Zoetis Inc.

Welcome to the first quarter 2021 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 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 and 1 on your telephone keypad. 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, Keith. Good morning, everyone, and welcome to the Zoetis first quarter 2021 earnings call. I am joined today by Kristen Peck, 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 statement 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. The 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 eight-case filing dated today, Thursday, May 6, 2021. We also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Kristen.

Thank you, Steve, and good morning, everyone. I hope you and your loved ones are all staying healthy and able to get vaccinated for COVID-19. If not already, then soon. We've been very fortunate in the U.S. as vaccination rates are up and infection rates are trending down overall. But that is not the situation everywhere. In many countries, improving access to vaccines and controlling infection rates are critical hurdles for a more comprehensive global recovery. Yet with the extraordinary measures being taken by so many, I remain optimistic about the steady progress we're making to beat this pandemic. I'm also very proud of what we've been able to do at Zoetis in our own small way to support the global effort. We've been able to keep our colleagues safe, encourage and assist them with vaccinations where possible, and continue serving our customers in the care of their animals. And we're off to a very strong start in 2021. executing on strategies for building on our innovative pet care portfolio, expanding in key markets outside the U.S., and accelerating our growth in diagnostics. In the first quarter, we grew our top-line revenue at 21% operationally, our best quarter ever, with 25% operational growth internationally and 19% growth in the U.S., China and Brazil led our international performance with 75% and 48% operational growth, respectively, exhibiting their strength in both companion animal and livestock product sales. In total, our companion animal portfolio grew 34% operationally, based on the strength of our parasiticides and dermatology products, while our livestock portfolio grew 8% operationally, with solid growth in cattle, swine, and fish products. Digging deeper on pet care, it has been one year since the launch of our triple combination parasiticide, Sempericatrio. It is exceeding expectations and has been well received by customers with a 90% plus penetration rate in our largest U.S. corporate accounts. Sempericatrio is the latest growth catalyst for our portfolio of small animal parasiticides. After several successful innovations in the last few years, these products made up 16% of our total sales in the first quarter and include such brands as Semperica, Semperica Trio, Revolution, Stronghold, and ProHard. We believe the ongoing market shift to e-commerce is another boost for this category. helping to increase compliance and months on therapy. And our direct-to-consumer campaigns for Symperica and Symperica Trio continue showing a solid return on investment in markets around the world. Meanwhile, our key dermatology portfolio, led by Apical and Cytopoint, demonstrated continued double-digit growth. We are seeing excellent traction and significant growth across a range of international markets. Our dermatology portfolio has further growth potential as we continue expanding our international customer base and seek to become a more common first-line treatment for pruritus in dogs. Veterinarians and pet owners alike appreciate the exceptional standard of care that our products can provide. In the companion animal space, we also continue to be pleased with our diagnostics portfolio, which grew 47% operationally in the first quarter. We have grown our point-of-care diagnostic sales, made excellent progress on improving our connectivity solutions in veterinary practices, and have seen our cloud-based VetScan images platform receiving very positive customer feedback, with placements exceeding expectations in the early launch. We're also making progress on our reference lab integrations and look forward to future expansions in this space, both in the U.S. and internationally. Our growth in livestock was driven by the performance of cattle, swine, and fish in the first quarter. Cattle product sales in the U.S. were strong as the food service sector had started to recover and generic competition for draftsmen was later than expected. Meanwhile, swine benefited from the continued recovery from African swine fever in China. Thanks to the unprecedented growth in revenue and our continued financial discipline and adaptability throughout COVID-19, our adjusted net income grew 34% operationally. Looking ahead, we are raising guidance for operational growth in full-year revenue to the range of 10.5% to 12%. And while we had an unusually strong first quarter, we expect more normalized revenue growth in the second half of the year due to tougher comparative quarters and increasing generic competition for Jackson. Glenn will provide more details on other guidance updates in his remarks. Since the beginning of the year, Zoetis has continued to advance our key priorities. including key milestones for new products and life cycle innovations and geographic expansions for major brands. Since our last earnings announcement, we received approval in the European Union for Silencia, the first injectable monoclonal antibody for the alleviation of pain associated with osteoarthritis in cats, and it will be launching this year. Osteoarthritis is vastly underdiagnosed and undertreated today due to limited options for therapy and difficulty recognizing pain in cats. Meanwhile, Labrella, our monoclonal antibody for the alleviation of OA pain in dogs, has launched in the EU, and we're seeing a great customer response from vets and dog owners who reference the increased activity, social ability, and quality of life for their pets. In the U.S., we've continued discussions with the FDA regarding our regulatory submissions and manufacturing inspections for Labrella and Silencia, and we now anticipate approvals for both products in 2022, with Labrella likely later in the year. We will provide updates on U.S. revenue expectations for these products in 2022 as we get further clarity on approval timing and rollout plans. It is also worth noting that in China, which is our second largest market in terms of revenue, Zoetis recently received approvals for several leading products, Fusterra PCV-MH, a one-shot vaccine for pigs, Xenel RTU-EZ, a key anti-infectant for cattle and swine, and Revolution Plus, our latest parasiticide for cats. We continue to strengthen our portfolio in China, one of our key catalysts for growth. We're also maximizing our key brands with more geographic expansions. In poultry, we expanded our line of recombinant vector vaccines with approval of Holbach-Proserta HPT-NV in Canada, Brazil, and several other smaller markets. And in parasiticides, we received additional approvals for Simperica Trio in Japan, Mexico, and several other smaller markets. In terms of sustainability, we published our long-term goals in March with specific commitments to communities, animals, and the planet. We've built a comprehensive and rigorous approach to our Driven to Care program, and our goals include support for 10 of the 17 United Nations Sustainable Development Goals. We will be releasing more detail on these goals and our initial progress in our sustainability report this June. In closing, the fundamental growth drivers for our industry continue to show strong and sustainable momentum. pet adoption trends and higher spending per visit in the US, along with increased medicalization rates in markets outside the US, all continue to bode well for significant growth in our companion animal and diagnostic portfolios globally. We feel very confident about where our companion animal business has come over the last few years, launching innovative new products, defining new standards of treatment, and expanding our global reach. In 2014, our companion animal business was 34% of our total revenue. Last year, it had grown to 55% based on the strength of our innovation and investment in growth, and we see that continuing to expand. In livestock, the industry is in a more limited innovation cycle, and we expect modest growth for the year. Livestock growth is tied closely to the pandemic and how quickly the food service industry recovers. For zoitis, we also anticipate increasing headwinds of generic competition to Drakton, but we expect our lifecycle innovations and competitive strategies to help us mitigate the impact. While U.S. livestock may present challenges for us in the near term, I feel very positive about our catalyst for growth in pet care, diagnostics, and international markets like China and Brazil. We continue to be led by our companion animal parasiticide and dermatology portfolios, with more growth to come, and we see a bright future ahead for our monoclonal antibodies for pain. Diagnostics is accelerating its growth as we increase our global footprint, expand our reference labs, and demonstrate the potential for vet scan images to veterinary clinics. And internationally, China continues to be a market with significant growth potential, not only in swine products, but with a sizable opportunity for increased medicalization of pets. and we expect major growth to continue in Brazil across the companion animal and livestock portfolios. As always, we remain confident that Zoetis' diverse portfolio across species and geographies, our continued pipeline of innovative new products and lifecycle innovations, and the agility and commitment of our colleagues will continue driving our success in 2021 and beyond. Now, let me hand off to Glenn, who will speak more about our first quarter results and updated guidance for the full year 2021.