Fourth Quarter and Full Year 2022 Financial Results Forward-looking Non-GAAP Financial Statements Information This presentation contains forward-looking statements, which reflect the current views of We use non-GAAP*financial measures, such as adjusted net income, adjusted diluted Zoetis with respect to: business plans or prospects; future operating or financial earnings per share, adjusted operating expenses, adjusted gross margin, operational performance, future guidance, future operating models; disrupti ...

Zoetis Inc. (NYSE:ZTS) Q4 2022 Earnings Conference Call February 14, 2023 8:30 AM ET Company Participants Steve Frank - Vice President, Investor Relations Kristin Peck - Chief Executive Officer Wetteny Joseph - Chief Financial Officer Conference Call Participants Michael Ryskin - Bank of America Jon Block - Stifel Erin Wright - Morgan Stanley Louise Chen - Cantor Nathan Rich - Goldman Sachs David Westenberg - Piper Sandler Chris Schott - JPMorgan Brandon Vazquez - William Blair Elliot Wilbur - Raymond James ...

PART I [Item 1. Business](index=3&type=section&id=Item%201.%20Business) Zoetis is a global leader in animal health, generating **$8.08 billion** revenue in 2022 from diverse companion and livestock products [Overview and Operating Segments](index=3&type=section&id=Overview%20and%20Operating%20Segments) Zoetis operates globally in animal health, with its U.S. segment contributing **53%** and International **46%** of **2022 revenue** - Zoetis is a global leader in the animal health industry, focusing on medicines, vaccines, and diagnostics for eight core species, categorized as companion animals and livestock[8](index=8&type=chunk) 2022 Revenue by Operating Segment | Operating Segment | Revenue (Millions) | Percentage of Total Revenue | | :--- | :--- | :--- | | United States (U.S.) | $4,313 | 53% | | International | $3,681 | 46% | | Other (CSS & Human Health) | ~$81 | ~1% | 2022 Revenue Mix by Species within Segments | Segment | Companion Animal | Livestock | | :--- | :--- | :--- | | United States | 77% | 23% | | International | 51% | 49% | [Products](index=5&type=section&id=Products) In 2022, companion animal products generated **64% of revenue**, with the top five product lines contributing **37%** of total sales - Companion animal products, driven by increased pet ownership and spending, represented **64% of revenue** in 2022. Livestock products, driven by global demand for animal protein, represented **35%**[12](index=12&type=chunk) Top Selling Products' Contribution to 2022 Revenue | Product/Product Line | Approximate % of Revenue | | :--- | :--- | | Simparica/Simparica Trio | 12% | | Apoquel | 10% | | Top 5 Products/Lines | 37% | | Top 10 Products/Lines | 49% | - The company has **15 products and product lines** with revenues of **$100 million or more** in 2022[14](index=14&type=chunk) [Operations, Sales, and Customers](index=8&type=section&id=Operations%2C%20Sales%2C%20and%20Customers) International operations generated **46% of 2022 revenue**, supported by a **4,200-person sales force** and key distributors - International operations accounted for **46% of total revenue** in 2022, with emerging markets like Brazil, Chile, China, and Mexico contributing **22%**[17](index=17&type=chunk) - The sales organization consists of approximately **4,200 employees**, including sales representatives and technical specialists who visit customers directly[18](index=18&type=chunk) - The two largest customers, both distributors, represented approximately **14% and 9% of revenue** for the year ended December 31, 2022[19](index=19&type=chunk) [Research & Development, Manufacturing, and Competition](index=9&type=section&id=Research%20%26%20Development%2C%20Manufacturing%2C%20and%20Competition) Zoetis invested **$539 million in R&D** in 2022, utilizing **29 manufacturing sites** and facing strong competition R&D Expenses (2020-2022) | Year | R&D Expense (Millions) | | :--- | :--- | | 2022 | $539 | | 2021 | $508 | | 2020 | $463 | - The global manufacturing network comprises **29 company-operated sites** and a network of **132 third-party CMOs**[21](index=21&type=chunk)[23](index=23&type=chunk) - Primary competitors include Boehringer Ingelheim Animal Health, Merck Animal Health, Elanco Animal Health, and IDEXX Laboratories. The company also faces increasing competition from generic products[24](index=24&type=chunk) [Intellectual Property and Regulatory](index=11&type=section&id=Intellectual%20Property%20and%20Regulatory) Zoetis protects its products with **6,320 granted patents** but faces generic competition and extensive regulatory oversight globally - The company's intellectual property portfolio includes approximately **6,320 granted patents** and **1,430 pending patent applications**[25](index=25&type=chunk) - Patents for key products have expired or are expiring, leading to generic competition. This includes patents for Draxxin (tulathromycin), Excede/Naxcel (ceftiofur), and Revolution/Stronghold (selamectin)[25](index=25&type=chunk) - The sale of animal health products is highly regulated in each country. In the U.S., key regulatory bodies include the FDA's Center for Veterinary Medicine (CVM), the USDA's Center for Veterinary Biologics, and the Environmental Protection Agency (EPA)[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) [Human Capital and EHS](index=13&type=section&id=Human%20Capital%20and%20EHS) Zoetis employed **13,800 people** globally in 2022, focusing on DE&I goals and managing **$26 million** in EHS expenditures - As of December 31, 2022, the company had approximately **13,800 employees** worldwide, split evenly between the U.S. and other jurisdictions[32](index=32&type=chunk) - The company has set DE&I aspirations for 2025, including increasing representation of women at the director level and above to **40%** and people of color in the U.S. to **25%**[34](index=34&type=chunk) - The voluntary employee attrition rate decreased from **11% in 2021 to 10% in 2022**[35](index=35&type=chunk) - In 2022, the company incurred approximately **$8 million** in environmental-related capital expenditures and **$18 million** in other environmental-related expenditures[50](index=50&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) Zoetis faces risks from product concentration, intense competition, manufacturing disruptions, and **$8.0 billion** in indebtedness - The company's five top-selling products and product lines contributed approximately **37% of revenue** in 2022, creating a concentration risk[56](index=56&type=chunk) - The business faces significant competition from established animal health companies, new entrants, and lower-priced generic alternatives, which have already impacted sales of products like Rimadyl and Draxxin[57](index=57&type=chunk)[58](index=58&type=chunk) - Manufacturing problems, capacity imbalances, and supply chain disruptions for key products like Simparica Trio, Librela, and Solensia could lead to inventory shortages and delayed launches[80](index=80&type=chunk) - As of December 31, 2022, the company had approximately **$8.0 billion of total unsecured indebtedness**, which could make it difficult to satisfy obligations and limit financial flexibility[97](index=97&type=chunk) [Item 1B. Unresolved Staff Comments](index=30&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[101](index=101&type=chunk) [Item 2. Properties](index=30&type=section&id=Item%202.%20Properties) Zoetis operates **189 owned and leased properties** globally, totaling approximately **12.5 million square feet**, supported by **132 CMOs** - The company has **189 owned and leased properties** worldwide, totaling approximately **12.5 million square feet**[101](index=101&type=chunk) - The global manufacturing network is supplemented by **132 contract manufacturing organizations (CMOs)**[101](index=101&type=chunk) [Item 3. Legal Proceedings](index=30&type=section&id=Item%203.%20Legal%20Proceedings) The company is subject to various legal claims but expects no material adverse effect on its financial condition - The company is involved in various legal proceedings arising from the ordinary course of business but does not expect them to have a material adverse effect on its financial condition or cash flows[102](index=102&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[103](index=103&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=31&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Zoetis common stock trades on NYSE (ZTS), with **463.4 million shares outstanding** and an active **$2.6 billion** repurchase program - As of December 31, 2022, there was **$2.6 billion** remaining under the company's multi-year share repurchase program authorized in December 2021[106](index=106&type=chunk) Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2022 | 385,234 | $148.78 | | Nov 1 - Nov 30, 2022 | 807,282 | $143.37 | | Dec 1 - Dec 31, 2022 | 1,523,900 | $151.67 | | **Total Q4 2022** | **2,716,416** | **$148.80** | - The declaration and payment of dividends are at the discretion of the Board of Directors and depend on financial condition, operating results, and other factors[108](index=108&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Zoetis reported **$8.08 billion revenue** and **$2.11 billion net income** in 2022, with operating cash flow at **$1.91 billion** [Results of Operations](index=33&type=section&id=Results%20of%20Operations) In 2022, revenue grew **4% to $8.08 billion** and net income **4% to $2.11 billion**, driven by companion animal products Key Financial Performance (2022 vs. 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $8,080 M | $7,776 M | 4% | | Net Income | $2,114 M | $2,037 M | 4% | | Adjusted Net Income | $2,297 M | $2,240 M | 3% | - Total revenue growth of **4% in 2022** was comprised of **8% operational growth**, offset by a **4% unfavorable impact** from foreign exchange[150](index=150&type=chunk) Revenue by Species (2022 vs. 2021) | Species Category | 2022 Revenue (Millions) | 2021 Revenue (Millions) | % Change | | :--- | :--- | :--- | :--- | | Companion animal | $5,203 | $4,689 | 11% | | Livestock | $2,791 | $3,005 | (7)% | - Cost of sales as a percentage of revenue increased to **30.4% in 2022** from **29.6% in 2021**, driven by unfavorable manufacturing costs, foreign exchange, and higher freight costs[151](index=151&type=chunk) [Operating Segment Results](index=42&type=section&id=Operating%20Segment%20Results) In 2022, the U.S. segment revenue grew **7% to $4.31 billion**, while the International segment saw **9% operational growth** - U.S. segment revenue increased by **7% in 2022**, driven by a **12% growth** in companion animal products, primarily from Simparica Trio. Livestock revenue in the U.S. declined by **8%**[162](index=162&type=chunk) - International segment revenue increased by **1%**, but operational revenue grew by **9%**. Companion animal operational revenue grew **19%**, driven by the key dermatology portfolio and new mAb products. Foreign exchange unfavorably impacted reported revenue by **8%**[163](index=163&type=chunk)[164](index=164&type=chunk) [Adjusted Net Income (Non-GAAP)](index=44&type=section&id=Adjusted%20Net%20Income%20%28Non-GAAP%29) Adjusted net income, a non-GAAP measure, increased **3% to $2.30 billion** in 2022, with adjusted diluted EPS at **$4.88** - Adjusted net income is a non-GAAP measure used by management that excludes purchase accounting adjustments, acquisition-related costs, and certain significant items to provide an alternative view of operational performance[147](index=147&type=chunk)[169](index=169&type=chunk) Reconciliation of GAAP Net Income to Adjusted Net Income | (MILLIONS OF DOLLARS) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | GAAP reported net income | $2,114 | $2,037 | 4% | | Purchase accounting adjustments | $120 | $136 | (12)% | | Acquisition-related costs | $4 | $10 | (60)% | | Certain significant items | $59 | $57 | 4% | | **Non-GAAP adjusted net income** | **$2,297** | **$2,240** | **3%** | Reconciliation of GAAP Diluted EPS to Adjusted Diluted EPS | (PER SHARE DATA) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | GAAP reported EPS—diluted | $4.49 | $4.27 | 5% | | Adjustments (net) | $0.39 | $0.43 | (9)% | | **Non-GAAP adjusted EPS—diluted** | **$4.88** | **$4.70** | **4%** | [Analysis of Financial Condition, Liquidity and Capital Resources](index=48&type=section&id=Analysis%20of%20Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) As of December 31, 2022, Zoetis had **$3.58 billion in cash** and **$8.0 billion in total debt**, with operating cash flow at **$1.91 billion** - Net cash provided by operating activities decreased by **$301 million to $1,912 million** in 2022, primarily due to timing of receipts and payments, higher inventory, and lower cash earnings[183](index=183&type=chunk)[184](index=184&type=chunk) Selected Liquidity Measures (as of Dec 31) | (MILLIONS OF DOLLARS) | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $3,581 | $3,485 | | Working capital | $4,339 | $5,133 | | Long-term debt (incl. current) | $7,902 | $6,592 | - In November 2022, the company issued **$1.35 billion in new senior notes**, comprised of **$600 million due 2025** and **$750 million due 2032**. The proceeds were used to redeem notes maturing in February 2023[194](index=194&type=chunk)[290](index=290&type=chunk) - The company maintains a **$1.0 billion senior unsecured revolving credit facility**, which was undrawn as of December 31, 2022[190](index=190&type=chunk)[289](index=289&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Zoetis manages market risks from foreign exchange and interest rates, using derivatives to hedge exposures - The company's primary foreign currency exposures are the Australian dollar, Brazilian real, Canadian dollar, Chinese yuan, euro, and British pound[204](index=204&type=chunk) - A hypothetical **10% change** in the U.S. dollar against all other currencies would cause the amount recorded in cumulative translation adjustment (CTA) related to net investment hedges to change by approximately **$79 million**[204](index=204&type=chunk) - The company's outstanding debt is predominantly fixed-rate. Interest rate swaps are used to convert a portion of fixed-rate debt to variable-rate, and a **100-basis point change** in LIBOR/SOFR would increase annual interest expense by approximately **$3 million** on these swaps[205](index=205&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Zoetis's audited consolidated financial statements for 2022, including **$8.08 billion revenue** and **$2.11 billion net income** [Consolidated Financial Statements](index=58&type=section&id=Consolidated%20Financial%20Statements) For 2022, Zoetis reported **$8.08 billion revenue**, **$2.11 billion net income**, and **$1.91 billion operating cash flow** Consolidated Statement of Income Highlights (2022) | (MILLIONS OF DOLLARS) | Amount | | :--- | :--- | | Revenue | $8,080 | | Gross Profit | $5,626 | | Income before taxes | $2,656 | | Net income attributable to Zoetis | $2,114 | | Diluted EPS | $4.49 | Consolidated Balance Sheet Highlights (Dec 31, 2022) | (MILLIONS OF DOLLARS) | Amount | | :--- | :--- | | Total current assets | $7,506 | | Total assets | $14,925 | | Total current liabilities | $3,167 | | Total liabilities | $10,522 | | Total equity | $4,403 | Consolidated Statement of Cash Flows Highlights (2022) | (MILLIONS OF DOLLARS) | Amount | | :--- | :--- | | Net cash provided by operating activities | $1,912 | | Net cash used in investing activities | $(883) | | Net cash used in financing activities | $(904) | [Notes to Consolidated Financial Statements](index=63&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail revenue by geography and product, the **$240 million Jurox acquisition**, and **$8.0 billion in total debt** - Revenue is disaggregated by geography, species, and product category. The largest customer, a U.S. veterinary distributor, accounted for approximately **14% of total revenue** in 2022, 2021, and 2020[262](index=262&type=chunk)[267](index=267&type=chunk) - In 2022, the company completed the acquisition of Jurox, an Australian animal health company, for an aggregate cash purchase price of **$226 million**, adjusted to **$240 million**[268](index=268&type=chunk) - As of December 31, 2022, the company had **$8.0 billion in principal amount of long-term debt outstanding**, with maturities ranging from 2023 to 2050[291](index=291&type=chunk)[292](index=292&type=chunk) - The company's share-based compensation expense totaled **$62 million** in 2022, primarily related to RSUs, PSUs, and stock options[326](index=326&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=94&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[362](index=362&type=chunk) [Item 9A. Controls and Procedures](index=94&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[363](index=363&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[364](index=364&type=chunk) PART III [Items 10-14](index=95&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) This section incorporates by reference information from the 2023 Proxy Statement regarding governance, compensation, and related party transactions - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees and Services (Item 14) is incorporated by reference from the registrant's 2023 Proxy Statement[368](index=368&type=chunk)[369](index=369&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk)[372](index=372&type=chunk) PART IV [Item 15. Exhibit and Financial Statement Schedules](index=96&type=section&id=Item%2015.%20Exhibit%20and%20Financial%20Statement%20Schedules) This item lists the financial statements, schedules, and exhibits filed with the annual report - This item lists the financial statements, schedules, and exhibits filed with the annual report[374](index=374&type=chunk) [Item 16. Form 10-K Summary](index=96&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates that there is no Form 10-K summary - None[374](index=374&type=chunk)

Zoetis Inc. (NYSE:ZTS) Q3 2022 Earnings Conference Call November 3, 2022 8:30 AM ET Company Participants Steve Frank - Vice President of Investor Relations Kristin Peck - Chief Executive Officer Wetteny Joseph - Chief Financial Officer Conference Call Participants Erin Wright - Morgan Stanley Michael Ryskin - Bank of America Nathan Rich - Goldman Sachs Louise Chen - Cantor Jon Block - Stifel Brandon Vazquez - William Blair Chris Schott - JPMorgan David Westenberg - Piper Sandler Steve Scala - Cowen Michael ...

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Zoetis Inc (NYSE:ZTS) Q2 2022 Earnings Conference Call August 4, 2022 8:30 AM ET Company Participants Steve Frank - Vice President of Investor Relations Kristin Peck - Chief Executive Officer Wetteny Joseph - Chief Financial Officer Conference Call Participants Michael Riskin - Bank of America Erin Wright - Morgan Stanley Jon Block - Stifel Nathan Rich - Goldman Sachs Louise Chen - Cantor Fitzgerald Elliot Wilbur - Raymond James Balaji Prasad - Barclays Ekaterina Knyazkova - JPMorgan Operator Welcome to the ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-35797 Zoetis Inc. (Exact name of registrant as specified in its charter) | --- | --- | | ...

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