Zoetis Inc.

Welcome to the second quarter 2023 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, 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 telephone keypad. If at any point your question has been answered, yourself from the queue by pressing star two. 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 Zoetta second quarter 2023 earnings call. I am joined today by Kristen Peck, our chief executive officer, and Whitney 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. 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, 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 8-K filing, dated today, Tuesday, August 8, 2023. We also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Kristin.

Thank you, Steve, and welcome, everyone, to our second quarter earnings call for 2023. I hope you were able to join us or listen to our Investor Day this past May. If you missed it, please check out our replay on zoetis.com. I think you will find it worth the time in learning more about Zoetis and where we see future growth in animal health. We appreciated the opportunity to step beyond the cadence of our quarterly earnings calls and speak to you about the long-range perspective on our business and on our industry during Investor Day. We also appreciated your questions and the ongoing dialogue about the issues most important to you. As you know, we shared more detail about our growth strategy, innovative pipeline, and the key franchises, capabilities, and investments we are making to build on our competitive advantages as the world leader in animal health. The four tenets of our value proposition were affirmed and expanded on throughout the day, and you can expect us to revisit that framework. and provide progress updates in future investor interactions. Our goal is always to ensure that you understand how we are positioned to deliver on our value proposition, the revenue growth, strategic investments, margin expansion, and capital returns. With that covered, let's turn now to the second quarter financial results. Today, we reported strong second quarter results of 9% operational growth in revenue and 12% operational growth in adjusted net income based on our diverse portfolio across markets and species. As expected, we returned to a more balanced segment growth this quarter, with 11% operational growth internationally and 7% growth in the U.S. Our companion animal portfolio grew 11% operationally, driven by our major franchises in dermatology, osteoarthritis pain, and pet parasiticides. The second quarter results and drivers were more in line with our performance trends in recent years. with innovations and strength in our companion animal portfolio leading the way. Meanwhile, our livestock portfolio moved 4% operationally in the second quarter, driven by sales of poultry, cattle, and fish products, and continue to demonstrate the benefits of our diversified portfolio across species and geographies with a strong first half. Overall, the first half of 2023 has played out much as we expected. we have grown revenue 6% operationally in the first half, driven by strong results from our international markets and livestock performance, which were partially offset by the distributor destocking we explained in the first quarter. As expected, the impact of distributor destocking in our U.S. companion animal portfolio has stabilized and was not a significant factor in the second quarter. We continue to see strong customer demand for our companion animal portfolio For the first half of 2023, companion animal grew 5% operationally. We believe companion animal should be a bigger driver of performance for the remainder of the year, with a stronger second half driven by our key franchises. While we are monitoring how inflationary pressures may impact pet care spending in markets around the world, the underlying demand has remained steady and resilient to date, and this is what we have seen historically. In the U.S., Veterinary clinic visits continue to stabilize, staying relatively flat through the first half of the year, and clinic revenue and spend per visit were both up about 9% in the U.S. in the first half. Meanwhile, our livestock portfolio grew 8% operationally in the first half of 2023, reflecting strong growth internationally and continued supply recovery in our U.S. cattle products. We expect livestock growth for the full year to be in the low single digits operationally, reflecting tougher comparisons in the second half of the year for our U.S. portfolio. With the first half of the year playing out largely as expected, we are maintaining our full year guidance for operational growth of 6% to 8% in revenue and 7% to 9% in adjusted net income. In our companion animal portfolio, we expect Labrella and Silencia to continue to ramp up in various markets, as we build our franchise for osteoarthritis pain. One way we are supporting growth for both products is increased use of direct-to-consumer campaigns in launch markets. These campaigns are building disease and product awareness, creating conversations among vets and pet owners, and accelerating our efforts in markets where DTC is available. We're also pleased to have received U.S. regulatory approvals in the second quarter for Librella and for Apical Chewable. Both have been performing well in markets outside the U.S. to date. Labrella is expected to launch in the U.S. in November, with an early experience trial beginning in September. As we look at the second half, we continue to expect strong growth, even as we factor in uncertainty around the macroeconomic conditions and droughts that exist in certain countries around the globe, particularly Asia Pacific, and tougher comparisons for U.S. livestock portfolio in the U.S. As we have seen historically in these types of environments, our global footprint and diverse portfolio provide more stability to our business during uncertain times, and we remain ready to pivot resources and investments to the greatest opportunity areas that it can ensure we continue to deliver on our commitments. For example, we continue to expand in large and growing product areas such as parasiticides, dermatology, monoclonal antibodies for pain, vaccines, and diagnostics, and invest in the franchises and capabilities that support our future growth, many of which we discussed at Investor Day. Before I wrap up, three quick points around our colleagues. First, I want to welcome Esther Banque to our Zoetis Executive Team as EVP and President of U.S. Operations. Esther joined us in July, coming most recently from Bristol Myers Squibb and having spent a major part of her career at Novartis as well. She brings diverse global experience in healthcare and an impressive track record of driving results to Zoetis. And I'm happy to say she is already off and running with the US business. I also wanted to call out the recent publication of our 2022 sustainability report. This year's report captures how sustainability is integrated across the business and shares the progress we are making toward our driven-to-care aspirations. This report honors our outstanding Zoetis colleagues, who champion our purpose and work every day to make us the world's most trusted and valued animal health company. And finally, I wanted to mention a recent recognition from Fast Company, which named Zoetis as one of the best workplaces for innovators. Shaping animal care through innovation is something we have always done across the company. and it has been a key element of our success. This is a well-deserved honor for our culture and our people who continuously strive to solve critical unmet medical needs in animal health, from chronic illnesses like osteoarthritis pain and allergic dermatitis for pets, to emerging infectious diseases threatening the food supply. I'm truly proud of our colleagues for receiving this recognition. In conclusion, with a solid first half behind us, I remain very positive about achieving our full year guidance thanks to the purpose-driven colleagues, innovation-driven culture, and diverse portfolio that continue to drive our success. Thank you, and now let me hand it off to Whitney. Whitney.