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

[Operator Instructions] At this time, it is my pleasure to turn the program over to your host, Michael Ryskin.

Great. Thanks for joining us. My name is Mike Ryskin. I'm on the BofA life science tools and diagnostics team, also covering the Animal Health space. And joining us for our next and last session is Elanco. We're pleased to host Jeff Simmons, CEO; and Todd Young, CFO. Gentlemen, thanks for being with us.

Great. Great to be here, Michael. Thank you.

Thanks, Michael.

The same as the prior session, fireside chat. [Operator Instructions] But just to kick things off maybe, we'll start with the recent updates, Todd, Jeff, you guys reported your earnings results recently. Can you give us a quick recap of 4Q, maybe 2022 and just maybe touch on high-level thoughts for 2023?

Yes, I'll start it off, Michael, and we can get into detail. Thanks again for the opportunity. Yes, we reported last week. Q4 was in line with what we guided. For the entire year, we were down 3% in constant currency, driven by a series of factors that we highlighted throughout the year. But primarily in the second half, environmental factors from the China lockdown, supply, some of the challenges in pet retail and the recessionary impact, things that were maybe a little more over-indexed on our business. And then I think it was offset by -- and additionally, some competitive innovation, offset by price, the continued innovation growth and other areas where we've held share. I think the other factor that I would say is, as you go down through and look at 2022, continued productivity levers, operating expense down over 10%, 90 basis points of improvement even in the face of inflation. So I think this company-wide productivity approach showed progress. So as we step back and as we start to pivot into '23, 2021, Elanco comes out with our Investor Day with Bayer. We're up 5% on a constant currency. Go into 2022, impacted by really a series of a lot of environment and some competitive innovation, down 3% in constant currency. We look -- as we go into 2023, we're going to take a lot of these realities, and we see them carrying into the first half of 2023, but we do see our business returning to growth in the second half. I think a few things, Michael, I'll point to we can come back to is some proof points we see early this year. We see sellout data in the EU improving sequentially. Still early, not making the year, but we see China. We saw 9% improvement in growth in Q4 and those trends continuing. OTC, some early indicators as well on the OTC market. FX, of course, will be favorable, we think, in the second half. And then as you look at our business, as we guided for the year, we see innovation adding 2- to 3-point growth, price more than 2 and then supply being better, all factors there. And then we think, hey, outside of about $80 million of competitive innovation, we're holding share in markets, even though some of those markets are going to go across the notional larger percent like that retail. So I think the last thing we'll get into it is the next area of innovation and growth [indiscernible] want to convey for the medium and long-term value of the company is, over the last quarter, Michael, we emphasized no change in our pipeline. If anything, improvements in that pipeline. So -- and also not a path to just 5 blockbusters, but now 6 with the movement of Bovaer moving up to a path for a first half 2024 approval. So we're on the cusp of innovation. We're within 2 months of our system being stood up and moving off the Bayer system into one system that will decrease complexity and improve cash flow conversion as we head into 2024. So -- and looking forward to 2023, as we start to stabilize, return to growth and really start to deliver this next area of significant innovation and growth.

I was on mute. Okay. Well, I appreciate that overview. I'm also -- I got asked yesterday, you saw the 8-K come out. You had some restatements, some revisions on 2022. Can you give us a quick rundown of exactly what happened and sort of what the impact is?

Sure, Michael. So as you would have noted in the release on previous Tuesday with earnings, we had to do a revision, kind of a little [ R ], restatement related to '21 and '20 with that and that no other errors or adjustments could be made where often, if something gets caught late, you just reflect it in the next quarter. That's standard amongst all public companies. Because of the little R, we could not do that. So we had this late item of a sales discount having missed in Western European affiliate, and because of the little R, we had to reflect that in the '22 results, and that's what we did with the 8-K. All the financials are -- got a clean opinion in the 10-K from EY, and we'll be looking to improve. So we'll [indiscernible] counting and controls as we go into 2023.

So the revision that did happen, as you indicated, was primarily Western Europe affiliate, and it had to do with sales, rebates, discounts. So is that like a list price versus net price? Or how some of the rebates are factored in? Is that what the issue was?

Yes, Michael. So it was just a -- we had a control that was missed from a communication between the sales team and the finance team to reflect the discount that had been given to some customers. The team caught it. They just caught it after [indiscernible] because of the little R, we had to reflect it in the 10-K, and so that's why you had the 8-K yesterday.

Got it. But no impact on 2023 guide, outlook, nothing like that?

No, it's all been factored into the business as we move forward.

Okay. Okay. All right. Well, Jeff, I want to go back then to some of your earlier comments on 2023. We'll start with that. Because I think the way we see it is, there's 2 parts to the story. There's 2023, and there's 2024 and the new products and beyond that. So I want to handle those 2 separately. So first, on the 2023 guide and the outlook going forward, I think the biggest debate and area of debate we've had with investors is, yes, if you do look at innovation contribution, you deal with the price contribution, FX and OTC. It seems like those factors are growing better and better. And if you look at the total company, and it's certainly lagging. So what's the delta there? Whether it's the defend asset or where you're seeing competitive pressure. So can we dig into that? Is it OTC parasiticides? Is it some of the more innovative launches? Is it more Bayer portfolio or loan portfolio? Just what isn't working in 2023?

Well, I think we're attempting to take a very disciplined approach looking at the realities of 2022 carrying into 2023. So the first thing is, we do see improvement in the pet business, in pet retail specifically. But as you know, it's kind of a 70% first half, especially in pet retail with Advantage and Seresto and parasiticides and a 30% second half. So we're going across the notional bigger base. So we're taking a very disciplined approach as we look at the guide, and we believe that, that March to June window in parasiticides is pretty important. And we see improvements, but we -- what we're taking a look to say, hey, this may be more of a U-shape than a V-shaped improvement. So I think got our eyes on that. I think that's a key assumption that we're taking that we're going to take a balanced approach. I think that's one. I think also as you look at just -- there's other things that drove volume down last year. Supply, CMO, these things are going to improve. But I would say that back to pet, parasiticides in the vet clinic in the U.S., we've [ taken ] that and some of the other pair in North America at about $80 million, that's the competitive pressure that we see that I mentioned that I think is the big one. As you look at the rest of the business, we believe that our mix on the Medicaid and feed additives side, antibiotics are down. The nutritionals are up and are growing better. And so we see that being more resilient than before, but that was a factor, especially in our international swine business and some of the pull down. But I would note those as a few of the main kind of key factors for the business. Overall core though, Michael, as I look at it, I believe that we've had a mix improvement over time. We did have some declines last year that were heavily driven by China, driven by the European recessionary impact. I think the overall Farm Animal business, even though we held and grew share, the market got a little smaller. And as we look into this year, we think cattle numbers are going to continue to be down. And those markets are going to maybe improve a little, but they're going to still be challenged. So do I believe the algorithm as a whole that we shared in the Investor Day still has merit? Absolutely. Innovation growth is there. Our focused brands have held up pretty well. We did see some erosion in the core because of these environmental factors. Again, improvement as we move more to the second half. It's more of a disciplined approach as we look at first half, big parasiticide business and making sure we look at that season in a very careful way.

Okay. Got it. And the $80 million competitive pressure, I want to drill on that a little bit. That's a 2023 expectation?

Yes, Michael, that's 2023. On the parasiticides, we also expect some more competitive pressure with the Claro generic that was launched as well as expectation of a pain product enters the U.S. vet market as well.

Okay. And any chance you can give us sort of an apples-to-apples number for what that was in 2022 in parasiticides so we can frame how that's trending?

Yes. We've categorized that at about $100 million last year, Michael. It was just the impact on Trifexis, Interceptor Plus, Advocate and the like.

Okay. That was going to be exactly my question is which product specifically. So you called out those. Would you include -- are you seeing any in Advantage, in A family? In Seresto? I know there's other factors to consider there. It's just tough to sort of like attribute it to one or the other but...

Certainly, inside that clinic, we know we've lost some shares to the new innovation in our sales of Seresto or Advocate inside of the vet clinic. Outside the vet clinic, it's primarily for those customers not going to the vet. There may have been a little channel shift. We think last -- we think the recessionary environment and some of the PR sides that we had in U.S. Seresto a year ago were probably the bigger impacts than the vet clinic competition.

Okay. All right. Sounds good. And the -- I guess trying to think through the dynamics of that going from $100 million last year to $80 million this year. How much of that is -- some of your -- you talked about some innovation in OTC parasiticides. How much of that -- is there any change in your sales force? How much of that is -- you're winding down the old products, right? Biggest like Trifexis, there's less to go away. What are the [ puts and takes ] there?

Yes. First of all, I would say, we see -- to Todd's point, we see that falling across 3 categories. Some more para erosion, but also we've seen a generic come in on the otitis side as well as the pain. So again, that 80% covers those 3 gamuts. So when you look at para alone, it's going to be less than it was in 2022 on a relative basis. And I think as we come back and look at the different categories of why we believe that's the case is, I think, you see for us, I mean on the retail side, we see a recovery with more physical availability. We're just in more places. Two, we're in more price points, refreshing, bringing 2 advantage brands back that will target a different consumer and advantage at the 3 new innovations that helps retailers with more shelf space, more price. And then as we look at even more geographic penetration, all of these things that we believe continue to drive the retail space into a better place. We see Seresto as well, I mean, continuing to be in more locations. We've got more end caps and more retailers than we've probably had in a long time. And there was an off-season kind of phenomenon that where there was less interest and people were trading down maybe to therapy or treatment of prevention. We see retailer response coming into the season and even e-comm response that, hey, this is a high profit, very important area, and they're leaning into it. So we're not in the heavy part of the season yet, but we see the indicators, Michael, that are positive. So again, less, I think, overall para erosion on a relative basis, but that $80 million also includes pain and the otitis generic as well.

Okay. So $80 million is inclusive of the others. Okay. All right. Okay. Maybe now it will be a good time to sort of just talk about OTC versus prescription in general because you've had -- the OTC market has been up and down, up and down, especially when you had COVID lockdowns and things like that, that led to really unusual comps. So OTC marketed historically on very, very well, probably off a small base, but it seems like it's been under pressure more in 2022. So maybe we could take a step back. Longer term, you've got the legacy Elanco portfolio, which tended to be more prescription. You got the Bayer portfolio, which tended to be more OTC. Now you've got some of these new products coming out in '24. So you still got to balance between the 2. You're going to have both arms, probably more so than most of your competitors. How do we think about those markets longer term, the relative [indiscernible] of each?

Yes. Maybe I'll start. Todd, if you want to add any. Look, remember, when we announced Bayer and we believe strongly in the strategy and the trends continue that we want to be an omnichannel leader. We want to meet every pet owner, where they want to shop, at the price point they want to shop. And I think COVID even probably accelerated that trend, Michael. So we're -- we believe it is an and not an or. And I'll start with the vet. I mean we have a strong vet portfolio today. Outside the U.S., we're holding and very competitive in share, especially in parasiticides with Credelio Plus and the retail and a broad spectrum. So again, I contain our issues more to that U.S. vet clinic para. When I look at our future portfolio coming with derm, to derm products, their vet, parvo, things like Bexacat that Todd just mentioned, the diabetes, the pain products, where we're very vet-oriented and here we come with a differentiated broad-spectrum parasiticide. So I think, hey, it will start in the vet. That vet scripting will continue to be a little bit more on the e-com side, and we're going to be as prepared as anybody to capture that trend as well. Now what we're doing over on the retail side is, we're really putting new energy. Ellen has come in and built out an R&D engine for the OTC side where we're launching 3 new Advantaged brands with XD, the Refreshed Advantage and canine Advantix to meet a different consumer, different price point, manage very carefully in the channel, so there's not cannibalization. And then we're looking at continuing to build that out across the board. So to me, I say, yes, we have -- what's happened here recently while we've seen an economic slowdown, and retail may be a little more reactive to that. We see a recovery back to that. We've seen inventory step down by retailers. We've had some supply challenges. And yes, maybe there's a little bleeding over, as Todd mentioned, to the new innovation, but we don't see that as significant. There want a lot of Seresto and Advantage sold inside the vet clinic here over the last couple of years. So I think the balance is, we're set up to be an omnichannel leader. You always have to innovate. We're going to have record innovation in both of those channels, and I think that will continue to make it bounce back and be more resilient. We're also seeing good pricing, too, Michael, there on both channels. The retailers have taken prices, and we continue to hold in that area as well.

Do you think longer term, on a multiyear CAGR going forward, not in perpetuity, but over the next couple of years, you think OTC grows faster than overall companion animal market?

I don't know if I would say that. I definitely say e-com. We've seen e-com continue to grow high single digit, double digit, and that's -- we were together as a management team with a major e-com player. And you're looking at auto ship compliance trends very high. And as that auto ship goes up, compliance goes up, and I think that's even going to be for scripted products in that space as well. So that trend accelerated during COVID, and I see it going forward. And so my answer to your question is, yes, in e-com, I see it outpacing. I don't know about long term, but I think it is definitely a nice diverse strong, resilient category, retail, over time. If you're innovating, if you're global and if you're adding more physical availability, we continue to be in more places, on more shelves and that's going to be what we're going to be doing as we go forward.

Okay. All right. Maybe just to pivot a little bit to the livestock side of things. That's been -- and that market has been under a little bit more pressure in recent years. It doesn't seem like it's going to get dramatically better in 2023. Just what are your thoughts on livestock for the next 12 months? Key debate points, keep pressure points, but could lead to some downside versus areas where you could see a little bit of upside?

Yes. Maybe just the diversity of the species and the geographies and you follow protein demand, it's not crazy growth, but low single-digit consistent protein demand continues to go up. Profitability seems to be pretty sustainable across the board. We're not seeing, Michael, the swings of oversupply and losses like we used to. This is a much more stable industry globally. Trade continues to be up. All of these are the trends to make this industry be a durable long-term industry, if you are in the right geographies and the right species, and we think we are. We're leaders 1 or 2 top category, #1 or #2 in poultry and aqua and confined cattle, in Asian swine and U.S. swine. So we're positioned well. We're not a big vaccine player. So on like-to-like comparisons, we've changed our medicated feed additive mix. Our fastest-growing segment is probably the nutritional side as well as our food safety vaccines. So as I look at our portfolio, we're probably better than we've ever been. And now we're adding things like Experior and Bovaer in this whole livestock sustainability area. But look, as I look at '23, I think it's going to be one of -- there's going to be ebbs and flows, pushes and pulls, but we forecast that we do see continued share growth for our Farm Animal business and continued durable growth as we get into the second half over time and able to continue to take price, not to the level of the pet side, but we are -- because we've got innovation coming into every portfolio, we're seeing price as well.

Okay. All right. And just given you touch on Bovaer and Experior, maybe we'll use that to transition to the new product launches, the 2024 story, like I said. You laid out the roadmap, you've given us timelines, first half '24 approval. What else are the markers that we should be looking forward to over the next year? Are there incremental updates to come? Is it just in the hands of the FDA and the USDA, and it's a little bit of a black box? And one of the things I'm getting to that question is, we've had a lot of questions from investors of first half '24, is that January 1 or June 30? Is that -- that can lead to a pretty big split. I don't expect you to be able to narrow it down now, but just how do you think about the risks of that? And how would you stay on top of that?

Look, I think I anchor back to a couple of things. The $600 million to $700 million of innovation that we laid out during -- we added 2 after Kindred, but we laid out on Investor Day. We stay with that commitment, and it's definitely probalized, but you can see the continued growth. We're adding Bexacat. We're going to add Parvo. Experior continues to grow nicely as that becomes part of the practices of cattle operations now. So I would start there to say, we're going to get 2 to 3 percentage points of growth that's going to continue to be a trajectory. Then as you look at, yes, the path to these blockbusters we've announced and shared our submissions, I think we now are moving more into out of clinical trials and much more into a regulatory submission stage. So the risk now becomes more around timing, not around you have a product. So we've passed that. On the para, we passed the heartworm threshold, as we've said. So all of these things are factors. I think what you're going to see from us is, quarter-to-quarter, like we said this quarter, nothing has changed. The pipeline continues to track as planned or a little ahead of plan. And then we added, which I think is pretty material, a product Bovaer that was in 2026 with $200 million of potential into now a path to the first half of 2024. So I look at the aggregate. I look at the existing innovation that's growing and believe that we've got a very highly probable strong innovation story as we go forward. I mean 6 blockbuster potential products with a path to the first half of '24 stands nicely. I won't highlight necessarily, hey, when exactly they'll come. We will do that as we get closer. The next one is Parvo. We're hoping for our monoclonal antibody plant to get approved and get inspected and approved soon, and then that will target that approval here in '23. I think a proof point is the hiring of Tim Bennington, which we can talk about, which is a focus on launch readiness and the preparation of launch and preparing ourselves commercially to ensure that when supply product approval is there, we're ready to launch as competitively and as well with excellence as we ever have in history.

Got it. Yes. It's something I was going to touch on, but first, maybe we can talk about the products you're bringing to market. You talked a little bit about differentiation and what you need to do to commercialize the product. But as you think through the rest of this year and your OpEx plan and your EBITDA guide, how much of that is already sort of allocated to that? Because launching 5, 6 products in a 6-month period, there's a lot you need to commit to that to make sure you have a successful launch. And you're fast out of the gate, especially given we're probably going to be seeing other derm products soon. We're going to be seeing other para products soon, so you can't really afford a slow launch. So what are you doing this year to set the table to be ready so that when you do have that approval, you can snap your fingers and go?

Do you want to start with the cost?

Yes, I would say, it's more on the CapEx and the supply readiness, Michael, for launches to make sure we've got the right capacity. We've got the right CapEx to have the products available. As we think about the marketing spend, we typically want the products to be inside the vet clinic so that as you're ramping it up, they have something ready to prescribe versus being in advance of that before. So of course, we'll do educational awareness. If we decide we need incremental sales force from just a share of voice standpoint, that's something that would also come later in '23 as we get ready. But overall, we just -- OpEx, we expect to be modestly up this year. Some of that will come from investing behind our brands here in the first half of the Northern Hemisphere parasiticides season. Bobby Modi joined us not even a year ago yet, and so his discipline on his marketing execution and making sure we're preparing those brands is making OpEx a little higher here in the first half. And then we'll start to capture some incremental savings from synergies in the back half, and we're going to be ready for launch. As Jeff said, we're bringing in Tim with his focus to be ready. We're making sure we have the CapEx and supply ready so that when those approvals come, we'll be ready to launch as efficiently as we can be.

So for those products that you discussed, I mean, whether it's fair or not, most of the attention falls on the derm products and the combination parasiticides, given that's where you've seen us have a lot of success. Not to ignore the other products, but that's where most of it is coming in. Is there any difference to your approach there given you are going to be second class, potentially third in class for these products vis-a-vis Zoetis or how you would approach the market if you were first-in-class, meaning you might not need to do as much market building, right? The derm market already exists. So what's the strategy there? And how do you think about price in that environment? How do you think about the bundling in that environment?

Yes. It's -- look, I think you're exactly right. These are some existing markets. It always starts to be with differentiation then it's what portfolio is it coming into. We've got existing relationships. We've got more of an omnichannel capability. And then we'll begin to look at all the different nodes of ways to crack penetration. I think that any time innovation comes into a major market, para, pain, derm, there's an expansion of the market. So I see this being much more of a value play than a price play. This will be much more of a segmentation. There's dissatisfaction in this market. Derm, by the time we get to, it's going to be close to $1.5 billion when you look at how we globally launch this product. It'll be a targeting, Michael, on a segmentation to the dissatisfied, to the loyal users maybe in our area and then how do we use the full channel and the full share of voice. And to Todd's point, we -- with the system stand up completing, shifting now to commercial excellence, we'll have the ability to shift and move resources to be able to have the resources, the headcount and the OpEx that we need in the right places to get that share. Tim is going to help us with being able to look at all of those aspects in a dedicated way over the next year as Bobby Modi is running the business and launching products now and growing share to focus on these launch decisions and preparedness. We're not a new player. The other thing I just would highlight is a Bexacat, a Parvo, a ZORBIUM has put us in clinics, too, that maybe we weren't in at the level we were in before, and we're using some of those capabilities and muscle like digital targeting segmentation like salesforce, new tools of excellence, being able to know what clinics want, giving the leads to the sales reps to be able to move more quickly and more efficiently to the right clinics at the right time. So we're testing a lot of those capabilities now with these unique products that we have to the same customers we're going to be offering these bigger products to.

Okay. Okay. And then you touched on a number of times, that was going to be something I wanted to dig in was Bobby's been with the business in this role for about a year, recently hired Tim, Ellen running R&D. So you had a lot of turnover on the C-suite side of things. Can you talk about how the team is fitting together? And particularly, for Tim and Bobby, sort of are they partnering to launch these products? Because they're both going to be very closely involved, obviously. And you've got a lot going on in the next year. So I just want to talk about their relationship there and the relative roles there.

Yes. So I'll just say that there's been actually quite a bit of stability over the last 12 months until the addition of Tim with Bobby and Ellen had joined a little over a year ago, and they've come in. But let me just -- let me highlight. I think the team is as strong as any team I've worked with in over 30 years in the industry. We've got deep experience commercially. When I look at Romero and Jose, we got a vet, a nutritionist. Romero, probably the most tenured international leader in Animal Health today. Jose, a nutritionist, probably one of the longest tenured Farm Animal business leaders. And he's taken a lot here in his time as a leader of that business and building the livestock sustainability, as I mentioned. I think Ellen brought in and complemented a lot that Aaron was doing and has accelerated and has doubled down on driving blockbusters while building OTC life cycle management. I mean, Ellen, to me is what she's done in a short period of time, but she's not new to the business or the industry. She's had a lot of history there. So that, I think, has been a complement and a real good fit. And then let me just add, Bobby has come in and made a very data-driven approach. If I look at what he's done, launching OTC products, building out a retail team, using digital to drive ZORBIUM over 12,000 clinics, the fastest penetration we've ever had. Credit to Bobby and his team in doing that. His pricing approach, I mean we got 3%, a little bit more. On the pet side, in Q4, we built a pricing strategy. And his look at physical availability, getting us on more shelves and more places. So -- and the engagement in pet health is growing faster than even net Elanco. I mean it's in a really good place given the competitiveness that we have. So I'm feeling very good. What's Tim going to do? Tim's going to come in. Know Tim directly and indirectly for a lot of years, 25 years experience, one of the most seasoned -- leading some of the largest P&Ls, as you know, and his time both from Novartis into Mariel, BI and Zoetis across a lot of big launches and brands, he brings in know-how and he can lean in. He's going to be dedicated. We don't have a central marketing function. This is going to be all around next commercial excellence, more share of voice, more efficiently and more effectively and launch with excellence because of the capacity we need to actually launch these products globally. So that's what Tim is going to be doing while our other 3 very experienced commercial team leaders can lean in. I think as you look at C-Suites, when you look at commercial experience across the major companies, we've got the most experienced commercial team, I believe, in the industry.

Okay. Okay. We got a little over 5 minutes left so I want to make sure I hit on a couple of more topics just because there's a lot to fit in. Todd, maybe pivot to you, balance sheet leverage, debt pay down. A lot of questions on that after 4Q as well. I think you had previously pointed to interest expense up year-over-year, obviously, given the way rates are. But can you walk us through the $100 million debt pay down this year? Is there any wiggle room for there to be a little bit more there? Is there any other [indiscernible] on the balance sheet that we can be looking at just given what you had talked about for leverage at the end of the year?

Certainly, Michael. It starts with the base business. As we perform and deliver and to the extent things go better than what we've guided to, that will convert into cash because we're very efficient on our productivity agendas and understanding the value of cash to our business and all of the bonus programs are based on an [indiscernible] like metric, we call Elanco Cash Earnings. So improving EBITDA while using less assets is how our teams get their whole bonus. And so that's a big driver of our ownership culture as well as to the extent that there's upside, we'll take that cash to pay down more debt. The other aspect is working capital. That's a place that we did not perform well on in 2022. Some of that was driven by intentionality with respect to inventory builds for our transition of the Bayer business in as well as a relabeling in China. But net debt, we've got to improve on our working capital, especially with inventory management as we align production plans better with volume needs on a global basis. So doing better there is another opportunity to get additional debt paydown. So I think we've factored in the interest rates and the expectations of the forward curves to have higher interest rates in the back half of the year as we also get more debt floating as we laid out on our call in November. So again, we want to take more cash, deliver it to the debt paydown while ramping EBITDA to improve leverage through the EBITDA growth. Going into '24, that continues. The good news, we've been behind the system integration and stand up. So the $1 billion we've spent over the last 4 years, those have been one-off onetime items to integrate stand up and build, that drops to less than $20 million in 2024, which is significantly more incremental cash to pay down debt in addition to driving EBITDA higher to create more free cash flow. So we know our leverage is higher than we would like. We want to drive EBITDA and cash both together to get that down over the next 18 months.

Okay. You touched on '24, that was the area we had some questions about that well. Just given the rate environment -- I mean, yes, we're talking about '24 already, but given the rate environment, do you see a risk that interest expense could be going to be creeping higher again that year? Or just given your -- the tranches of debt you have and some of that ability to pay off a little bit more, do you think you'll be able to reverse that flow?

I mean that's our expectation, but the Fed is certainly something that affects us because we will have a significant amount of floating rate debt.

Okay. All right. We've got just a couple of minutes left. Maybe Jeff, I'll turn it back to you for any closing remarks. Any last comments, things we didn't touch on. What's coming up most frequently in your conversations with investors? And what do you think is something worth calling out?

Well, I think it's '23, how we see '23. We believe that it was critical to put a guide together that was based on the realities of '22 in a balanced way as we come into '23, the assumptions relative to the competition in the marketplace and even the livestock and the pet market trends that we've talked about. I think that we've got -- I just would emphasize, we've got confidence in the guide that. We have we've got proof points of some sequential improvements, leaving '22 into '23. And what's most important here is delivering on our expectations this year as we prepare, and the preparing comes from in the next 60 days. We stand up our system. The complexity Elanco goes down, the standup cost throughout this year go down. That allows, as Todd said, the free cash flow conversion goes up as we head into '24. Most importantly is drive this pipeline to completion and prepare for the launches that really open the next area of growth and innovation, and that really starts in the second half of this year going forward. So again, excited about what lies ahead. Disciplined execution and -- or a show me story, being accountable to deliver the results, and that's what's lying in front of us with the guide that we laid out last week.

Got it. Yes, that sounds good, Jeff. All right. On that note, thanks so much for joining us. I hope you enjoyed it. And thanks everyone for listening again. We'll always be around for questions.

Thank you, Michael.

Thank you.

Thanks, guys.