Zoetis Inc.

Welcome to the first quarter 2019 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, and 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 Zoletos.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 and 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.

Thank you. Good morning, everyone, and welcome to Zolotis' first quarter 2019 earnings call. I am joined today by Juan Ramon Alife, our Chief Executive Officer, and Glenn Davis, 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 reports 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 measures is included in the financial tables that accompany our earnings press release and in the company's 8-K filing dated today, May 2nd, 2019. We also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Juan Ramon.

Thank you, Steve. And good morning everyone. I will start today by describing some of the dynamics in the animal health industry that are on investors' minds. First is the positive trend for spending and innovation in companion animal medicines and treatment. Pet-owned spending in the U.S. continues to rise in terms of revenue per visit and number of patient visits. and we also see positive trends for pet care in the rest of the world. Pet owners are willing to spend their income on medicines, vaccines and other treatments to ensure a longer and better quality of life for their pets. We believe Zoetis is well positioned to continue its success in the companion animal space as our portfolio of dermatology products, parasiticides, and vaccines continue to drive our growth. Second, we see economic pressures and other challenges continue to impact dairy and cattle producers in the U.S. We still, however, expect to see the U.S. cattle and dairy market growing for the full year. driven by a stronger domestic demand for beef, an increasingly optimistic outlook for beef and dairy exports, and a modest improvement in milk prices. Finally, African swine fever has made headlines about significant concerns for the pork market. saying that as many as 150 to 200 million pigs or up to 30% of their annual pork supply could be lost due to the outbreak. For context, that is more than the U.S. annual pork production. This situation has far-reaching implications for the global pork supply chain. The reduction in supply in China is making ethics more valuable, creating opportunities for greater export from other countries, and increasing consumption of other proteins. The situation will evolve through the year, and we are monitoring any effects on the overall market and our business, which saw an impact in the first quarter. unfortunately, are part of doing business in animal health. This year, we are facing issues with African swine fever. A few years ago, we dealt with PEDV, with avian flu, and before, with blue-tone disease. These challenges are why Sledis has built a diverse portfolio of best-in-class air products across all relevant species and geographies. To both address opportunities and to manage through economic cycles, disease outbreaks and unfavorable weather conditions. We communicated in February that we expected the overall industry to grow approximately 5% per year. excluding the impact of a forest currency. Now, because of African swine fever, we expect the animal health industry to have a lower growth rate in 2019, and we'll continue to assess the broader impact of African swine fever as the year progresses. Despite some of these temporary challenges, we are maintaining our guidance for operational revenue growth, including AVAXIS, 4.5 to 6.5 percent for the full year, which we expect to be faster than the growth of the animal health market. Turning now to our first quarter results, we are off to a solid start for the year, with 11 percent operational revenue growth being driven by our companion animal business. Revenue from the AVAXIS acquisition accounted for five percentage points of the overall 11% growth. Our sales in companion animal products are once again leading the way with a 27% operational growth based on the addition of sales from AVAXIS. as well as our parasiticides and key dermatology portfolio. Our livestock product sales declined 3% operationally due to challenge in certain cattle and swine markets. For the first quarter, we grew our adjusted net income by 18% operationally and adjusted diluted EPS by 19%. as we benefited from a strong revenue growth and a significant increase in growth margin due to pricing, a favorable product mix, and cost improvements. Glenn will provide more details on our first quarter performance in his remarks. Our results, once again, confirm the importance and value of a broad and innovative portfolio in the animal health industry, and we remain confident in our performance and outlook for the full year. Looking ahead, we continue to invest in advancing our pipeline, ensuring successful market launches of new products, and furthering the integration of ABAXIS this year. Since our last quarterly earnings announcement, we have seen key companion animal products including Cytopoint and Symphatica for dogs and Revolution Plus for cats continue to gain approvals in markets outside the U.S. Our core EQ innovator, the first and only combination vaccine to offer protection against five core equine diseases was also approved in Canada. And that week Zoetis received approval for Apocol in China, one of Zoetis' largest companion animal markets. And we expect to launch the product there within the next two months. On the livestock side, we launched This is the first genomic test for this breed that provides a direct indication about the genetic risk factors for seven of the most common and costly adult cow diseases. In terms of our R&D pipeline, we still anticipate launching this year. A new injectable parasiticide formulation to protect dogs against a heartworm for up to 12 months pending FDA approval. Our new three-way combination of parasiticides composed of simparica and two other active ingredients still in regulatory review in the U.S. and with the European Medicines Agency. Reviews are also underway in Canada and Brazil, with further submission expected in Japan, China, and Australia this year. If approved, we anticipate this product coming to market in 2020. We also continue working on new monoclonal antibodies to manage pain in dogs and cats, and dermatology for cats. Those programs are progressing and will keep investors informed of future findings in this area. We feel very positive about the benefits these treatments can provide to greater compliance, convenience and efficacy for different species. In the case of other research for livestock, I would point to our programs in vector vaccine technology for poultry. research into promising new classes of antibiotics, and our ongoing investment in diagnostics, genetics, devices, digital and data analytics technologies that can be used in applications like precision livestock farming. Additionally, we have vaccine programs to address current and future emerging diseases, which has been a growth driver for our industry in the past. We also maintain a comprehensive portfolio of approximately 300 product line properties, and we invest significantly each year on lifecycle innovation that keeps those products competitive and growing. Finally, we are making good progress on the integration of ABAXIS, We remain positive on the point-of-care diagnostic market, given its strong global growth prospects, as well as the critical role these diagnostics play in the vet clinic. We are excited about the strength of the AVAXIS portfolio and the way our field force is already presenting it to customers around the world. Our U.S. field force has been working to drive greater growth through new lead generation for diagnostics. In international markets, we have nearly completed staffing and training of our expanding diagnostic team, implemented a new customer service model across this market, and view this as a greenfield opportunity for future growth. We are pleased with our progress today, and we continue to view 2019 as an important year for the integration and platform setting, enhancing certain product and customer experiences and developing more comprehensive customer solutions that leverage our new diagnostic assets. In closing, our first quarter results once again demonstrate the stability and diverse strength of our portfolio in a dynamic animal health industry. We are executing on our strategies for growth across the continuum of care with new products and solutions that help our customers predict, prevent, detect and treat diseases in animals while navigating the evolving trends in animal health. And we are investing and making important progress in key areas such as dermatology, parasitic sites, diagnostic, digital, and data analytics, where we see both near and long-term growth opportunities. Thank you for joining us today, and I will now hand the call over to Glenn.