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 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.

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Our revenue by product category for the three and nine months ended September 30, 2026 and 2025, was as follows:

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

Nine months ended September 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 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 Zenreliaand 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 Quattroand AdTab. A portion of the higher volumes were attributable to adoption of Zenreliaand Credelio Quattro by new customers.

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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

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

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

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

Amortization of intangible assets increased $4 million and$17 million for thethree 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).

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Asset Impairment, Restructuring and Other Special Charges

Asset impairment, restructuring and other special charges decreased $22 million and$7 million for thethree 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

Interest expense, net of capitalized interest increased $7 million and$35 million for thethree 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 onour 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

Other income, net for thethree months ended September 30, 2026, primarily consisted of foreign currency exchange gains. Other expense, net for thenine 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)

We recognized income taxexpense 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.

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We recognized income taxexpense of $38 million and income tax benefit of $9 million for thenine months ended September 30, 2026 and 2025, respectively. Our effective tax rate of 22.8% for thenine 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 thenine 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.