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 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 March 31, 2026, we had cash and cash equivalents of $428 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. After borrowing $50 million on April 22, 2026 in connection with the AHV acquisition (see Note 4. Acquisitions and Divestitures for further information), we had approximately $134 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 three months ended March 31, 2026 and 2025:

Operating activities

Cash provided by operating activities was $13 million for the three months ended March 31, 2026, compared to cash used in operating activities of $4 million for the three months ended March 31, 2025. The increase in cash provided by operating activities was primarily driven by an increase in non-cash expenses relative to net income, partially offset by changes in working capital.

Investing activities

Cash used for investing activities was $60 million for the three months ended March 31, 2026, compared to cash used for investing activities of $58 million for the three months ended March 31, 2025. Cash used for investing activities during the three months ended March 31, 2026, largely consisted of $51 million of net purchases of property and equipment and software, which was $14 million lower than for the three months ended March 31, 2025. This decrease in purchases of property and equipment primarily related to the timing of spending for the ongoing expansion of our monoclonal antibody manufacturing facility in Elwood, Kansas, as well as capital projects at our Fort Dodge, Iowa, and Huningue, France, manufacturing facilities.

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Financing activities

Cash used for financing activities was $65 million for the three months ended March 31, 2026, compared to cash provided by financing activities of $52 million for the three months ended March 31, 2025. Cash used for financing activities during the three months ended March 31, 2026, included the purchase of common stock for employee tax withholding obligations and scheduled repayments of long-term borrowings. Cash provided by financing activities for the three months ended March 31, 2025 included $85 million in net borrowings on our Securitization Facility, primarily for working capital purposes, partially offset by scheduled repayments of long-term borrowings and the purchase of common stock for employee tax withholding obligations.

Description of Indebtedness

For a complete description of our existing debt and available credit facilities as of March 31, 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 three months ended March 31, 2026.