Zoetis Inc.

Welcome to the fourth quarter and four-year 2018 Financial Results Conference call and webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of Zoetis.com. The presentation slides can be managed by you, the viewer. It will not be forwarded automatically. In addition, a replay of this call will be available approximately two hours after the conclusion of this call via dial-in or on the investor relations section of zoetis.com. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. In the interest of time, we ask that you limit yourself to one question and then queue up again with any follow-ups. Your line will be muted when you complete your question. When posing your question, please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Steve Frank. Steve, you may begin.

Good morning, everyone, and welcome to the Zoletus fourth quarter and full year 2018 earnings call. I am joined today by Juan Ramona Lykes, our Chief Executive Officer, and Glenn David, our Chief Financial Officer. Before we begin, I'll remind you that the slides presented on this call are available on the Investor Relations section of our website and that our remarks today will include forward-looking statements and that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements in today's press release and our SEC filings, including but not limited to our annual report on Form 10-K and our report on Form 10-Q. Our remarks today will also include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP, a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measure is included in the financial tables that accompany our earnings press release and in the company's eight-day filing, dated today, February 14, 2019. We also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Juan Ramon. Juan Ramon- Thank you, Steve.

Good morning, everyone. Our 2018 results once again confirm the strength of our business and our leadership in the animal health industry. We delivered another year of strong performance and executed our investment plan to continue to strengthen our portfolio across the continuum of care. Our successful innovations, the high quality of our manufacturing, our best-in-class field and the diversity of our portfolio has been driving our steady revenue growth over the years. Since we became a public company in 2013, we have consistently grown revenue faster than the market. And this revenue performance has been achieved while significantly improving our profitability. With our adjusted EBIT margin increasing from 24% in 2013 to 35% in 2018. In 2018, we delivered our sixth consecutive year of operational revenue growth, 10% overall, with organic operational growth of 8%, which excludes the revenue related to our abacus acquisition. In terms of organic revenue drivers, we achieved our strongest growth in our dermatology portfolio, vaccines and parasiticides. Meanwhile, our anti-infective and medicated feed additives showed more modest growth. And this was because of regulatory changes around the use of antibiotics in animal production. For the second year in a row, Our broad base of about 300 products and product lines generated operational revenue growth across all our core species and major markets. We expect our 2018 organic growth to once again outperform the market and deliver our value proposition of growing in line with or faster than the animal health market. We also increased profitability faster than revenue growth for the full year, growing adjusted net income by 31% on an operational basis, consistent with our value proposition. This improvement was driven by higher revenue, improved cost structure, and tax reform. In 2018, we achieved other important milestones that will support our future growth and success. Apoquil, our largest product by revenue, achieved $464 million in sales in 2018, an increase of 28% from 2017. We added two new blockbusters to our portfolio in 2018, bringing our total number of products with more than 100 million in the annual sales to 12. Our oral parasitic is Empirica, and our monoclonal antibody for dermatology, Cyzopoint, each exceeded $100 million in sales for the first time, with $158 million and $129 million in annual sales, respectively. We also introduce critical new lifecycle innovations that keep our portfolio updated and competitive and support the durability of our major global franchises. For example, Postera Gold, PCVMH, our latest swine vaccine, was introduced in the U.S. and Canada to provide greater options and flexibility in protecting pigs from diseases. We also built on the sarolaner compound in Sympharica to develop Revolution Plus, a topical parasiticide for cats that was recently approved in the US, Japan, and Canada. It combines two ingredients, sarolaner and salamectin, and it's already marketed in the European Union as Stonehold Plus. All these new products and lifecycle innovations demonstrate the excellent return on our investment in R&D. We also took important steps to expand our manufacturing capacity. In the U.S., we enlarged our production facilities for poultry vaccines in Charles City, Iowa, and our expansion in Kalamazoo, Michigan, is progressing ahead of schedule. with the first commercial batches of oral solid dose medicines expected to be delivered to customers by the middle of 2019. Outside the U.S., we expect to complete the construction of a vaccine manufacturing facility in Suzhou, China, by the end of 2019. And we acquired a facility in Tala, Ireland, to help increase the supply for our market-leading bovine seed sealants that help protect cows from mastitis infections. During the year, we made our largest acquisition to date, purchasing Avaxis for $2 billion in the fast-growing point-of-care diagnostics space. We see diagnostics as an important area to broaden our portfolio, and with tremendous growth opportunity ahead, especially in international markets. We also acquired SmartBow for its sensor technology and monitoring systems, which will be essential to our expansion in precision livestock farming and other digital and data analytic solutions that are emerging in animal health. And we return excess capital to our shareholders. In December, we announced a $2 billion multiyear share repurchase program and the increase of our quarterly dividend by 30%. Looking ahead in 2019, we'll continue investing to generate short- and long-term growth. We support our key dermatology and parasiticide products with direct-to-consumer advertising and promotional campaigns to advance health penetration and launches in new markets. In the U.S., we'll be launching two new products in our companion animal business. Evolution Plus, a topical parasiticide for cats that I mentioned before, has launched this quarter. And pending FDA approval this year, we would expect to launch a new injectable formulation to protect dogs against heartworms for up to 12 months. In terms of R&D, our pipeline remains very strong, and we expect to see more progress in 2019. Potential filings for new products and continuing market expansions offer major products like Cytopoint, Symparica, and Apoquil, which is expected to launch in China this year. will continue our work on new monoclonal antibodies to manage pain in dogs and cats, as well as for dermatology in cats. We are making good progress with our research programs, and we feel very positive about the potential this type of treatment offers for greater compliance, convenience, and efficacy for different species. This remains an area to watch as we invest further internally, and we build on our partnership with Regeneron in this space. As I have mentioned in previous communications, the application for our new three-way combination parasitic site, composed of simparica and two other active ingredients, has been filed in the US and with the European Medicines Agency. And, if approved, we still anticipate incoming to market in 2020. Additionally, we'll be investing more in research for diagnostics, devices, digital and data analytics technologies that can be integrated with our portfolio of medicines and vaccines. Diagnostics for livestock are a promising long-term opportunity, and areas such as sensor technology, monitoring systems, and other digital applications for animal health will be receiving more investment. In terms of our deeper commitment to diagnostics, we look forward to a full year of selling a more robust portfolio of point-of-care diagnostic instruments, consumables, and test kits. We are seeing great progress with integration of the legacy of Axis Field Force in the U.S. Outside the U.S., we are building the infrastructure, sales, and technical teams needed to support our diagnostic portfolio. Moving into market projections for 2019, we expect the overall industry to grow approximately 5%, excluding the impact of foreign currency. The swine market, companion animal market, and poultry are all expected to be somewhat in line with the market growth. The cattle market growth is expected to be more limited based on challenging market conditions for beef and dairy customers. For Swedish, we expect to grow faster on the market for companion animal and swine based on our new products and to grow in line with the poultry and cattle markets. We announced our full year 2019 guidance today. and we are expecting organic operational revenue growth of 4.5 to 6.5 percent, excluding a 3 percentage point contribution from AVAXIS. Operational growth for adjusted net income is expected to be in the range of 8 to 11 percent. In 2019, we are committed to investing profits to generate short and long-term growth while returning excess capital to shareholders. In conclusion, our strong performance in 2018 is based on our diverse portfolio, our leadership innovation, and customer experience across the entire cycle of care. In 2018, We have invested to support the growth of our core business as well as in evolving spaces like diagnostics, devices, digital and data analytics. We expect to build on this strategic approach to our growth in 2019 while delivering on the full year guidance. With that, let me hand things over to Glenn who will provide More details on our 2018 fourth quarter results and full year 2019 guidance.