing activities

Cash used for financing activities was $27 million for the three months ended March 31, 2024, compared to cash provided by financing activities of $174 million for the three months ended March 31, 2023. Cash used for financing activities during the three months ended March 31, 2024, included $13 million in scheduled repayments of long-term borrowings. Cash provided by financing activities of $174 million during the three months ended March 31, 2023, primarily reflected proceeds from our revolving credit facility, partially offset by the repayment of indebtedness outstanding under our long-term borrowings.

Description of Indebtedness

For a complete description of our existing debt and available credit facilities as of March 31, 2024 and December 31, 2023, see Note 8. Debt within Item 8, “Financial Statements and Supplementary Data,” of Part II of our 2023 Form 10-K. New developments are discussed in Note 8. Debt of this Form 10-Q.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Certain of our accounting policies are considered critical because these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments, often requiring the use of estimates about the effects of matters that are inherently uncertain. Actual results that differ from our estimates could have an unfavorable effect on our financial position and results of operations. We apply estimation methodologies consistently from year to year. Such policies are summarized in Item 7, "Management's Discussion & Analysis of Results of Financial Condition and Results of Operations," of our 2023 Form 10-K. There were no significant changes or developments in the application of our critical accounting policies during the three months ended March 31, 2024.

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