Zoetis Inc.

Stand by, your program is about to begin. If you need audio assistance during today's conference, please press star zero. Welcome to the fourth quarter and full year 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 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, Catherine. Good morning, everyone, and welcome to the Zoetis fourth quarter and full year 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 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. 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 the company's filings dated today, Tuesday, February 15, 2022. 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 welcome everyone to our year-end earnings call for 2021. I am happy to report that Zoetis delivered its strongest performance ever in 2021, thanks to our innovative, diverse, and durable portfolio and the talent and commitment of our colleagues. We grew revenue 15% operationally, which is, once again, above the anticipated growth rate for the animal health market. And these results were highlighted by 27% operational growth in our companion animal portfolio with 1% operational growth in livestock. Our parasiticide, dermatology, vaccines, diagnostics, and monoclonal antibody therapies all contributed to these strong results, driven by the positive trends in pet care, trends that we see continuing to be a key growth driver in 2022 and beyond. From a segment perspective, we saw solid balance across our global footprint, with the U.S. up 14% and international growing 17% operationally. Operationally for the year, China grew 25%, Brazil grew 28%, and other emerging markets grew 22%, leading the way for our international performance. Another major growth driver for the year has been our global diagnostics portfolio, which grew 21% operationally, with significant strength in international markets and the continued launch of Vetscan Images, our AI-driven diagnostics platform. Based on the strong revenue performance, we were able to deliver 19% operational growth and adjusted net income for the year, while investing significantly in our latest product launches as well as staffing, R&D, and manufacturing projects for future growth. Looking ahead, we believe this momentum sets us up well for 2022. We expect to continue growing revenue faster than the market in the coming year, driven by continued strength in pet care, expansion of our diagnostics portfolio internationally, and significant growth in both companion animal and livestock product sales for emerging markets, including China and Brazil. As a result, we are guiding to full-year operational growth of 9 to 11% in revenue. Whitney and I will discuss more details about the full-year 2022 guidance. But let me share some views on the year and other updates. First, the essential nature of animal health continues to be affirmed by our performance during the COVID-19 pandemic. We've seen the fundamental drivers, such as increased emphasis on pet wellness, a growing global population, and continuous consumption of animal-based proteins, all reinforce the animal health industry as a positive investment choice. In terms of the companion animal market, People's commitment to the health and well-being of their pets has continued to drive higher spending and new opportunities for innovation, geographic expansion, and increasing levels of care. Pet owner spending in animal health remains one of the more durable trends in consumer spending, as people place a premium on the health and well-being of their pets, even during challenging economic times. In January, the Human-Animal Bond Research Institute and Zoetis released the results of a new global survey of more than 16,000 pet owners and 1,200 small animal clinics, which reinforced how deep the connection is between pets and pet owners and how that dynamic relates to views on veterinary care and the related benefits of pet ownership. In the study, 92% of respondents said there was no reason they could ever be convinced to give up their pet. And 86% said they would pay whatever it takes if their pet needed extensive veterinary care. The strength of the human-animal bond strongly correlated with higher rates of veterinary treatment for both preventative care and specific conditions in their pets. This study and other research support our focus on advancing an innovative pipeline for pain, dermatology, and parasiticides for pets. And we continue to invest in our field force, direct to consumer marketing, and manufacturing capacity to bring these products to market. Moving on to the livestock industry, the need for safe and reliable sources of animal protein continues to be a fundamental growth driver for the industry, particularly in emerging markets. In any given year, weather, disease, and market dynamics may have various regional impacts. But the underlying demand continues to be served locally or through global trade across more than 100 markets where Zoetis products are sold. We continue to see Zoetis' livestock business show modest growth during the pandemic and recent economic challenges based on our strength internationally. We see that international growth continuing this year while we continue to see declines in the U.S., driven primarily by generic competition in certain product lines. Our competitive strategies in pricing and new lifecycle innovations will help us mitigate some of that impact. Livestock products are a key element of our global strategy and long-term growth, and we've continued to expand our vaccine product lines, like pullback for Serta for poultry and Applegent Micro for fish, as well as Drax and KP as a treatment for cattle. We're also exploring more livestock innovations around greater efficiency, precision animal health, and more sustainable food production. We've been focusing on our investments in vaccines for prevention and maintaining healthy animals, data analytics for more individualized animal care, and research into other sustainability improvements around immunotherapies. I was particularly excited by two recently announced additions to our precision animal health portfolio. Performance Ranch, a new cloud-based cow-calf management software that simplifies tracking of individual animal performance and health product usage. and our new Blockyard platform, which is blockchain technology developed in cooperation with IBM to provide a secure way to share information across different segments of the animal production supply chain. For Zoetis, we continue to stay focused on our five strategic priorities for the long term, and we are optimistic about the growth drivers we see for 2022. PetKale will remain a major growth driver for Zoetis globally based on our diverse and innovative portfolio. We see continued growth potential for our dermatology portfolio, which surpassed $1 billion in revenue for the first time in 2021. Our parasiticides, driven by our triple combination Semperica Trio, as well as Revolution Plus, Stronghold Plus, Semperica, and ProHard 12, will continue to achieve growth as we gain market share in major markets and look at further lifecycle innovations and label gains across the portfolio. Labrella and Silencia are monoclonal antibodies for control of osteoarthritis pain in dogs and cats will continue to increase their revenue in 2022, primarily in the EU, and we're making regulatory progress for these products in the US. We received FDA approval for Silencia in January with a launch expected in the second half of the year, and we still anticipate approval of Labrella in the second half of the year, assuming FDA inspections are completed at a facility outside the US. As we begin 2022, we are seeing strong demand in the EU for Librella and Silencia, and we remain confident in the blockbuster potential for Librella in 2022 and Silencia in the longer term. We continue to optimize our global supply chain and manage ongoing challenges, which have been creating isolated constraints for Librella, Silencia, and some of our other products. As always, maintaining a consistent, reliable supply for our customers is our top priority. and we've been communicating with them about any impact to their orders. We want to ensure all pets can continue their treatments without interruption, especially for chronic treatments of OA pain. Our global manufacturing network is working around the clock to ensure reliable supply for our customers as they did throughout 2021. And our full year guidance and strong growth reflects our views on supply. Diagnostics is our next major growth driver in 2022 with a fully integrated point of care business that is prime for strong growth internationally, along with the expansion plans for relatively new reference lab operations. We are making significant progress in one of the fastest growing markets for animal health. We're adding more dedicated field force and customer service resources while developing more offerings that will leverage our portfolio across the continuum of care. And finally, we see significant growth opportunities in emerging markets, including China and Brazil, where we see excellent opportunities for both our companion animal and livestock products based on increased medicalization and other positive trends. Meanwhile, our R&D team, along with external partners, will continue to generate the industry's most productive pipeline in the years to come. With more than $500 million in R&D spending in 2021, our largest ever annual investment for R&D. We continue progressing research to address allergies, livestock health, chronic pain, and inflammation, chronic kidney disease, and diagnostics through our vaccines, therapeutics, and digital technology platforms. In conclusion, I want to thank our colleagues for delivering another terrific year and for always bringing the value of Zoetis to our customers every day. Zoetis remains well positioned in terms of our market leadership, financial strength, investment strategies, and diverse portfolio to deliver sustainable growth to investors in 2022 and beyond. Now, let me hand things off to Wetni.