Elanco Animal Health Incorporated (ELAN) Earnings Call Transcript & Summary

My name is Nathan Rich, and I cover the animal health space here at Goldman. We're very pleased today to introduce our next session with Elanco and the company's President and CEO, Jeff Simmons; and Todd Young, the company's CFO. We're going to start the session today with some prepared remarks from Jeff, and then we'll get into the Q&A. Before we get started, I'd just like to remind everyone that if anyone would like to ask a question during the course of this session, you can do so either through the webcast or by sending an e-mail to myself at [email protected], and we'll try to get to your question. So with that, Jeff and Todd, thanks so much for joining us today.

Great. Thank you, Nathan. I think given the technology, it will primarily be me, but if we needed to bring Todd in, we could. So let me just open real quick, like just with a brief maybe 1-minute opening which is just some of the high points that everyone that's had an interest in Elanco. Again, September 2018, we go public. We've had a lot of change and a lot of opportunity building in the company during that period in time. The big one, of course, was last August, the announcement of Bayer. Just a quick update there. We've got -- the European authorities have approved. So we're making good progress on antitrust. We announced this week with that approval and the U.K. on Tuesday, yesterday, that were headed towards a clearance on August 3. That is our intended time to close the actual deal. On distribution, that was something that came up at the last earnings call, another kind of high point. We can talk some in our questions, Nathan, about this. But again, relationships with our 4 key distributor players, especially in the U.S. continues to remain strong. We've optimized that and made the appropriate adjustments in our relationships there, but the competitiveness of our business as well as the relationships continue to remain strong. That really leads into Q2. And I just want to emphasize that we pulled the guidance because of the COVID-19 situation. We do believe when you combine the COVID situation and the impact, both on the pet side of the business and the food side of the business, it will be the quarter that will see the most negative impact. And then you combine that with the $80 million to $100 million of inventory that will come out, both in U.S. food animal, companion animal and international, that sets up for the quarter that we've talked about, and we will begin to share a little bit more how we see the rest of the year on that earnings call. But I would say, as a whole, as I step back, we see the durability of the industry, Elanco as an execution mode. Even with the COVID-19 restrictions, we've been able to stay on track for this midyear close of Bayer, and our IPP strategy and the execution against the core Elanco business continues to go well as well as the standup. The standup is on track for Lilly, coming out of Lilly, and most all of the major work streams are done with the exception of the SAP that is tracking and already started cutovers to begin now through Q1 of 2021. So overall, things are tracking well, and I just want to highlight a few of the highlights like Bayer and the progress on that. So with that, Nathan, maybe we can move to questions.

Great. I wanted to start with the distribution change that you mentioned. I have a few specific questions. But maybe before getting into that, just to level set for everyone on the webcast today. Can you just kind of summarize the change in relationship that you made and why you felt like now was the right time to do that?

Yes. I would say the actual relationship with the 4 major distributors hasn't changed. We're not going direct. It is a buy-sell relationship. I really want to emphasize that we continue -- this is, I think, in one word, it's optimization. It is tightening. It is something that even coming out as the IPO needs, and as you know, we were optimizing commissions. We were moving more to variable commissions on areas that they were working on and where they were strong. We were really looking at 3 areas with our distribution partners. We were looking at logistics that they do very well. Value-added services that companies like I would know, Covetrus and MWI have built capabilities that are adding value like drop shipping, adding to our retail offering, enabling campaigns. And last is enabling -- or the third is demand creation. What we saw in this third area as we analyzed it, is we were more optimal at adding new placements, new clinics, growing demand, and they were more optimal on the other 2. That doesn't mean that we're not going to work together on all 3. But what we've done is we've pulled and tightened commissions and areas where they add the most value, and then we've channeled more of those funds also to our demand creation. And we've tightened terms, and we've tightened a number of distributors from 8 to 4. So I would say it's an optimization of an inventory approach to that is based now more on what is needed, which we can talk about more as we forward. So optimization, tightening and really a continuum that we've moved forward. Now COVID drove us to go more quickly, so we can talk about the inventory, because we had a distributor that actually had a working capital challenge that was unable to actually purchase the inventory and the formula that we were using before.

Great. Yes. On the inventory point, the guidance, I think, in total, $140 million to $160 million over 2 to maybe 3 quarters. If we look at what we think would be kind of a normal amount held in the channel, it seems like that size of destocking is something like 25% to 30% of what the distribution channel would normally hold. I mean is that rough math there? And can you kind of share any detail on the kind of destocking and how that would split across segments?

Yes, it's a good question, Nathan. So I want to come back to -- we always start every conversation in our mode with our distributors as well as just looking at the business with underlying demand. So I want to emphasize underlying demand of the business, which is ADI data pulled out of distributors in the vet clinics, kinetic data and other data that looks inside the vet clinic to pet owners. As we've said, that U.S. companion animal business the last 12 months, even through April, was in that mid-single digit, driven by Interceptor Plus, Credelio, Galliprant. So I always start there. Now when you look at the level of inventory, what we've had for more than a decade is really a formula with buy/sell that actually looks at 90 days trailing sales, the season we're in and the campaign. And that set the amount that was purchased on a quarterly basis that actually kept the level. And you can see there's been a lot of change that we've had even since 2016, when you look at the numbers of new products we've launched, the acquisitions we've made with the BI vaccines and Aratana. So that's impacted the levels. So that just gives you a little a bit of how the evolution's happened. The $80 million to $100 million, let me break that down. So we had $60 million in the first quarter, primarily U.S. pet health. In the second quarter, what you've got is about 40% to 45% will be the remainder of U.S. pet health. We've got good transparency. We see this and demand is tracking, so that number, $80 million to $100 million seems about right. The other 40%, 45% is U.S. food animal, and then the rest is international. So we're truly going to a lean just-in-time, taking inventory out of the equation now. Now it's truly going to match up net-net to what the demand is in the field. So again, this has been an evolution. We've tightened distributors. We've tightened terms. We've tightened out inventory. And we believe that net-net, this helps our working capital, it helps our pricing ability, it helps us stay closer to the demand in the field and it optimizes what they do best and what we do best. And I must say, partners like MWI, Patterson, Covetrus, their capabilities have increased significantly to where I would say our value contribution to vet clinics today is as good as it's ever been.

And the last one I had on the inventory change and the distributor relationship before we may be brought in out on Companion Animal, how -- I think the point you made around demand creation is critical. How do you make sure you kind of maintain that momentum that you've been seeing across your entire portfolio? I would think drugs like Galliprant, where clear market leader, pain relief without the side effects, like probably not a very hard sell, but a category like vaccines, which is maybe a little bit more competitive and more mature. How do you make sure you kind of maintain and grow your share in businesses like that with this distribution change you made?

Yes. I want to really emphasize, we haven't missed a beat here. And probably one of the biggest misconceptions of this change is that we're going to lessen our demand creation or competitiveness in the field. And I want to emphasize again, we're not going direct. We're partnering with the best in the business. We've had a long standing relationship. I'm spending even personal time with their CEOs and how we optimize and move forward. And so what I would tell you is what we're really doing is putting resources against the areas that were both the strongest. We're still rewarding them. We're still major partners to those major distributors. So I think that's important. Now, Nathan, to take your question a little bit further, what we're doing is on a regular basis, we do what we call an SFO exercise, which is sales force optimization, looking at number of vet clinics, share of voice, number of competitive products, do we have the right number of people? We do that on an annual basis. We're doing that right now as we come into the Bayer acquisition to ensure we have the right share of voice against the number of products that we're launching to sustain competitiveness. Then we're taking our dollars that we're investing. Our SG&A will not change from this model change, but we're optimizing it against our distributor partners and our sales and marketing on our own demand creation, which I would say is more optimal now than it was before this change.

And are there any examples of that, that you can share just in terms of what you're asking your sales force to do differently or to really to drive this share?

Yes. And I think even what we're asking our distributors to do without disclosing too much, but I think over time, we'll share more. We want the best logistics. Over 99% of our customers can get a product overnight. We don't want to do that. Our distributor partners are much better at that and maybe drop shipping and helping that retail, even what COVID has shown if a Galliprant effort has been scripted, actually can be landed at that door and knowing that pet owner better a capability that MWI or Covetrus has can enable that really well. We want resources there to have that pull through on that business and connect the vet to the pet owner. What I think we do better is our reps can focus heavy on putting more vet clinics on Credelio, supporting and servicing that and really driving that demand. So I think it's an optimization against all of those. And maybe a brand that's an example of a niche and a focus between our partners and us is Trifexis that and certain segments has done very, very well because of the segmentation and the focus between us and our partners.

That's helpful. And then just taking a step back on the companion business. Some of the industry data that we've seen in recent weeks definitely suggests that the growth seems to be getting back near pre-COVID or kind of to the pre-COVID levels that you are seeing in kind of late February, early March. I mean, is that kind of consistent with your view of the industry? And you've kind of talked about the mid-single-digit type of sell-out data that you've seen during this. I mean, is that the level of growth that you would expect for the Companion business once we get COVID behind us and once the destocking is behind us?

Yes. I've spent a lot of time on this. I would say at a very high level, directionally, we're aligned with what others have said in this improvement in vet traffic. Now what I think I would say is, we got to remember that Q2 will be the worst quarter probably through this. So improvement but with the surge buying that the industry saw, I do think the second quarter will be a challenging quarter overall. A couple of things that balance. No question, visits are up, retail and the nonvet clinic alternative channel is up, but it's balanced by a few things. First of all, I think wellness visits, the whole category of wellness was down 40%. It improved in May. It was down 40% in April. It improved in May. But I think looking at our vaccine business as maybe a lead indicator, what we would say is improving but still quite a bit of room to go relative to getting back at a level. There's people that are going in for wellness visits, maybe they're staying in the parking lot. There are parts of the United States here in one of those where vet clinic traffic is not as high as it is in other parts of the states. So last week, I did an exercise myself on Zoom calls, as I talked to top reps all over the world, Australia, Japan, Europe, U.S. And what I would say is Europe and Japan, some of the international markets are not opening as fast as the U.S. And I think wellness visits are improving, but the quality, the length of those is something that we're assessing. So I think it's coming back, maybe more of a U overall than a V, when I look at global companion animals, and I think it's something that we need to look at. But no question, durability of the industry, recovery is headed in the right direction directionally but one that I think we're a little more balanced on. We think it will be still negative in Q2 and continuing to improve, but a tail to that in Q3.

That's helpful. And then maybe moving over to the Food Animal business. It seems like conditions there have been progressing a little bit more slowly than on the companion side. Restaurants are starting to open, but capacity is still limited. Schools, many of them remain closed. Still some issues at the processing plant. So can you maybe just give us your sense of where you feel we are today? And what you're looking for to really get confidence that we'll start to see improvement in that market?

Yes, I would break it into 3 buckets. It's complex, but at the highest level, it can be pretty straightforward. I think that you've seen COVID impact most 2 species, pork and beef. I think that's where the focus is. Poultry has been pretty resilient. Yes, it's had some impact. And I would say the international markets have been impacted, but to a lesser extent. So when you look at U.S. pork and beef, what I would say is you're seeing plant openings are all there. The capacity is climbing. A lot of data is showing 80%, 90%. I think this is -- someone's asked me, what's that relative, a 7-day work week or a 5? I think it's relative to pre-COVID conditions. Getting to 100% is important. And then you touch on the second factor that I think is really important is once the plants are full, then we need to get it shifted to a more balance on value. So getting the restaurant open to allow food service to come more into the SKUs of pork and beef is important because they're the value cuts. Today, I would say that we were up as much as 90% in the grocery stores, now 25% up, so that's lessening. Restaurants need to open to bring value back. That leads to the third factor, which I think is profitability. Poultry and pork have now risen up over the profit line and are now making profit. And when you look at actually live cattle, they're breaking even. So we need to see profitability driven, which I think is going to be linked a little bit to restaurant and food service. And all 3 of these factors, capacity, restaurant retail or food service and profitability start to drive a production line, which then I look at cattle on feed that impacts Rumensin or an Optaflexx, and cattle can improve faster than pork because they can move from grass back in, and they can manage those weights better. Pork is probably the most vulnerable, and that supply chain is going to take at least all of the second quarter into the third quarter before we see an impact. So similar to companion animals, most negative in the second quarter, pork and beef carried into how fast we get a recovery, I think, is going to be driven a lot by the economics and the profitability and restaurants as we go into the third quarter. So that's how we see it. So we're going to see negative impacts on Optaflexx, Rumensin, some of our swine products in the second quarter, and how much that lags into the third quarter, we'll know more in our earnings call.

Do any of these things that you're seeing in the market, whether it's maybe the reduce through service demand that could extend for another couple of quarters? Like, has that changed at all your longer-term view on the livestock market when we look 1 or 2 years out?

I really don't. I think when you look at just our business overall, and I think maybe others, but our business, you've had African swine fever last year, which has taken out significant number of pigs. You've now had this impact. So it bodes well when you look at animal numbers and profitability coming back because demand is there. Demand for animal-based protein continues to persist globally overall. So that demand is there. Supply has been hit by a couple of events overall. And then I think as you look at just factors relative to animal health and economics, the need to be able to solve what customers want, what the environment needs, but the underlying animal protein demand with 2 major kind of setbacks for the industry that were environmental, I believe that you're going to see some durability and some recovery, especially in Asian pork, but I think global protein overall. Poultry is set up and aqua to win, as you know, Nathan, most, but I think pork ruminant and swine, for us, we see recovery.

That's helpful. I wanted to spend a little bit of the time talking about the pipeline. You've talked about 25 launch equivalents kind of in the pipeline through 2024. I think 20 of those were on the Elanco side, 5 were from Bayer, and then with plans to launch 5 drugs by the end of 2021. Of the 5 launches that you expect by the end of next year, are these all new molecules? Or could they include kind of expanding indications for existing drugs on the market? And are any of the 5 currently in the Bayer pipeline?

Yes. So real quick, like. And again, we're getting layers of increased access to a clean room with Bayer each time. So just to reiterate, 25 new products by 2024, I think it will be more of a linear line. There will not be all of them at the end. I think you're going to see, as I mentioned, at least 5 products between now and the end of the year. To answer your last question first, I believe that right now, that does not include any Bayer products. There could be Bayer products in that, and that number could change, and we'll know more as we get into the second half of the year. So at this point in time, these are Elanco products. 2 of the 5 products we've already talked about, Experior, that we're waiting for clearance in. So that's a feed out product in beef and then the Cosabody product that will be used in poultry as an enteric product for coccidiosis and enteritis. So those are preparing for launch late this year. I would say it's going to be a mix between Companion Animal and Food Animal and the classes we've talked about. And I would tell you, if it's not first or best-in-class, it fits and is material inside a portfolio that we currently have. And that's -- we feel very good about the products that we're going to be launching here over the next 12 to 18 months. Bayer will open up more opportunity and exposure of potential added innovation in that window as well.

Makes sense. On the Food Animal products that you mentioned, how would you -- talk to us about the market size of those 2 drugs, in particular. What -- are there any good analogs that we should look at in the market when thinking about how big those drugs could be?

Yes. I think as we get closer to launch, we will put more color to that. As you know, when you're trying to either replace or create a new market, the definition could be a little bit harder than if you were going to come in and take and replace an antibiotic with a better antibiotic or a pain product in Companion Animals. So what I would tell you, an Experior brings in the first environmental claim to the FDA that is going to be part market expansion and part replacement potentially of products that are out there today. It has the potential to be a blockbuster. There's no question. But I think that there's a lot of milestones that would have to be met to actually make that happen. So -- and that's going to be important. The second is on the Cosabody. To me, this is a lot about proving efficacy. And the big milestone on the Cosabody that I've mentioned is it's proven from an efficacious perspective and a spray on feed and it's proven safety wise, but now it needs to be put into a heat-treated formulation, and that's the next big milestone for those compounds. So if those milestones happen and the execution is right and the efficacy is right in the field, and they have the potential. And really, that gets me to any new product today in these 25 have to meet a higher threshold because we're going to be over a $4.5 billion company, and they're going to have to hit a threshold that keeps our margin expansion and growth accretive. Those are going to be the other factors.

That's helpful. And then on the companion side, I know that you haven't wanted to talk a lot about specifics. But I was wondering if you could just give us a sense of what you feel like the most attractive market opportunities are there. And you kind of mentioned potentially finding drugs that kind of fit into areas that you're in today, parasiticide is obviously a big one, Galliprant on the therapeutic side. So any color you could share on kind of what you feel like the big opportunities are in Companion Animal?

I would think about it, Nathan, in 3 buckets, maybe 4, if you add a formulations in there: so therapeutics, I think is important; vaccines; parasiticides; and then maybe continued kind of new specialty areas and even formulations. So on the therapeutic side, no question, pain, continuing to build out our leadership position in pain and derm and bringing more differentiated product into the derm area, and we've got product in derm now and so building on that. As we move to vaccines, it's novel formulations. It's spaces that we believe we can build on where we already are. Those are key areas and the capabilities we have in a facility like Fort Dodge that manufactures and does R&D. Fort Dodge, Iowa. And then I would say the last is in the area of parasiticides. And this to me is not only about replacing and building on, but it's expanding the market. So in and outside of the vet clinic and in and outside of the pet itself. And we believe that with Bayer plus Elanco, our capability, our innovation sources, having Monsanto, Bayer, some of the other arrangements that we and Bayer have had and all the formulation expertise that we have, we believe we can be a continued leader to expand the market here. And then lastly is just with collars, with topicals, with specialty products like Entyce and appetite or VetDC in cancer that fourth area that we're continuing to build and grow as well. So those are the spaces that are key as we're focused in our research projects now.

Great. And then maybe moving over to the Bayer deal. You guys had kind of put out a date of August 3 of when you hope to be able to close that transaction. Assuming you're able to close it at that time. Jeff, can you kind of just talk to us about what your initial priorities for be -- will be for that integration?

Yes, absolutely. So I would say it's all well underway with a lot of the experience that we've had and a great collaboration with Bayer corporate. Things are moving nicely to say. To me, if we were a year ago, getting ready to do this deal or strongly consider it that we'd have COVID in the middle of this and some of the other dynamics in the environment to be able to be on track. And I do truly believe the trends that we've seen with alternative channels, the need for global companion animal in a global business, the scale and the size that we need in our pipeline and our share of voice, I feel more strongly today -- with what's happened in the environment and the industry, I feel more strongly about this transaction today than a year ago for those reasons. Now COVID and some of the resetting that we've seen and even the decision we made on the inventory is definitely going to reset a little bit of the base, but Todd and I and the team feel very good about the assumptions and the trajectories that we see overall. Our priorities right now are well underway. One, I've named our leadership team, the executives. We've added 4 commercial areas: U.S. Pet Health, U.S. Farm Animal because they are 2 different businesses that I believe need to be looked at differently. Europe and international, because they do as well. 2 Bayer executives with Joyce Lee running U.S. Pet Health and Dirk that runs our overall Animal Health Business, being our face in Germany and running Europe. And then bringing in a CMO that's coming from Coca-Cola that's good on the CPG and market expansion side. So a real commercial team focused to drive growth that will add our innovation, manufacturing people with it. We've named our N minus 2, the next level of leadership as well. So that's already underway. So our goal is to have a lot of the team in place by day one. The next is day one readiness, the essentials on standup. We are leaving Bayer, and putting it into Tata Consulting Services. So that cutover has already started. And we'll actually be cut off from Bayer into Tata by that day one. And then lastly is value capture. And everyone having value capture goals that we're already starting to work on. So well underway so that day one, we enter with momentum, we minimize distraction and we move through. Those are the priorities.

And you had guided to the $275 million to $300 million of synergies. Where do you feel like you have greatest line of sight within that broader synergy target? And how's the changes that you guys have made over the past several months? Does that cause you to reprioritize anything from a synergy standpoint?

Well, I would say, we still feel very good about the $275 million to $300 million. We feel good that about 2/3 of that in the first 30 months. We are, no question, looking at the obvious overlaps of R&D and the R&D projects. Common call points out commercially will be another one. Of course, any of the G&A areas that we see there's an overlap in, we will look at. And of course, the obvious things, when you pull 2 divisions out of big corporate pharma, I think you see that there's an opportunity for mutual synergy as we're even standing up outside of Lilly. So those are the 3 big buckets that the team is working on. And I will say we're already at a granular level with a team that helped us even with Novartis, looking at all the -- the first 2 layers of leadership now have their value capture targets, and we'll be looking at other things that surface as we go forward.

Great. And then longer term, I think you had talked about the potential for this combination to enhance the revenue growth of the combined company. You haven't put, I don't think, any specific revenue synergy targets out there, but could you maybe just talk about the top line opportunity of the combined organization?

Yes. It's a great, great question, Nathan. Thank you. So absolutely. Our intention is once we get the Bayer asset in, so this week was good on getting the antitrust clarity. So just -- I want to just mention that. So the European authority gave us approval. Now they need to sign off on the remedy package that we have, and that's pretty straightforward and was expected. The U.K. approved, the CMA this week, actually on Tuesday. Now the FTC was waiting in the U.S. for those 2 milestones. So with all that happening, expected clearance would, of course, be somewhere between the next few weeks to coming up on that August 3 date. So that -- once we get that, then I would say to you, as you look at the growth, we're going to have time here in that August period to get a closer look at the pipeline, to bring our teams together, looking at the growth trajectory. And the intention is to share with you and our investment community late in the year on what we see between this 2020 base year out to 2024, 2025. So we would have an investor conference or an investor event at that time. The growth drivers will be driven by: one, the products that are launched in growth mode now, we'll add products like Seresto and Claro into the basket of approved products in growth mode. Then we will look at this 2 dozen products or so of new products that will be launched in this period. And then we'll be looking at geography, the 4 geographies that I just mentioned as well as the omnichannel. Those are the -- what I would say, are the elements of the growth that will drive the growth going forward.

Great. And sorry to throw a financial question at you. But how should we think about the priorities for capital deployment kind of once you get the transaction closed? And specifically with respect to deleveraging, you mentioned potentially having a kind of lower base to work off of that could mean leverage is maybe a little bit higher than you guys had initially planned. How should we think about the company wanting to bring down that leverage?

Yes. We feel very confident. We spent a lot of time and are scrutinizing that very closely with our advisers as well. But yes, we will start at a higher leverage level, given the COVID situation and the inventory change that we made as we start on day 1, but we believe very, very strongly that with these synergies that we just talked about and the 2 assets together, the momentum that the assets have as we come to day 1 as the overall business, that this will create significant cash flow immediately. Delevering will be our #1 and #2 priorities. And we feel that we can continue to delever at some of the same pace that we talked about, probably starting at a different level, as I had mentioned.

Makes sense. And when it comes to thinking about free cash flow, how should we think about the company's ability to generate cash from operations relative to net income as we think about the ultimate kind of free cash flow generation of the business post the combination?

Yes, we'll still be standing up, as you know. So we'll have some additional cost. As we're standing up and finishing really the SAP cutover with Lilly and standing up independently, as I mentioned, into Q1, we also will be -- there'll be obvious elements of the integration with Bayer. So that first year, there will be IT infrastructure costs as we come forward. But without question, I think our goal in this getting 2/3 of the synergies in the first 30 months is an essential goal for us, we believe, that really allows us to delever. We've secured the financing, as you know, at a very positive level, pre-COVID and we feel good about that. And so I would say free cash flow, strong, still having some cost in terms of the overall setup but again, I think other than the starting point being different, we believe the trajectory and the change, all of the other things hold very much the same.

Okay. Great. And in the few minutes that we have left, I just wanted to hit on a couple of other questions. First, maybe with Rumensin, going back to the Food Animal business. It was 10% of sales last year and began to face competition from a generic competitor towards the end of that year. It seems like the sales erosion that you've seen has actually been better than what you expected. So you've been able to defend your market share there. Could you maybe just talk about what's driven that and where you've been successful there?

Yes. I think we're looking at this holistically, right? So this ultimately is about serving customers and really being able to say, how do we absolutely create value. So I start with some of the most important things, which is a great team, a great portfolio. We offer the beef customer a significantly large portfolio that adds value to them. Value beyond product, and these aren't just nice-to-do services, but a long-standing database that really of data and analytics that allows our technical people and our teams to add consulting and trusted solutions to them that actually add significant value and other value beyond product services that comes with over 5 decades serving this customer base. We then -- I think the other one that I would highlight is just demonstrating differences in the product. It doesn't take much difference in the product. And again, bioequivalence, not just by data, but actually demonstration in the animal doesn't take much difference to actually not pay at the economics when you're looking at a very small amount incrementally in a pound of beef to actually show the difference. So to me, it's a multifaceted approach. Then we're adding life cycle management on that compound and strain development and actually enhancing the value of Rumensin even technically as we go forward. So it's a holistic approach, it's a portfolio approach, and it's a global approach to the compound as well as we look at this. So that's -- we're executing our plan. We're doing a little better than our assumptions, but we're not saying that the proxy of 30% value in the first 2 years is going to change. We're just saying that we're executing very well, we believe, against our strategy.

That's helpful. And then just one last one before we wrap up, ending with a longer-term question. Looking back at the time of the IPO, you had laid, I think, 5-year kind of margin targets out there. I think you had talked about growing the business at the market rate on the top line and that kind of allowing you to get to the margin targets that you outlined. It seems with the Bayer deal, you're now pulling the margin target forward by about a year. You have some synergies, obviously, that you can use to hopefully drive margins as well. Can you talk about the importance of kind of getting that revenue growth that you've outlined, at least in line with the market or better when it comes to achieving the longer-term margin targets that you've outlined?

Yes. I think our goals are all intersynced, and they're very, to me, very clear. We know we need that top line growth. We know we need to deliver innovation. The margin expansion is critical, and they're really linked together. New products drive accretive margins, they drive growth. The top line -- what's driving the top line is going to drive margin expansion as well. And I think we need all 3 of those to ultimately drive the free cash flow to delever the company. I think Bayer has come along. We see the deal as good as we had planned or better. And so when you put all of these pieces together and the durability of the industry that we've seen, we feel very good about our thesis at the IPO level as well as at the Bayer milestone. Now the one factor that comes into play is the environment kind of reset a little bit of a baseline with COVID. We haven't clarified that, as you know, by pulling guidance because of COVID. We'll give you more understanding of how we see the rest of the year at the end of the second quarter earnings. And we will then -- as we said -- as we get near the end of this year and fully understand Bayer, we'll then guide for what we see in the next 3 to 5 years relative to this. Do I see anything fundamentally different, Todd or I or the leadership team from the fundamentals of why we did the Bayer deal as well as even the IPO? Absolutely not. There's pushes and pulls as always. We've weathered an African swine fever and a COVID. But I believe the fundamentals, the trajectory of what we've seen still holds very true. And we'll be able to -- and these 2 milestones, end of the quarter and the end of the year, be able to give more clarity on that as we go forward.

Great. It looks like with that, we're out of time. Jeff, I just wanted to say thank you very much for the discussion today. It was very helpful. And thanks, everyone, for tuning in on the line.

Great. Thank you, Nathan, very much. Thanks for the opportunity.