Financial Data and Key Metrics - Revenue for Q2 2023 was $2.2 billion, growing 6% on a reported basis and 9% operationally [15] - Adjusted net income for Q2 2023 was $652 million, growing 15% on a reported basis and 12% operationally [15] - Operational revenue growth was driven by 4% from price and 5% from volume, with volume growth consisting of 2% from in-line products, 2% from new products, and 1% from the dermatology portfolio [15] - Adjusted gross margin improved by 260 basis points to 72.4%, driven by favorable foreign exchange, price increases, and product mix [23] - Capital expenditures in Q2 were $166 million, and the company repurchased $324 million of shares [25] Business Line Performance - Companion animal portfolio grew 11% operationally in Q2, driven by dermatology, osteoarthritis pain, and pet parasiticides [6][16] - Livestock portfolio grew 4% operationally in Q2, driven by poultry, cattle, and fish products [6][17] - Companion animal diagnostics portfolio recorded $92 million in revenue, growing 12% operationally [17] - U.S. companion animal revenue grew 7%, with dermatology products contributing $241 million, growing 10% [18] - International companion animal revenue grew 17% operationally, driven by parasiticides, monoclonal antibodies for osteoarthritis pain, and dermatology products [20][21] Market Performance - U.S. revenue was $1.2 billion, growing 7%, with companion animal products growing 7% and livestock sales growing 5% [18] - International revenue was $1 billion, growing 6% on a reported basis and 11% operationally, with companion animal revenue growing 17% and livestock revenue growing 4% [20] - Strong growth in Europe, particularly in Northern Europe, with double-digit growth in companion animal products [63][64] Company Strategy and Industry Competition - The company is focused on innovation in chronic diseases, dermatology, parasiticides, and monoclonal antibodies for pain [6][12] - Direct-to-consumer campaigns are being used to support growth for products like Librela and Solensia [10] - The company received U.S. regulatory approvals for Librela and Apoquel Chewable in Q2 2023, with Librela expected to launch in the U.S. in November [11] - The company is expanding in large and growing product areas such as parasiticide, dermatology, monoclonal antibodies for pain, vaccines, and diagnostics [12] Management Commentary on Operating Environment and Future Outlook - The company expects full-year operational revenue growth of 6% to 8% and adjusted net income growth of 7% to 9% [9][25] - The company is monitoring macroeconomic conditions, particularly in Asia Pacific, and drought conditions in certain countries [11] - The company remains confident in its ability to deliver on its full-year guidance due to strong underlying demand for animal health products [81] Other Important Information - The company welcomed Ester Banque as EVP and President of U.S. Operations, bringing global healthcare experience [12] - The company published its 2022 sustainability report, highlighting progress in sustainability initiatives [13] - Zoetis was recognized by Fast Company as one of the Best Workplaces for Innovators [14] Q&A Session Summary Question: Impact of NexGard Plus on Simparica Trio - Simparica Trio has a superior label and first-mover advantage, with strong growth expected in Q3 and the second half of 2023 [32] - The company remains confident in competing against NexGard Plus due to the strength of its label and customer relationships [32] Question: Outlook for Companion Animal Growth - Companion animal growth is expected to improve in the second half of 2023, driven by strong demand and easier comparisons in the U.S. [38] - The company expects Q3 to be stronger than Q4 due to easier comps in companion animal and tougher comps in livestock [39] Question: Gross Margin Drivers and Sustainability - Gross margin improvement was driven by favorable foreign exchange, price increases, and product mix, with sustainability expected in the second half of 2023 [42][43] Question: Dermatology Market and Competition - The company expects double-digit growth in dermatology, driven by strong demand for Cytopoint and Apoquel Chewable [50][51] - The company is focused on life cycle innovation in dermatology, including long-acting monoclonal antibodies and new species applications [61][62] Question: EPS Guidance and Pricing Impact - The increase in EPS guidance is primarily due to favorable foreign exchange, with pricing increases typically occurring early in the year [57][58] Question: Global Parasiticide Market Growth - The company expects to grow faster than the global parasiticide market, driven by innovation and increased compliance [71][72][74] Question: U.S. Pet Health Market and Student Loan Repayments - Flat vet visits in the U.S. are due to workforce challenges rather than demand issues, with no significant impact expected from student loan repayments [77][79] Question: Long-Term Growth Commitment - The company remains committed to mid-to-high single-digit revenue growth over the next 3-5 years, driven by innovation and strong market demand [67][68]

Second Quarter 2023 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; disruptions in our glo ...

[PART I — FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company presents unaudited condensed consolidated financial statements showing revenue growth and a decrease in cash [Condensed Consolidated Statements of Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The company reports a 6% quarterly revenue increase to $2.18 billion and a 27% rise in net income to $671 million Q2 & H1 2023 Financial Performance (in millions, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % Change | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $2,180 | $2,052 | 6.2% | $4,180 | $4,038 | 3.5% | | **Income before taxes** | $872 | $670 | 30.1% | $1,569 | $1,397 | 12.3% | | **Net income attributable to Zoetis** | $671 | $529 | 26.8% | $1,223 | $1,124 | 8.8% | | **Diluted EPS** | $1.45 | $1.12 | 29.5% | $2.64 | $2.38 | 10.9% | | **Dividends declared per share** | $0.375 | $0.325 | 15.4% | $0.750 | $0.650 | 15.4% | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $13.75 billion, primarily due to a significant reduction in cash and cash equivalents Balance Sheet Comparison (in millions) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $6,183 | $7,506 | | Cash and cash equivalents | $1,717 | $3,581 | | Inventories | $2,701 | $2,345 | | **Total Assets** | **$13,749** | **$14,925** | | **Total Current Liabilities** | $1,769 | $3,167 | | Current portion of long-term debt | $0 | $1,350 | | **Total Liabilities** | **$9,128** | **$10,522** | | **Total Equity** | **$4,621** | **$4,403** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased while a large debt repayment drove a significant use of cash in financing activities Cash Flow Summary for Six Months Ended June 30 (in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $732 | $645 | | **Net cash used in investing activities** | ($296) | ($321) | | Capital expenditures | ($389) | ($261) | | Proceeds from sale of business | $93 | $0 | | **Net cash used in financing activities** | ($2,296) | ($1,155) | | Principal payments on long-term debt | ($1,350) | $0 | | Purchases of treasury stock | ($607) | ($812) | | **Net decrease in cash and cash equivalents** | **($1,864)** | **($833)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail strong companion animal product growth, a business sale, debt repayment, and a subsequent acquisition - Revenue from companion animal products grew **9% in Q2 2023 to $1.49 billion**, while livestock revenue was flat at $671 million[24](index=24&type=chunk)[25](index=25&type=chunk) - In Q2 2023, the company sold a majority interest in its pet insurance business, Pumpkin Insurance Services, for net cash proceeds of **$93 million**, recognizing a pre-tax gain of **$101 million**[29](index=29&type=chunk) - On February 1, 2023, the company redeemed in full its **$1.35 billion 3.250% senior notes** due 2023 upon maturity[40](index=40&type=chunk) - Subsequent to the quarter end, on August 3, 2023, Zoetis acquired PetMedix Ltd for upfront cash consideration of approximately **$111 million**[69](index=69&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses 9% operational revenue growth driven by companion animal products, price increases, and volume gains Q2 2023 Revenue Growth Drivers | Driver | Contribution to Operational Growth | | :--- | :--- | | Price Growth | ~4% | | Volume Growth (Other in-line products) | ~2% | | Volume Growth (New products) | ~2% | | Volume Growth (Key dermatology) | ~1% | | **Total Operational Growth** | **~9%** | - U.S. companion animal revenue growth was driven by the **key dermatology portfolio, Solensia (for OA pain), and small animal vaccines**[99](index=99&type=chunk)[100](index=100&type=chunk) Adjusted Net Income Reconciliation (Q2 2023 vs Q2 2022, in millions) | Description | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | **GAAP reported net income** | **$671** | **$529** | | Purchase accounting adjustments | $34 | $31 | | Acquisition-related costs | $3 | $1 | | Certain significant items | ($56) | $6 | | **Non-GAAP adjusted net income** | **$652** | **$567** | - Net cash used in financing activities for H1 2023 was **$2.30 billion**, primarily due to the **$1.35 billion repayment of senior notes** and **$607 million in treasury stock purchases**[124](index=124&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure from foreign exchange and interest rates has not materially changed since year-end 2022 - There have been **no material changes** in the company's market risk exposure related to interest rates and foreign exchange since the year-ended December 31, 2022[135](index=135&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - As of June 30, 2023, the CEO and CFO concluded that the company's **disclosure controls and procedures are effective**[136](index=136&type=chunk) - **No material changes** to the company's internal control over financial reporting were identified during the most recent fiscal quarter[137](index=137&type=chunk) [PART II — OTHER INFORMATION](index=44&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company reports ongoing legal matters related to an environmental claim in Brazil and a tax case in the EU - The company is involved in an **environmental proceeding in Ulianopolis, Brazil**, regarding waste disposal, with the matter currently in the environmental assessment phase[60](index=60&type=chunk)[61](index=61&type=chunk) - The company is awaiting a decision from the EU General Court regarding the **Belgium "excess profit" tax scheme** after a hearing on February 15, 2023[62](index=62&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K are reported - **No material changes** have occurred to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K[139](index=139&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 1.88 million shares in Q2 2023, with $2.0 billion remaining under its repurchase authorization Share Repurchases for Q2 2023 | Period | Total Shares Purchased (Program) | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2023 | 407,184 | $171.81 | | May 2023 | 759,092 | $176.77 | | June 2023 | 713,942 | $166.32 | | **Total Q2** | **1,880,218** | **$171.73** | - As of June 30, 2023, **$2.0 billion remained** under the company's $3.5 billion share repurchase authorization from December 2021[140](index=140&type=chunk) [Other Information](index=44&type=section&id=Item%205.%20Other%20Information) Two company executives adopted pre-arranged Rule 10b5-1 trading plans for future sales of company stock - In June 2023, executives Roxanne Lagano and Heidi Chen adopted **Rule 10b5-1 trading plans** for the sale of up to 10,807 and 9,905 shares, respectively[143](index=143&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including required CEO and CFO certifications - Key exhibits filed include **CEO/CFO certifications under Sarbanes-Oxley** and corporate governance documents[144](index=144&type=chunk)

Financial Data and Key Metrics Changes - The company reported Q1 2023 revenue of $2 billion, growing 1% on a reported basis and 4% operationally, with adjusted net income of $607 million, declining 3% on both a reported and operational basis [14][15][28] - The operational revenue growth of 4% was driven by a 5% increase from price and a 1% decline in volume, primarily due to U.S. companion animal distributor destocking [14][15] - Adjusted gross margins were 70.8%, declining 80 basis points compared to the prior year, attributed to higher manufacturing costs and unfavorable product mix [25][26] Business Line Data and Key Metrics Changes - The livestock portfolio led growth with a 12% operational increase, while companion animal product revenues were flat operationally [6][15] - U.S. livestock sales grew 15%, driven by improved supply of key products, while companion animal products in the U.S. declined 7% [19][23] - International revenue grew 10% operationally, with both companion animal and livestock segments contributing to this growth [23][24] Market Data and Key Metrics Changes - U.S. veterinary clinic visits increased by 2%, with clinic revenue growth of 11% and average spend per visit up 9% [9][20] - Sales out of distributors to clinics were up 8% on a volume basis, and retail sales to pet owners increased by 35% [8][37] - The international livestock segment also grew 10% operationally, driven by cattle and sheep portfolios [25] Company Strategy and Development Direction - The company plans to continue investing in key product areas such as parasiticides, dermatology, monoclonal antibodies, vaccines, and diagnostics to support future growth [11][12] - A new manufacturing site outside Atlanta, Georgia, was purchased to expand capacity for monoclonal antibodies and vaccines, expected to begin operations in 2026 [12] - The company remains committed to delivering strong growth in 2023 based on market leadership and innovative franchises [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year guidance despite economic uncertainties, expecting operational growth of 6% to 8% in revenue and 7% to 9% in adjusted net income [5][29] - The company anticipates a return to growth in U.S. diagnostics and expects strong demand for innovative companion animal products [10][11] - Management noted that the first quarter results were in line with expectations and emphasized the importance of a diverse portfolio for steady growth [14][29] Other Important Information - Capital expenditures in Q1 were $223 million, with expectations for a significant increase throughout 2023 [28] - The company repurchased $283 million of shares and increased dividends by over 15% compared to Q1 2022 [28] Q&A Session Summary Question: Is the channel now normalized in the U.S.? - Management confirmed that the channel is at normalized levels and discussed the destocking dynamics that occurred in Q1, which were anticipated [32][35] Question: Was there a stocking benefit across livestock in the segment in the quarter? - Management indicated that livestock growth was driven by resupply and increased supply of key products, but expects flat growth for the year [39][40] Question: What drove the decline in the dermatology segment? - The decline was attributed to destocking from pre-price buy-ins and promotional impacts, but management expects double-digit growth for the rest of the year [41][68] Question: Any feedback from the price increases at the beginning of the year? - Management reported no pushback from veterinarians or pet owners regarding price increases, with significant growth observed in distributor sales to clinics and retail sales to pet owners [70][73]

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 March 31, 2023 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) Delaware 46-0696167 (State or oth ...

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 ...