Elanco Animal Health Inc

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 six months ended June 30, 2026 and 2025, approximately 52%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.

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Our revenue by product category for the three and six months ended June 30, 2026 and 2025, were as follows:

Note: Numbers may not add due to rounding.

(1)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 in May 2025 totaled $9 million and $4 million for the three months ended June 30, 2026 and 2025, respectively, and $18 million and $4 million for the six months ended June 30, 2026 and 2025, respectively. While we are no longer entitled to these royalties, 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 six months ended June 30, 2026, compared to three and six months ended June 30, 2025, were as follows:

Three months ended June 30, 2026

Six months ended June 30, 2026

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 three and six months ended June 30, 2026, were not material.

Pet health revenue increased $75 million, or 12%, for the three months ended June 30, 2026, compared to the same period in 2025, driven primarily by higher volumes, increased pricing and the impacts from foreign currency exchange rate movements. Higher volumes were primarily driven by new products, led by Zenreliaand Credelio Quattro, including adoption of those products by new customers.

Pet health revenue increased $150 million, or 12%, for the six months ended June 30, 2026, compared to the same period in 2025, primarily driven by higher volumes, the impacts from foreign currency exchange rate movements and increased pricing. Higher volumes were primarily driven by new products, led by Zenrelia, Credelio Quattroand AdTab. A portion of the higher volumes were attributable to adoption of Credelio Quattro and Zenrelia by new customers.

Farm animal revenue increased $50 million, or 9%, for the three months ended June 30, 2026, compared to the same period in 2025, driven by increases in ruminants and poultry, partially offset by decreased swine volumes.

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Farm animal revenue increased $146 million, or 13%, for the six months ended June 30, 2026, compared to the same period in 2025, driven primarily by increased volumes across all species, the impacts from foreign currency exchange rate movements and increased pricing. Higher volumes were led by Rumensinand poultry vaccines.

Gross Profit

Gross profit increased $85 million and $186 million for the three and six months ended June 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 June 30, 2025, driven by favorable product mix and pricing, partially offset by higher inventory costs.

Research and Development

Research and development expenses increased $3 million for the six months ended June 30, 2026, as compared to the same period in the prior year. The increase was primarily driven by foreign currency exchange rate movements.

Marketing, Selling and Administrative

Marketing, selling and administrative expenses increased $49 million and$89 million for the three and six months ended June 30, 2026, as compared to the same period in the prior year. Increases were driven by higher compensation expense, foreign currency exchange rate movements and strategic investments in the global launches of new products, partially offset by decreases in certain general and administrative expenses.

Amortization of Intangible Assets

Amortization of intangible assets increased $3 million and$13 million for thethree and six months ended June 30, 2026, as compared to the same period in the prior year. The increase was primarily driven by changes in foreign currency exchange rates.

Asset Impairment, Restructuring and Other Special Charges

Asset impairment, restructuring and other special charges increased $8 million and$15 million for thethree and six months ended June 30, 2026, respectively, as compared to the same periods in the prior year. Amounts recorded to asset impairment, restructuring and other special charges during thethree months ended June 30, 2026, primarily related to the 2025 Restructuring Plan ($3 million) as well as costs associated with our acquisition of AHV ($2 million). Amounts recorded during the six months ended June 30, 2026, also included $15 million of non-cash shut-down costs for the animal studies portion of our R&D facilities in Monheim, Germany, recorded during the first quarter of 2026. Amounts recorded in 2025 primarily related to upfront payments made in relation to new licensing arrangements.

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Interest Expense, Net of Capitalized Interest

Interest expense, net of capitalized interest increased $11 million and$28 million for thethree and six months ended June 30, 2026, respectively, as compared to the same period in the prior year. These increases were principally due to imputed interest on our liability for sale of future revenue of $15 million and $29 million for the three and six months ended June 30, 2026 (see Note 10. Liability for Sale of Future Revenue to the condensed consolidated financial statements for further information), respectively, as well as interest expense related to our corporate headquarters finance lease, partially offset by lower average debt balances.

Other (Income) Expense, Net

Other income, net for thethree months ended June 30, 2026, primarily consisted of foreign currency exchange gains. Other expense, netfor thesix months ended June 30, 2026, wasnegatively impacted by currency translation losses reclassified from accumulated other comprehensive loss to the condensed consolidated statements of operations in conjunction with the substantial liquidation of a dormant legal entity, a litigation settlement and mark-to-market adjustments on equity investments. Other expense, net for thethree and six months ended June 30, 2025 primarily consisted of foreign currency exchange losses.

Income Tax Expense

We recognized income taxexpense of$2 million and $14 million for the three months ended June 30, 2026 and 2025, respectively. Our effective tax rate of 3.3% for the three months ended June 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 55.4% for the three months ended June 30, 2025, differed from the statutory income tax rate primarily due to the tax impact from the jurisdictional mix of projected income and losses in non-U.S. jurisdictions and the impacts of discrete tax expenses during the second quarter of 2025, including the remeasurement of certain deferred tax positions due to a foreign tax rate change.

We recognized income taxexpense of $32 million and $7 million for thesix months ended June 30, 2026 and 2025, respectively. Our effective tax rate of 22.3% for thesix months ended June 30, 2026, differed from the statutory income tax rate primarilydue to the tax impact from the jurisdictional mix of projected earningsas well as the utilization of net operating losses and a valuation allowance release in the U.S. Our effective tax rate of 7.6% for the six months ended June 30, 2025, differed from the statutory income tax rate primarily due to the tax impact from the jurisdictional mix of projected income and losses in non-U.S. jurisdictions as well as the utilization of net operating losses and a valuation allowance release in the U.S., partially offset by the impacts of discrete tax expenses during the second quarter of 2025, including the remeasurement of certain deferred tax positions due to a foreign tax rate change.