Welcome to the Fourth Quarter and Full Year 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] 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 2025 Full Year and Fourth Quarter 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, Thursday, February 12, 2026. 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 good morning, everyone. Welcome to our fourth quarter and full year 2025 earnings call. For the full year, on an organic operational basis, we delivered 6% revenue growth and 7% growth in adjusted net income, in line with expectations. International markets were again a key contributor, delivering 8% organic operational revenue growth while the U.S. delivered 4% organic operational growth, reinforcing the value of our global footprint. By species, livestock delivered 8% organic operational revenue growth benefiting from a more focused portfolio following the MFA divestiture. Companion animal grew 5% operationally, reflecting the strength of our diverse and durable portfolio. In 2025, we executed with discipline and delivered growth across the portfolio against the backdrop of a dynamic operating environment shaped by macroeconomic and competitive pressures. Importantly, our execution further strengthened the foundation for what's next from advancing long-acting approvals and a robust pipeline that extends our growth runway to strategic actions that sustain growth through competition to sharpening focus in livestock post MFA and strengthening our commercial and medical capabilities globally. Before highlighting our performance drivers for the year, I just want to share what we've seen in the U.S. since our third quarter call as these dynamics show up across the portfolio. In the veterinary channel, we continue to see some economic pressure on Gen Z and Millennial pet owners, which has contributed to a decline in therapeutic visits and doses. At the same time, emergency and urgent care continue to show strength, which reinforces our view that this is not a decline in underlying demand for care but rather greater price sensitivity and tighter household budgets when it comes to the cost of routine care. We are beginning to see clinics react to this environment by taking a more measured approach to the…

Thank you, Kristin. Our disciplined execution and ongoing investments in innovation have strengthened our foundation for sustained growth. Despite the dynamic operating environment and the ongoing macroeconomic and competitive pressures Kristin discussed, we delivered solid performance across our diverse portfolio. Now I'll walk you through our financial results for the quarter and full year. Our full year results reflect our ability to grow even in an increasingly competitive environment through the diversity of our portfolio, strength of our commercial relationships and the value our products provide to our customers. For the year, we reported global revenue of $9.5 billion, growing 2% on a reported basis and 6% on an organic operational basis with 4% coming from price and 2% from volume. Despite facing a challenging economic environment, we ultimately finished at the high end of our November guidance range. Adjusted net income grew 6% on a reported basis and 7% on an organic operational basis to $2.8 billion. Turning to our franchises. Global revenue growth was driven by our companion animal portfolio, which grew 5% operationally in 2025. Leading the way, our Simparica franchise reported $1.5 billion in revenue on the year, growing 12% operationally. Simparica Trio remains the #1 selling canine parasiticides globally. The triple combination space continues to expand, converting share from older therapies with ample room for market expansion. Our key dermatology portfolio grew 6% on an operational basis to $1.7 billion in revenue. We continue to drive growth and expand the market in the face of competition through execution, adjusting our distribution strategy and driving the benefit of our differentiated offerings to win new patients. Partially offsetting the growth in companion animal, our OA pain monoclonal antibodies declined 3% operationally for the year to $568 million in revenue. Our OA pain products alone have eclipsed the…

[Operator Instructions] Our first question is coming from Michael Ryskin with Bank of America.

I want to ask sort of explicitly on competition for 2026 and what you're factoring in. Just maybe you could at a high level, frame the level of conservatism you've put in on some of the key brands as more competitors enter the market. I mean, for example, in key derm, you flagged 6% growth for the year, but it was, I think, only 1% in the fourth quarter. So it seems like things are moderating a little bit. Just sort of how that affected your thinking on the framing of next year's numbers. And then maybe related to that, just I'll squeeze it in my follow-up now. I would love to hear your comments on price versus volume next year, your ability to take price. I don't know if it would be on an apples-to-apples basis. I know you talked about maybe some changes to the timing of price, but any way you could frame that, that would be helpful.

Sure, Mike. I'll be happy to take it. Look, your first part of the question is, how do we see competition going into 2026. And I remind you, in 2025, we expected certain launches to take place and there are certain launch-related promotions that we have seen in this space, and we expected those to occur. So we knew the back half was going to decelerate based on that point. And we've seen that perhaps a bit more from the macro in the U.S. is what I would say, contributor to that. To your point, derm landed with 6% growth on the year with deceleration, again, at the back end, closer to 1% in the fourth quarter, again, which we should anticipate. We've always take into consideration various factors in terms of within the range of guidance that we give, which we believe is certainly prudent in terms of how we positioned it. We do take various scenarios into consideration, including when we expect competition to launch and the level of aggressive promotions that they will do within that window. And those are factored here, certainly, when we think about in the derm space, another JAK competitor launching potentially in the U.S. as well as in terms of IL-31 in that sense as well. So all those are factors into our thinking here that we put into the guidance. On price, we've said we would return to our normal rate range, which is 2% to 3%, which is what you can assume in this guidance with the balance, of course, being volume. So at the low end of the range, you would have potentially 2 to 3 points on price there. So less volume and then on the higher end of the range, you start to see more balance.

Our next question comes from Erin Wright with Morgan Stanley.

So the 3% to 5% operational guidance, what does that incorporate with U.S. companion animal operational growth? And what are you seeing playing out, and you talked a little bit about this on the derm category. Outside of the aggressive promotions from Merck, how is Apoquel matching up to Numelvi and others in terms of efficacy. And then one more housekeeping one here. There was a significant benefit in the pull forward or the 1-month lag in terms of that fixing in the quarter on the international side. What does that mean for 2026 revenue on a reported and operational basis? And can you remind us how you're defining organic operational growth here? And how many months of international does 2026 include versus 2025?

Sure, Erin. I'll try and get each of the subcomponents here on the question, and if I miss anything, certainly, we'll get that clarified here. On the guidance in terms of 3% to 5%, again, we do take into consideration what we see in the market currently and how we expect those to transpire over the coming year. And keep in mind, we do have the broadest and deepest portfolio, most innovative portfolio in the space and leadership position across all of the key areas. And so as we look to navigate and execute through the year, these are positions that are very strong that we have that we take into consideration. But of course, we do take a look at what the macro conditions look like. I would say this, really what's important here, when you think about animal health, it remains extremely resilient. So as we look at the macro in the U.S. and we see some pressure on the consumer. At the same time, they are spending on animal health. As Kristin mentioned in her prepared commentary, in the fourth quarter, we saw that 6% growth in clinic revenue. Now of course, that is a bit slanted towards more of the emergency care as well as price that's having some impact on volume and visits. But certainly, the consumer is continuing to prioritize and spend in animal health. So I think that gives us a strong foundation as we look ahead. On the 1-month lag in terms of what that means to 2026, we have taken those into consideration, of course, there are a number of shifts that are involved as we make this change that we're contemplating for the first quarter of 2026. Those are individual shifts across customers, across countries and so forth. So we've factored those into what we've given you here. And the basis for our guidance is exactly as it's always been, which is the International segments are on a lag because we have not implemented the fiscal year alignment yet, that will be taking place in Q1 2026. [ OOG ] definition is something we thought we would have a basis or a metric that is very consistent for our analysts and investors to be able to gauge us on. And so what we're doing here is sustaining that metric versus bringing it in and out intermittently. And so that metric is effectively excluding FX. And then any significant acquisitions that would be on an annualized basis, 1% or divestitures for that matter, 1% or more of the prior year revenue. And so if it's 1% or more of the prior year revenue on an annualized basis, we'll adjust it out. Otherwise, it stays in, and that's a very consistent way we plan to continue to report out.

Our next question comes from Chris Schott with JPMorgan.

Just two questions for me. I guess first on Trio, we've seen a bit lower growth these past 2 quarters. Can you just elaborate a little bit more on the dynamics you're seeing there? And how you're thinking about that growth profile as we enter into 2026. And I just wanted to come back to the accounting dynamics that we're dealing with here. Just so I'm clear, I think you mentioned some delayed revenue recognition from 4Q into 1Q of '26. Just how big is that deferral? And I just want to make sure I caught comments. Is that deferred revenue part of the 3% to 5% organic? Or is that kind of being normalized in the way you're calculating that?

Yes, sure. I'll start with Trio. Look, again, Trio is the leading product in the U.S. has now eclipsed $1 billion in revenue in the U.S. alone and continue to be significant room to expand that space as we've talked about many times. If you look at that patient share, triple combinations are now about 50%. It has grown from about 30% 2 years ago and certainly significant more room to expand there. And again, we have a very strong first-mover advantage in that regard. So as we think about 2026, and we think about our drivers of growth, certainly, within our key franchises, we expect the Simparica franchise to lead the way into this 3% to 5% growth that we have provided here. In terms of the commentary on the various shifts that we've talked about and the operational changes that have caused some either acceleration or delay processing here, we would be -- those, of course, are factored into our guidance here, again, on the same basis as we've always reported with a 1-month lag, and we will be factoring the lag as we look ahead once we have implemented it in the first quarter.

Our next question comes from Brandon Vazquez with William Blair.

I'll ask two upfront here. Wetteny, maybe for you, I just want to spend a second in making sure we have all of this clarified because the sequentials of the year feel like they're going to be a little bit tricky given the financial accounting, and then -- not seasonality, but competition and year-over-year comps. And if I look at the Street right now, sales growth expectations for the year are kind of within a 1-point band, but that maybe doesn't feel right. So like I don't know if you can give commentary around full year is 3% to 5% operational. Should first half be towards the low end of that, if not below it? The second half go above it as some of this stuff normalizes? And then maybe just a macro kind of question as well, like is the commentary I'm hearing from you guys that the pet owners' financial situation is getting worse, or is it that the vet clinics raised price too much and we need to pull back on pricing increases.

Yes. Sure, Brandon. I'll cover the first part, I think Kristin will chime in from there. In terms of what the rhythm of the year may look like, I would point you to a few considerations here. And so clearly, if you look at how 2025 executed, you would have seen very strong performance, I would say, just based on where the macro conditions started to shift, we're halfway through the year. So I would say take that into consideration, we'll be lapping some of those as we get through the first half of 2026. In other words, a little bit tougher comp there. Similarly, if you look at the OA pain, particularly if you look at the Librela in the U.S., you started to see some of those impacts tail end of the second quarter, going into the second half of the year. Again, not only are the various items that we are executing on there, starting to take shape, and we see that in stabilization, but it still means on a year-over-year basis, the comps remain strong for us in the first half on that. The last point I'll make is we have seen, as we anticipated, competitors launch products. And when they're in this launch window, they tend to be a bit more aggressive around promotions to drive shelf space. And some of those will be lapping through the year and others will start in the year. And so given the delay we've seen in terms of a JAK competitor launching in the U.S., that would shift into further into the year, and therefore, a window that they would potentially be more aggressive might extend a little bit more. So hopefully, that's helpful in terms of how you might think about sequentially picking through 2026. And with that, I'll pass it on to Kristin.

Yes. And Brandon, to follow up on your other question, just more broadly about the pet owner dynamics. As we mentioned in Q3 and as I mentioned in my remarks about Q4, we did continue to see some deceleration from the pet owner perspective in traffic in both therapeutic and wellness. But I think as you look at the overall demand, and I think it is important, the demand has stayed high. I think there was really just pricing at the vet clinic was taken a lot over the last 3 years. And I think the view from the pet owners is it was a little much. I think really, the veterinarians have seen this. They're very focused on providing better value to pet owners. And pet owners still have demand. If you look at -- when their dogs get sick, they're bringing them in. So I continue to think the demand is there, and we're excited to see a lot of new innovative operating models to meet different consumers where they are, and we think this will continue to drive growth. I also think, as you look especially at the large corporates, their focus on providing special programs for pet owners to encourage them to bring them in is going to help recover some of that. So as we look at the year, as we move forward through the year, we do see an improvement overall in the pet owner macro situation, and that's certainly what we're expecting.

Our next question comes from David Westenberg with Piper Sandler.

So I want to just get some clarification on the price increases. I think you're calling 2 to 3 price increases. Last year, I think the bulk of the revenue did come from in fact, price increases, not as much volume. So can you talk about some of the changes you can make in terms of pricing and strategy to maybe like bundle with clinics or anything to kind of drive volume versus what you've seen in the private -- what you've seen in prior years? And then secondly, just around how you are implementing prices? I mean, in the years past, it's really been raising prices on innovation and kind of keeping that in-line portfolio the same? Is there kind of changes this year relative to previous years in terms of that dynamic? And I get there's competitive reasons. So you're not going to get into each individual product, but at a high level.

Sure. Look, I would start maybe where you ended on the question, which is, by and large, we don't see significant shifts in our approach to pricing. Our pricing has always been and remains an element that we take into consideration, product by product, market by market, and the value -- the clinical value we bring, both to vet and pet owners through those products. And so we don't make a blanket statement around here's the pricing we intend to get. We run that through, again, that approach, and that remains very much consistent. In terms of -- look, we certainly are leveraging our strengths, right? We have a very broad portfolio, products that are incredibly important to veterinarians as they care for animals across the world, not just in the U.S. And we leveraged those certainly within the confines of what's allowed in certain markets. So in the U.S., for example, we are able to leverage across portfolio to drive volumes and so forth with customers, and we do so. In other markets, those parameters may be different, and therefore, we navigate based on what is legally allowed in those markets. But certainly, that is a strength of ours, and will continue to be as we innovate and you've seen the strength of our pipeline. And so that's something we will continue to leverage.

Our next question comes from Jon Block with Stifel.

I'll ask two. I'll kind of break them up. And Wetteny, I know others have tried, but honestly, just from my e-mails, it's still a bit unclear. So do 2026 revenues benefit from this accounting change or, call it, the adjustment changes as it reads in the PR. We get the benefit from 4Q. You called it out, it seems like it lands at $30 million. But again, specific to 2026 due to the adjustment, is there an extra, call it, month of international sales that go into '26 as you normalize it, call it, for the calendar. Let me pause there because I think that's really important, and then I'll ask just a tighter follow-up.

Sure, Jon. Look, here's what I would help with framing here. First, there is not an extra month that we would contemplate. Again, we have not implemented fiscal year alignment. I want to make sure that is very clear. The work to do so and the recast of our financials, which we will -- we plan to produce on a recast basis so that you and our investors can have comparable periods to compare as we start to report with our first quarter. And that work is ongoing, and we have not completed the process yet. And so it is not in effect. When it is, we would anticipate that there would not be an extra month. There will be a 12-month year, both for U.S. and international segments, that year would then start January to December versus starting December to November. And so that's the first point I want to make very clear. Now we did talk about certain shifts that have occurred that have either benefited 2025 or potentially delayed processing into 2026 that could have an increase in 2026. However, we will not be measuring because, again, once we implement the change, we'll factor that as well as the results of the first quarter and other dynamics around the business to share with you and our investors.

Yes. And just to give you a sense, when you get our -- when we provide recast financials, we will look at prior periods in the new calendar year, fiscal year aligned perspective, so you can continue to compare. But there's definitely never going to be a year that's 13 months. It will be 12 months, we've got 1 month of international shift, but you'll be able to see it in the recast financials.

Our next question comes from Glen Santangelo with Barclays.

So Kristin, not to belabor the point, but just to sort of follow up on that point you just made. When we look at the cadence of the 4 quarters for 2026, is it fair to say that the first quarter will have the strongest growth? Or you're saying no because it will be comparable versus restated numbers in 1Q '25?

Yes. Look, I'll take this. As you know, we don't guide by quarter. Our guidance for the year is between 3% and 5% on the top line, 3% to 6% on the bottom line. Certainly, we are executing across markets. We're delivering for customers, et cetera. That is our focus. When we report our first quarter 2026, we will be recasting. And obviously, you'll know what the results are for that quarter. But again, our guidance is on a full year basis, not a quarter. We've tried to be helpful in terms of some of the puts and takes around timing of when we saw some of the macro shifts in the U.S. and some of the competitive launches and when they occurred and how those might affect our growth rates as we work through 2026, but I won't give guidance on that particular quarter.

Our next question comes from Andrea Alfonso with UBS.

I guess sorry to just belabor this point again regarding the 3% to 5% operational growth that you expect for 2026. So it sounded a little bit like you discussed certain shifts that -- or delayed in processing that could increase in 2026. So I guess, is there some sort of clarity on what that figure might be? And does that sort of delay negate kind of the $30 million plus that you saw in 4Q of '25, such that it's sort of a neutral impact? And then, in addition to that, within that 3% to 5% growth, the U.S. was flat on an organic operational basis in 4Q. Should we expect that to be the case as well within that 3% to 5%.

Sure. Look, in terms of the 3% to 5% operational growth, that is our expectations for 2026 on the same basis that we have always reported and certainly, that factors the baseline, which is 2025 and the performance throughout the year, inclusive of the fourth quarter. Now put into context here, the amount we're talking about for 2025 is effectively basis points 30 basis points to 40 basis points of the total company for 2025. This is not a significant amount that would swing the range of growth that we're expecting for 2026 in any material way is what I would say. And again, we'll provide, on a like-for-like basis, recasted financials when we implement the fiscal year alignment. And hopefully, that will be very clear for everyone. In terms of what the U.S. performance may be, again, we don't guide by segment. But certainly, we've seen the macro and Kristin and I have already discussed some of the elements that we see there. Going into next year, we do have some comps that in some respects, are easier in the back half of the year versus the first half and so forth. So we those take into consideration. However, given our portfolio and the strength of that and our leadership position, we certainly will continue to execute commercially in ways to maximize those and drive our growth, not only in the U.S. but across the very diverse business we have geographical.

Our next question comes from Steven Dechert with KeyBanc.

Could you just give us an update on where you are in the approval process for Lenivia with the FDA?

Sure. Happy to take that. Yes, we're very excited right now to be launching in the first half for Lenivia in EU and Canada, and we do expect approval of Lenivia in the U.S. in 2027. So we're really busy right now getting the early experience ready for EU and Canada. And I'm excited to bring those learnings as we launch the product after we get its approval in the U.S. in 2027.

And our next question comes from Daniel Clark with Leerink Partners.

Two for me. One, just wanted to ask about your assumptions for the derm market in 2026 and if you're thinking that, that's going to grow and maybe just how you're thinking about the high and the low ends of guide based on that. And then secondarily, more of a clarification than anything, can you just remind us when your key patents on Simparica and Apoquel when those are through?

Sure. In terms of derm assumptions here, we are expecting our key franchises, obviously, to lead the way for us in 2026. We're expecting mid- to high single-digit growth contribution here. Within that, of course, we don't guide by product category or specific franchise, but we do expect derm to contribute to growth on the year. Though Simparica franchise will be the leading driver for us within those. And we have produced dates around our products in terms of when patents expire. So for example, with Apoquel, we're out to 2032 time frame on that in terms of what our patent expires on that, but I would refer you to our public filings for more specifics.

Our next question comes from Navann Ty with BNP Paribas.

On the 3% to 5% guidance, would you say that 2026 is a fair pocket before a higher contribution of innovation in 2027? And maybe just one on the parasiticides, if you could discuss the performance of Simparica Trio in the U.S. as well as ProHeart whether it's driven by Bravecto Quantum?

Sure. Look, your audio cut out a little bit, but I think I got the gist of your question. Certainly, you've seen the company deliver on average 8% top line growth over the last 5 or 6 years, it's been closer to 9%. We believe the guidance we're giving today taking into consideration certain elements, including competitive launches, which we fully expect to be very aggressive to get positioned in terms of penetration in clinics so that they can then start to drive more DTC to drive their growth longer term. In the past, we have seen those to be short-lived, again, with the objective of getting products on shelf and that those -- including the macro conditions we've talked about factor into what we're putting in here, certainly, we are very excited about not only the remaining expansion opportunities we see within the products we have on market today, which are in leadership positions. We're very excited about the pipeline. And yes, some of the bigger areas that we have in our pipeline will start to contribute as we look out into the 2027, 2028 time frame. But we are very focused on executing in 2026, as we always have. And you'll see that both in terms of how we drive those commercially with our existing products and all the way through the P&L. And you see the guidance we've issued inclusive of leverage through the P&L as we have continued to drive disciplined execution there as well. On your point around, Trio performance and ProHeart contributions, if any, coming from Merck's product in terms of Quantum. The last part of that, I would say, no, we don't see any meaningful contributions here. We've seen really consistent growth and performance from ProHeart throughout the year. And it's from existing clinics that value long-term heartworm prevention and those are just using more. And what I would say is over the last 4 quarters, 3 out of the 4, ProHeart has had double-digit growth, and we don't see that tied to the Merck product in any significant way. Trio itself had a great year. Certainly, you saw growth at 13% on the year in Trio and 5% is what the growth was in the fourth quarter. The U.S. similar to derm due to the macro conditions that we've talked about, saw lower growth in that closer to 1% on the year. Again, I won't repeat all the comments around what's contributing to that, but certainly, Trio is the clear leader in parasiticides in the U.S., and the clear leader in terms of triple combinations, our puppy share is higher than our overall share in adult dog share, which is a very, very good indicator in terms of how we'll be driving this going forward.

And our next question comes from Chris LoBianco with TD Securities.

What initial feedback are you hearing from KOLs on the product profiles of Lenivia and Portela? And second, what is your level of confidence that 2026 will be the year of maximum competitive pressure to Trio and...

Okay. I think I heard your question was what are we hearing from KOLs with regards to Portela? So as I mentioned earlier, we have not launched Lenivia and Portela yet. So it is not yet in the market. We do have the approvals currently in Canada and the EU, and we are preparing to start early experience, which would be with the specialists and the KOLs as we spoke about. So we'll be excited to share that once that product is out there, but we're just in the preparation of that launch. So there's no feedback there. Wetteny, do you want to take the second part of the question?

Yes. It was, again, a little bit difficult to hear specifically, but I got the gist is really in terms of competitive pressure. And what we've seen so far is we have not seen any significant impact from competitive pressure here. We've seen very limited impact from competitors, as we look at Trio and the triple combination space. As I said just a moment ago, significant more room to expand in terms of triple combinations, with Trio having a strong first-mover advantage and very, very high level of satisfaction. And we intend to continue to really leverage our strength there to lead the way in terms of the expansion of this very attractive space.

Okay. As always, I want to thank everyone for their questions today and your continued interest in Zoetis. We're really proud of the progress we made in 2025, and we are energized by the opportunity ahead. We remain focused on disciplined execution, growing our existing portfolio and stewarding a deep and differentiated pipeline, and translating innovation into meaningful outcomes for our customers and value for our shareholders. That focus, combined with the essential and resilient nature of animal health gives us confidence we can continue to demonstrate why Zoetis is an indispensable partner for customers around the world. We look forward to keeping you updated on our progress. Thanks for joining us today.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.