Zoetis Inc.

Welcome to the third 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 Zulettis.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.

Thank you, Operator. Good morning, everyone, and welcome to the Zoetis Third Quarter 2021 Earnings Call. I am joined today by Kristen Peck, our Chief Executive Officer, and Wetney Joseph, 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. or 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 NCC 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. GAAPs, 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 8K filing dated today, Thursday, November 4th, 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.

Thank you, Steve, and welcome everyone to our third quarter earnings call. We delivered strong results again this quarter, with 10% operational growth in both revenue and adjusted net income, driven by our innovative portfolio of pet care parasiticides and dermatology products. Our U.S. business grew revenue 7% operationally, while international grew revenue 14% operationally. In terms of species, our companion animal portfolio generated 19% operational revenue growth in the quarter, with great performance in markets around the world. Our latest innovation in parasiticides, the triple combination Semperica Trio, is increasing its global adoption. Our groundbreaking dermatology products, Apropos and Cytopoint, continue to redefine and expand the category. And we completed the first full quarter of sales for both of our new monoclonal antibody therapies for osteoarthritis pain in dogs and cats, Librella and Silencia. These new products are exceeding expectations and receiving very positive feedback from veterinarians and pet owners in European markets where they've been launched. When you add all of this to our growth in diagnostics for companion animals, I see our business continuing to capitalize on the positive demographics for pets. Increased spending on pet wellness and treatment will be sustainable well beyond the pandemic, and our portfolio and pipeline have us well positioned to continue leading and innovating in this market. Livestock product sales continue to present a more complex picture for the industry and Zoetis, with market dynamics varying widely by species and geographies. As we expected, our livestock portfolio declined 2% operationally in the third quarter, largely due to generic competition across cattle, poultry, and swine, and most significantly in the U.S. We have taken proactive strategies to protect these product lines, including the introduction of a lifecycle innovation like Drax and KP, but pricing pressure remains due to the increasing effects of generic competition. On the positive side, we saw 7% operational growth for livestock and international, as markets like Brazil, Chile, and other emerging markets performed well. Our long-term advantage in livestock continues to be our diverse portfolio and strength across geographies and product categories like medicines, vaccines, and medicated feed additives. We also continue to invest in R&D programs that align with our customers' long-term needs for more efficient and sustainable production methods, which can be built on new therapies, analytics, and digital solutions. We remain on track for a record-setting year with updated guidance for operational revenue growth in the range of 14% to 14.5% and adjusted income growth in the range of 16.5% to 18% for 2021. Our major catalysts for growth have performed well this year and have more runway ahead for 2022 and beyond. And will we make the right investments and continue successfully executing our growth strategies? Our strength in pet care has an incredibly strong foundation across parasiticides, dermatology, and vaccines. Through the first nine months of 2021, our companion animal portfolio has grown 29% operationally. We also remain very excited about the long-term blockbuster potential of our new monoclonal antibody franchises in pain, Labrella and Silencia, as they grow in Europe and we make progress on approvals in the U.S. We currently expect approval of Silencia in the US in the first half of 2022, with Lorella remaining more likely in the second half. Our revenue growth in international markets has been 20% operationally through the first nine months, driven by China, Brazil, and other emerging markets. We continue to expect growth to come across both our companion animal and livestock portfolios in these markets. Finally, our diagnostics portfolio remains a key catalyst for growth, with 28% operational growth through the first nine months. We are gaining significant traction with our expansion of the point-of-care portfolio in markets outside the U.S. We always believed international expansion was one of the biggest value drivers for the Abaxis acquisition once we combined that portfolio with the global Zoetis footprint. The acceleration of international growth for diagnostics is a very positive sign and continues gaining momentum. We also recently added digital psychology testing to our VetScan images platform in the U.S., U.K., Canada, Australia, and New Zealand. This means we can now offer a network of expert remote pathologists in addition to artificial intelligence technology for fecal testing. We are seeing our strongest early adoption of VetScan images in Germany, Australia, Spain, and the U.K., and we will continue developing additional applications for the platform over time. In addition to our ongoing investments in R&D programs and direct-to-consumer campaigns, we are investing in manufacturing capacity to meet increasing demands for our new parasiticide products and monoclonal antibody therapies. Expansions are underway at our sites in Kalamazoo, Michigan, Lincoln, Nebraska, and Telemore, Ireland. All of these are significant multi-year projects to ensure we have ongoing reliable supply while maintaining a diverse global network of third-party contract manufacturers that give us the greatest flexibility and redundancy. Our supply chain team has done an excellent job over the last two years to optimize inventory levels of key products while minimizing the impact of a challenging global supply landscape. We continue to carefully monitor and manage our supply chain and inventories. And finally, before I hand things off to Wetni, I wanted to note our recent news about changes in our R&D leadership team. Longtime R&D leader, Kathy Knupp, will be retiring at the end of the year and ensuring a smooth transition through February. I am very grateful to Kathy for building the most innovative and productive R&D organization in the animal health industry and for leading us with a rich pipeline of future innovations and R&D talent, which includes her successor, Rob Holzer. Rob has been with Zoetis since 2015, working on many of the innovations that have come to market recently in parasiticides and monoclonal antibodies. He has experience running our global therapeutics and biologics R&D organization and is the right leader for the future of innovation at Zoetis. In closing, I want to thank our colleagues for delivering another great quarter and bringing the value of Zoetis to our customers every day. we are confident in the updated guidance we have provided and see the fundamental growth drivers of our business continuing into 2022 and beyond. Now, let me hand things over to Whitney.