ELANCO ANIMAL HEALTH INCORPORATED Management's discussion and analysis of financial condition and results of operations (MD&A) is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operations and financial position. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying footnotes in Item 1 of Part I of this Quarterly Report on Form 10-Q. Certain statements in this Item 2 of Part I of this Quarterly Report on Form 10-Q constitute forward-looking statements. Various risks and uncertainties, including those discussed in "Forward-Looking Statements," Item 1A, "Risk Factors," of Part II of this Quarterly Report on Form 10-Q, and Item 1A, "Risk Factors," of Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , may cause our actual results, financial position, and cash generated from operations to differ materially from these forward-looking statements. Overview
Founded in 1954, Elanco is a premier animal health company that innovates,
develops, manufactures and markets products for pets and farm animals.
Headquartered in
OnAugust 1, 2020 , we completed the acquisition ofBayer Animal Health . The acquisition expanded our pet health product category, advancing our planned portfolio mix transformation and creating a better balance between our farm animal and pet health product categories. Our existing product portfolio and pipeline have been enhanced by the addition ofBayer Animal Health , which complements our commercial operations and international infrastructure. See Note 4: Acquisitions and Divestitures to the condensed consolidated financial statements for additional information on the acquisition. Subsequent to the acquisition date, our consolidated financial statements include the assets, liabilities, operating results and cash flows ofBayer Animal Health . We offer a diverse portfolio of approximately 190 brands that make us a trusted partner to veterinarians and farm animal producers in more than 90 countries. Our products are generally sold worldwide to third-party distributors, retailers, and directly to farm animal producers and veterinarians. With the acquisition ofBayer Animal Health , we have expanded our presence in retail and e-commerce channels in order to meet pet owners where they want to purchase. We operate our business in a single segment directed at fulfilling our vision of enriching the lives of people through food, making protein more accessible and affordable and through pet companionship, helping pets live longer, healthier lives. In 2020, we renamed our four primary product categories by replacing "food animal" and "companion animal" with "farm animal" and "pet health," respectively, to better reflect the terminology used by our customers. We advance our vision with the following offering of portfolio solutions:Pet Health : Our portfolio is focused on parasiticides, vaccines and therapeutics. We have one of the broadest parasiticide portfolios in the pet health sector based on indications, species and formulations, with products that protect pets from worms, fleas and ticks. Our Seresto and Advantage, Advantix, Advocate (collectively referred to as the Advantage Family) products are over-the-counter treatments for the elimination and prevention, respectively, of fleas and ticks, and complement our prescription parasiticide products, Credelio, Interceptor Plus, and Trifexis. Our vaccines portfolio provides differentiated prevention coverage for a number of important pet health risks and is available in theU.S. only. In therapeutics, we have a broad pain and osteoarthritis portfolio across species, modes of action, indications and disease stages. Pet owners are increasingly treating osteoarthritis in their pets, and our Galliprant™ product is one of the fastest growing osteoarthritis treatments in theU.S. Additionally, we have products that offer treatment for otitis (ear infections) with Claro™, as well as treatments for certain cardiovascular and dermatology indications. 2021 Q1 Form 10-Q | 28 [[Image Removed:
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Farm Animal: Our farm animal portfolio consists of products to prevent, control
and treat health challenges primarily focused on cattle (beef and dairy), swine,
poultry, and aquaculture (cold and warm water) production. Our products include
medicated feed additives, injectable antibiotics, vaccines, insecticides, and
enzymes, among others. We have a wide range of farm animal products, including
Rumensin and Baytril™, both of which are used extensively in ruminants (e.g.,
cattle, sheep and goats) and swine production. In poultry, our Maxiban product,
is a valuable offering for the control and prevention of intestinal disease.
A summary of our 2021 revenue and net loss compared with the same period in 2020
is as follows:
Three Months Ended March 31,
(Dollars in millions) 2021 2020
Revenue $ 1,242 $ 658
Net loss (61) (49)
Increases or decreases in inventory levels at our channel distributors can
positively or negatively impact our quarterly and annual revenue results,
leading to variations in quarterly revenues. This can be a result of various
factors, such as end customer demand, new customer contracts, heightened and
generic competition, the need for certain inventory levels, our ability to renew
distribution contracts with expected terms, our ability to implement commercial
strategies, regulatory restrictions, unexpected customer behavior, proactive
measures taken by us in response to shifting market dynamics, payment terms we
extend, which are subject to internal policies, and procedures and environmental
factors beyond our control, including weather conditions and the COVID-19 global
pandemic.
Key Trends and Conditions Affecting Our Results of Operations
Industry Trends
The animal health industry, which includes both farm animals and pets, is a growing industry that benefits billions of people worldwide.
As demand for animal protein grows, farm animal health is becoming increasingly important. We believe that factors influencing growth in demand for farm animal medicines and vaccines include: •one in three people needing improved nutrition; •increased global demand for protein, particularly poultry and aquaculture; •natural resource constraints, such as scarcity of arable land, fresh water and increased competition for cultivated land, driving the need for more efficient food production; •loss of productivity due to farm animal disease and death; •increased focus on food safety and food security; and •human population growth, increased standards of living, particularly in many emerging markets, and increased urbanization.
Growth in farm animal nutritional health products (enzymes, probiotics and prebiotics) is influenced, among other factors, by demand for antibiotic alternatives that can promote animal health and increase productivity. We believe that factors influencing growth in demand for pet medicines and vaccines include:
•increased pet ownership globally;
•pets living longer; and
•increased pet spending as pets are viewed as members of the family by owners.
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Factors Affecting Our Results of Operations
COVID-19 Pandemic
Our business has been impacted by the COVID-19 pandemic that originated inDecember 2019 . We continue to monitor the global outbreak of COVID-19 and have worked with our customers, employees, suppliers and other stakeholders to mitigate the risks posed by its spread. The COVID-19 pandemic continues to impact the economy inthe United States and globally, and has had an effect on the operations of our company, vendors and suppliers, and supply of and demand for our products as follows: Operations As a result of the COVID-19 pandemic, governmental authorities implemented measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders, site closures and business shutdowns. These measures have affected the ability of our employees, vendors, and suppliers to perform their respective responsibilities and obligations relative to the conduct of our business. We have important manufacturing operations worldwide that have been impacted by the outbreak. Measures requiring business shutdowns generally exclude certain essential services, and those essential services commonly include critical infrastructure and the businesses that support that critical infrastructure. Because the animal health industry has been designated an essential business, our manufacturing and research facilities remain operational, while our employees in other company functions continue to primarily work remotely. These measures have impacted and may further impact our workforce and operations, as well as those of our customers, vendors and suppliers.
Supply
In the first quarter of 2021, we did not experience significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic. However, as the pandemic continues, we may face supply chain disruptions due to operational difficulties experienced by our suppliers. Although we regularly monitor the financial health of companies in our supply chain, the financial hardship on our suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to manufacture our products, adversely affecting our operations. Freight processes have experienced, and could continue to experience, lead time disruptions and increases in shipping costs, negatively impacting our profitability.
Demand
The COVID-19 pandemic has adversely impacted global economic conditions. In particular, the COVID-19 pandemic created significant uncertainty for our channel distribution partners with respect to end customer demand and working capital, particularly in early 2020. Based on these factors, in addition to a shift in tactics for demand generation with our distributors, in the first and second quarters of 2020, we reduced the amount of inventory held in the channel. For our pet health business, demand in our direct to retailer and e-commerce channels could be negatively impacted by economic conditions as they fluctuate. In our farm animal business, demand has been negatively impacted by processing plant closures, resulting in a backlog of animals ready for processing, and weakened food service demand, which collectively have pressured producer economics. Processing plants have adjusted operations and have cleared most of the backlog, and demand for certain protein categories continues to recover. While the impact has been most significant for theU.S. livestock industry, particularly in the second and third quarters of 2020, the pressure has occurred globally and across species. As the pandemic has continued through the beginning of 2021, our business has been affected by lower levels of demand in certain markets due to unfavorable macroeconomic conditions and reduced food service consumption. As a result, the industry has seen pressured prices and producer profitability across species, most notably in international poultry and aqua. We anticipate that recovery of end consumer demand, particularly in the food service business as compared to prior year will continue to occur, particularly impacting our farm animal business, throughout 2021. Our third party distributors may face difficulties maintaining operations and normal liquidity in light of government-mandated restrictions. Due to liquidity and working capital pressure caused by the COVID-19 pandemic, our distributors continue to manage inventory more tightly. In response to this along with a shift in tactics for demand generation with our distributors, we reduced channel inventory levels during the first half of 2020 as we tightened our approach across all facets of our distributor relationships. We estimate that this decreased our revenue by 2021 Q1 Form 10-Q | 30 [[Image Removed:
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approximately$160 million . These actions have allowed us to improve working capital management, increase gross margin, implement new compensation structures with our distributors and enable greater control of overall stock levels. We continue to monitor the impacts on our customers' liquidity and therefore our ability to collect on our accounts receivable. While our allowance on these receivables factors in expected credit losses, disruption and declines in the global economy could result in difficulties in our ability to collect, which we have not experienced on a material basis at this time. If significant issues with collections occur, material increases in our allowance for doubtful accounts may be required.
Our Acquisition of
We have incurred and expect to continue to incur expenses in connection with our acquisition ofBayer Animal Health including fees for professional services such as legal, accounting, consulting, and other advisory fees and expenses. Expenses incurred in 2021 primarily relate to integration activities. In addition, we have incurred and expect to continue to incur costs related to the build out of processes and systems to support finance and global supply and logistics and to expand administrative functions, including, but not limited to, information technology, facilities management, distribution, human resources, and manufacturing, to replace services previously provided by the former parent company ofBayer Animal Health . We anticipate that these additional costs will be partially offset by expected synergies.
Product Development and New Product Launches
A key element of our targeted value creation strategy is to drive growth through portfolio development and product innovation. We continue to pursue the development of new chemical and biological molecules through our approach to innovation. Our future growth and success depend on both our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition, and the expansion of the use of our existing products. We believe we are an industry leader in animal health R&D, with a track record of product innovation, business development and commercialization.
Competition
We face intense competition. Principal methods of competition vary depending on the particular region, species, product category, or individual product. Some of these methods include new product development, including generic alternatives to our products, quality, price, service and promotion. Our primary competitors include animal health medicines and vaccines companies such as Zoetis Inc.;Boehringer Ingelheim Vetmedica, Inc. , the animal health division ofBoehringer Ingelheim GmbH ; andMerck Animal Health , the animal health division of Merck & Co., Inc. We also face competition globally from manufacturers of generic drugs, as well as from producers of nutritional health products, such asDSM Nutritional Products AG and Danisco Animal Nutrition, the animal health division ofE.I. du Pont de Nemours and Company , a subsidiary of DowDuPont, Inc. There are also several new start-up companies working in the animal health area. In addition, we compete with numerous other producers of animal health products throughout the world.
Productivity
Our results during the periods presented have benefited from operational and productivity initiatives implemented following recent acquisitions and in response to changing market demand for antibiotics and other headwinds.
Prior to the acquisition ofBayer Animal Health , our acquisitions within the last six years added in the aggregate$1.4 billion in revenue, 4,600 full-time employees, 12 manufacturing and eight R&D sites. The acquisition ofBayer Animal Health onAugust 1, 2020 added 3,900 full-time employees, eight manufacturing sites, and four R&D sites. In addition, from 2015 to 2020, changing market demand for antibiotics and other headwinds, such as competition with generics and innovation, affected some of our highest gross margin products, resulting in a change to our product mix and driving operating margin lower. In response, we implemented a number of initiatives across the manufacturing, R&D and selling, general and administrative (SG&A) functions. Our manufacturing cost savings strategies included improving manufacturing processes and headcount through lean manufacturing (minimizing waste while maintaining productivity), closing manufacturing sites, consolidating our CMO network, strategically insourcing certain projects, and pursuing cost savings opportunities with respect to raw materials via a new procurement process. Additional cost savings have resulted from reducing the number of R&D sites, SG&A savings 2021 Q1 Form 10-Q | 31 [[Image Removed:
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from sales force consolidation, and reducing discretionary and other general and administrative (G&A) operating expense.
Foreign Exchange Rates
Significant portions of our revenue and costs are exposed to changes in foreign exchange rates. Our products are sold in more than 90 countries and, as a result, our revenue is influenced by changes in foreign exchange rates. During the three months endedMarch 31, 2021 and 2020, approximately 54% and 49%, respectively, of our revenue was denominated in foreign currencies. As we operate in multiple foreign currencies, including the Euro, British pound, Swiss franc, Brazilian real, Australian dollar, Japanese yen, Canadian dollar, Chinese yuan, and other currencies, changes in those currencies relative to theU.S. dollar impact our revenue, cost of sales and expenses, and consequently, net income. These fluctuations may also affect the ability to buy and sell our products between markets impacted by significant exchange rate variances. Currency movements had a limited impact on revenue during the three months endedMarch 31, 2021 and 2020.
Our Relationship with Lilly and Additional Standalone Costs
All operations-focused TSAs that went into effect after our 2018 separation from Lilly were exited as planned onMarch 31, 2021 . We are nearly complete with investments in expanding our own administrative functions, including, but not limited to, information technology, facilities management, distribution, human resources, and manufacturing, to replace services previously provided by Lilly. Because of initial stand up costs and overlaps with services previously provided by Lilly, we have incurred and expect to continue to incur certain temporary, duplicative expenses in connection with the Separation. We have also incurred and expect to continue to incur costs related to the build out of processes and systems to support finance and global supply and logistics, among others. We currently estimate these costs taken together to be in a range from$315 million to$335 million , net of completed and planned real estate dispositions and employee benefit changes, of which a portion will be capitalized and the remainder will be expensed.
Asset Impairment, Restructuring and Other Special Charges
During the three months endedMarch 31, 2021 and 2020 including in connection with the productivity initiatives described above under "Factors Affecting Our Results of Operations - Productivity," we incurred charges related to asset impairment, restructuring and other special charges, including integration of acquired businesses. These charges include severance costs resulting from actions taken to reduce our costs, asset impairment charges primarily related to competitive pressures for certain pet health products, product rationalizations, site closures and integration costs related to acquired businesses, primarilyBayer Animal Health , and costs related to the build out of processes and systems to support finance and global supply and logistics, among others, as we stand our organization up as an independent company.
For more information on these charges, see Note 5: Asset Impairment, Restructuring and Other Special Charges to the condensed consolidated financial statements.
Results of Operations
The following discussion and analysis of our results of operations should be
read along with our condensed consolidated financial statements and the notes
thereto.
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Three Months Ended March
31,
(Dollars in millions) 2021 2020 % Change
Revenue $ 1,242 $ 658 89 %
Costs, expenses and other:
Cost of sales 569 333 71 %
% of revenue 46 % 51 % (5) %
Research and development 89 67 33 %
% of revenue 7 % 10 % (2) %
Marketing, selling and administrative 348 182 91 %
% of revenue 28 % 28 % - %
Amortization of intangible assets 147 52 183 %
% of revenue 12 % 8 % 4 %
Asset impairment, restructuring and other special charges 108 75 44 %
Interest expense, net of capitalized interest 61 16 281 %
Other expense, net - 1 NM
Loss before income taxes (80) (68) 18 %
% of revenue (6) % (10) % 4 %
Income tax benefit (19) (19) - %
Net loss $ (61) $ (49) 24 %
Certain amounts and percentages may reflect rounding adjustments. NM - Not meaningful
Disaggregated Revenue
On a global basis, our revenue for the three months ended
Revenue % of Total Revenue Increase (Decrease)
(Dollars in millions) 2021 2020 2021 2020 $ Change % Change CER (1)
Pet Health $ 645 $ 206 52 % 31 % $ 439 213 % 211 %
Farm Animal 578 433 47 % 66 % 145 33 % 34 %
Subtotal 1,223 639 98 % 97 % 584 91 % 91 %
Contract Manufacturing(2) 19 19 2 % 3 % - - % - %
Total $ 1,242 $ 658 100 % 100 % 584 89 % 88 %
(1)Constant exchange rate (CER) is defined as revenue growth excluding the
impact of foreign exchange. The calculation assumes the same foreign currency
exchange rates that were in effect for the comparable prior-year period were
used in translation of the current period results. We believe this metric
provides a useful comparison to previous periods.
(2)Represents revenue from arrangements in which we act as a contract
manufacturer, including supply agreements associated with divestitures of
products related to the acquisition of Bayer Animal Health .
Total revenue increased $584 million to $1,242 million comprised of $683 million
from the legacy Elanco portfolio and $559 million from the legacy Bayer Animal
Health portfolio. This 89% increase reflects a 86% increase in volume, a 2%
increase in price, and a limited favorable impact from foreign exchange rates.
The detailed change in revenue by product category was as follows:
•Pet Health revenue increased by$439 million , or 213%, for the quarter, driven by an increase in revenue as a result of the addition ofBayer Animal Health product revenue of$369 million in the quarter. The increase in the legacy Elanco business was driven by a favorable comparison to the prior year, during which we reduced channel inventory levels with our distributors, negatively impacting revenue by approximately$60 million . Growth in the legacy Elanco business was also attributable to higher volume in newer generation parasiticide and pain products. 2021 Q1 Form 10-Q | 33 [[Image Removed:
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•Farm Animal revenue increased by$145 million , or 33%, for the quarter, driven by an increase in revenue as a result of the addition ofBayer Animal Health product revenue of$174 million in the quarter. Legacy Elanco revenue declined as a result of an unfavorable comparison to the prior year, which included anticipatory buying by direct customers in international export markets to ensure continuity of supply ahead of potential COVID-19 disruptions. In addition, the decline in the current period was driven by lower levels of demand in certain markets due to the negative impact of the COVID-19 pandemic on poultry and aqua consumption, production, and profitability as well as generic competition, partly offset by increased demand inChina and price growth. •Contract Manufacturing revenue remained flat at$19 million , and represented 2% of total revenue. Contract manufacturing revenue for the period includes$16 million resulting from the acquisition ofBayer Animal Health . Cost of Sales Three Months Ended March 31, (Dollars in millions) 2021 2020 % Change Cost of sales$ 569 $ 333 71 % % of revenue 46 % 51 % Cost of sales increased 71%, primarily due to the amortization of the fair value adjustment to inventory of$62 million due to the acquisition ofBayer Animal Health along with an increase in legacy Elanco sales. Excluding the amortization of the inventory fair value adjustment, cost of sales would have been approximately 41% of revenue, compared to 51% in the prior year. This decrease is due to the inclusion ofBayer Animal Health products, which have higher margins, along with continued improvements in manufacturing productivity and increases in price. Research and development Three Months Ended March 31, (Dollars in millions) 2021 2020 % Change Research and development$ 89 $ 67 33 % % of revenue 7 % 10 % R&D expenses increased 33%, primarily due to the inclusion of theBayer Animal Health business. As a percent of revenue, research and development was 7% compared to 10% in the prior year, partly due to a delay of some project spend from the first quarter to the second quarter.
Marketing, selling and administrative
Three Months Ended
March 31,
(Dollars in millions) 2021 2020 % Change
Marketing, selling and administrative $ 348 $ 182 91 %
% of revenue 28 % 28 %
Marketing, selling and administrative expenses as a percentage of revenue were
flat year over year. Expenses as a percentage of revenue remained flat primarily
due to a delay of planned spend for direct-to-consumer and digital advertising
from the first quarter to the second quarter resulting from a cooler early
parasiticide season. Expenses increased 91% over prior year, primarily due to
the acquisition of Bayer Animal Health and increased information technology
spending.
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Amortization of intangible assets
Three Months Ended March 31,
(Dollars in millions) 2021 2020 % Change
Amortization of intangible assets Amortization of intangible assets increased$95 million , primarily due to the addition of amortization of intangible assets recorded from the acquisition ofBayer Animal Health .
Asset impairment, restructuring and other special charges
Three Months Ended
March 31,
(Dollars in millions) 2021 2020 % Change
Asset impairment, restructuring and other special charges $ 108 $ 75 44 %
Asset impairment, restructuring and other special charges increased $33 million ,
primarily due to severance associated with the restructuring program announced
during the first quarter of 2021, an asset impairment charge recorded to adjust
the fair value of intangible assets that were subject to product
rationalization, higher integration costs of acquisitions, and costs associated
with the implementation of new systems, programs, and processes due to our
separation from Lilly and in connection with the acquisition of Bayer Animal
Health , as more fully described in Note 5. These increases were partially offset
by adjustments to severance accruals under the September 2020 program primarily
as a result of restructured personnel filling open positions and favorable
negotiations, and a related pension curtailment gain from the September 2020 and
January 2021 programs.
For additional information regarding our asset impairment, restructuring and
other special charges, see Note 5: Asset Impairment, Restructuring and Other
Special Charges to the condensed consolidated financial statements.
Interest expense, net of capitalized interest
Three Months Ended March
31,
(Dollars in millions) 2021 2020 % Change
Interest expense, net of capitalized interest $ 61 $ 16 281 %
Interest expense, net of capitalized interest, increased $45 million , primarily
due to interest associated with the term loan B entered into August 1, 2020 and
used to finance the Bayer Animal Health acquisition.
Other expense, net
Three Months Ended March 31,
(Dollars in millions) 2021 2020 % Change
Other expense, net $ - $ 1 NM
Other expense recorded during the three months ended March 31, 2021 consisted of
losses recorded in relation to divestitures. This was fully offset by up-front
payments received, milestones earned, and equity issued to us in relation to a
license agreement. Other expense recorded during the three months ended March
31, 2020 was primarily composed of foreign exchange losses.
Income tax benefit
Three Months Ended March 31,
(Dollars in millions) 2021 2020 % Change
Income tax benefit $ (19) $ (19) - %
Effective tax rate 23.5 % 27.6 %
Income tax benefit was
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for both periods were impacted by net discrete tax items. See Note 10: Income Taxes to the condensed consolidated financial statements for further discussion.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash flows from operations and funds available under our Credit Facilities. As a significant portion of our business is conducted internationally, we hold a significant portion of cash outside of theU.S. We monitor and adjust the amount of foreign cash based on projected cash flow requirements. Our ability to use foreign cash to fund cash flow requirements in theU.S. may be impacted by local regulations and, to a lesser extent, followingU.S. tax reforms, the income taxes associated with transferring cash to theU.S. We currently intend to indefinitely reinvest foreign earnings for continued use in our foreign operations. As our structure evolves as a standalone company, we may change that strategy, particularly to the extent we identify tax efficient reinvestment alternatives for our foreign earnings or change our cash management strategy. We believe our primary sources of liquidity are sufficient to fund our short-term and long-term existing and planned capital requirements, which include working capital obligations, funding existing marketed and pipeline products, capital expenditures, business development in our targeted areas, short-term and long-term debt obligations which include principal and interest payments as well as interest rate swaps, operating lease payments, purchase obligations, and costs associated with the integration ofBayer Animal Health . In addition, we have the ability to access capital markets to obtain debt refinancing for longer-term funding, if required, to service our long-term debt obligations. Further, we believe we have sufficient cash flow and liquidity to remain in compliance with our debt covenants. Our ability to meet future funding requirements may be impacted by macroeconomic, business and financial volatility. As markets change, we will continue to monitor our liquidity position. However, a challenging economic environment or an economic downturn may impact our liquidity or ability to obtain future financing. See "Item 1A. Risk Factors - We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful" in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Cash Flows
The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented:
(Dollars in millions) Three Months Ended March 31, Net cash provided by (used for): 2021 2020 $ Change Operating activities$ 22 $ 4 $ 18 Investing activities 10 (20) 30 Financing activities 2 897 (895) Effect of exchange-rate changes on cash and cash equivalents (25) (9) (16) Net increase in cash, cash equivalents and restricted cash$ 9 $ 872 $ (863) Operating activities Our cash provided by operating activities increased by$18 million , to$22 million for the three months endedMarch 31, 2021 from$4 million for the three months endedMarch 31, 2020 . The increase was driven by higher net income after excluding amounts related to non-cash operating activities, including depreciation and amortization and inventory fair value step-up amortization. This increase was partially offset by the impact of changes in operating assets and liabilities. The COVID-19 global health pandemic and related economic downturn led to an increase in customer accounts receivable that were past due at the end of the first quarter of 2020; however, customer collections improved throughout the remainder of the year and payment terms decreased. In the past, we have extended our payment terms for distributors on occasion. Although we presently have no plans to do so in the future, it is possible that we will need to extend payment terms in certain situations as a result of the COVID-19 global health pandemic, competitive pressures and the need for certain inventory levels at our channel distributors to avoid supply disruptions. If so, such extensions of customer payment terms could result in additional uses of our cash flow. 2021 Q1 Form 10-Q | 36 [[Image Removed:
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Investing activities
Our cash provided by investing activities was$10 million for the three months endedMarch 31, 2021 as compared to cash used for investing activities of$20 million for the three months endedMarch 31, 2020 . The change was primarily driven by a decrease in the cash consideration paid to acquireBayer Animal Health due to the finalization of the working capital adjustment during the period, partially offset by purchases of intangible assets.
Financing activities
Our cash provided by financing activities decreased by$895 million to$2 million for the three months endedMarch 31, 2021 from$897 million for the three months endedMarch 31, 2020 . Cash provided by financing activities during the three months endedMarch 31, 2021 reflected net proceeds from our revolving credit facility, partially offset by the repayment of indebtedness outstanding under our term loan B credit facility. Cash provided by financing activities during the three months endedMarch 31, 2020 , reflected proceeds from issuances of common stock and TEUs during the period, partially offset by the repayment of indebtedness outstanding under our previous term loan facility.
Description of Indebtedness
For a complete description of our description of our debt and available credit facilities as ofMarch 31, 2021 andDecember 31, 2020 , see Note 8: Debt to the condensed consolidated financial statements.
Off Balance-Sheet Arrangements
Other than the commitments and contingencies disclosed in Note 11: Commitments and Contingencies, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, or liquidity.
Contractual Obligations
Our contractual obligations and commitments as ofMarch 31, 2021 are primarily comprised of long-term debt obligations, including interest payments, and purchase obligations. Our long-term debt obligations are comprised of our expected principal and interest obligations and our interest rate swaps. Purchase obligations consist of open purchase orders as ofMarch 31, 2021 and contractual payment obligations with significant vendors which are noncancelable and are not contingent. These obligations are primarily short-term in nature.
Critical Accounting Policies
The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Certain of our accounting policies are considered critical because these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments by us, often requiring the use of estimates about the effects of matters that are inherently uncertain. Actual results that differ from our estimates could have an unfavorable effect on our financial position and results of operations. We apply estimation methodologies consistently from year to year. Such policies are summarized in Item 7, "Management's Discussion & Analysis of Results of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . There have been no significant changes in the application of our critical accounting policies during the three months endedMarch 31, 2021 .
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