Operator: Your next question comes from the line of Nathan Rich from Goldman Sachs. Please go ahead.
Nathan Rich: Great. Thanks so much for the questioning. And good morning. I guess maybe a high level one, Jeff, to start. It seems like there is maybe been more emphasis on top line and cash flow generation then on margins today. I guess is there any change in how you’re thinking about the larger, longer-term margin opportunity for the company? And then, Todd, how should we think about the magnitude of the margin impact from the inventory management efforts that you talked about as well as the OpEx investments as we think about kind of cadence into next year?
Jeff Simmons: Yes, I’ll turn it quickly here to Todd, Nate. But no change, I think you start the number one driver to drive EBITDA and again we’re all incented with our Elanco cash earnings every employee to drive EBITDA growth not versus some planned but versus last year. And the number one way to do that is to drive the topline and to drive it with better mix, not just price, but volume and in these new markets and so that’s the emphasis we know we take care of that and do that first, and that’s what’s happened this quarter and we see it going forward as I mentioned. That will be the number one contributor to EBITDA growth. Maybe Todd, I’ll turn it — turn it to you.
Todd Young: Yes. Thanks for the question, Nate. We called out 120 basis points of headwinds on gross margin in this quarter from slowing down the plants. At the same time, we expanded our gross margin year-over-year by 50 basis points. So while we expect it to accelerate from inventory management into those kind of 150 basis points to 170 basis points headwinds. A reminder, we’ve got productivity, we’ve got sales growth, we’ve got price improvements, all of those things that at the same time help margins. So we’re not calling out specifically anything on margin today for 2024, but do want to make sure everyone’s capturing the pushes and pulls we have across our cost structure. Similarly on the investments, we’re certainly going to make investments in our team and our people and that creates a headwind, we have about $20 million of synergy annualization coming from the ERP getting behind us that we’ve called out previously.
Again, we’ve captured about $400 million of EBITDA synergies over the last three or four years since closing the Bayer transaction and we’ll have that kind of now done and into the 2024 run rate. So again, a lot of positives going on, but there are headwinds, we will be managing as we move forward.
Nathan Rich: Great. And then if I could just ask a quick follow-up on Zenralia, I guess are you kind of positioned to maybe frame how it’s differentiated and I guess the reason I asked is Zoetis launched an Apoquel chewable version in the U.S. this quarter. They kind of feel like that mode of administration, sort of where the market is moving, I guess, can you kind of talk about how you kind of see yourself positioned against that product?
Jeff Simmons: Yes. Yes, Nate, we won’t go much further, other than to say that we continue to believe it is differentiated and we continue to be excited about double digit growth in the derm market in the U.S. and growth globally. And again, even the submissions that we’ve made in the international markets followed by a very robust portfolio that Ellen is managing both and the monoclonal side and others. So we’ve got a nice portfolio I’m excited about and derm that continues to have first and best-in-class assets not only came from kindred but additional assets. And again, as I always say this market derm is going to be all accretive to us and we’re excited to launch with this differentiated asset will continue to share more on the differentiation as we get closer to the day one of launch.
Nathan Rich: Thank you.
Operator: Your next question comes from the line of Brandon Vazquez from William Blair. Please go ahead.
Brandon Vazquez: Hi, everyone. Thanks for taking the question. First on kind of profitability and EBITDA, you had a nice beat in the quarter, increased the guide for ’23. Why not — you’re also talking about in 2024 where you’re not committing to kind of EBITDA growth. You’ll have some tailwinds stabilizing commercial organization, better ROI on some of these commercial investments, new product launches. Maybe talk about why we may not see EBITDA growth perhaps, it’s kind of being reinvested into the commercial organization, things like that.
Todd Young: Sure, Brandon. As we called out with some of the headwinds, we are excited about the delivery in Q3 and what we have going into Q4. We called out constant currency sales growth. Right now, the dollar is still a pretty big headwind to 2023 that flows to EBITDA just based on actual sales results, you know, the last question regarding slowing down the plans that has an impact on gross margin. At the same time, we are excited about the continued growth, the parvovirus expanding capacity will be a nice growth driver from innovation, Experior, again another good quarter on Experior that $60 million to $70 million annualized run rate we’re actually at, it’s certainly positive 224 at a higher gross margin than the OptiFlex it replaces. So again, a lot of really good things happening. We’re just continuing to watch business and we’ll give a full update in February on our Q4 earnings call.
Brandon Vazquez: Okay. Maybe as a quick follow-up, slightly different but probably plays into the EBITDA line as well. This year, you’re probably taking mid-single-ish digit price increases, how does that kind of trend into 2024, inflation kind of comes down a little bit, does that hinder your ability to take some price or does the new product launches really help offset that anyway. So just thoughts on ’24 and what kind of pricing power you guys will have. Thank you.
Todd Young: Yes, very good question on things, that’s certainly been a good driver for us this year, 4% in the quarter and we expect at least 3% year-to-date. We continue to expect we will have positive price next year from just the overall value of our portfolios to customers. So again, that will be positive and that will be helpful on both the gross margin and the overall profitability line in 2024.
Operator: Your next question comes from the line of Balaji Prasad from Barclays. Please go ahead.
Balaji Prasad: Hi. Good morning, everyone. This is Balaji. Couple of questions from me, probably going back to fundamentals, firstly on retail, one would have thought that the online shift of retail was irreversible, so your decision to focus on brick-and-mortar stores. What’s the advantage for a pet owner to go to a brick-and-mortar store versus online and maybe just expanding on that, what does it mean for you in terms of incremental investments and what should we expect from this. Secondly, on the macro side, I think that’s one of the questions we get the most, can we get some of your initial thoughts around how much pricing – price increase can a pet owner absorbed as we look to 2024 to form your plans. Thank you.
Jeff Simmons: Yes, thank you, Balaji. Real quick on the retail side. This is – there’s just like any marketplace, there’s a lot of segments and there’s a lot of different needs and there’s also loyalty to brands and loyalty to how they shop and where they shop. So what I would say is as you look at the marketplace, depending on the country, you do see very commonly 40%, 50% can be non-clinic purchases. So I start there and some of that’s just access, affordability or just history. It’s what I’ve always done and that’s very dominant kind of market trend that you see in the pet side. So we’re always looking at how we can continue to build that it isn’t just brick-and-mortar, e-com also is also very important, so Nielsen highlights a lot of the brick-and-mortar trends, doesn’t pick up the e-com trends and e-com is probably outgrowing every other channel.
