Zoetis Inc.

Welcome to the third quarter 2024 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 telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. 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 0. 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 2024 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 US 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 8K filing dated today, Monday, November 4, 2024. We also cite operational results, which exclude the impact of foreign exchange. And with that, I will turn the call over to Kristen.

Thank you, Steve, and good morning, everyone. Thank you for joining our 2024 Third Quarter Earnings Call. Let me start by thanking our dedicated purpose-driven colleagues who helped us deliver another excellent quarter. Building on the strong momentum from the first half of the year, revenue grew 14% operationally and adjusted net income is up 15% operationally. We saw balanced double digit growth across the business. Driven by steady demand for our key franchises, U.S. grew 15% and international revenue grew 13% operationally. Our innovative companion animal portfolio grew 15% operationally, while livestock grew 11% on an operational basis. Our consistent growth is fueled by a diverse, durable, and science-driven portfolio, carefully crafted through a deep understanding of our customers' evolving needs. By maintaining a strong focus on innovation, we set the standard for improving patient outcomes, higher customer satisfaction, and strong partnerships with veterinarians and pet owners. Our osteoarthritis pain franchise, Labrella and Silencia, continues to make a transformative impact by addressing a critical unmet need, delivering 97% operational revenue growth globally. From our conversations with customers around the world, it's clear that our safe, effective solutions are making a meaningful difference in patients' lives. We recognize the profound impact of our work, which only strengthens our commitment to developing this market. We have navigated this path before and understand that building a new category of care requires a steady, strategic approach. As we last the US Labrella launch, we continue to grow share, even in a market where canine pain visits typically slow down from Q2 to Q3. In fact, Labrella is actively disrupting this trend by driving more clinic visits and increasing engagement. With $55 million in US quarterly sales, we see significant opportunity to further expand share and utilization. In just 11 months, we have treated 1 million dogs compared to an estimated 8 million receiving other treatments. And Labrella has already become the fourth largest product in U.S. pet care. This highlights the demand and long-term growth potential, reinforcing our confidence in the franchise's billion-dollar trajectory. With record market penetration in the U.S., we're only scratching the surface of broader utilization potential. We estimate that an additional 17 million dogs are suffering from untreated OA. That's because before Labrella, NSAIDs were the only option for vets, which many untreated dogs could not tolerate due to preexisting conditions. Globally, Labrella opportunity is equally significant, with OA pain estimated to affect nearly 40% of dogs. And importantly, in the U.S., we see a similar nonlinear growth curve to Europe, where revenue grew 18% operationally year over year in year four of launch. Given our results there, we are poised to create and expand this market domestically. Drawing on that experience is key to positioning Labella as the preferred pain treatment by highlighting its safe, effective, and convenient choice for vets. We will leverage our strong partnerships and continue collaborating with veterinarians to expand treatment adoption, shifting away from two decades of reliance on NSAIDs. Results and trends like these reaffirm what we've long understood. The human-animal bond is undeniable. Today's generation of pet owners see their pets as integral members of their family and expect human quality care. Monoclonal antibodies, increasingly important in human health, are a prime example of how we are bringing that same kind of innovation to animal health with treatments like Labrell and Silencia. Our Semperica franchise continues to deliver impressive results as well, growing 27% operationally. While our science-backed innovations have created entirely new categories in animal health, we have also set the standard for competing in established markets. Through close collaboration with customers, we understood that overcoming first mover advantage requires two differentiations. and long-term loyalty is earned with products that stand out in both safety and efficacy. The success of our Semperica franchise expanded the total parasiticides market and demonstrated that improving patient outcomes is not zero-sum, especially with the significant unmet needs. In 2020, we pioneered the U.S. triple combination parasite market with Semperica Trio, offering comprehensive protection against fleas, ticks, and heartworms in one monthly chewable. Trio is now the number one vet-prescribed parasiticide with over 13 million dogs treated in just four years and 86% of pet owners report high satisfaction. Despite increased competition, Trio prescription rates continue to climb as triple combination products are gaining share, supported by our Fuel Force's scale and excellence in driving customer engagement and our commitment to making our products accessible through the most convenient channels for pet owners has solidified TRIO's retail leadership. Looking ahead to 2025, we anticipate a dynamic landscape, but perceive two key outcomes. First, consistent with historic trends, the overall addressable market will grow. Second, having more options will accelerate education of vets and pet owners. Increasing awareness of the benefits of broad spectrum protection will drive conversion to triple combination treatments. With our significant head start, proven efficacy and convenience, along with our trusted relationships, we believe Sempericatrio will remain the preferred choice, even as new products enter the market. Similarly, 16% operational revenue growth across our key dermatology franchise demonstrates how disruptive innovation and strategic life cycle enhancement drive sustained growth. Over a decade ago, we identified a crucial unmet need in veterinary medicine, a solution for canine dermatological itch that balance safety and efficacy. Itch impacts the well-being of both pets and their owners. It's heartbreaking to see dogs struggling to find relief from persistent discomfort. We were first to address this challenge. Thanks to our relentless focus on innovation and execution, in just a decade, the market grew from $70 million to over $1.5 billion and growing. But we didn't just enter the market, we built it, cultivated it, and continuously evolved it, creating the industry's first billion-dollar franchise. As a result, today, Apoquel is the number one prescribed medication in animal health, and the market and our customers have grown alongside us. And when vets wanted other options, we delivered truly differentiated first-line treatments like Cytopoint, the first monoclonal antibody to treat itch, and Apoquel Chew, a convenient chewable that enhances compliance. These therapies are trusted by veterinarians worldwide, bringing relief to over 23 million dogs globally, and we believe they are the best treatment options. And it's not only our product portfolio that sets us apart, it's our customer-focused approach to development. Vets trust our products for their rigorous safety standards and confidence in dosing regimens that allow for chronic, uninterrupted use. Our research-driven approach to JAK inhibition selectively ensured that our treatments can be used safely alongside other medications, including vaccines. With over 20 million dogs globally with untreated or undertreated itch, the DERR market growth potential is vast. Our proven performance reflects our commitment to expanding access and providing trusted first-line solutions. Similar to our experience in Perez, we expect optionality will grow the overall market. a market where Zoetis has two first-line treatments that are known for being safe, effective, and trusted. Even with alternatives, satisfied customers are far less likely to switch, and we continue to deliver the solutions they trust and rely on. Innovation, execution, and a relentless focus on customer needs are the cornerstones of our key market-leading franchises. Turning to Livestock, We recently closed the sale of our medicated feed additive and certain water-soluble product portfolios to Fibro Animal Health. This transaction is a prime example of Zoetis' disciplined capital allocation strategy, allowing us to focus our investments on areas with the highest growth potential aligned with our core capabilities. We remain deeply committed to livestock, sharpening our focus on key areas of innovation, including preventatives, antibiotic alternatives, and genetics. For example, in September, we announced a strategic partnership with Danone to leverage Zoetis' genetic testing capabilities in promoting sustainable dairy production. This collaboration aims to help dairy producers and Danone's global supply chain improve animal health and productivity with a focus on animal well-being. This strengthens long-term industry resilience while also reducing environmental impacts. Looking ahead, we anticipate the livestock industry to grow 2% to 4% annually, and we aim to be at the higher end of that range. Innovation will be a key driver of that growth. And to that end, we have updated our guidance to reflect strong performance across our key franchises, along with impact primarily from the MFA divestiture. Whitney will dive into the details there. With 12% operational revenue growth through the first three quarters, we have outpaced our initial expectations. a testament to our agility in navigating a complex environment. As we look to Q4, we anticipate a return to our previous levels of above-market growth and remain on track to meet a revised full-year guidance with strong momentum going into 2025. This quarter's results highlight the strength of our diverse, durable portfolio and unwavering commitment to delivering for our customers. Before I close, I want to extend my sincere gratitude to our colleagues. They embody our purpose support our customers, and drive our exceptional performance. Their dedication is what truly makes the difference. With their passion and commitment, we feel positive about our ability to deliver on the four key tenets of our value proposition, to grow revenue faster than the market, to invest in innovation and growth capabilities, to grow adjusted net income faster than revenue, and to return excess capital to shareholders. With that, I'll turn it over to Whitney.