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Elanco Animal Health Inc (ELAN -5.16%)
Q2Â 2020 Earnings Call
Jul 30, 2020, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone, and thank you for standing by. I would like to welcome everyone to the Elanco Animal Health Q2 Earnings Call. [Operator Instructions] I would now like to turn the call over to your host, Jim Greffet. Please go ahead, sir.
Jim Greffet -- Head of Investor Relations
Thanks, Adrian. Good morning. Thank you for joining us for Elanco Animal Health's Q2 2020 Earnings Call. I'm Jim Greffet, 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; Katy Grissom from Investor Relations; and Tiffany Kanaga, who will be the new Head of Investor Relations, as I return to Lilly at the end of August. As always, during this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors including those listed on slide two and those outlined in our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It's not intended to be promotional and is not sufficient for prescribing decisions. You can find our press release, the slides referenced on this call and an investor workbook in the Investors Section of elanco.com. The slides and the press release also contain further information about the non-GAAP financial measures that we will discuss during today's call. After our prepared remarks, we'll be happy to take your questions. I'll now turn the call over to Jeff to provide the highlights.
Jeffrey Simmons -- President, Chief Executive Officer & Director
Thanks, Jim. Good morning, everyone. COVID-19 has impacted all of us in ways we never could have imagined. In an environment that is rapidly changing, I'm encouraged by the resilience, the dedication and creativity of our employees and our customers in order to focus on the health and the well-being of animals. Despite these unprecedented times, Elanco has maintained a disciplined focus on our long-term strategy and execution to control what we can control. We've made tough decisions across the business that are ultimately yielding results through better competitive positioning and greater financial flexibility. Specifically, over the last quarter, we completed the inventory reduction, reducing the $100 million in line with the $80 million to $100 million expectation we shared on our first quarter call. We delivered 2% price growth across our portfolio, with all categories positive. We reaccelerated the growth of our portfolio of newly launched or acquired products to 14% and growing or maintaining market share for our key companion animal products in this group. We improved receivable terms and managed discretionary operating expenses.
And finally, we completed all necessary activities to close the Bayer transaction. These are all important factors that will set up Elanco for success as we move into the next era for our company joining with Bayer Animal Health. I'd like to start by walking through the key factors impacting our revenue performance for the quarter. First, the channel inventory reduction was the most significant driver of the overall year-on-year revenue decline in the second quarter. We completed our efforts on this front working in collaboration with our distributor partners to determine the minimum amount of inventory necessary to ensure adequate stock and flexibility in order to maintain strong service levels for end customers around the world. The impact in the quarter was roughly $100 million, with about $45 million coming from U.S. Companion Animal, about $45 million from U.S. Food Animal and about $10 million from international business. While there will always be the possibility for channel adjustments for individual products, we do not anticipate further reductions in overall channel inventory levels. Our relationship with distributor partners remains very strong and mutually beneficial after the changes we've implemented, and we are pleased with the increased level of focus generated by the consolidation. We have maintained our weekly scorecard and monthly CEO meetings with our four U.S. Companion Animal distributors, and they continue to deliver on key logistics and service-related metrics. We are realizing a range of benefits from the streamlined structure, spanning receivables, cash conversion, pricing, margin and market share. Importantly, nearly all the expected volume from our four rationalized distributors has been converted to our four retained distributors. The limited volume loss, only about 1% of our total U.S. Companion Animal business, was well within our business case expectations and was more than offset by margin recapture, which we repurposed to support internal demand generation efforts. In the second quarter, Elanco outgrew the U.S. Flea Tick Heartworm market overall, increasing our market share in this competitive space based on Kynetic dispensing data.
Our internal demand generation efforts, paired with the valuable capabilities of our distributor partners, like home delivery, e-commerce platforms, pet owner engagement and digital marketing tools, they are working, and our commercial competitiveness has been enhanced since the decision to focus our distributor relationships. As anticipated, COVID-19 also had a meaningful impact on our global business in the second quarter, representing by our estimate an approximate $75 million to $85 million headwind based on changes as compared to our underlying business trends. The majority of the pandemic headwind was felt in our Global Food Animal business as processing plant closures, reduced food service demand and pressured producer economics impacted all three major species. U.S. cattle and swine processing capacity was reportedly down nearly 40% in May. This decline slowed the movement of cattle into feed yards and created significant uncertainty around the timing of processing, which, in turn, reduced the opportunity for producers to maximize the use of our products, impacting several key Elanco brands. For swine, producers implemented no-grow diets as pigs weighted in slots for slots and pressured processing plants and profitability waned. As we moved through June and into July, production capacity rebounded to about 95%. However, a sizable backlog of cows and pigs remains that likely won't be resolved until the end of 2020, extending this period of volatility into the next few quarters. In poultry, international markets experienced pressure from reduced demand, most notably in Food Service, and that pressured price. We continue to expect medium-term benefit for poultry as a result of economic pressures facing consumers and the likely trade down from them to lower cost to this lower cost protein option. On the Companion Animal side, brands administered in the clinic, notably vaccines and international markets were most affected by the pandemic in the second quarter. In the U.S., traffic in veterinary clinics significantly decreased in the second half of March and into April.
Wellness visits, those that include vaccines, were most severely impacted, with revenue from those visits down nearly 40% at the lowest point. However, as we move through April and into May, wellness visits improved with a V-shaped trajectory, and clinic revenue reached double-digit year-over-year growth by the end of June. As clinics process the pent-up demand for vaccines and restock their fridges, we posted our strongest single month of vaccine EDI sales in June. Outside of vaccines, and other brands administered in the clinic, our assessment suggests that trends around the majority of our parasiticide portfolio and also Galliprant were not meaningfully impacted by the pandemic. Internationally, vet clinic traffic remained depressed throughout the quarter, reducing sales of products across the portfolio. Reopening and recovery are occurring at different rates across the world. But we saw promising early indications in some markets in June, notably in Europe. We believe the second quarter represents the most profound impact for both Companion Animals and Livestock as related to COVID this year. While we do expect sequential improvement in the coming quarters, we caution that the headwinds from the pandemic, particularly in Livestock, will likely persist to the balance of 2020. Now bringing it back to our value-creation strategy, our innovation, portfolio and productivity approach, that continues to drive our performance and deliver results. We are in execution mode, and we are delivering. On the innovation front, our 14 products launched or acquired since 2015 grew 14%. This is a strong rebound from the decline we saw in the first quarter and can be seen on slide 15. Earlier in July, we received a positive opinion in Europe for Increxxa, a generic product for the treatment of bovine and swine respiratory disease. We see this injectable antibiotic as a strong addition to our cattle and swine portfolios.
We remain on track to deliver at least five launch equivalents by the end of 2021 from Legacy Elanco. As we look at portfolio, let me share some details on the underlying performance in each of the key areas of our business. Starting with our U.S. Companion Animal business. We are focused on underlying demand. And as the outbound sales of our products into vet clinics and alternative channels, what we call EDI sales, they have been growing mid-single digits over the last year. This trend continued into the second quarter, with June being our highest EDI month ever. While the month incorporated some pent-up demand from April and May for vaccines, June was strong across the portfolio. Vet clinic dispensing data from Kynetic provides insight about the strength of our products with end users. Credelio continues to gain market share in the U.S. flea tick heartworm market, surpassing two brands since the beginning of the year in both dollars and volume. Additionally, we believe our messaging and promotion around the benefits of using Interceptor Plus and Credelio together for the broadest overall parasiticide coverage continues to gain traction. As a leading indicator, Kynetic data shows that year-to-date through June, in instances where Interceptor Plus is sold with a flee and tick solution, it is sold with Credelio 43% of the time. This is a 73% improvement compared to the same time last year. Additionally, June was the highest EDI month ever for Credelio. Moving to pain. Galliprant is outpacing the branded market for both new pet acquisition and dollar growth on a year-to-date basis compared to last year. Finally, in outside the vet channels in the U.S., our parasiticide and pain products collectively grew 28% in the second quarter, primarily driven by continued e-commerce expansion, outgrowing the market and gaining share again this quarter.
Next, our U.S. Food Animal business was significantly impacted by the channel inventory reduction and COVID-related pressure on animal protein production. In addition to the competitive and environmental pressures in 2020 that we've shared previously. Coming into the second quarter, our U.S. Food Animal business had experienced flat to slightly negative EDI over the last 12 months. The pandemic created a distinct impact in the quarter, causing a deviation from that trend line. Aside from COVID, our strategy to maximize Rumensin sales remains intact. Leveraging our strong portfolio and value strategy, we are ahead of our initial expectations for value retention 12 months after generic approval. Rumensin's meaningful therapeutic differences have minimized the number of customers willing to switch to the generic. While we anticipate a reduction in cattle head days in the second half of the year, we remain confident in our ability to maintain dosing levels and share within the expected range. Finally, in our international business. We continue to see underlying growth, excluding the reduction of channel inventory and COVID-related demand impacts. Credelio and Galliprant expansion drove growth in Companion Animal overseas while in Food Animal, aqua, poultry and our swine portfolio in China continued to perform. Although pressure from African Swine Fever persists in China, we're encouraged by the repopulation efforts of large industrialized farms. As a lead indicator, Elanco China in the first half of 2020 outgrew the first half of 2018. This is driven by our portfolio that provides important tools for producers to maximize the opportunity they're seeing with higher value pigs higher pig values. On productivity, we exercised discipline across operating expense and cash management in the quarter, and we improved working capital. This discipline is an important point of emphasis across all parts of our organization. In the second quarter, our manufacturing productivity efforts, along with price, provided about 300 basis points of benefit to gross margin.
And finally, I'd like to provide an update on the Bayer acquisition as we prepare to close in the coming days. Since our last earnings call, we've received antitrust clearances and regulatory approvals for the transaction and divestitures in all necessary jurisdictions. We're pleased with the complementary nature of the retained combined portfolio, with divestitures in line with previous communications and consistent with the business case established for the deal. Additionally, we've announced the second level of senior leadership, a key next step to being ready to operate on day 1. Finally, internal value capture targets have been established and plans are already under way toward achievement. Let me summarize. Clearly, our sales in the quarter have been impacted by: One, the reduction in channel inventory; and two, the effects of COVID on the business. However, I remain encouraged by the underlying demand for our products, the good traction that we're seeing and our strategy to enhance commercial competitiveness in sales, marketing and our distribution partnerships as well as the overall organizational discipline and its execution across the company, all of which are setting the stage for a successful integration of Bayer Animal Health. Now I'll turn the call over to Todd to provide more color on our results as well as the outlook.
Todd Young -- Executive Vice President & Chief Financial Officer
Thanks, Jeff. slide five summarizes our presentation of GAAP results while slide six describes the items considered in the adjusted financials. slides 17 to 20 in the appendix provide a summary of the adjustments made to the GAAP results to arrive at our adjusted presentation. I'll focus my comments on our 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-on-year changes in our second quarter GAAP results. Looking at the adjusted measures on slide 7, you'll see that total Elanco revenue decreased 25% in the quarter. On a constant currency basis, total Elanco revenue decreased 23% and core Elanco revenue decreased 22%. Gross margin as a percentage of revenue was 49.5%, a decline of 490 basis points compared to the second quarter of last year, driven by geographic and product mix and the cost of our fixed manufacturing footprint spread over lower total sales. These headwinds were partially offset by continued productivity gains and positive price, which combined to provide approximately 300 basis points of benefit. Total operating expense decreased 18% in the second quarter. Marketing, selling and administrative expense decreased 19% to $162.8 million due to cost management, as our business moved to primarily virtual operations in the quarter, adjustments to variable pay expectations as a result of performance and the decision to shift certain marketing expenses from the second quarter into the third quarter of 2020. Our expense level is sequentially lower from the first quarter by about $19 million, which is an atypical pattern.
R&D expense decreased 14% to $59.4 million or 10% of revenue, also reflecting cost management with less travel and fewer in-person meetings, adjustments to variable pay as a result of performance and a shift in project expenses from the second quarter into the third quarter. None of the shift in spend negatively impacted the critical path of key projects. Operating income declined 57%, reflecting the impact of sales, gross margin and operating expense results I just described. At the bottom line, Q3 adjusted net income decreased 64% to $36.3 million, The Q2 effective tax rate is 17.2% and our adjusted EBITDA margin is 16.7%. On slide 8, you can see the effect of price, rate and volume on our revenue performance. We've already discussed many aspects driving the overall results. However, I'd like to highlight the price was up 2% for the quarter and positive in each category. We believe this reflects the value of our innovative products and the discipline we are applying around price management despite competitive pressures. Additionally, FX was a 2% headwind as we saw ongoing dollar strength in the second quarter. slide nine provides details on our overall performance in the U.S. and internationally, both of which were impacted by the channel and COVID. For core revenue, U.S. declined 36% and international was down 9%. We expect to file our 10-Q shortly. But moving to slide 10, let me now provide an update on working capital, cash and deal financing components. As we have discussed, working capital is an area of focus for us. In the U.S. in Q2, we held all distributors at 60-day payment terms. As a result, we have improved our receivables as a percent of sales to the lowest level since the IPO, enhancing our financial flexibility and improving our DSOs. We ended Q2 with $1.4 billion of cash and equivalents on our balance sheet, an improvement of $185 million over the first quarter. In addition, we completed the sale lease back of our Australia facility and focused on critical capital expenditures only. These actions bolstered our balance sheet despite our lower sales in the quarter, setting us up well for the closure of the Bayer transaction.
Recall that our financing strategy with the Bayer deal includes a cash portion and a share portion. In conjunction with the deal close, our Term Loan B of $4.275 billion will be funded through this event, and the proceeds from the secondary equity issuance from Q1, we will pay Bayer approximately $5.3 billion in cash subject to certain standard purchase price adjustments, and we anticipate issuing approximately 73 million shares of stock to Bayer. After closing the deal, we will have a new $750 million revolver available which is subject to a covenant tied to the Term Loan B. The baseline covenant EBITDA as calculated the last four quarters of pro forma EBITDA for the two companies and will be inclusive of the second quarter of 2020 for both Elanco and Bayer. This amount is expected to be approximately $1.1 billion. The covenant is established at 65% of this amount or approximately $725 million. The calculation will be finalized in conjunction with the close. Based on our current expectations for the combined business, we do not foresee any issues with generating sufficient EBITDA going forward in order to stay comfortably above our debt covenant level. 2020 is uniquely cash-heavy year given the standup of the independent Elanco, specifically our IT infrastructure and ERP system and the execution of the Bayer transaction and the build of the requisite ERP infrastructure for the integration. We estimate 2021 cash needs for these areas to be approximately $250 million to $350 million less than this year. Finally, let me note that the legacy Bayer Animal Health business will transition to a new ERP system that we have implemented, along with our partner, Tata Consultancy Services upon close, we realized this is not an insignificant endeavor. Through extensive collaboration between Bayer, Elanco, and TCS we have full confidence in the system, and our teams are prepared and equipped to address any challenges we might face. We believe we have established the appropriate oversight, accountability and resources to ensure minimal disruption during this transition period and going forward.
Now I would like to transition to our outlook, starting with slide 11. Today, we are providing revenue guidance for Legacy Elanco for the third quarter as well as a number of modeling assumptions for the combined company below the EBIT level. While we do not intend to make a practice of providing only revenue and quarterly guidance, we determine this to be the most appropriate path for this quarter given the timing of the deal close and the complexities of reporting on the combined company in the third quarter. For the third quarter of 2020, we expect Legacy Elanco total revenue to be between $660 million and $710 million, this range excludes about $12 million to $20 million of expected third quarter revenue from products that are being divested as part of closing the Bayer acquisition. As we discussed earlier, the pandemic and the corresponding economic impacts represent variables per industry and our company in the back half of 2020. Our guidance reflects an estimate of approximately $30 million to $50 million of COVID-related pressure in the third quarter. Although we saw signs of recovery over the course of the second quarter, we do expect certain challenges to carry into the third quarter, primarily in our Global Food Animal business and international Companion Animal markets. Currently, we have not assumed a second phase of broad shutdowns, either in veterinarian clinics or meat processing facilities, which both contributed to the significant amount of pressure on the industry in the second quarter. On the U.S. Companion Animal side, while the data currently appears to support a V-shaped recovery, we expect international markets will be slower to recover. Additionally, as a reminder, in the third quarter of 2019, we experienced an initial stocking at a leading brick-and-motor retailer, prepared to add pet prescription services through its pharmacies. The benefit last year was in the high teens millions across several brands, and the unfavorable comparison will partially offset the growth we expect across both Companion Animal categories.
In Food Animal, we anticipate a negative impact from the continued backlog of animals awaiting processing, lower animal numbers, continued reduced demand from foodservice and pressured producer economics over the course of the second half. The largest impact is expected in our cattle business. Turning to gross margin. For Legacy Elanco operations in the third quarter, we expect moderate sequential improvement from Q2's challenged results as fixed cost deleveraging should lessen. We continue to capture productivity efficiencies, and we remain disciplined on price. Additionally, excluding gross margin from the divested products represents a mixed headwind, but in line with our deal assumptions. With respect to operating expense, we anticipate third quarter R&D normalizing back to historic levels and SG&A rising somewhat above the first half and prior year levels due to the timing of delayed investments more than offsetting some ongoing savings, such as reduced travel. Finally, we intend to provide company guidance during our third quarter earnings call. However, we wanted to offer clarity on a few items to support modeling, which can be found on slide 12. Now I'll turn it over to Jeff to summarize.
Jeffrey Simmons -- President, Chief Executive Officer & Director
Thanks, Todd. In summary, I want to thank our team for their disciplined execution as we've navigated these unprecedented challenges. We're eager to close the Bayer Animal Health transaction in the coming days, and we look forward to sharing more with you about the combined business on our third quarter earnings call and at the end of the excuse me, at Investor Day in December. Before we move to Q&A, I'd like to take this opportunity to thank Jim for his outstanding contributions to Elanco over the last two years. Jim has been instrumental in cultivating our relationships with the investment community and has provided meaningful counsel and guidance to our team. We'll miss having him around and wish him the best of luck upon his return to Lilly. We are very pleased to bring on Tiffany Kanaga, a lead to lead our Investor Relations. We're excited about the perspective she brings to the team, and I look forward to all of you engaging with her over the coming weeks. With that, I'll turn it over to Jim to moderate the Q&A.
Jim Greffet -- Head of Investor Relations
We'd like to take questions from as many callers as possible, so we ask you limit your questions to two or one with two parts. I think we have about 30 minutes, a little bit more than that. So Adrian, if you could provide the instructions for the Q&A and take the first caller.
Questions and Answers:
Operator
[Operator Instructions] The first question comes from the line of Michael Ryskin with Bank of America.
Michael Ryskin -- Bank of America -- Analyst
Hey guys, thanks for taking the question. I want to start with I appreciate all your comments in the prepared remarks, Jeff, on some of the distributor moves. That's where there's been most concern from investors. So I want to get a better sense of what gives you confidence that, that has really normalized and that the $160 million you took out in the first half, that's a onetime move, and this is the appropriate run rate go-forward. Just because there's always uncertainty, could there be a win-win effect or could there be another wave of this in the second half or in 2021? And then I have a follow-up.
Jeffrey Simmons -- President, Chief Executive Officer & Director
Yes. Thank you, Michael. Yes. So let me be clear, yes, we do believe that we are at the right levels. There can always, as I said, be variations by product. But again, as we stated, clearly, as we consolidated down to four distributors, our strategy was executed just as planned. We've not only delivered that strategy, but, as you've seen, we've delivered across the board from better margin, tighter financials and increased share. And I would say, and even speaking to the CEOs of the major distributors this week, we feel very good about the delivery in Q2, how we're optimizing and focusing this relationship and how we've taken inventory levels to what we would say are the minimal levels necessary to optimize service and then to rechannel these four major distributors against what they are extremely good at. And I think the results that we've shown, as you look at what we've done in terms of gaining share in the tick flea heartworm market, the campaign that we have with IDEXX and these distributors on worms as well as the movement that we've seen even with pain that it is working, it delivered and our competitiveness actually increased in the quarter that we made the decision. So we're very comfortable that these levels are correct. And we continue to stay in a buy/sell relationship, but it's very targeted on what they do best and what we do best. So again, executed just as we had communicated and again, the $100 million $80 million to $100 million, it's within the range, the reason it's at the higher end of the range is primarily due to the increased demand of the products.
Todd Young -- Executive Vice President & Chief Financial Officer
And Mike, just to add on, as we communicated last quarter, it's a material impact on revenue, from a change in inventory, we will make sure to communicate it to the Street, just like we did for this quarter and as we delivered it.
Jim Greffet -- Head of Investor Relations
You had a follow-up, Mike?
Michael Ryskin -- Bank of America -- Analyst
Yes. That's helpful. In the prepared remarks, again, I think in the slides, you had a comment on strong gains in the U.S. alternate channels, e-commerce, I mean 28% growth. Obviously, that channel becomes a lot more meaningful for the total company once Bayer comes in given their portfolio. I was wondering, do you have any indication is this COVID driving some acceleration in the shift to e-commerce to the online channel away from that or is that a little bit more of a temporary action while that offices are closed? And you had some comments in the prepared remarks on vaccine trends, sort of how that moved around throughout the quarter. I was curious what about parasiticide, some other products that are more amenable to online sales? Is this temporary or is this just the beginning of something more?
Jeffrey Simmons -- President, Chief Executive Officer & Director
Yes. So I would say the market has been growing double-digit in this retail, driven heavily by e-commerce, as we've talked in the past, Michael, and that those trends continue. Food, drug, mass and some of the other spaces have not been as aggressive on growth. But yes, no question. I think we believe, clearly, as we look at the data that COVID has accelerated the awareness of pet owners that they're able to have a more convenient way to shop and actually have delivery to them. And telemedicine has accelerated this as well. So again, first quarter, Elanco grew 35% and outgrew the market. We grew 28% in Q2. So we're outgrowing the market. So we're growing share. I think that's driven a lot by our capabilities. And it bodes extremely well, as you know, for Bayer that is leading in this and had the longest legacy in this segment. So I believe that it's accelerating the trend. I also think very importantly is the veterinarian is still in the center, still will be in the center and Elanco is working very diligently to enable veterinarians to bridge them to participate in this as well. And our distributor partners is one of the top areas they're adding value. I was on the phone last night with the CEO of one of the major distributors talking about this trend and how we're able together to partner and create the veterinarian to putting them more in the middle. I think the wellness visits, as we said, the V-shaped trajectory, a lot of what's driving that is there was a catch-up on what was behind and I think compliance is up as people are present with their pets throughout the entire day. A lot of the data is showing that because of that, their awareness of their pet needs is increasing at the same rate.
Jim Greffet -- Head of Investor Relations
Adrian, can we take the next question?
Operator
The next question comes from the line of Nathan Rich with Goldman Sachs.
Nathan Rich -- Goldman Sachs. -- Analyst
Good morning, thanks for the question. Jeff, maybe just following up on just your last comment there. I mean, have you seen the pent-up demand in the Companion Animal business continue into July? And how should we kind of think about underlying growth moving forward? And then if I could ask the second question around margins. Todd, I think you had called out the 300 basis points of margin improvement from productivity and price in the second quarter. Could you maybe talk about what you've seen year-to-date and kind of bigger picture, as the underlying, I think, gross margin has been under pressure given the impact of COVID and destocking. But as those headwinds abate, kind of how should we think about the underlying gross margin performance separate from the productivity and price gains that you've seen?
Jeffrey Simmons -- President, Chief Executive Officer & Director
Yes, Nathan. So great questions. I think the one thing I would say is we are coming out of a V-shaped recovery in Companion Animals. I think there's still a lot of dynamics to look at relative to international, the retail that was just brought up. So I think we're going to need the second half to see what trends stick and but I would say this, a few things. As I mentioned, we do not see the pandemic impacting our overall parasiticide and pain business. And the Companion Animals has recovered, we believe, from the setback that we saw in March and April. I would say, as we look specifically to Elanco, again, commercial competitiveness, we see sustaining and growing with the moves that we've made. We've been at mid-single digits over the last 12 months. That's continued in Q2 despite the COVID impact. I think in the competitive space of parasiticides, Nathan, we've seen Elanco continue to outgrow the market year-to-date in dispensing sales. So we're trying to get to that end user data, and we're gaining market share. Credelio is probably the one to note that we continue to see a gain in market share in this category, again, surpassing a couple of brands. And a big driver to that, I would give some credit to our targeted focused approach with the distributors and Elanco heavily channeled and focused on driving demand and the campaign with Interceptor Plus. Again, those two having the broadest overall coverage. So I would say, net-net, the market continues to do well. We need to watch it in the second half. We need to look at the slower recovery and reopening of vet clinics internationally. But when I look at the Elanco portfolio, our commercial strategy and our approach, I feel that things noted in Q2 will continue as we go forward.
Todd Young -- Executive Vice President & Chief Financial Officer
With respect to your question on gross margin, we did continue to have good productivity creation in Q2. The 300 basis points being a combination of both the price we saw across our portfolio as well as the continued reduction in manufacturing costs across our network. We've continued to make very good progress on driving API costs lower with our procurement initiatives. We now have our Fort Dodge manufacturing facility for vaccines up and running. So overall, we feel very good about how that continues to progress. At the same time, the COVID impact in Q3 will negatively affect gross margin. It is hitting some of our higher-margin food animal products. And that's just a mix issue that we'll continue to fight through. But as we break out of this and get further into the future, we still feel very good about our margin trajectory and our productivity initiatives that are driving that.
Nathan Rich -- Goldman Sachs. -- Analyst
Great, thank you.
Jim Greffet -- Head of Investor Relations
Can we take the next question?
Operator
The next question comes from the line of Chris Schott with JPMorgan.
Chris Schott -- JPMorgan. -- Analyst
Thanks so much for the questions, just two here. Maybe first, building on those margin comments. Can you talk about your longer-term margin targets you laid out with the Bayer deal? Do those targets still hold or when we think about the combination of COVID and some of the changing distributor relationships should we think about those time lines maybe being pushed out? I'm just trying to kind of, as we think about looking out a few years, is kind of are things basically on track? Or do we kind of reset expectations there? And then my second question, maybe also about Bayer. With that business coming on board, should we anticipate any further changes to the distribution strategy for the company as you look to normalize the two businesses? Or have you really seen the bulk of the changes occurring as over the last six months or so?
Todd Young -- Executive Vice President & Chief Financial Officer
Chris, thanks for the question. With respect to the long-term gross margin, we feel good about our long-term trajectory that we've talked about with Legacy Elanco delivering on that 1,000 basis points of margin improvement. That being said, the current impact from COVID and some of the impacts on the portfolio as a result will slow that down, and we don't expect it will deliver as quickly as we previously thought. That being said, we are excited about the Bayer portfolio that comes on. It is a higher gross margin portfolio in total than our current Elanco portfolio. And so as we bring it together, we look forward to giving more of an update in Investor Day in December.
Jeffrey Simmons -- President, Chief Executive Officer & Director
Chris, relative to Bayer and its impact on distribution, I would say, right now, and again, having Joyce Lee and Dirk come on to the leadership team, we've got good awareness. And since the FTC approval, we're going to the next level of planning. What I would emphasize is, one, Elanco, our targeted buy/sell, again, limited inventory as low as possible and still optimizing service levels and focusing and targeting our efforts I would say we feel very good about that approach and feel very good about our second half plans. As you look at Bayer, a reminder, a good majority of the companion animal business for Bayer and their business overall is a retail business that is sold direct. So again, that takes out the inventory concerns and again, it takes out distribution in a lot of ways. We will continue to assess with our distribution partners, especially these exclusive ones, that have differentiated services on ways that we can continue to optimize both growth, share and bottom line.
Jim Greffet -- Head of Investor Relations
Great. Adrian, is there another question?
Operator
The next question comes from the line of David Risinger with Morgan Stanley.
David Risinger -- Morgan Stanley -- Analyst
Yes, thanks very much. And thank you for all the details. I have two questions. First, I was hoping that you could provide a little bit more color on the channel inventory work down of $160 million in the first half of 2020. When was that revenue originally booked? Was that all in 2019 or was some in 2018 as well? And then second, with respect to the Bayer standup cost and also the Bayer TSA expenses, will these be included or excluded from non-GAAP earnings? And then finally, just one little quick question, which is, with respect to this IT integration, it sounds complicated. When do you expect to integrate the Bayer IT platform with the new Elanco SAP system that's being installed in January?
Todd Young -- Executive Vice President & Chief Financial Officer
David, thanks for the question. As we discussed on the Q1 call, this reduction of $160 million of inventory will get us to below the levels of inventory we had in 2016 by more than 10%. So this was a historical strategy we had with respect to inventory in the channel. We reevaluated that strategy. And with the COVID impact, it's creating a shock to both our distributor partners as well as the small business owners that are the independent veterinarians across the country. We made the change at the end of Q1 and then continued to conclude from all of the in-depth work we were doing with our distributors that the high inventory levels were no longer driving the demand than it had done historically. And so we've made this broader shift. As Jeff mentioned earlier, we feel good that we now have inventory levels across the world and across species that are aligned with serving our end customers efficiently. With respect to the Bayer standup, these additional ERP that we'll be running with Tata Business Consulting, will be part of our adjusted results. Part of the impact of where we are and the fact that we did not get TSAs from Bayer is that going forward, we'll be running both systems, one for Legacy Elanco, one for Legacy Bayer, and that will flow through the adjusted results, and we'll give that guidance for the full year, on the Q3 call in November. And then on the Investor Day, we'll provide more guidance on it moving forward. From the standpoint of when we would integrate, the team has done a great job throughout the COVID pandemic on advancing the Elanco independent new SAP 4/HANA system that will go live in Q1 of 2021.
And that's very much on track, and the team has really focused and done a great job of running through a lot of testing and preparation for that. So we will stabilize that then over the course of 2021. At the same time, we're going to become very good at operating on the ERP system for the Legacy Bayer business. The timing of bringing those together will depend on a number of factors regarding the efficiencies and where it fits within our overall capital deployment efforts, given there would be a cost, to integrate the Bayer system in. We've not yet determined that as we want to work through and understand how we operate on both systems. But certainly, as we've talked about synergy timing, we gave a 5-year synergy number at the time we announced the Bayer deal, $275 million to $300 million. We're still very confident in delivering those numbers. Some of that is more back-loaded than we would typically have in the integration because of the complexities of operating the two systems and when that integration would occur.
Jim Greffet -- Head of Investor Relations
Adrian, any other questions?
Operator
The next question comes from the line of Umer Raffat with Evercore.
Umer Raffat -- Evercore -- Analyst
Hi, thanks so much for taking my questions. I wanted to focus on inventory and perhaps also a quick follow-up on distribution strategy as well. Perhaps starting on inventory, is it fair for us to assume that the current level of inventory as we stand today is two months or less for the Companion at this point? And I'm curious if Elanco as a company would be open to possibly making quarterly disclosures quarterly breakout of exact inventory level days by business line? And I ask because there are several large biopharma companies that have done that irrespective whether they've had inventory issues or not. And then, Jeff, could you just clarify on Bayer side, I know one of the logical rationales for the deal was that Elanco's expertise on the non-agency side on the vet side could be leveraged over to the Bayer portfolio. But to do that, wouldn't that automatically mean that some level of inventory for Bayer portfolio has to be introduced into the distribution channels. I just want to understand how to think about that.
Jeffrey Simmons -- President, Chief Executive Officer & Director
Yes, Umer. So I think it's critical to emphasize and where I would want to put the attention is what we have transitioned to. And again, we've been pretty clear on this that we have transitioned to a buy/sell that is targeted, that is optimizing and is focusing. As you know, the distribution industry has changed significantly. And by going to these four, we can already see that with a buy/sell that is targeted and with optimizing not just inventory but terms, services, paying for the things that they do extremely well, has optimized the entire P&L as well as market shares in the marketplace. To be able to say, hey, disclosing elements of agreements with distributors or overall, what I would say is, there are significant differences even between the distributors today that are in the marketplace. And you've seen this as you've looked at consolidation as well as even new services and acquisitions that they've made in adjacent areas. That makes each one of our arrangements different with different dynamics. And so what we would say is, as Todd was very clear on is, one, our overall strategy, if it changes from a buy/sell to something else, and that is not the intention at all at this time or the levels change quarter-to-quarter, we would make that very clearly known to the investment community. We believe that is the right strategy and right approach, both from transparency as well as from a competitiveness standpoint.
And I really want to emphasize again that the concerns that were noted in the beginning of the quarter relative to the end of the quarter, we have delivered across the board relative to all values from the metrics of pricing to cost efficiencies, margin and market share. And I believe the distributor relationship are as strong as they've been, and we are very much optimizing at this point in time. So that to me is key. Now as you move to Bayer, as I shared earlier, the majority, as you know, is in this retail space, which is direct. And what we would say is, it's working, and it's early. But again, with Joyce's expertise, and Kent Luther that will lead the retail business will bring that expertise in. But it's working. Their business is in a strong position and we'll make no changes initially and we'll assess. On the vet business that they have, absolutely, we'll look at, is the agency right or should that be optimized into the agreement that we currently have. And we'll be looking with some of these distributors at the global business overall that we've done as well. So I hope that addresses the question, Umer. Again, we feel very good about the decisions we made. They were the right decisions and they gave us very significant results here in the second quarter.
Jim Greffet -- Head of Investor Relations
Adrian, do we have more questions?
Operator
The next question comes from the line of Kathy Miner with Cowen.
Kathy Miner -- Cowen -- Analyst
Just two quick ones. One, could you just remind us whether your expected impact from the swine fever is still going to be neutral overall for the year? And second of all, you've talked about Credelio and Interceptor Plus doing very well. Has impact from the recent competitive launch of a triple been in line with your expectations so far?
Jeffrey Simmons -- President, Chief Executive Officer & Director
As I mentioned, and I want to clarify in my comments, yes, we feel that African Swine Fever continues to persist in China and it's down in some Asian countries and up in others. So there's still some variation that is out there. The trend that we have seen, though, Kathy, is that these industrialized integrations are repopulating at a greater rate, will very likely predictions predict that they will be a higher percentage of the overall pig production going forward. Prices are very high, which is driving as that acceleration to be as quickly and as fast as possible. And Elanco has been well positioned. As I mentioned, the Elanco swine business in the first half outgrew in 2020 outgrew the 2018 business, which was before the overall. So again, our B2B relationships, our product offering, the portfolio that we offer enhances health and that health enhances the overall economics of the animal. So from Sal production all the way through pig production. So we feel very good. I would tell you that ASF will persist into the second half, and we'll keep our eyes on it. We believe that it's in line with our expectation and will probably be a little bit positive to that expectation. Relative to other assumptions like the parasiticides, yes, we feel very good about our Interceptor Plus and Credelio campaign, the data, the rollout, our distribution partnership has definitely played a role in this as well. And it's tracking to our expectations relative to the competitive assumptions that we laid out in our guidance at the beginning of the year.
Jim Greffet -- Head of Investor Relations
Next question?
Operator
The next question comes from the line of Elliot Wilbur with Raymond James.
Elliot Wilbur -- Raymond James -- Analyst
Thanks, good morning. Just wanted to ask one additional question with respect to the restructuring distribution relationships, specifically thinking about moving the terms to 60 days, how do we think about the cost of doing that? And it also sounds like there's a margin benefit to Elanco from restructuring agreements, and I'm trying to just get a better understanding of how those two may net out? And then for Todd, just a clarification question around synergies. I'm sure you've said this at some point in time, but I can't recall the response, but the expected synergies in association with the Bayer transaction, is that a net number? Or will there will some portion of that be reinvested into the combined entity?
Todd Young -- Executive Vice President & Chief Financial Officer
Thanks, Elliot, for the question. Overall, the terms of 60 days, we don't view as having a cost to it. We've got this is all part of a number of different factors in every distributor relationship, but that's one that we are implying. We you'll be able to see from the 10-Q when we file it. We had a DSO improvement of nearly 10 days in the quarter and are very pleased with how the working capital played out, as shown by the overall $185 million of additional cash on the balance sheet at the end of Q2 versus Q1. With respect to the synergy question, and the margin benefit from the contracts, again, as we've talked, we've always been working with the distributors on changing the margin, looking for more pay-for-performance from them. And overall, as Jeff mentioned, we continue to feel very good about their delivery, are we taking advantage of what they're really good at where they augment our sales force that's out there connecting with best and really driving our overall launch of our Companion Animal products. As we think about the synergies, that is the net number over the 5-year, the $275 million to $300 million. And then as we've also communicated, we expect the cost to achieve those synergies to be in about a onetime basis or another $275 million to $300 million.
Jeffrey Simmons -- President, Chief Executive Officer & Director
And I would emphasize, again, Elliot, to the commission benefits that we received kind of in Q2, we're reinvested in our sales force. So when we look at metrics, it spans across, as we mentioned, receivables and DSOs, cash conversion, pricing, margin, market share, and even share of voice. We look at share of voice net-net with us and our distributors.
Jim Greffet -- Head of Investor Relations
Next question, Adrian.
Operator
The next question comes from the line of Balaji Prasad with Barclays.
Balaji Prasad -- Barclays -- Analyst
Thank you. Good morning. For taking my questions. Firstly, Jeff, could you help us understand how the hog producers are behaving currently, especially as a result of the cash flow crunch they have endured in Q2, USDA seems to be expecting declined farrowing in Q3. Is it fair to expect then these species will be struggling for the for at least another 2, three quarters more?
Jeffrey Simmons -- President, Chief Executive Officer & Director
Yes. It's a great question. A lot of dynamics right now, and I could go across all species. But if we just look at pork, yes, I think just looking at the facts, and I think a lot more to play out here, and I'll touch on a couple of other factors we got to keep our eyes on. But again, U.S. live hog prices dropped, I think, to multiyear lows, as you know, in early July, I think, down 41% year-on-year as those inventories continue to weigh on the market. So quite a story in the U.S. compared to maybe China, where there's low demand, high trade and higher prices. I think we need to expect, yes, additional cuts to the breeding herd to better align supply and demand. The backlog still exists. Pork prices remain weaker. With realized market value of pigs, I believe, below today breakeven. And so but I think trade is something to keep our eyes on. I mean, despite ongoing disruption in global markets, exports remain very robust in what I know a lot of U.S. producers are really hoping for. I think they're up 32% year-to-date. And I think almost all of that growth is driven by China. So I think the things we got to also watch for is any reoccurrence of COVID. That's not in the guidance that we shared. I think that the processing plants have done a much better job with the processes that they have in place and the mitigations in place that even if something reoccurred, they're much better prepared than they were. But again, as the backlog plays out, herd size has to be lowered and trade has to continue to increase, to stabilize, I believe, a pig situation that will probably be rough the rest of this year into next year.
Balaji Prasad -- Barclays -- Analyst
That's helpful. My second question is on the innovation side. Can you give an update on your current major R&D product projects, especially in CA therapeutics? And if we can anticipate any launches from the R&D stable in the next 12 months, either from Elanco side or if you can speak about it from the acquired business?
Jeffrey Simmons -- President, Chief Executive Officer & Director
Yes. Great question. So we've said publicly about five having five launches on track during the rest of this year and into next year. That includes the Cosabody and Experior that we talked about. What I would emphasize, and then, of course, we've announced Increxxa as well coming in Europe. But what I would emphasize is a couple of things, first of all, we feel very good about that estimate. We'll put more color on that in our December investor conference. Also, our research teams now, after our antitrust approvals, have already gotten together with Bayer. And the leadership teams have been named, and they are looking at that joint pipeline. And again, meeting the expectations that we had, and we'll talk a lot more about that combined pipeline as we get into the second half of the year and into the investor conference. So five launch equivalents on Legacy Elanco, more to come, awareness of what Bayer brings. And again, we feel very good about the Bayer pipeline capabilities and the synergy. And I think you saw that synergy by the limited antitrust overlap.
Jim Greffet -- Head of Investor Relations
We're almost at the hour, but I think there are a few more callers in the queue. So let's work through the remaining list, Adrian. So if we can quickly go to the next one.
Operator
The next question comes from the line of Navin Jacob with UBS.
Navin Jacob -- UBS. -- Analyst
Thank you so much for taking my questions. Congrats on the Companion Animal strength. two questions, if I may. Apologies if I missed this, but what is the free cash flow that you generated in Q2? And associated with that, I've been wondering about the cash flow conversion. Your other major competitor out there has a different level of cash flow conversion around 100% versus the 55% that we've seen out of Elanco over the last few years now. I know that you're working on improving that and looking forward to seeing that, but just wondering what steps, in particular, will help you get to some of your other peers? And then my second question is around leverage. When do you anticipate that you will get down to below three times on debt to EBITDA?
Todd Young -- Executive Vice President & Chief Financial Officer
Navin, thanks for the question. Yes, we'll file the Q later today here. We wanted to make sure we got our Q3 results taken care of before we close the Bayer transaction. As mentioned in the opening remarks that will allow us to have our Q2 results as well as Bayer pro forma results included in the EBITDA metrics for our debt covenant. Overall, I was very pleased with operating cash flow in the quarter. You'll see it's, by far, the best quarter we've had in a number of quarters, as shown by the $185 million of additional cash on our balance sheet versus the end of Q2 despite the continued investments on the independent Elanco standup. As we think about free cash flow, a large part of our cash is going into building out our independent Elanco standup as well as the integration of the Bayer transaction. As mentioned in the opening remarks, we expect in 2021 to spend $250 million to $350 million of cash less next year as we get all of this behind us. So with that, cash conversion is going to improve. When we get independent and this is behind us five years out, the cash conversion will be much better as well. With respect to the leverage, again, we will start the transaction at a higher leverage amount than we'd originally expected when we did the deal as a result of our business performance over the last 12 months. This will all get finalized at the close. But again, we feel good about the resilience of this industry and our go-forward opportunities to drive and create real cash flow and to use that to repay debt. So while the timing of getting to three below three times has been pushed out, as I said in the last quarter, that's in terms of quarters, not years.
Jim Greffet -- Head of Investor Relations
Great, real quickly, next question.
Operator
The next question comes from the line of David Westenberg with Guggenheim.
David Westenberg -- Guggenheim. -- Analyst
Hi. And thank you taking my question. As we're going through the inventory levels, I'm just trying to kind of clarify what the revenue base of the business is. So when we're looking at 2021, '22, should we be basing our revenue growth rates off maybe 2019, 2018 versus 2020 adding back COVID impact? And then for my second question, if I could just get on the Q3 guidance, does that assume pent-up demand in the veterinary market segment?
Todd Young -- Executive Vice President & Chief Financial Officer
Thanks, David, for the question. Yes, I think the 2019 levels would be more attuned given underlying demand and what we think about it for 2021 and '22 going forward versus the 2020. And then obviously, COVID is, as we've laid out, and obviously, we're hopeful for a vaccine to help the overall world and deal with this pandemic as quickly as that comes together from big pharma. With respect to our Q3 guidance, we think that most of the demand did play out and got caught up in June. And so we have not factored in an additional big pent-up demand in the Q3 guidance that we just provided.
Jeffrey Simmons -- President, Chief Executive Officer & Director
Not assuming another lockdown or another wave of COVID either.
Todd Young -- Executive Vice President & Chief Financial Officer
Agree.
Jim Greffet -- Head of Investor Relations
Adrian, do we have any more questions?
Operator
The next question comes from the line of Navann Ty of Citi.
Navann Ty -- Citigroup Inc. -- Analyst
Hi, good morning. Could you give us some guidance on SG&A in Q2, given that we've seen some corresponding of marketing expenses? And then my second question is, could you confirm, we shouldn't see any inventory distorting impact on revenues from Q3? And maybe I'll add just a quick one. Given that you'll get access to your new RCF and Term Loan B next week, do you envisage refinancing the 2021 bond?
Todd Young -- Executive Vice President & Chief Financial Officer
Thanks for the question. As we said, we view the inventory destocking as complete, so there wouldn't be an impact on that in Q3. With respect to the SG&A, as I mentioned in the opening remarks, we do expect that to sequentially be higher in Q3 as a result of decisions with respect to our marketing spend. In addition, some bounce back on the impact of performance as well on the accrual for bonuses. That being said, we'll continue to have savings on travel and the like because we're not expecting for full back to work conditions given the pandemic and the recent increase across the U.S. and some of our international markets as well. So overall, that is where we see it. With respect to the debt and the refinancing, you'll have to remind me of the question.
Jim Greffet -- Head of Investor Relations
Yes, Navann, if you're still on phone?
Todd Young -- Executive Vice President & Chief Financial Officer
With respect to repaying the 2021 bonds, I mean, that we do have a bond coming in August of 2021, we'll be looking to repay that when that comes due with the free cash flow the business will generate and that will clearly improve our overall leverage. Whether or not we do anything to go out and tender for bonds or otherwise, it's something the treasury team will look at from an overall cost of capital to do that relative to current rates. As you are aware, we will have interest rate coupon step-ups as a result of the transaction and change in our credit ratings. That was part of the reason we saw increased interest expense in Q2 over Q1 was the impact of those step-ups on a full quarterly basis. In Q2, the other impact on interest expense came from the exiting of the Swiss net investment hedges that we talked about on the last quarter call as well.
Jim Greffet -- Head of Investor Relations
Adrian, anymore?
Operator
The next question comes from the line of Kevin Kedra with GE Research.
Kevin Kedra -- GE Research -- Analyst
Hi, thanks for squeezing me in. You mentioned the international recovery for Companion a little bit slower than what you're seeing in the U.S. Just wondering if there's any kind of geographic mix or is that really universal across international markets. Maybe any other color you can give about how we should be thinking about what the curve of that recovery should look like internationally.
Jeffrey Simmons -- President, Chief Executive Officer & Director
Yes, Kevin, there's limited data out there when you look at in Australia and Japan overall, and we keep our eyes on that and look at our business and our local effort. But I would say that EU was impacted very similar to the U.S. in a pretty significant way. We are seeing, as I mentioned in my comments, in June, we saw some nice recovery there. And so I will tell you that the big five countries in Europe are a good share of our business internationally, and Bayer would be the same. Australia and Japan, a little bit limited and less information, but I would say, a little bit behind potentially what we see in Europe. So that's at a high level. And again, our business becomes a lot more global and a lot more mixed between in the vet and retail. Here in the next few days when we bring the Bayer business in, that durability and that globalization will create the diversity in the globalization will create more durability against some of the differences.
Jim Greffet -- Head of Investor Relations
Anymore questions, Adrian?
Operator
The next question comes from the line of John Kreger with William Blair.
John Kreger -- William Blair -- Analyst
Good morning. Thank you for the time. This is John Kaufman on for Kreger. Jeff, you've done a number of deals, including some larger ones under the Lilly umbrella. As you think about all the steps required to integrate an acquisition, particularly one of this magnitude, are there adjustments that you have to make to the integration plan as a result of COVID? How do you bring the Bayer people into the fold, just given the circumstances? And obviously, there are a number of moving pieces right now due to COVID, plus we don't yet have insights into how Bayer did this quarter. So if you're looking at this from an outsider's perspective, what should we be looking for Q3 and Q4 earnings that suggest that the merger is going according to plan?
Jeffrey Simmons -- President, Chief Executive Officer & Director
Yes, that's a great question. So just at a very high level, a couple of things I would say. With many integrations, you always start with this as you start to get within days of it is, one, are the assumptions and the rationale still holding true? And what I would tell you is, the answer is absolutely. If anything, COVID has probably enhanced that when you look at more Companion Animal, more international for more durability and even more diversity on the Food Animal side. But the big one is the retail side on COVID and what that's done on the pet side. So what I would say is, assumptions and rational are holding true. Two, and I think we just completed the last two days, virtually the preparedness for the first two levels of senior leadership in the company and I think clarity is important. We probably won't be able to give you a whole lot in Q3, and that's why we've said we'll give you more information and more linkage against our assumptions in that November earnings call for Q3 and then in the December investor conference, our senior team is working to prepare. But my top objective in Q3 is that both businesses have momentum and they're very complementary, our assumptions hold true, those top senior leaders have clear goals of what they need to achieve for the rest of the year, what they need to do for value capture, and putting their teams together. So for me and making sure the systems are all working as well. I mean, those are the things that we are focused on in Q3 so that actually momentum continues and disruption is minimized. That's our goal. And why we've strategically placed the investor conference in December is we believe that will be the point in time when we have the most clarity and the more depth of information that we can share to you.
Jim Greffet -- Head of Investor Relations
I think we're Jeff, why don't we we are 10 after the hour, why don't you close this.
Jeffrey Simmons -- President, Chief Executive Officer & Director
Just in close, I think very clearly, Q2 was marked with two big events, COVID and this distribution inventory change. What I would like you to hear very clearly is the execution against doing and controlling what we can control, we feel very good about the strategy change with distribution and inventory. It paid off and has created results immediately within the quarter that we made the change. I think you're seeing the durability of this industry with the recovery that we're seeing. And we are days away from making the largest transaction in industry history. We're ready for it. The teams are ready. And we're going to create the next platform of opportunity and potential. The rationale and the assumptions that we put together almost a year ago on Elanco plus Bayer hold true. And the same mode of execution is going to be laid against that opportunity what I believe the strongest leadership team at two to three levels deep in the organization that I have ever led the company. And I close by saying again, thank you, a very big sincere thank you to Jim Greffet, an absolute class act and expert in his field. And to launch this company and what we've done in the first two years would not have been possible without Jim Greffet. And I know a lot of you feel the same way as I do on that. And we welcome Tiffany, and we're excited about the next era of the company. Thank you for your interest in Elanco.
Operator
[Operator Closing Remarks]
Duration: 72 minutes
Call participants:
Jim Greffet -- Head of Investor Relations
Jeffrey Simmons -- President, Chief Executive Officer & Director
Todd Young -- Executive Vice President & Chief Financial Officer
Michael Ryskin -- Bank of America -- Analyst
Nathan Rich -- Goldman Sachs. -- Analyst
Chris Schott -- JPMorgan. -- Analyst
David Risinger -- Morgan Stanley -- Analyst
Umer Raffat -- Evercore -- Analyst
Kathy Miner -- Cowen -- Analyst
Elliot Wilbur -- Raymond James -- Analyst
Balaji Prasad -- Barclays -- Analyst
Navin Jacob -- UBS. -- Analyst
David Westenberg -- Guggenheim. -- Analyst
Navann Ty -- Citigroup Inc. -- Analyst
Kevin Kedra -- GE Research -- Analyst
John Kreger -- William Blair -- Analyst
