Elanco Animal Health Incorporated
Q1 2021 Earnings Call Transcript

Published: 7 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Elanco Animal Health, Inc. Q1 2021 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Tiffany Kanaga. Please go ahead.

[Tiffany Kanaga:]

Good morning. Thank you for joining us for Elanco Animal Health’s first quarter 2021 earnings call. I am Tiffany Kanaga, Head of Investor Relations. Joining me on today’s call are Jeff Simmons, our President and Chief Executive Officer; Todd Young, our Chief Financial Officer; and Katy Grissom from Investor Relations.

[Jeff Simmons:]

Thanks, Tiffany. Good morning, everyone. Before moving to Q1 results, I want to acknowledge our team and the challenges that they have overcome in the last 2 years through both the COVID and the African swine fever pandemics, the completion of our separation and independent systems stand up, and the integration of Bayer Animal Health in what remains a difficult environment. They have stayed focused on accelerating sustainable long-term value for customers, for yourselves as shareholders, and each other. As you all know, over the past 2 years in Elanco, we have made several hard strategic decisions. Four of these decisions stand out to me. First, the Bayer Animal Health acquisition not long after the IPO, also transforming our distributor strategy as well as changing commercial leadership and accelerating our restructuring. Today, we are seeing the payoff from those choices and from the disciplined execution that I believe truly sets Elanco on a path to be a global animal health leader. Elanco started 2021 with better-than-expected sales, profits and EBITDA, building on the strong momentum our business has shown since we closed the Bayer acquisition in August of 2020. Turning to Q1 results on Slide 3, our first quarter revenue of $1.242 billion surpassed the midpoint of our guidance range by over $80 million, with broad-based outperformance across many categories and geographies. Our adjusted EPS of $0.37 landed $0.15 above the midpoint of guidance, with expense leverage and synergy execution driving strong flow-through to bring adjusted EBITDA to $343 million. Our expectation for continued sales momentum and operational execution is reflected in our increased full year guidance for revenue, adjusted EBITDA and adjusted EPS. This includes the 8 innovation launches in 2021, which remain on track to contribute $80 million to $100 million in revenue this year. Our raised outlook demonstrates execution against our strength in an expanded IPP strategy and continues to be in line with our long-term growth algorithm.

[Todd Young:]

Thanks, Jeff. Slide 10 summarizes our financial performance highlights, including our reported net income and earnings per share. On Slides 27 to 34 in the appendix, you can find a summary of the adjustments made to the reported results to arrive at our adjusted presentation. I will focus my comments on our first quarter adjusted measures in order to provide insights on the underlying trends in our business. So, please refer to today’s earnings press release for a detailed description of the year-over-year changes in our reported results.

[Jeff Simmons:]

Thanks, Todd. Before questions, let me just briefly summarize. Elanco started 2021 with strong results, building on the good momentum to end last year. Our team is now executing, and we are clearly beginning to see the payoff from those hard decisions that that I discussed that we have made since our IPO. We expect momentum to continue in the second quarter and the balance of the year as evidenced by our raised guidance ranges today. We are demonstrating commercial competitiveness in Pet Health with the benefit of a favorable industry backdrop, and we are successfully mitigating the misinformation around Seresto with both April and full year revenue on track for our original expectations for 2021 with Seresto. Our U.S. Farm Animal fundamentals have stabilized, while China swine was ahead of our expectations, although ASF outbreaks and animal numbers must be watched closely. Our forecasts are balanced, as Todd said, as we recognize a highly competitive Pet Health environment as well as the headwinds from generics, particularly in the Farm Animal side. Overall, we are confident that our strengthened and expanded IPP strategy will continue to drive long-term value creation for our shareholders and society. Elanco’s healthy purpose or our 2030 sustainability pledges continue to fold into our business objectives, and we are focused on the opportunity to partner across industry players as we strive to create a better future for society. As a part of our separation from Lilly and the integration with Bayer Animal Health, we are building a fit-for-purpose organization with the governance, controls and initiatives in place to create a global animal health leader. We look forward to sharing our first environmental, social and governance, or ESG report in the coming weeks as further reflection of our commitment to a healthy enterprise. With that, I’ll turn it over to Tiffany to moderate the Q&A.

[Tiffany Kanaga:]

Thanks, Jeff. We would like to take questions from as many callers as possible. So, we ask that you limit yourself to one question and one follow-up. Tamara, please provide the instructions for the Q&A session, and then we will take the first caller.

[Operator:]

Your first response is from Nathan Rich with Goldman Sachs. Please go ahead.

[Nathan Rich:]

Good morning. Thanks for the questions, and Jeff thanks for all the additional details on Seresto. I have a few questions on that, and maybe I will throw them out to you all upfront. On the survey of vets that you referenced, it sounds like there is no change in intent to recommend the product. I just wonder if there is any additional feedback or color that you can share from vets on how they view the efficacy and the safety of the product? And then in terms of the conversations you have had with the health subcommittee, can you maybe talk about the nature of those discussions? And are there any timelines that we should be watching here? And then lastly, can you share your expectations for global Seresto revenue this year? Is that kind of 2 year growth of 35%, maybe without putting too fine a point on it, is that how we should be thinking about growth for the full year for Seresto? Thanks a lot.

[Jeff Simmons:]

Yes, let me cover the first couple of questions. And Todd, you can add on this. So thank you, Nathan, for the questions. Yes, a lot of effort, again, on Seresto and my comment upfront, I think, is very important is this information. It’s very important to clarify. That’s why we have worked tirelessly against this. That’s why we filed the 8-K because we believe that non-use or the removal of a collar with non-use, presents significant risk. So with that said, just to answer, we saw in the surveys very much what we saw when we did the diligence on Bayer relative to loyalty. Loyalty by pet owners, as well as the veterinary community. We have engaged very closely with the veterinary community, of course, on the science, on the pharmacovigilance data. And all I can say, Nathan, is that there is no change in their intent to recommend the product and again, it’s being used differently around the country in the U.S. with vets and with retail. But again, overall support has been reinforced in a significant way. And the veterinary community has been outspoken, and supportive, and we are very appreciative of them relative to the regulatory process that the EPA has, pharmacovigilance process and the science. So, that’s important. And then when we look at the subcommittee, what I would say is we have engaged with them. We have presented them information and we will continue to engage with them. Nathan, there is no timeline or next steps that I can report here other than to say that we are being collaborative. The information that was in the 8-K was a representative sample of what we have shared with them, and we will continue to engage with them, as well as the EPA as we go forward.

[Todd Young:]

Dave, with respect to guidance for Seresto, we are not guiding on any specific brand or products on a full year basis. We will say that we are pleased with how Seresto has held in, in the face of this misinformation campaign and the dedicated loyal users of this trusted brand and why we have sold over 75 million collars since its launch on a global basis. That being said, we have talked about the tough compare from COVID, as you can see on our Slide 19, in the revenue bridge, we do expect a $40 million to $50 million headwind this year on the Bayer OTC products from the COVID lift they got a year ago and as Jeff said generally tracking with our expectations for a full year Seresto in 2021.

[Jeff Simmons:]

And we will continue to invest in the second quarter, as we mentioned, on digital and omni-channel efforts to sustain the momentum, Nate, as well.

[Tiffany Kanaga:]

We will take the next question.

[Operator:]

Thank you. Your next response is from Michael Ryskin with Bank of America. Please go ahead.

[Michael Ryskin:]

Hi, thanks for taking the question. Jeff, one for you to start. You had a couple of comments in your prepared remarks on China and obviously, good growth in the quarter, but then also, there was some concern in thoughts on ASF resurgence and herd reduction. I was just wondering if you could quantify that a little more. How much better are you seeing already? How much of a risk is it the China revenues for the year? You mentioned solid contribution of 1% to full year growth. But just want to go a little bit more into the ASF layup there so how you are thinking that could play out. And then for Todd, on the gross margin line, really great result this quarter, 59%, well ahead of consensus expectation. And it seems like for the full year guide, that’s where most of the EBITDA margin gains have come from. I was just wondering if you could clarify sort of where you have seen the gross margin improvements over the last couple of quarters? Is it on product mix? Is it some on the operational initiatives? Is it Bayer integration sort of where are you seeing the gains and how is that going to continue going forward?

[Jeff Simmons:]

Yes, Michael, relative to ASF, thank you for noting that, again, a really strong first quarter for China overall. I will note that we continue to reiterate that, that will represent, still believe, a full percentage point of growth for Elanco. I see all three dimensions of the business doing really well with pets and poultry, complementing a very big pig business. And even our warm water fish business that we got from Bayer. So, China is doing extremely well. But we do note a few things that have happened here during the quarter. We have seen a new wave of ASF resurgence. It’s impacted prices, as I mentioned, in animal numbers. We have seen, Michael, largely fell in the Northern provinces with reports showing 20% to 30% of the sows lost. So, that’s going to impact pig numbers as we go forward in the second quarter and third quarter. Price is also pressured. So, they have seen really 3 impacts on their P&L. They have seen the impact of prices, the economics of the pigs coming out, increased feed cost and then ASF costs. So, there is some economic pressure. But I think as we look at our customer base, again, the industrialized customers are getting hit by some of this, but are more prepared to weather this change. They have got stronger biosecurity and are probably being impacted much less than the other parts of the industry and still experiencing high profitability. So again, we feel strongly that China swine will be a major contributor for us for the year. But we are noting a watch out as we go into the second quarter and third quarter relative to these resurgence. We will give you more updates as we go forward.

[Todd Young:]

Michael thanks for mentioning the 59% plus gross margin here in Q1, very pleased on the productivity initiatives. Dave Urbanek and his manufacturing quality team continue to execute on a broad based productivity initiatives in order to hold costs flat as we grow revenue. You combine that with the mix that we see with the high margin parasiticide in the first half of the season, and we get this dramatic increase in Q1 in gross margin. Noting it sequentially, we actually increased margin in Q1 more than we increased sales. And that’s purely that product mix that happens. It’s why we have called out today the seasonality and provided the slides as part of the earnings presentation. This change that we now have, as Elanco with the 50% plus pets here in the first half and that high margin, that comes with it. We continue to take prides, as we called out. We apologize for not being able to provide greater price transparency in the Bayer business, but that’s the nature of the acquisition. And next year and this time, we will be providing price on the total business versus just on the Legacy Elanco side, so again, just great effort by the team, along with great sales execution and the mix benefit that comes from that.

[Tiffany Kanaga:]

Next caller please.

[Operator:]

Thank you. Next response is from Erin Wright with Credit Suisse. Please go ahead.

[Erin Wright:]

Thanks for taking the questions. The first one is on the broader livestock business. Can you give us a breakdown of the U.S. and international performance at Legacy Elanco and Legacy Bayer was anecdotally how maybe Rumensin competition is playing out relative to your expectations there? And how we should be thinking about the quarterly progression of the Livestock segment? And then on advantage, can you to the strength across that Advantage portfolio in the quarter? Were there any stocking dynamics we should be aware of for that product line or did you see any sort of shift to Advantage from Seresto, for instance, or how should we be thinking about the quarterly progression there? You did mention, obviously, the seasonality, but will this be bumpy going forward? Thanks.

[Jeff Simmons:]

Thanks, Erin. Let me take – let me start with just briefly on Advantage, and then I will jump to Farm Animal. And Todd, if you want to share anything on the breakdown, but real quick, yes, the Advantage Family has performed very well in the quarter. As we mentioned, posting a 14% growth, even with challenging weather in February. Erin, this really – it plays back to what we shared a little bit in our diligence with the Bayer acquisition. First of all, we are benefiting from that shift there. We also have put a very increased effort on digital and marketing efforts that we really acquired with Bayer that really is targeted around customer retention coming from last year’s COVID that people have moved to Advantage maybe for the first time or they have come back to the brand. So, with digital marketing efforts in the U.S., particularly we are increasing that. And then I think the third contributor is it’s doing extremely well in China. It is a well known brand, multinational brands do well there. We have a large team focused on this and advantages exceeding our expectations in China at this time. And then, again, it’s a different brand. We will continue to look at it in a balanced way, but we do have some new opportunity here that we see between COVID, China, international markets, and then we will put life cycle management behind that. On the Farm Animal side, I will say at a high level. And Todd, if you would like to elaborate any more on the breakdown, but look, we have seen a stabilization coming through COVID. We have seen increased feed cost, which means our value products continue to do very well. We have seen, particularly the U.S. swine industry looking at growing 6%, cattle, beef yards are as full as they have been. That’s continued from fourth quarter of last year into this quarter. So, cattle on feed is up as well. And so what we see is in a maybe low-single digit marketplace we are looking to grow low to mid-single digit with the combination of these dynamics with the performance products with our Rumensin generic strategy working very well. With in the broadest portfolio, the Bayer additions, I was in the cattle industry out traveling last week. Our enhanced and expanded cattle portfolio with products like Cydectin and Batra have helped our offer – total offer, and then we’re introducing, as you know, five new products on the farm animal side. So we do expect to take market share this year on the farm animal side and have a balanced approach as we’ve put that into the guidance.

[Todd Young:]

Aaron, just to add on the first part of Jeff’s answer on stocking, no stocking issues and all of advantage, don’t benefit from that in the Q1 results. With respect to legacy Elanco Farm animal growth, as reported, it was down 7%. And the quarter, that did include last year, we had a pretty significant OUS buy-in on COVID that affects that as well as a few of the divestitures from the Bayer deals. That gets us closer to flat in Q1 from a growth standpoint with the China swine being the big driver while Aqua and international poultry continue to pressure things. On the legacy Bayer side, as we had mentioned in Q4 results, there was the timing of the price increase. Year-over-year, we had moved that from January 1 out into February to be in line with when we do the prices in the middle of the quarter. So there is no timing elements on pull forwards or pushouts of revenue. That change did drive an increase in sales for the Bayer portfolio on a year-over-year basis here in Q1 that we’ve reflected in our guidance given we’d expected the lower amount in Q4 of last year.

[Tiffany Kanaga:]

We will take the next caller, please.

[Operator:]

Thank you. Your next response is from Jon Block with Stifel. Please go ahead.

[Jon Block:]

Hey, guys. Good morning. First question is just on Seresto the spend, if you can talk to just what the plan is with the outreach? In other words, Jeff, is it a further increase overall awareness of the collar? Or actually, do you want to? Proactively highlight the perceived safety issues because I think there is actually a good number of consumers that aren’t even in the weeds and aware of the details. And then just to shift gears, Todd, the innovation of $80 million to $100 million, I believe that’s unchanged. Is there a way to sort of weight the 1H versus 2H contribution, just as we sort of think about and try to frame the year-over-year growth rates of the innovation bucket? Thanks, guys.

[Jeff Simmons:]

Yes, Jon, great question. So the first thing we did right out of the gate was in addition to the market research to understand the status and the impact of the misinformation we looked at that first immediately, as well as working with our pet retailers. Again, a good share of use also is with these major retailers. So that was the first thing we did was we looked at this. And as I noted and as you even commented, the awareness was very low. So we balanced really three segments, users, pet retailers and the veterinary community. What we did was we’ve increased our share of voice, we have moved safety up as you look at staging messages, no question efficacy and the benefits of the overall product still remain as message one, but we moved with our new expertise in marketing and digital capabilities, we moved safety up as just a key message as part of our messaging. What we’re planning to do as we go into Q2 is to build on the momentum similar to what we have with Advantage. And to reach more pet owners as well as continue to assure that we get the loyal users that we’ve had in the past going into the new season. So those are the things that we’re doing. Then I would also say we’re continuing to be very aggressive in international markets as well. It’s still a very strong brand in Europe, and it’s meeting our expectations in Europe, and again, being launched and still in the early stages in China as well.

[Todd Young:]

Jon, thanks for the question on our innovation portfolio. As we have called out, we still expect the $80 million to $100 million of revenue for the full year. I would say on a first half, second half basis, it’s closer to 70% weighted to the second half.

[Tiffany Kanaga:]

Next caller, please.

[Operator:]

Thank you. Your next response is from Chris Schott with JPMorgan. Please go ahead.

[Chris Schott:]

Hi, great. Thanks so much for the question. Just going back to Seresto, I guess just bigger picture, do you feel you’re kind of out of the woods, I guess, from a commercial standpoint? So if there are going to be some impact from the headlines you saw in 1Q, you would have already seen it, and now it’s more about going on offense. I’m just trying to get a sense of, are you still kind of worried about this lingering issue playing out? Or is that more in the rearview mirror at this point? And then I think you touched on some of the individual products, but just bigger picture, I guess, in international pet health dynamics, you highlighted that as your biggest upside driver versus the 1Q guide. I guess just how much of this is execution versus just the broader markets being a bit healthier than expected and are there any particular products or markets that are, I guess, stand out relative to that broader business? Thanks so much.

[Jeff Simmons:]

Thanks, Chris. Look, we’re going to be diligent and execute with excellence here on Seresto. As Todd highlighted, it is a seasonal product. We are into May, we highlighted that April was a strong April so what I would say is we are feeling very good where we stand today. But again, we won’t take anything for granted. The other is we will continue to work very closely with the EPA and the legislators to answer their information. But we are not letting up on this brand. This brand is a significant, it is the fifth largest brand of all-time in animal health, it has a loyal customer base, it has a much bigger platform for us globally, as well as with connected care. So what I would tell you is it’s probably created another level of intensity, Chris, in our organization to lean in. We’re not going to make noise – wrong noise to other people on this. What we’re going to do is just continue to build what we saw when we acquired Bayer. So look for us to be vigilant, balanced, execute with excellence. And we’ve got, again, a couple more months here that this brand has still a big seasonal aspect to it that we will execute, more to report probably after the second quarter on that answer. And then I think on international, yes. So our international business in pets, as you know, went up 3x in size. I think this is the first quarter ever in Elanco’s history, where we had more pet sales in a quarter than farm animal sales. International contributed a big part of this. So what I would say is a couple of things to look at. One is an international marketplace, as we divided Europe and international, international, a lot more growth, a lot more capabilities, the combining of Elanco’s portfolio with Bayer’s portfolio and markets like China, Brazil. So international pet, we’ve got a great team that’s focused on a lot of growth initiatives. But that’s on a smaller base than I think on Europe, look for Europe to really take advantage of a Credelio Plus, plus a Galliprant, Credelio Cats, some launches to expand that portfolio Chris, that I think will be also a big driver. And then, again, continued innovation, as we’ve mentioned, one new parasiticide a year going forward and new products that we continue to roll out. So we’re in a good position internationally with the pet business.

[Tiffany Kanaga:]

We will take the next caller.

[Operator:]

Thank you. Your next response is from David Risinger with Morgan Stanley. Please go ahead.

[David Risinger:]

Yes – excuse me, thanks very much, and congrats on the phenomenal performance here. So, could you please provide more color on the next Seresto steps to be taken with both the congressional committee and with the EPA and also are there any ex-U.S. increase which have been initiated since the USA Today article was published earlier this year and kicked off this misinformation to ? Thank you.

[Jeff Simmons:]

Yes, Chris. Just real quick, I’d like to answer your second question. No, we are unaware of any others. We are monitoring and managing the public affairs side of this again engaging with both the subcommittee as well as with the EPA and nothing new to report here on next steps, where we are continuing to work closely with EPA, there is normal re-registration processes in providing pharmacovigilance and scientific data, which we have and will continue to engage with them. But from a legislative next step perspective, we again have provided the information and we will continue to stay engaged with them. So, that’s really it. And again, I think it’s heavily around the pharmacovigilance process, the science and the recent actions we have taken, Chris, I think to be noted are the independent reviews that we have had done on the data as well to provide further substantiation and an outside look at the way we are looking at it as well. So nothing new to report on next steps, so we will continue to keep you updated and nothing new beyond the USA Today story that was noted.

[Tiffany Kanaga:]

We will move to the next caller.

[Operator:]

Thank you. Your next response is from John Kreger with William Blair. Please go ahead.

[John Kreger:]

Hey, thanks. Couple of questions. Jeff, I am curious so about a year ago companion animal spend seemed to really jump with the pandemic. And now that we are lapping that in the second quarter, it would be interesting to hear if you think those trends are sustainable or would you expect them to kind of ease with the tougher ones? That’s the first. And the second is with the eight launches that you have laid out for this year, would you consider those to be sort of normal given the pandemic or will your access to customers be somewhat constrained? And should we think about these launches as a little bit more gradual over the next few years? Thanks.

[Jeff Simmons:]

Yes, great question. So look, as we look at the pet health trends, I think there is three or four things that are happening in a real positive way. And I do believe there’ll be some lessening, but there’ll be a lot of persisting as well. So pet numbers are up about 5%, visits are up. Wellness with inside those visits, wellness visits compared to past wellness visits are up 15%, which is driving things like surgery, vaccines and other things. And then I think the globalization is the other trend that pets are becoming more important to families internationally than ever before, and that’s a real growth market. Remember, half the pets globally are unmedicalized or unreached. So when I step back, I think that the trend that’s going to matter the most is access. Not adoption from shelters or these, but I think getting to pet owners where they want to shop, allowing to build and as they go back work and reenter into the workplace, us to be able to sustain that relationship and most importantly, bridge the veterinarian into it, I believe this is going to allow the overall market to rise. Will it lessen maybe from the peaks that we’ve seen in COVID? Yes, but I think what we’re seeing here in Q1 is they are not lessening to maybe what some of the past expectations were. And I think some of this persisting is we have enabled capabilities as an industry to reach pet owners and influence them and make actually purchasing even easier for them and their relationship with the veterinarians. So that’s what I see. As you look at the launches, I don’t think that access has been restricted to any material way. That’s why we’re not backing off from our $80 million to $100 million. I do think that if it will, it would probably impact our pet business more than our farm animal business. And – but we don’t see that at this stage. Again, we believe that this is – we’ve moved from a regulatory challenge coming out of the gate to now all the major products being approved. Our focus now is on launch excellence, and we will keep you updated. It will be a big quarter here in the second quarter on launch, and then the sales will start to deliver in the second half.

[John Kreger:]

Thank you.

[Tiffany Kanaga:]

Next caller?

[Operator:]

Thank you. The next response is from Elliott Wilbur with Raymond James.

[Unidentified Analyst:]

This is actually Michael Parlay on for Elliot. Thanks for taking my questions. Two quick modeling questions for you. First of all, obviously, understand that gross margin positive impact in the first half of the year due to product mix and shifting into pet health. But if you could just speak to the cadence over the rest of the year, obviously, expecting a step down in the second half of the year, but just any specific details as to how we can think about that? And then timing of that towards your longer term target of 60% if the strong margin quarter is expected to move up that timing or not and then if you have it on hand, if you could provide us with a cash flow from operations number and kind of talk to the cadence around that for the rest of the year, that would be helpful? Thanks.

[Todd Young:]

Sure, Michael. As we guided for the full year, we’re expecting gross margin at 56.75% to 57.25%. The seasonality of the first half to second half, as we talked, is pretty similar between Q1 and Q2 on the gross margin side. We are filing our 10-Q here shortly. It will show operating cash flow of a positive $22 million for the quarter. And we would expect that to continue to improve over the course of the year as we continue to expect to pay down $500 million of gross debt by the end of the year.

[Tiffany Kanaga:]

We will move to the next question.

[Operator:]

Thank you. Your Next response is from Umer Raffat with Evercore ISI.

[Umer Raffat:]

Hi. Thanks so much for taking my question. So in the House letter, they said Seresto was "associated" with 1,700 pet deaths. And I thought that was very interesting because in your 8-K, you’re pointing out, Seresto was mentioned, "alongside" pet death. And I guess I’m so confused did they not look to establish causality or perhaps on the media reports or in the House letter because that’s a material misinterpretation the way it reads based on your causality analysis. And secondly, I did want to also touch up on your pharmacovigilance evaluation and perhaps extend beyond pet death. So I know the 8-K today focuses specifically on the 12 cases that were probable or possible deaths. What about cases of tumors? Is it safe for us to assume there is no causality with any other serious adverse events? Thank you.

[Jeff Simmons:]

Yes, Umer, I think what’s really important to note, and it’s even highlighted in the independent review that we note in the 8-K is that, and I think this is really important where the 1,700 comes is, case does not equal cause. So what we’ve done is we’ve actually articulated and gone through and reviewed each one of those. So if somebody calls in with a Seresto problem and there is an affiliation with the death and Seresto is mentioned, then that’s part of the 1,700. When you pull out probably or possibly again in the system that I noted internationally known pharmacovigilance system, there were 12 dogs, a further review of those 12 dogs where there was a direct linkage it was typically an accident that was caused, but there has been. And I think what’s really important is there is no linkage to the ingredients, the two active ingredients in Seresto with pet death. So that to me is a very important articulation. That’s the biggest point of misinformation. And again, that’s why independent regulatory body overseeing this is so important, as well as the pharmacovigilance process.

[Tiffany Kanaga:]

Thanks, Umer. We will move to the next question.

[Operator:]

Thank you. Your next response is from Kathy Miner with Cowen & Company. Please go ahead.

[Kathy Miner:]

Great. Thank you. Just again, one more question on Seresto, but it’s been such a tremendous product, very resilient. Can you just remind us why customers are so loyal to this collar? And would you expect this to continue? Or there might – would you see market dynamics that may encourage people to use different formulations going forward? And my second question, also on parasiticides, as you talk about the success of the combination of Credelio and Interceptor Plus, can you give us any percentage or any sense of how much is the sales in the first quarter or as a combined entity, if you will? Thank you.

[Jeff Simmons:]

Thanks, Kathy. Yes, Seresto continues to grow every year. And I think part of this is the unique offering that this provides. So 8 months of coverage, a strong price point, great efficacy, great safety, have all been contributions to this. And as we’ve globalized it, this continues to hit a demographic from the standpoint of both price, convenience and safety and efficacy. It provides something unique when you look at 8 months of coverage. And then again, I believe that what Bayer has done and now we’re doing together is building the brand with this. And the loyalty that the pet owner has with the brand, look for us to continue to expand and build on this as we go forward with life cycle management as well. We won’t note any specifics here on the pairing, but what I would say, Kathy, to you, let me say one last thing on Seresto too is again April revenue in the U.S. is ahead of our original expectations. And I want to just solidify with all these questions on Seresto that as we collaborate with the EPA and the legislative bodies, we feel strongly that the product is on track for our full year expectations as a total brand globally. As we look at the broader parasiticide market, if you want full coverage out there today, you are going to need two products, no matter which product you are using either, new innovation or others, Credelio Plus – excuse me, Credelio and Interceptor Plus provide that brought us coverage. And we continue to see that pairing is something that’s occurring in the marketplace and we saw again very strong growth, especially with Credelio as we go forward. So, that’s the strategy we will continue to execute against that.

[Tiffany Kanaga:]

Thanks everyone for the question today. we will end the call here.

[Operator:]

This concludes today’s conference call. Thank you for participating. You may now disconnect.