Welcome to the First Quarter 2025 Financial Results Conference Call and Webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of Zoetis.com. The presentation slides can be managed by you, the viewer, and will not be forwarded automatically. In addition, a replay of the call will be available approximately two hours after the conclusion of this call via dial-in or the investor relations section of Zoetis.com. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time please press star 1 on your telephone keypad. If at any point your question has been answered you may remove yourself from the queue by pressing star 2. In the interest of time we ask that you limit yourself to one question and then cue up again with any follow-up questions. Your line will be muted when you complete your question. When posing your question, please pick up your handset to allow optimal sound quality. Lastly, should you require operator assistance, please press star zero. 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 first quarter 2025 earnings call. I am joined today by Kristen Peck, our Chief Executive Officer, and Whitney Joseph, our Chief Financial Officer. Before we begin, I'll remind you that the slides presented on this call are available on the Investor Relations section of our website, and that our remarks today will include forward-looking statements, and that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements in today's press release and our SEC filings, including, but not limited to our annual report on Form 10-K and 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 8K filing dated today, Tuesday, May 6th, 2025. We also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Kristen.

Thank you, Steve, and welcome everyone to our first quarter 2025 earnings call. By staying laser-focused on delivering for our customers, our colleagues drove strong 9% organic operational revenue growth and grew adjusted net income 6% on an organic operational basis. Our international segment led with 11% organic operational revenue growth, highlighting our global scale and diversification, while the U.S. grew 6%, excluding the impact of the MFA divestiture. Growth was balanced across species. Our innovative companion animal portfolio grew 9% operationally, fueled by sustained demand for diverse, market-leading franchises. Livestock grew 7% on an organic operational basis, driven by broad-based, double-digit performance internationally. Before we go deeper into the quarter, I want to briefly address what is top of mind for many of you. In today's operating environment, the essential nature of our business remains clear. Animals provide companionship and nourishment, and in uncertain times, people will rely on both. It's precisely because of the enduring secular trends and the fundamentals underpinning our innovation-led operating model that Zewettis has consistently proven its resilience, even through economic turbulence. That resilience is embedded in how we operate, from our global footprint and diverse, durable portfolio across species and geographies, to our omni-channel presence, matrix, manufacturing network, and talented field force. Combined, those dynamics ensure we're operating from a position of strength as we navigate a fluid environment shaped by macroeconomic, regulatory, and geopolitical uncertainty. We are managing these challenges thoughtfully, working to minimize their impact while also seizing opportunities where they exist so we can continue delivering for our customers, colleagues, and shareholders. That means executing our strategy with discipline, supported by a strong balance sheet, operational excellence, thoughtful and strategic capital allocation, and experienced leadership team ready to adapt as needed. Most importantly, we continue to prioritize what matters most, living our purpose and ensuring our products reach the people and animals who depend on them. With that context, let's pivot back to the quarter. While our performance reflects the strength of our diverse, multi-levered strategy, I'll touch on a few of the key growth drivers. In Companion Animal, our combined key franchises grew double digits operationally, fueled by exceptional performance in our international segment, where our trusted brands, even after several years on the market, continued to grow by winning new patients and improving compliance with significant runway to further define the standard of care and deliver meaningful outcomes. In parasiticides, our Symparaca franchise continues to expand the overall category and is gaining share, driven by our omni-channel strategy, meeting customers where they are, whether in the clinic, through retail, where Symparaca Trio is the top-selling parasiticide in the U.S., or via home delivery. As you've heard us say, we are seeing increased conversion to broad-spectrum triple combinations, setting us up for an even longer-term growth tailwind. Together, these dynamics positions us well to continue leading through innovation, most recently with Semperica Trio's U.S. label expansion to include flea tapeworm protection. Similarly, key dermatology has consistently been a high-growth category built on innovation, customer trust, and a portfolio that remains the preferred choice for treating allergic itch. Through years of investment and strong partnerships, we have built brand loyalty and established a clear leadership position. We continue to leverage our first mover advantage by capitalizing on the breadth of our portfolio to grow and sustain share in a dynamic environment. We remain focused on what we can control, execution, innovation, and customer experience, and we are winning with customers every day. Demand for our portfolio remains strong, fueled by the convenience and the unmatched flexibility we provide to vets and pet owners through our three differentiated products. At the same time, an estimated 20 million dogs still untreated or undertreated for itch. Advances in diagnostics are helping unlock this opportunity, enabling broader access, earlier intervention, and better outcomes. That's why we're confident in the enduring strength of this franchise and our ability to continue leading. And similarly, building on our track record of scientific innovation, our osteoarthritis pain franchise marks a meaningful advancement in care, delivering strong double-digit growth and approximately 25 million doses distributed globally. While adoption has been more gradual than initially expected, we are encouraged by the foundation we are laying and the long-term potential ahead. We are building and scaling a new category of care, one that requires significant education and engagement. Both veterinarians and pet owners need time and support to fully understand the safety and efficacy profile of newer, more advanced treatments for chronic pain. And in this economic environment, we're seeing pet owners take a more measured approach to managing chronic conditions, making choices that reflect broader consumer spending trends, which could include adjustments to timing or frequency of care. That said, we see the impact of these therapies every day. They are safe, effective, and improving the quality of life for pets and the people who care for them. To accelerate adoption, improve access, and grow the OA pain market, we are taking focused strategic actions. We are expanding medical education for veterinarians and partnering with key opinion leaders to shape best practices. We're investing in and plan to leverage post-launch studies to generate additional real-world insights for vets. We are engaging directly with pet owners to increase education on the burden of OA pain and the long-term value of treatment. And we are launching 360 campaigns, including targeted direct-to-consumer efforts to build awareness and demand. So uptake may be slower in the near term. Our long-term confidence remains strong as we build a durable, differentiated market with significant room to grow, especially given the sizable and under-penetrated opportunity ahead. In Livestock, we delivered strong performance with 7% organic operational growth. Through the sale of our MFA portfolio, we consistently reaffirmed our commitment to Livestock and our customers, because what makes The Wet is unique and reliable is the diversity and durability of our business model. Regardless of portfolio mix, one thing is true. People need to eat, and global demand for animal protein will continue to rise. That's why we continue to invest in solutions that protect the health of food-producing animals and safeguard supply chains. Since reporting our results in February, we received conditional licensure from the USDA for avian influenza vaccine for chickens, ensuring we are ready to support customers and regulators wherever the path leads in addressing this evolving threat. And it's during periods of uncertainty that execution matters most. Our experience enables us to rise to the occasion, to stay focused, stay ready, and continue delivering solutions where and when they are needed most. As we look to the rest of the year, we're encouraged by our first quarter performance and the steady demand for our products, along with the resilience we've consistently seen across the animal health industry. We are maintaining our full-year organic operational revenue guidance range of 6% to 8%, reflecting confidence in the differentiation of our portfolio and our ability to execute in the current environment. While the operating backdrop remains unpredictable, we believe this range appropriately reflects what we know today, and we will remain agile in navigating new uncertainties and embracing new opportunities. At the same time, based on our current estimates of enacted tariff-related cost impacts, we are updating our full-year organic operational adjusted net income to a range of 5% to 7%. And just to clarify, our outlook does not include any potential impact from future tariffs as it's still too early to know how the situation will unfold. And with that, I will close with this. The performance we shared today reflects the dedication of our colleagues around the world living our purpose, being a trusted solutions provider to our customers, and delivering results through their relentless focus. Uncertainty is top of mind for everyone, but it's not unique to Zoetis. What sets us apart is how we respond. Zoetis has consistently leveraged its innovation-led customer-first operating model to outperform the market and deliver value for both customers and shareholders. We remain vigilant and agile. We'll draw on our experience navigating complexity, stay clear-eyed in our decision-making, and continue moving forward with discipline. We are confident in the strength of our portfolio, in the promise of our pipeline, in our ability to adapt. Most of all, we're confident in the commitment of our teams around the world to lead through change and continue delivering for our customers and shareholders. Because ultimately, what we do matters for the well-being of animals, people, and communities. That's why animal health is both essential and resilient, an industry fueled by long-term demand and rising expectations for high-quality care. And as a global leader, we recognize our responsibility to lead today and well into the future. With that, I'll turn it over to Whitney to walk us through the more detailed financials.

Thank you, Kristen. Then in the first quarter, driven by balanced portfolio growth, we posted $2.2 billion in revenue, growing 1% on a reported basis and 9% on an organic operational basis, which excludes the impact of foreign exchange and the MFA divestiture. Our organic operational growth was driven by 4% price and 5% volume. Adjusted net income of $662 million, grew 4% on a reported basis and 6% on an organic, operational basis. Our companion animal portfolio led the way with $1.5 billion in revenue, going 9% operationally. Globally and on an operational basis, our Semparica franchise contributed $367 million, going 19%. Key dermatology posted $387 million, going 10%. And our OA pay maps reported $147 million, going 15% in the quarter. Our livestock portfolio also contributed organic operational growth of 7% on $645 million in revenue. Now moving on to our Q1 segment results. U.S. revenue grew 2% on a reported basis and 6% on an organic operational basis in the quarter with companion animal growing 8% and livestock declining 2% on an organic operational basis. In companion animal, U.S. growth was driven by our three key franchises while vaccines faced headwinds from supply timing coupled with competitor re-entry across the portfolio alternative channel sales continue to outpace the vet channel offering greater convenience for pet owners improving compliance and stickiness given by strong growth in auto ship programs that boost compliance and increase the lifetime value of each dog on treatment, our Semperica franchise posted 17% U.S. growth this quarter on $260 million in revenue. Additional competitive entrants are accelerating the market's shift to triple combinations, where we continue to gain share thanks to the strength of our field force, our first mover advantage, and ongoing innovation, including expended label claims. In key dermatology, sales were $249 million, up 7% with growth across both Apriquil and tighter point while also reflecting the comparison to last year's initial distribution stocking of apricot chewable apricot growth continues to be driven by the retail channel and continued conversion to the chewable which is easier to administer and promotes daily compliance our oa pain maps labrella and silencia posted a combined 65 million dollars in us cells growing 14 percent labrella grew 17 percent on 47 million dollars in revenue and silencia posted 18 million dollars in revenue growing seven percent to reiterate kristin's point building a new category of care takes time but we remain confident in the sizable market potential our foundation is solid and record penetration confirms that veterinarians want better oa solutions organic operational declines of two percent in livestock are primarily driven by declines in Jackson due to aggressive price competition and the timing of price adjustments in the prior year as well as the timing of supply of safety fear. Moving on to our international segment, revenue was flat on a reported basis and grew 11% on an organic operational basis. Companion animal grew 10% operationally and livestock grew 12% on an organic operational basis. Similar to the U.S., international companion animal sales were driven by strong performance in our Semperica, Key Dermatology, and OA pain franchises. Our international Semperica franchise, including Semperica and Semperica Trio, grew 23% operation only on $106 million in sales, with both brands driving strong market share gains. Semperica grew 22% operation only on $61 million in sales, driven by expansion of the combination parasiticide market, especially in Latin America and Eastern Europe. Semperica Trio contributed $46 million, dollars growing 26 percent operationally with strong performance across all regions our key dermatology franchise delivered 138 million dollars in revenue of 15 percent operation only with double digit growth in both applequel and cyto point our performance was driven by field force engagement with vets leading to new patient starts and improved compliance especially among chronic cases as kristen highlighted we're executing globally on our key derm strategic priorities. We continue to show strong progress driven by continued conversion of apical chewable which now accounts for 57% of doses in Europe. Internationally, our OAPA maps grew 16% operation only, posting $82 million in combined revenue. International sales of Lubuela were $65 million, growing 14% operation only. Our international efforts have had a significant head start over the U.S. as we enter our fifth year in some markets. We continue to drive double digit sales growth and expand both the market and our share. Salencia sales were 18 million dollars growing 27% operationally in the quarter. Salencia now holds over half of the feline OA market share in international markets underscoring the strong demand for an OA solution for caps. International livestock grew 12% on an organic operational basis in the quarter. wealth was driven by higher price including some impacts from high inflationary markets volume growth excluding the impact of mfas was driven by poultry vaccine growth from key account penetration across asia the middle east and latin america cattle contributed to growth with a return to a more normal environment in australia as well as strong demand across much of south america canada and mexico Our fish business saw good vaccine growth across geographies. Now moving on to the P&L for the quarter. Adjusted gross margin of 72.1% grew 140 basis points on a reported basis. Point exchange had a favorable impact of 220 basis points. Excluding FX, we saw lower margins due to higher manufacturing costs in line with our expectations and included in our initial guidance in February, which should improve as we work through inventory value that prior year standards and unfavorable product mix this was partially offset by the favorable impact of our mfa divestiture adjusted operating expenses increased three percent operational growth was driven primarily by sdna increases of four percent operationally made it due to higher compensation rate expenses and increased direct to consumer advertising rnd declined two percent operationally this quarter due to lower project spend primarily due to timing adjusted net income with two percent operation only and six percent on an organic operational basis adjusted digital dps with four percent operational in the quarter and eight percent on an organic operational basis two percent higher than adjusted net income and reflective of a lower share count as a result of our ongoing share buybacks before we get into guidance i'll expand on the business impact of the tariff landscape while the current situation remains fluid we are are well positioned to navigate this dynamic environment. We'll be thoughtful and deliberate in our actions, with a clear focus on both near and long-term goals. We will leverage the diversity of our revenue across geographies and species to seize opportunities for growth, ensure we work to control expenses, write strategically, and manage inventory. People and animals depend on our products, and we will continue to deliver for customers. Now, moving to guidance for the full year 2025, which reflects continued confidence in our operating model while acknowledging that there will be some profitability impact in the near term due to enacted tariffs. Please note that guidance reflects foreign exchange rates as of late April. For the year, we are guiding revenue between $9.425 and $9.575 billion with increases due to favorable foreign exchange when compared to the late January rates used in our initial February guidance and maintaining organic operational growth of six percent to eight percent. We recognize that there are external factors that are beyond our control. As such, our current guidance does not include any assumed impact of future tariffs, policy changes, or further worsening of the macro environment. We continue to expect broad-based operational growth across our Semperica, to dermatology, and OA pain franchises, and reiterate our expectation that these combined innovative franchises will grow double digits in 2025. We now expect adjusted net income to be in the range of $2.775 to $2.825 billion, reflecting operational growth of 5% to 7% on an organic operational basis. Our revised adjusted net income guidance is reflective of the estimated impact of current enacted tariffs while not accounting for any future changes in the tariff landscape. Lastly, we expect adjusted diluted EPS to be in the range of $6.20 to $6.30, and reported diluted EPS to be in the range of $5.85 to $5.95. This EPS increase is primarily due to favorable foreign exchange compared to the late generator rates, as well as the reduction in our share count due to share repurchases in the quarter slightly offset by enacted tariffs as we indicated in February our EPS projections are based on current share counts and do not consider the future favorable impact of our ongoing share repurchase program as we look forward to the remainder of the year we recognize there is a degree of uncertainty but we remain confident in our outlook in the past our proven diversified model has delivered steady predictable and meaningful growth through dynamic environments we lead in two attractive end markets with strong fundamentals

have a portfolio of market leading franchises a sustainable stream of innovation and a proven track record of execution now i'll hand things over to the operator to open the line for your questions operator thank you ladies and gentlemen if you would like to ask a question at this time please press star 1 on your telephone keypad if at any point your question has been answered you may remove yourself from the queue by pressing star 2. in the interest of time we ask that you limit yourself to one question and then queue up again with any follow-ups your line will be muted when you complete your question we also ask that when you pose your question please pick up your handset to allow for optimal sound quality we'll hear first from aaron wright with morgan stanley please go ahead. Great, thanks.

So, first on, I'll do Librella first and then tariffs. I guess, can you speak to what you're seeing across the U.S. market in terms of the Librella label change, how VETs are responding relative to your expectations there, and how do you think the longer-acting OA pain products could potentially replace or enhance sort of the OA pain offering as we head into potentially next year. And then on tariffs, can you describe what exactly is embedded in terms of the growth tariff impact and what mitigation efforts you have? And then what does it mean when you say enacted tariffs? I guess what tariffs or jurisdictions are you incorporating? Are product categories, where do you have, I guess, the most exposure and what sort of is the tariff impact now embedded in guidance?

Sure. Thanks, Erin. I will take the Librella question. I'll let Wetney take the tariff question when I'm done. As we, as Wetney sort of mentioned in his prepared remarks, we had about 15% organic operating growth in Librella across the globe and the U.S. having about 17%. We're continuing to grow the market and that satisfaction remains strong. Our focus right now is on building and scaling the new category of care and really focusing on continued education and engagement. Now that the label is settled, we're really focusing on expanding our medical education. We're investing in a number of post-launch studies, as we've talked about, to generate more real-world data. We're also bringing in some key opinion leaders from Europe who have had the product for over five years to share their experiences in the U.S., as well as investing in targeted DTC. So we continue to have long-term confidence, it remains strong, and, you know, we really think Librella is, you know, meeting a significant unmet medical need and remain excited. Whitney, do you want to cover the tariff question?

Sure. Look, Erin, our guidance today reflects the net impact of the tariffs that are actually already in place. And so that's net of any mitigations that we've already put together here, although the situation remains fluid. to give you a little bit more color in terms of where the exposure is and what what we have reflected today is primarily from imports related to apis for a few of our livestock products coming from china and then some impact from a few of our diagnostics products as well as certain veterinary accessories zooming out the situation remains fluid obviously and we continue to monitor as well as are actively planning various scenarios depending on where uh tariffs land keep in mind we have a uh broad diversity of geographic footprint and 60 of our manufacturing footprint is actually in the us so we export more out of the us than we import into the us and particularly when you think about companion animal vast majority of our sales are actually produced in the us so those and a good portion of the companion animal sales outside the us are actually produced in the US. And so I think when you think about that, our exposure is really likely more from retaliatory tariffs from other jurisdictions. So most of our exports go to Europe as well as our imports are actually coming from Europe. So you think about that in the context, and of course we continue to monitor those. Given our supply chain, as broad as it is, that gives us lots of mitigation opportunities. So until we know exactly where tariffs land, we won't know exactly how much will mitigate but we do feel confident that our footprint allows us quite a bit of flexibility to do that those will range in terms of time frame where they can be executed uh uh from immediate where it may be movement inventories all the way to longer term in terms of what does that mean in terms of our footprint so lots of opportunities for us as we look at that but given our diversity from a geography product etc standpoint we feel we are as well positioned uh to navigate this as anyone else.

We'll hear next from Michael Reiskin with Bank of America. Please go ahead.

Thanks for taking the question, guys. I'll start on the competitive side of things. I think Wedney and Kristen, you guys both called out competitive entrants a little bit more in your prepared remarks. Obviously, you've had NexCard Plus in the market for a while now and also Cordelia, Quattro, and Zendralia. If you could dive into a little bit more of where are you seeing the most competitive pressure? How is it taking shape? Is it more in terms of price, you know, anything you're seeing in terms of pre-stocking, pre-selling? You know, there's a DERM competitor expected later this year as well. So just sort of what have you seen so far? What are you factoring into your guide from the competitive side of things in those categories? And then a follow-up on Librella on Aaron's question there. I just want to, you know, now that you've had the label change in some of the learnings from the last couple of months. Is your assumption for fiscal year 25 Librella any different than it was before? Do you think you'll be able to offset some of these as you go through the year? Just wondering if your thoughts on the ramp for this year are any different than they might have been three months ago.

Thanks. Okay, great. I'll start on the competitive side and then let Whitney build off of it. I mean, I think what's really important to note in both dermatology and parasiticides is we were the first mover and I think that's really important because especially if you look at parasiticides you know being the first mover is you know made a big difference really you know we've just been growing our share over time as we talked about you know we obviously had one of the biggest competitors enter you know over a year ago and we're printing 19 percent growth overall for the quarter in trio so I think that's incredibly strong I think what we're really seeing is that there's still 40 percent growth in a combined flea tick heartworm space and the more people that enter, the more, you know, people get switched into combo therapies from, you know, single therapies or topicals or collars. So, you know, we continue to see that regardless of who is entering. You know, we have an excellent product. It's continued to compete really well in the market. You know, we're really proud of the execution on this, you know, in the U.S. and around the globe. So, you know, we've seen competition. You know, we're obviously going to continue to see more competition. I think what's also, you know, something to focus on is that right now we have a 40 percent share in puppies and you know obviously once one dog goes on a product it's you know rare that it'll switch so i think that's a really good indication of where that's going in the future um as we talked about we are expecting potentially a new competitor in dermatology what you can get into the specifics that's baked in but again i'd say you know if you look at dermatology we have three excellent products that have been in the market you know for a long time that are accepted that you know that's having over 90 satisfaction rate with those products and we are the first mover so i'll let whitney talk about what that needs and guidance etc and then if you want to follow up anything else on labrella if you want whitney sure if you

look across our three key franchises and i think this will cross over both your first question on comparative entrance as well as uh your question on labrella and i'll double click on that a little bit mike so first of all uh our large three key franchises we expect to grow double digits uh in 2025. They delivered 14% in the first quarter and remain double digits in our guidance. I think if you look at these areas, including those that already have competition or where we expect more entrants to come in, the bigger picture is the opportunity that remains. I think in every area, you have large markets, even at the current sizes. In Durham, we still have 20 million dogs that are undertreated or untreated. And clearly, with double-digit growth in that category a decade plus later where we are accessing those expansion opportunities and we have more to go particularly when you think about international if you look at librella again our key franchises are our double digit expectations for the year we haven't given specific guidance consistently with the first guidance in february on a particular product but i think i would share this we had a very strong launch to this product in terms of penetration in clinics in the us etc. If you look at that, that's a strong foundation for us. And really, if you look at the feedback from vets, they remain very strong in terms of satisfaction. And so with 27 million medicalized dogs in the U.S. alone with OA and only 9 million being treated, 8 million on NSAIDs and 1 million on labrella, I don't think I need to spell out just how vast the opportunity is. And we're still early. And clearly, as the adoption curve is slower than we expected, as we said in the prepared commentary, we are doubling down on efforts to drive education and awareness, et cetera. The industry has seen this before with other products, and we've seen this before, and we're confident in terms of the long-term opportunity here and our position in it as a first mover and the impact it's making on dogs across the world, so we'll continue to drive those.

Yeah, and the other thing I'd say is, you know, we're really seeing this as, you know, a huge market opportunity of the future. You know, we've talked for a while that we think the overall market opportunity for us in OA is between $2 and $3 billion. And we're investing, as you know, in a long-acting OA monoclinal antibody that, as we mentioned earlier in the year, we are expecting approval for this year. This would be a long-acting three-month injection. It is a new and different antibody than Librella with a unique binding site. And we're expecting the dosing range to be about 10 times lower than Librella. So obviously, we have a lot of confidence in continuing to grow this market and the potential for this market, given all the things that Whitney said, and we'll continue to invest in lifecycle innovation behind Vibrella as well.

We'll hear next from John Block with Stiefel. Please go ahead.

Great. Thanks, guys. Good morning. Hope you can hear me okay. Maybe just building on a couple of the prior questions, Whitney, just pretty straightforward, but can you just maybe help us and bridge us to the 20-cent increase to the 2025 EPS guidance, because just, you know, obviously back of the envelope, but even with the advantageous move in FX, the lower interest expense and the lower shares, I'm actually having a hard time getting to 20 cents. And that's arguably before any tariff headwind. I don't know if you can give us like a gross, you know, or net tariff impact on that side of the equation. And then, Kristen, I guess just a little bit more in Librella, pretty direct question do we assume or should we assume flat u.s librella revenue for the next two to three quarters until the long acting is out there i think the target's a year in 25 give or take you know is there anything called in the near term to re-accelerate the u.s librella revenues before the long acting and then i know you just gave some helpful information on the long acting is that going to carry call it a different brand versus librella thanks guys Yeah, sure.

Look, John, I'll take the bridge to the EPS raise in dollars for you. If you go back to our initial guidance in February, which used rates from late January versus where rates are as of late April, we are seeing initially what we guided to was about a $200 million headwind related to FX on a reported basis. And that was really reflective of the dollar that strengthened, particularly in the second half of 2024. If you look at where rates are at the end of April, largely driven, two-thirds of this change is driven by the euro, the pound sterling, and the yen. You are looking at most of that, not all of it, nearly all of it, actually, being reversed with the weakening dollar. So that is largely, if not entirely, what's driving the EPS change that you see from us driven by FX. And I would tie this also with trade policy and tariffs and so on. So we talk a lot about the impact that has on the organic operational, but it does have somewhat of the opposite effect in terms of what it's doing to the dollar and demand for that. So I do want to make sure that that is at least looked at and recognized. And so the impact you see is here. Now, in terms of tariffs, net of mitigations, we're calling about $20 million of headwind that we're putting here. and keep in mind in February we said we did not reflect tariffs and we would do so as we know more and based on what's enacted we have that reflected here today but for that our organic operational growth in adjusted net income would be the same as it was in February again giving you a little bit more color in terms of what that impact is and I gave you some more in terms of where how we're positioned as we continue to monitor the situation and where we have mitigation opportunities as we look ahead. Hopefully that helps in terms of the FX. I do think what you're going to see is it's near flat for the year now with headwinds in the first half and tailwinds in the second half based on where rates are. Again, we don't forecast the rates. We're simply using the spot rates of late April and assume they stay where they are, which we know they won't. This would be the impact. And so that is consistently how we have reflected on FX.

So I'll follow up with your question with regards to Labrella. I mean, as you know, we obviously don't give quarterly guidance, but as I mentioned earlier, we are obviously investing to continue to grow and scale this product throughout the year. We're doing all the things we mentioned, you know, obviously the medical education, the DTC, you know, we're obviously investing in many post-launch studies to generate real-world data. You saw a few of those come out right now. We provided our pharmacovigilance data to Frontier's journal, which indicated that all individual events are both rare and very rare. We also did labrella meloxicam which had 17 aes for meloxicam and four for labrella we're continuing to invest in additional real world studies to support the brand so we are investing obviously to grow this brand uh we are not waiting for growth until we get the you know a long-acting monoclonal antibody and i think you also said it will obviously have a different brand it is a unique um uh antibody and so obviously therefore cannot share the brand of labrella on given its unique molecule so that would not have the same branding. But look, I just want to reiterate, this is a $2 to $3 billion market. We are only $1 million right now on the product. There's $9 million treated in the United States. But I'd argue, by the way, there's 27 million dogs with OA. So beyond even what's treated today, there's an untreated market as well, so as you look at this. So we see this as a significant opportunity that we're going to continue to invest behind.

We'll take our next question from David Westenberg with Piper Sandler. Please go ahead.

Hi, thanks. I'm going to actually get away from the Librella questions. So Amazon is now selling some of the online drugs, probably. I think it's just singles right now, but maybe get a broad spectrum. Can you talk about any changes in your sales and marketing efforts, both in terms of educating vets or direct-to-consumer strategies. And with Amazon, do you see an acceleration of trends to the alternative channel? Or do you think this is just maybe more market share taking and it would just see the same exact acceleration or the same exact trends we've seen? And then just a really quick one on the FDA and particularly the CMB. Can you tell whether or not there is any potential backlogs or delays in the FDA? I know that the actual reviewers, there hasn't been any cuts in order to that. But I mean, I think there would be some maybe in some of the support staff that might have like maybe a downstream effect. But thank you.

Sure. I'll start your second question first. Yes, we are obviously monitoring any changes to both FDA and USDA closely. There obviously were cuts already at FDA, but we have not seen any slowdowns on any of our, you know, pipeline products as we talked about. We have a very robust pipeline. We work very closely with the FDA and look we're working very closely with the administration with Congress and with the regulators to help shape that evolving environment we're looking for opportunities to support their efforts you know on efficiencies while supporting innovation we think there's lots of opportunities to speed innovation and I've spent a lot of time in DC working with them you know we really think that innovation is critical as you think about you know the food supply chain as well as public health as well as you know really you know bringing unmet products to market so you know it's a real focus of ours here we have not seen any slowdown in any of our pipeline products currently at the FDA or the USDA but we are spending a lot of time there making sure we continue to shape this environment. The second question was on retail growth I'll start there and see what Whitney's got to build on it.

First I'd underscore that retail in the quarter grew 40 percent that was you know obviously there's a little bit there on some one-time stocking so Whitney can get into that but right now retail is 21% of our US business and this has been growing every year so I mean I think Amazon just one more but what do you want to get into some of the specifics there yeah I'd be happy to I think to your point if you look at retail and when we talk about alternative channels we have both retail and home delivery which you're seeing traction there as well if you look at our retail in the quarter about 40% growth some of that as we talked about in February, we saw a little bit of inventory decrease at the end of December through the holiday season. Some of that picked back up in January, so a little bit of crossing over there. But overall, the trend line continues in terms of the strength that we've seen there. When I zoom out, and I think we talk a lot about diversification in this company, right? We talk about product categories, geographies, species, et cetera. I do think alternative channels also presents another level of diversification. We're certainly positioned well to meet the consumer wherever their channel of choice is and that includes in the clinic and when products move from the clinic to uh these alternative channels we're positioned to capitalize on those as well so i think any move by any party whether amazon or anyone else is going to continue to give more choices to the consumer and our products are available to them to be able to drive that and i think from an economics perspective we've talked about on this call before they're neutral to positive versus the overall so so this is another area that we're well positioned to continue to capitalize on uh in terms of where our products are and i think it will also continue to grow um the compliance for most of our key products and you know we've

got significant percentage of our sales currently for both applequel and semperica trio um over 40 on both um in the retail channel so um i think you know amazon is just one more entrance there we'll hear next from brandon vasquez with william blair please go ahead Hey, everyone.

Thanks for taking the question. Kristen, you made a comment about on the Librella side that maybe consumer sentiment or consumer spending was weighing a little bit, maybe on compliance. Can you just talk a little bit about what you guys are seeing through April, given kind of consumer sentiments rolling over a little bit, not just in Librella, but just the broader portfolio? Are you seeing meaningful changes in compliance across the board or not?

And just kind the feeling as we're going through the second quarter and then one quick model follow-up question let me can you just talk about what price and mix price and volume expectations are for the rest of the year as well thanks sure um yeah i think what we talked about in um our prepared remarks is obviously you know adoption uh has been more gradual as you look at sort of the oa pain market and and honestly some of the more expensive chronic medications right now um than we probably initially expected. But look, we're really encouraged by the foundation that we're building. We are, you know, starting to see, you know, in small pockets, a more measured approach to managing chronic conditions. You know, I think consumers are making choices that reflect sort of broader consumer, you know, consumer trends. But I think what's great about our portfolio is how broad it is across so many different categories. You know, so if, you know, maybe that, you know, the most expensive, we also, you know, you can look at, you know, an Apoquel if you're looking in the Durham space, you know, and, you know, we're continuing to see incredibly strong growth right now in wellness. So, you know, as we always say, we see the animal health industry as incredibly durable and recession resistant. Obviously, we're not recession proof. And I think what really sets Zoetis apart in this is that, you know, we're more resilient than the industry given the innovation that we bring to market. We have really disruptive products that meet unmet medical needs. And if you look at a growing global population, whether that's, you know, on the food side or in the companion animal side, I think, you know, Zoetis has always whether these are better than others, and we believe we'll continue to do so. Whitney, you want to take the second question?

Sure. Look, our price and volume mix is consistent with how we saw them coming into the year. And I'll remind you of a few points here. In 2024, we saw strong volume growth, particularly across our key franchises, even as we saw price elevated the last couple of years to the tune of 5% to 6%. We came into this year saying we expect price to be above our historical 2% to 3%, but below those levels from the last couple of years. And you saw that play out in the first quarter. Our volume growth out of the 9% organic operational growth was 5% volume and 4% price. I would say the direction of travel for the rest of the year would be consistent in terms of that mix. And one last note is last year we saw higher contributions from our hyperinflationary markets, particularly when you think about livestock in international, where we're seeing much less of that, though we're seeing some in the first quarter here, much less of that this year versus what we saw last year.

We'll turn now to Chris Schott with JP Morgan. Please go ahead.

Great. Thanks so much for the questions. Maybe just starting off on DERM, can you just remind us of your latest expectations for Merck's entrance into the market, what's kind of reflected in guidance on that, and maybe bigger picture on Apoquel? What percent of the market is true about this point? And how important is that, I guess, in terms of kind of protecting the franchise competitively? My second question, obviously a very solid start to the year. I know you don't give quarterly guidance, but just anything notable we should be watching in terms of quarterly gating as we think about the rest of the year from here? Thanks so much.

Sure. I'll take this and see if a person wants to add to it. So when you look at our guidance today, consistent with February, we put a number of scenarios around the timing of competitive of insurance, as well as any short-term promotional activities that they might have. This does not take away from our long-term view in terms of the opportunity to continue to expand these markets and our confidence that we will continue to drive growth in those, particularly given our first mover advantage. So I want to make sure that is really well understood, that our consideration is more short-term implications around promotions and not long-term confidence that we continue to have in those. On Applequel, particularly in terms of Truable conversion, if you look at the U.S., we exited the first quarter around 31% in the aggregate, a little bit higher in the vet clinics and so forth. If you look at international, we're seeing about 50% conversion across international, but in Europe, it's actually about 57%. So we'll continue to see that climb in terms of our position. And last thing I'll say is coming into a year ago with the launch of True, we would have anticipated, as we've said before, a higher conversion of True. But I think it's the stickiness of Apple Cruel, particularly when you think about the satisfaction levels among vets and pet owners, auto ship, et cetera, that is actually driving the conversion rate to be lower than we would have said. And I think that's a good signal for us as we prepare for competition and then, of course, longer term in terms of expanding the market.

We'll go now to Neva and Tai with BNP Paribas. Please go ahead.

Hi, thanks for taking my question. One on Librella, do you expect to pivot back to accessing the moderate population in the U.S. at some point? And a follow-up on the FDA, could you expect the FDA headcount reduction to impact your competitors' timeline in derms? And finally, can you discuss the new flea tapeworm indication for simperic atrial versus Elenco's credit you're quite true? Thank you.

Sure. I'll start with your last one. Yes, we did get approval for the prevention of flea tapeworm. As we said before, we didn't see that as critically important. Obviously, we've mentioned this previously. This is just a nice incremental. It certainly makes it very little differentiation between us and others. But as we said before, we don't see this as a major driver. We didn't think it was a major issue before. With regards to your question on Librella and the shift to moderate patients, that's obviously a key part of our focus right now and is consistent with all the different levers that we're really focused on right now on making sure we expand medical education, bringing in the international KOLs, et cetera, is moving into that. And your last question was on the FDA and the impact on either competitors or a long-acting. As I said, we have not experienced any delays at the FDA. We would think others would share the same view at this point. I obviously can't speak for them. So we're not expecting any issues of the FDA at the moment, based on what we know today, to be slowing down ours or anyone else's pipeline.

We'll go next to Steve Scala with TD Cowan.

Please go ahead. Hi, good morning. This is Chris for Steve. Thanks for taking our question. We have two just on tariffs. First, it seems like the Trump administration is pursuing pharmaceutical tariffs under a Section 232 national security claim. Based on your interactions with Washington, are animal health products viewed as critical to U.S. national security? And what's the likelihood that U.S. pet products could be excluded from broader sector tariffs? Thank you.

Sure. You know, our team here and me personally spent a lot of time in D.C. on the issue of the 232 sectoral tariffs on pharmaceuticals. You know, what we've advocated for and have had a great audience for is what they're trying to solve is not the problem that we see in animal health and certainly not Zoetis' problem. I actually said, you know, if you want to be the poster child, you know, I think Zoetis is it. 60% of our total manufacturing is in the United States. 75% of what we sell in the United States, we make in the United States, and we are a net exporter. So in the sense of the desire for security and pharmaceuticals in the United States, I don't really think that animal health or Zoetis is the challenge. You know, we've shared this point of view with, you know, a number of people. You know, I think it's too early to tell, which is why we were quite clear in the guidance that this obviously only included currently enacted tariffs i i would definitely not want to you know presume where the where they will ultimately come out on it but i think we have a very strong argument and we've been spending a lot of time making sure they understand the differences between animal health and human health um and where our manufacturing is importantly we've made the case of where our intellectual property is which is also in the united states and where the vast majority of our r d dollars are which are also in the united states so um i think we've had a good audience but I wouldn't presume to predict what the administration will do here.

We'll turn now to Daniel Clark with Learink Partners. Please go ahead.

Great. Thank you. Just another question on Librella. When you think about how the launches progress versus your initial expectations, is it really on the patient start side or on the months on therapy side that you've seen a bigger divergence from where you thought performance was going to be? That's my question. Thank you.

I think if you look at the performance of Librella, first of all, just to see just how much interest there is in terms of vets looking for solutions for a pain, you saw 86% penetration across clinics. And we continue to see very strong satisfaction levels for vets who are using the product. So I think that really is a great foundation for us. We've seen a transition into more moderate cases and patient starts and expansion of the market with those that were previously not treated by NSAIDs in Europe. And that continues to be our focus in the U.S. through education of veterinarians and pet owners in terms of the long-term impacts of our pain over time, which I think are important to note and will continue to drive those. So as we said, the uptake hasn't been as fast on the ramp as we'd like, but I think the foundation is strong and certainly, undoubtedly, the size of the opportunity remains very vast.

As there are no further questions at this time, I'd like to turn the floor back over to management for any additional or closing comments.

Thank you. As always, I want to thank everyone for joining today for your questions and importantly for your continued interest in Zoetis. Just to summarize, you know, we have the industry's most diverse and durable portfolio and animal health is essential. And both the industry and Zoetis have proven to be resilient, you know, across many different economic cycles and all different types of market conditions. And that's why we continue to see steady, sustainable demand for our products across species and geographies. And as we look ahead, we remain focused on executing our strategy with discipline while staying agile and responsive to the dynamic world around us. You know, we strongly believe that with our innovation, our global reach, and our dedicated teams, we are confident in our ability to continue to lead this industry forward. So thanks, everyone, for joining us, and have a great day.

Thank you. Once again, ladies and gentlemen, that will conclude today's Oedis event. Thank you for your participation. You may disconnect at this time and have a wonderful rest of your day.