Good morning, everyone, and welcome to the Third Quarter 2025 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 2 hours after the conclusion of this call via dial-in or on the Investor Relations section of zoetis.com. [Operator Instructions] I'll now turn the call over to Mr. Steve Frank. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to the Zoetis Third Quarter 2025 Earnings Call. I am joined today by Kristin Peck, our Chief Executive Officer; and Wetteny 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 statements 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, November 4, 2025. 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 third quarter earnings call. Today, we reported 4% revenue growth and 9% growth in adjusted net income on an organic operational basis, thanks to the relentless focus and consistent execution of our colleagues across the world. Our International segment delivered 6% organic operational revenue growth with the U.S. contributing 3% growth excluding the impact of the MFA divestiture. By species, Companion Animal revenue grew 2% operationally and Livestock organic operational revenue grew 10%. As we anticipated, growth moderated this quarter driven by a strong year-over-year comp and macro factors, including vet clinic visits and promotional activity. Our resilient growth engine remains strong fueled by our market-leading innovation and pipeline, a diversified portfolio across species and geographies, global reach and trusted brands that continue to lead their categories and remain essential to veterinarians despite some near-term headwinds. Now let's turn to our key franchises where we're continuing to drive growth and the market opportunities remain significant. In parasiticides, our Simparica franchise grew 7% operationally with 6% operational growth from Simparica Trio. Internationally, we delivered strong broad-based double-digit growth, driven largely by the continued strength of Trio across all regions, underscoring this strong and growing global demand. And Trio's most recent approval in Brazil further extends that momentum. Another example of how our innovation and geographical expansion continue to fuel the franchise's long-term growth. In the U.S. while broader end market dynamics affected overall franchise performance, we continued to see solid growth in retail and home delivery channels, which drive compliance and convenience for head owners. Trio growth moderated against a strong prior year comp with continued strength in the alternative channels, helping to partially offset subdued clinic traffic. We continue to navigate a more competitive U.S. market and hold share with disciplined and…

Thank you, Kristin, and hello, everyone. Let me now provide some additional insights into our third quarter results. We posted $2.4 billion in revenue in the third quarter, growing 1% on a reported basis and 4% on an organic operational basis. This was primarily driven by price as volume was flat in the quarter. As Kristin noted, we anticipated that growth would moderate as we entered the second half of the year. Adjusted net income of $754 million was 5% on a reported basis and 9% on an organic operational basis. Our global Companion Animal portfolio posted revenue of $1.7 billion growing 2% operationally in the quarter. On an operational basis, our Simparica franchise contributed $356 million, growing 7% and Key Dermatology posted $469 million, growing 3%. This growth was partially offset by our OA pain franchise, which declined 11% operationally to $138 million. Our global Livestock portfolio grew 10% on an organic operational basis in the quarter, contributing $725 million in revenue with strong balanced performance across segments and species. Again, these results reflect the continued resilience of our business following last year's strong comparison, and they reaffirmed the solid fundamentals driving our growth. Even amid near-term challenges, our core strengths market-leading innovation, a diversified global portfolio in trusted brands continue to position us well for future growth and market expansion. Now moving on to our Q3 segment results. As expected, growth moderated in the U.S. as we enter the second half of the year, with revenue down 2% on a reported basis and up 3% on an organic operational basis. Companion Animal was flat and Livestock grew 14% on an organic operational basis. This moderation primarily reflects the strong comparable period in Companion Animal, particularly in derm and parasiticides. In the vet channel, we continue to believe clinic…

[Operator Instructions] We'll go first this morning to Erin Wright of Morgan Stanley.

Great. So first, I just wanted to know kind of what meaningfully changed for you kind of on an intra-quarter basis after you raised guidance last quarter? And what were some of the key surprises that you saw, whether it's competition or destock or otherwise. But also on competition, just you mentioned some of the competitive dynamics in dermatology. I'm just curious how you're seeing practices at this point, how they're looking at the category? Are they carrying both JAK inhibitors in some of those certain international markets that you were talking about? And what do you have embedded now in terms of competition? Like do you think that guidance is conservative enough at this point? And should we anticipate a continuing impact as we head into 2026. How does that fit into your typical 6% to 8% top line growth guidance that you would typically give as we head into next year just given where it's tracking below that year-to-date?

Yes. Thanks, Erin. Look, clearly, as we entered the year, we expected some deceleration in the back half of the year compared to how we would start 2025. Certainly, in the quarter, what we saw besides the really strong comp that we anticipated and factored in, besides anticipating competitive launch dynamics in terms of aggressive promotions, we factored into our thinking coming into the year. We certainly saw a bit of a macro impact, particularly in U.S. clinics. Over the last 3 quarters, we've seen therapeutic visits. As you know, overall visits are not a great gauge for our growth. But therapeutic visits certainly are, and you need those to at least start patients before we can have multiple channels to fulfill those. And so we saw 3 quarters in a real therapeutic visit pressure that has certainly impacted where the quarter landed, and we factored those into our thinking in terms of the remainder of the year and the guidance that we have provided today. To your point around guidance for 2026, as you know, we will look forward to providing that in February. However, I don't see how we're exiting the year in the fourth quarter to be a readthrough to what 2026 will be. I think there are a few pieces here that I think are worth considering. For one, we would typically see price contribution. And as you know, we have consistently done that over the years. where typically we're in the 2% to 4% range. We've been above that. If you look at the last couple of years, certainly, and this year, we're running closer to 4%. And I think we can see us in the range that we typically would operate in from a price perspective. Despite what we see historically as launch period aggressive promotions, we have high confidence in continuing to grow our key franchise areas, particularly derm and parasiticides given the significant unmet market opportunity in both of those areas. So we see those driving growth for us as you look ahead. And as you said in prepared commentary, we've seen signs of stabilization from a Librela perspective, which certainly has been a headwind for us throughout this year, but particularly in the back half of this year and the comps have been very strong in Q3 and Librela comp in Q4 remains relatively strong. So as we see signs of stabilization here, we would expect a return to growth in 2026. And a couple of other things I would say here, Erin, is that Livestock has continued to demonstrate strength for us. You've seen now in our third year of consecutive growth above market, and we anticipate continuing to see growth in Livestock in 2026 as well. So those are the reasons why we would say the exit of this year is not indicative. In terms of where '26 is, though, we're not prepared to give guidance here at this time.

We'll go next now to Michael Ryskin at Bank of America.

I want to stick on that topic of what's changed. I mean I hear your answer, Wetteny, on some of the macro and some of the vet dynamics. I think the pushback I have is that we've seen that be a challenge in the end market for several years now. I think I mean it's 2022 and 2023, where they really started being the case. And Zoetis has really consistently been able to put up better numbers than that in companion in the U.S. really through the second quarter, surprisingly strong. We've heard you guys speak a thousand times about how you're insulated from some of those vet challenges about the importance of medication, about some of the alternate channels that you're able to build to and all of that has been able to sustain that growth. So it really is a pretty striking change in the companion outlook in the U.S. and globally, sort of what we've seen over the last couple of years versus 3Q. So I was just wondering the timing with competition coming on, you mentioned some of that, but that could be playing a bigger role because that would indicate a little last longer. Just wondering if you could maybe dive in some of those changes a little bit more. And then as a follow-up, you alluded to some of the intra-quarter dynamics being short living by the end of the quarter, seeing better trends. Just anything you could say on distributor levels, inventory levels among some of your customers. Can you just sort of thought on that as you look to the fourth quarter and again into next year.

Yes, sure. I'd love to start and see if Kristin wants to add anything in terms of the macro in terms of what we're seeing. Certainly, as you highlighted, Mike, over the last several years, you've seen overall visits being down, and in fact, down more than they were in the quarter. We think overall visits were down somewhere just of 2% in the quarter. And you've seen worse than that historically. What is different, though, is we have seen over the last 3 quarters, therapeutic visits being down. If you recall last year, despite overall business being down, Derm business were up about 3% or 4% on the year. And OA pain visits have been up, particularly since we launched our OA pain products in the U.S. That has turned this year. Certainly, you've seen that impact therapeutic visits. I think flea, tick, heartworm, which are wellness visits have consistently been down, but they've been more than offset by what's happening in the alternative channels if you look at the last 3 years. So the difference here is the therapeutic visits, particularly when you look at derm as well as OA Pain that are translating to fewer patient starts and certainly, we're starting to see that have an impact here. Now what is encouraging is we continue to see really strong growth across alternative channels. Those grew about 21% on the quarter. And within that, is actually home delivery coming from vet channels as they continue to see opportunity to really drive and meeting the patients where they are. We are seeing momentum in that area as well. It grew about the same rate as retail within the quarter. Again, something we'll continue to encourage and watch as well as work with our vet clients to continue to drive.…

We'll go next now to Jon Block with Stifel.

Sorry to sort of harboring the same thing. But cash you on the 4Q '25 exit not being sort of indicative for '26. We're calculating, sort of, it implied 3% organic operational in 4Q. Hopefully, we've got that right. It's off of a comp that eases materially. But just to take a step back, I would think that sort of implies zero-ish volume in the back half of '25. You said volume was zero this quarter, price was up $4. So we think about like zero vols in 2H '25, competition increasing further in some key franchises, notably derm, we never know exactly what's going to happen, but that seems to be the case, why wouldn't that be indicative? In other words, what changes between the price/volume algo? Does price go higher? Or does vols bounce? And if vols bounce, why would that sort of a backdrop?

Yes, John, I'll start. Look, I think what we said in terms of the fourth quarter exit and you're roughly right in terms of your calculation. I'll remind you of a few things. And again, at the risk of being repetitive on this to some extent. We are exiting with -- though we have year-over-year comps with respect to Librela that continue to be challenging, we are exiting with that showing signs of stabilizing. And so again, we expect that to turn to growth as we get into 2026. Look, we came into this year expecting to see some competitive pressure as they launch their products and are looking to gain some traction given the high satisfaction level we have in our products in the number of years that we have, particularly when you think about derm. We've been in the market for 11 years. We're roughly 120 million doses in when you look at a combination of Apoquel and Cytopoint. The level of satisfaction with customers, both pet-owner as well as vets is very, very high. So competitors, as they launch their products are up against that strong position and are, as we anticipated, being very aggressive to look to get positioned. And if you look at where they are from a patient share perspective, it's still very limited. Now I think this is where the macro comes in. And I think if you look at the macro in a market where you're seeing fewer therapeutic visits, then the impact of those competitive pressures will be felt a little bit more than when you have extension. Now if you look at derm and International, that grew 7% on the quarter. And that's despite in certain markets where you've seen very aggressive competitive pressure, but you are seeing expansion of those markets. And while I want to sit here and predict how long the macro will be there, our position, though, in terms of our products and our portfolio couldn't be stronger. And so again, I don't see this as a permanent feature. And as you've seen historically, these initial launch promotions tend to be short-lived. And so we'll make adjustments where we see necessary, but we'll be disciplined as we execute in this market. we've been there before. And so we'll continue to do that, and we're very strong in terms of our portfolio as well as with coming in terms of where we're starting to see approvals on already.

We'll go next now to Brandon Vazquez at William Blair.

I wanted to switch a little bit and talk about the new long-acting OA drugs that have been approved or are upcoming. The question being, that clearly, Librela's launch didn't go as planned. I think the safety and efficacy stands behind it, but social media kind of got a little bit ahead of the drug and impacted its adoption as we're seeing, what have you guys learned? What's going to change as you launch these new long-acting OA drugs because a successful launch of these into 2026 feels like it could be one of the key levers to remain within that 6% to 8% organic growth that you guys have talked about for a long time. Just curious on thoughts on what that launch might look like relative to what Librela was? And what gives you the confidence that can kind of have a more successful ramp from there.

Thanks, Brandon. I'll take that one. We're very pleased with the approval in Canada and the positive opinion in the EU on Lenivia. I think another example of delivering on our commitments across our innovation pipeline. We are really excited about that as well as Portela, which received its first approval in the EU. I think we are going to make sure that we apply all the learnings we had from Librela to these new launches. We are expecting launch, as we mentioned, in the first half of '26 for Lenivia. And we're going to apply the learning from Librela. We're going to start, as we talked about with early experience with specialists, make sure they understand the product well and then they can help us as we launch more into the general veterinary population. We're going to make sure we continue to raise awareness of OA as a serious disease that requires a proactive approach to manage the pain. It's a progressive disease. We're going to make sure we continue to deepen education with specialists first, and also with vets. And we're going to -- the same way we're doing with Librela, we're investing in long-term Phase IV research to make sure specialists and veterinarians continue to understand how best to use the products. We're really excited with these new products. As you think about Lenivia, it will add convenience. A 3-month administration will help us expand the market some and put a lower barrier to entry, I think will also help us increase compliance. As we talked about before, Lenivia will target a different location on NGF. It's a different molecule than Librela. It provides long-lasting relief at 10x lower the dose. So we do expect it to expand the market and provide incremental revenues, although obviously, we'll cannibalize some of Librela. But I think it's an exciting new opportunity for us. I would say the same with Portela which is, again, a different area of NGF that is targeting and again, is a different molecule. But I think especially if you think about cat, you can help us expand that market in cats where bringing your cat in every month is a big barrier as we know, for cat, and we're seeing strong growth in cat. Solensia grew in the quarter, as you saw. And we see cat visits being the bright spot and visits overall with cat visits increasing. And we really believe that Solensia is one of the reasons that's helping drive that cat visit growth. So we are excited about both of those launches and their ability to expand the market for OA pain for us in 2026.

We'll go next now to Chris Schott at JPMorgan.

I'm just still trying to get my hands around what happened with U.S. Derm this quarter. I know you've talked a lot about the comps and macro. But can you just elaborate a little bit more in terms of what we're seeing either with Zenrelia or positioning ahead of a potential Merck launch, it just seems like we saw quite a trend break this quarter relative to the past year. I was trying to get a little bit more color there. And just as a follow-up, on the therapeutic visit side, it sounds like from your commentary that we need to see some of these visit trends improved to get new starts in the right place, et cetera. Can you just elaborate a little bit more in terms of what your outlook of when we could see that recovery or more just qualitatively, what it's going to take to get these to recover again?

Sure. Look, I think as we discussed, the competitive positioning here isn't significantly different than what we anticipated coming into the year or even as we saw quarter ago. Again, the -- if you look at the patient share gains in here, they're relatively limited. Now as we look at Q4, we are factoring in a full launch of a competitive product in Europe coming in with NUMELVI, which started in the third quarter. So we are anticipating that and that's factored into our guidance, certainly. No word yet in terms of exactly when the Merck approval will be in the U.S. as they have said, they expected approval late this year, early next year. So that's not really a potential topic here as we exit the year. However, the competitive again, piece isn't significantly different. I think the difference here, Chris, is truly what is the impact of therapeutic visits, which were up the last few years, even as overall business were down that turned this year, where we're seeing therapists for derm declining on the year and the cumulative effect of those as we got into this quarter, we're seeing that impact in terms of patient starts. Exactly when we will see those turn around, I won't venture to give you here, but we are assuming the macro continues into the fourth quarter, certainly, what you see impacting here, and we will update those in terms of what that means in terms of guidance in February. One last point I will give is as we factor these trends, again, very encouraging to see Librela showing signs of stabilization and so on, those are areas that we are looking forward to as we enter into 2026. But it's not last point in terms of the guidance. Very pleased if you look at the disciplined execution from an expense management perspective, not only in terms of the performance on the quarter with 12% growth in adjusted diluted EPS, but we are maintaining our guidance from an EPS perspective in terms of bottom line for the year versus the guidance that we gave back in August. Again, these are elements that I want to remind you of. I don't know if Kristin wants to add anything.

No. The only thing I'll build on with regards to Librela is, Librela remains widely used with over 30 million doses distributed globally, and we do remain confident in Librela's growth potential. I think executing on our multipronged strategy as we're starting to see the signs of stabilization right now, it gives us confidence that the actions we're taking are going to return Librela to growth and as we mentioned, we believe it will return to growth in 2026. So what gives us that confidence is watching the trends over the last few months, we look over trends of 4 to 6 weeks at a time rolling and that's what gives us confidence that it will be stabilizing and we'll return to growth in 2026. I think it's really strong execution across our multi-prong strategy.

We'll go next now to Steve Scala at TD Securities.

This is Chris, on for Steve. Just one question on Livestock, had another very strong quarter. How doable are these growth drivers as you look ahead to 2026.

Yes. We're very, very pleased with double-digit growth in Livestock on the quarter. Livestock has now demonstrated growth above market the last 2 years. This is the third year in a row. And we are anticipating that continuing in terms of growth in next year. I think the underlying demand picture in Livestock and if you look at the secular trends that are driving that are sustainable. You see increased demand for protein. You see population growth as well as growth in emerging middle class as well as organization driving these trends globally. And again, we're very pleased to see the performance on in the quarter. I think this really demonstrates one of our core strengths with diversification across the portfolio. You have a double-digit growth in Livestock in the quarter where you see some headwinds in terms of macro, particularly in U.S. Companion Animal. And again, this is what makes Zoetis great in terms of if you look at our portfolio and the breadth of it across species and across therapeutic areas, et cetera.

We'll go next now to Navann Ty at BNP Paribas.

One on the derm portfolio, if you could quantify maybe how much is due to distributor inventory dynamics versus the competitive pressure from Zenrelia and NUMELVI in Europe. And also on Librela, when do you see signs of stabilization? And what are the drivers of that in your view?

Yes, sure. Really, distributor inventory levels were not a point to really raise here other than, as we said in the prepared commentary, we did move Apoquel into distribution on the quarter that was about a $10 million contribution if you look at the derm figures in the U.S. But there's not a point here in terms of distribution impact to speak of in terms of overall performance. And again, with respect to Zenrelia, both in the U.S. and across international markets, the level of patient share that they are gaining here is certainly in line with our expectations, it's not below it. So we don't see that really being a key factor that's different from what we came into the year with and it's been limited in terms of the impact. I'll turn over to Kristin on the Librela question.

Yes. I mean I'll just reiterate, we're encouraged that we've seen the recent signs of sequential stabilization, and that really gives us confidence to the actions we're taking are working, and that's what gives us confidence that we'll return to growth in 2026.

We'll go next now to Daniel Clark of Leerink Partners.

Just wanted to circle back on some guidance you gave last quarter on double-digit growth across the derm, Trio and OA pain franchises? How is that tracking at this point? And how should we kind of think about the growth of those 3 going forward, given all the dynamics you've laid on the call?

Yes, Daniel, Happy to take that. Look, we came into the year and you've seen our key franchises that includes derm, parasiticides with Simparica as well as the Librela and OA Pain driving double-digit growth for the year. And through the first 3 quarters, even with the headwinds we've seen from OA Pain, particularly in the U.S., they're tracking to about 9% on a year-to-date basis. They're about 2% on the quarter. And so we now expect those key franchises to be high single digits on the year. I won't -- again, I will venture into what forecast might be as we go into next year, we'll provide more clarity on those in February. Certainly, we look forward to that. However, I would say, again, the stabilization we're seeing in OA pain is certainly helpful to see. If you look at the OA pain in terms of the impact on the quarter. Certainly, you can see how that played out, particularly in these 3 franchise areas. But it is encouraging to see the civilization in terms of Librela and to the therapeutic business that we talked about, those have been down for the last 3 quarters. But if you look at derm, for example, visits for therapeutics in derm in the U.S. clinics were down less than 1% down, where they were down more in the last couple of quarters. So we are encouraged by some of those, again, not necessarily forecasting what the macro will look like as we look ahead.

We'll go next now to Andrea Alfonso with UBS.

I wanted to just probe a little bit more on the Simparica Trio franchise in the U.S. in the quarter outside of the tough comp. I guess, I would be curious if you could provide any color on the actual dosage share and debt clinics particularly among new puppies, did you retain or cede some share? And also curious if you could speak to maybe some of the pricing spreads versus the competitors? Have they narrowed some of those new launches. And then separately, but sort of the same topic is in one of your slides in the investor deck, there was some mention of new canine parasiticides in the innovation road map slide. Just curious at all, if you can comment, are those simply long-acting, maybe any new efficacy and breadth that you expect to roll out there?

Yes. I'll take the overall question and see if Kristin wants to chime in on the pipeline here. Look, as we look at Trio, I know you said despite the tough comp, but I do think that is probably the biggest factor here in addition to the macro that we've already talked about. If you look at where Trio performed a year ago in the third quarter, Trio was up 27% on the quarter. So I think, clearly, that is a very strong comparative period and strong performance that we're up against, and we knew that and coming in, which is why we factored some of that in. But I do think it's important. In terms of share, we are largely maintaining our share across the vet clinic. I think the reduction in flea, tick, heartworm visits that we're seeing from a therapeutic category perspective is part of the impact here. But again, the competitive share gains from a patient share perspective that we're seeing here are not significant. Again, they've been limited here. We are continuing to see expansion though of the overall flea, tick, heartworm particularly a triple combination space as we look ahead. And so there's still significant room to grow here over the last couple of years. You've seen that share of prescribed oral medications go from 30% to 47% over the last 2 years with substantial more room to go. And Trio is the market leader here, certainly in the U.S. and we continue to see our opportunity to continue to capitalize on that as a first mover and very, very high satisfaction rates from customers here. I won't get into the specifics in terms of pricing spreads here. Again, there are some dynamics that we anticipate in terms of what happens during the period of launch. Historically, those have been short-lived, and we won't get too deep into those other than to say, we're confident in our position. We're confident in our product, we're confident in differentiation that we have across our products, and that gives us a reason to be very disciplined as we cycle through those periods.

Yes. I'll just go on your second question, which had to do with the pipeline. As I mentioned before, we're really excited continuing to deliver on our commitments across our pipeline. I think you're referencing a slide from our JPMorgan presentation, we continue to be on or ahead of schedule with the overall pipeline, and we look forward to providing very specific updates on the progress of that pipeline, including our canine paras, which remain an important part of that pipeline on our webcast on December 2 on innovation. So we'll give you a fulsome review of the pipeline progress and more information on it on the December 2 webcast.

And ladies and gentlemen, that is all the time we have for questions this morning. Ms. Peck. I'd like to turn the conference back to you, ma'am for any closing comments.

Well, thanks, everyone, for joining us today and for your thoughtful questions. We're proud of another solid quarter that reflects the consistency of execution and the strength of our portfolio and the focus of our colleagues around the world. As we look ahead, we'll continue to advance our strategy and investment innovation that is driving our sustainable growth. And as always, we remain committed to delivering long-term value for our shareholders and look forward to sharing continued progress on our innovation pipeline during the upcoming innovation webcast. We look forward to speaking to you that. Have a great day, everybody.

Thank you very much, Ms. Peck, and thank you, Mr. Joseph. Again, ladies and gentlemen, this will bring us to the conclusion of Zoetis' third quarter 2025 Financial Results Conference call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.