ZTS - NYSE

Welcome to the Second Quarter 2023 Financial Results Conference Call and Webcast for

Thank you, operator. Good morning, everyone, and welcome to the

Thank you, Steve, and welcome everyone to our second quarter earnings call for 2023. I hope you were able to join us or listen to our Investor Day this past May. If you missed it, please checkout our replay on zoetis.com. I think you will find it worth the time in learning more about

Thank you, Kristin, and good morning. As Kristin mentioned, we had a strong second quarter with balanced growth across both our companion animal and livestock portfolios, as well as our U.S and international segments. In the second quarter, we generated revenue of $2.2 billion, growing 6% on a reported basis and 9% on an operational basis. Adjusted net income of $652 million were 15% on a reported basis and 12% on an operational basis. Of the 9% operational revenue growth, 4% is from price and 5% is from volume. Volume growth consisted of 2% from other in-line products, 2% from new products, including our monoclonal antibodies for osteoarthritis pain and 1% from our key dermatology portfolio. Companion animal products are the primary driver of growth this quarter, growing 11% operationally with livestock growing 4% on an operational basis in the quarter. For companion animal, our key dermatology portfolio was the largest contributor to growth in the quarter, posting $355 million in revenue, our largest quarter ever and representing 14% growth on an operational basis. We saw double-digit operational growth in both international and the U.S. driven by strong growth in Cytopoint as well as growth driven by Apoquel and the conversion to Apoquel Chewable in certain international markets. Our monoclonal antibodies for osteoarthritis pain in dogs and cats, Librela and Solensia posted $69 million in revenue globally in the quarter with strong demand for both products as well as the impact of the launch of Librela in several new international markets. Our companion animal parasiticides also contributed to growth in the quarter, driven by our Revolution franchise, which had $103 million in revenue and grew 22% operationally. Simparica Trio also contributed to the parasiticide growth with $248 million of revenue and growth of 5% operationally. Our global companion animal diagnostics portfolio recorded $92 million in revenue in Q2, growing 12% operationally. We saw double-digit growth in the U.S. driven by high instrument placements in the quarter and disruptions from the implementation of our new field force model that impacted the prior year. Sales of our livestock products grew 4% on an operational basis in the quarter. We saw growth across both our U.S. and international segments driven by poultry, cattle and fish. Now moving on to revenue growth by segment for the quarter. U.S. revenue was $1.2 billion in the quarter, growing 7% with companion animal products growing 7% and livestock sales growing 5%. As Kristen mentioned, our companion animal performance in the quarter reflects the stabilization of the distributor inventory levels that were a headwind to our growth in Q1. U.S. vet visits were flat in the quarter. [Indiscernible] revenue growth and average revenue per visit were both up 8%. These trends are in line with expectations and continue to reflect the stabilization post-COVID. Turning to U.S. product performance. Our key dermatology product sales were $241 million for the quarter, growing 10% and benefited from higher periodic patient visits in the quarter. Cytopoint sales continue to drive growth with vets and pet owners showing a preference for injectables. Our U.S. small animal vaccines revenue grew 20% in the quarter, driven by higher sales of our canine influenza virus vaccine due in part to a competitor back order as well as higher sales into certain corporate and strategic accounts. Apoquel Chewable posted sales of $213 million in the quarter, growing 2%. Growth was driven by inpatient demand across all channels, partially offset by a difficult comparison period given the timing of distributor shipments from last year during our supply challenges as well as aggressive competitive promotion in the current quarter. Our growth cadence for Trio across the year will be impacted by the timing of supply recovery in 2022, and we expect growth rate improvement in the second half. As expected, we received FDA approval for Librela in the U.S. in May. We look forward to starting our early experience program in late Q3 with an expected November launch. Now turning to U.S. livestock. We saw 5% growth in our livestock portfolio in the quarter, primarily from our cattle business where we saw significant growth in Jackson, resulting from a favorable comparative quarter last year when an anticipated midyear price reduction limited sales in the quarter. Additional U.S. cattle growth came from Synovex, which benefited from our reimplementation label claim. Our U.S. poultry portfolio also contributed to growth of 11% based on our vaccine portfolio and an increased focus on egg layer market. We also benefited from favorable MFA rotations at certain large producers. Moving on to our International segment, where revenue was $1 billion, growing 6% on a reported basis and 11% operationally in the quarter. International companion animal revenue grew 17% operationally in the quarter, while livestock revenue grew 4% operationally. Increased sales of companion animal products resulted from growth of our small animal parasiticides, our monoclonal antibodies for osteoarthritis pain and our key dermatology products. Our international parasiticide portfolio growth was primarily driven by a revolution franchise with $57 million in revenue, growing 52% operationally driven by the lack of supply last year, which particularly impacted China in the second quarter of 2022. Our Simparica franchise also contributed to growth with continued market share expansion, especially in Latin America, Europe and Asia. We continue to see strong adoption of Librela and Solensia. Librela generated $48 million in revenue with 89% operational growth in the quarter driven by strong growth in Europe, supported by our direct-to-consumer advertising efforts in major markets and recent launches in various international markets, including Canada, Australia, Brazil and Japan. Solensia delivered $11 million of second quarter sales internationally, driven by higher demand and supported by direct-to-consumer marketing efforts. Our international key dermatology portfolio grew 22% operationally. We continue to see double-digit operational growth across most of our major markets, driven by growth from and conversion to Apoquel Chewable as well as from Cytopoint with higher compliance and new patients. Our growth also benefited from a weak comparative quarter in Japan, which was impacted by pre-priced buy ups in Q1 of last year. Moving on to our international livestock portfolio, which grew 4% on an operational basis in the quarter. Our poultry portfolio performed well with growth driven by key account penetration and MFA rotations in core poultry markets, including Europe, the Middle East and Latin America. Our fish portfolio continues to perform well as a result of increased sales of vaccines across salmon markets in Norway and Chile. Lastly, our cattle portfolio saw gains in Turkey, Brazil and Argentina from strong price growth and the recovery of supply issues. Now moving on to the rest of the P&L for the quarter. Adjusted gross margin of 72.4% improved 260 basis points on a reported basis compared to the prior year, resulting from favorable foreign exchange, price increases and favorable product mix. This was partially offset by higher manufacturing costs in the quarter. Adjusted operating expenses increased 8% operationally with both SG&A and R&D growing 8% operationally driven primarily by headcount-related compensation costs due to the timing of new hires in 2022 and the impact of annual salary increases. The lower growth in R&D expenses this quarter is reflective of the timing of spend in project investments and not a reduction in our expected R&D spend for the full year. Year-to-date, adjusted R&D expenses has grown 13% operationally. The adjusted effective tax rate for the quarter was 21.5%, an increase of 80 basis points, driven by higher net discrete tax expenses in the quarter, mainly related to changes to prior year's tax positions and less favorable jurisdictional mix of earnings, partially offset by a higher benefit in the U.S. related to foreign-derived intangible income. And finally, adjusted net income grew 12% operationally and adjusted diluted EPS grew 14% operationally in the quarter. Capital expenditures in the second quarter were $166 million and continue to be on track with our expectations for the year. In the quarter, we repurchased $324 million of

[Operator Instructions] We will take our first question from Michael Ryskin with Bank of America. Please go ahead.

Great. Thanks for taking the question and congrats on the quarter, Kristen and Wetteny. I want to start with Trio real quickly. We've seen -- we finally see NexGard Plus in the U.S. from Boehringer Ingelheim. I just want to ask, how do you see this market playing out? There's a lot of debate on the label differences Trio versus NexGard Plus, the 6 month versus 1 month warm detail as well as how it's going to be priced with the promotions being put out at the start of the launch. So what are your expectations for Trio now that the competition is finally here both for second half and for 2024. And if I could squeeze in a follow-up. I want to ask on Librela. It continues to be really well OUS. I think it's on track for over 200 million this year from OUS alone. Any learnings or changes to your assumptions now that you can take that into the U.S. launch. Fair to say that it could be incremental 75 million, 100 million to revenue next year? Thanks.

Sure. Thanks, Mike. I'll start with the first question and let Wetteny follow-up on Librela. Yes, as we saw the -- this was the label for NexGard Plus was largely what we expected. I think Simparica Trio clearly has a superior label, and it was first to market. Right now Simparica Trio is #1 in companion animal [indiscernible] in the U.S. As you look at where we are, we've had 3 years of demonstrated efficacy and experience with this product. And we'll clearly leverage our retail auto ship to continue that. As you look at NexGard Plus, it obviously does not, as you saw, have heartworm from first dose -- it has 4 ticks versus 5. It doesn't yet have a label to prevent line. It has a lower minimum weight. So we really do think we have a strength in our Simparica Trio label will be aggressive, obviously, in competing against them. We are expecting a much stronger Q3 for the product based on comparable. So we expect a strong second half for us. We are expecting significant promos. We watch them do this before. This is something BI does often. So beyond the promos, we think we can be very competitive with our product based on the strength of our label, the strength of the experience with the product. Our relationships clearly with the corporates and really with a very pleased pet owner who's on this product. So obviously, we're ready for some significant competition, but we remain very confident overall and our strength in [indiscernible], and we see a stronger growth obviously in the next quarter and the second half for [indiscernible] overall. But Wetteny, do you want to take this question on Librela?

Sure. Mike, thanks for the question. Look, we remain really on track with EU performance, and we are very pleased to see $48 million of Librela revenues in the quarter, up 89% versus the prior year. We also launched a product in a number of new markets in our International segment including Japan, Australia, Brazil and Canada. Those contributed about $10 million for the quarter. So we continue to see really strong demand for the product, and we are starting to initiate DTC campaigns, which will continue to drive awareness across both Librela and Solensia in our markets. It is already, as we said last year, the #1 osteoarthritis pain product in the EU. Look, we won't necessarily get into what the expectations are for next year. Obviously, we'll do that as we get into guidance for the year. We are expecting to continue to see strong growth for Librela on the balance of the year. I will note, last year, we did see a bit of an uptick in the third quarter. That was, as we released the allocations that we are on, and we saw clinics order a bit more, that was offset in Q4. So just a little bit of a dynamic in Q3 and Q4. But really with the new markets as well as continued growth in EU, we are expecting very strong growth in the third quarter as well.

Thank you. We will take our next question from Nathan Rich with Goldman Sachs.

Hi. Good morning. Thanks for the questions. First, Wetteny, I wanted to start with the outlook for companion. I think you had talked about it improving in the back half of the year. Was that relative to the 5% growth in the first half? Or is that relative to the second quarter growth, which is obviously higher. Any context you can kind of provide as well on just kind of cadence through Q2 versus 4Q would be helpful. And then just a follow-up on the commentary on Trio. Could you maybe just talk about the 2% operational growth and the different factors that impacted that in the quarter and then the kind of type of growth that you would expect in the back half of the year, just given the competitive launch that you mentioned as well as maybe a normalization of supply.

Yes, I'd be happy to take this and see what Kristin wants to add. With respect to companion animal, as we said, and I think you saw us really reiterate our guidance from an operational perspective 6% to 8%. Now while livestock has seen about 8% growth in the first half, we saw 4% growth in livestock in the second quarter operationally. We are expecting -- as we said in the prepared commentary, livestock to come in, in the low single-digit range. So I think you can clearly see that the growth in the back half of the year is going to be significantly driven by companion animal. And as we said also, given the timing of supply in 2022, we are facing -- relatively speaking, an easier comp in the U.S. companion animal business in the third quarter versus, say, the fourth quarter. So I think those will play out in terms of how you get -- how you map out to our guidance on an operational perspective, being largely driven by companion animal in the back half of the year. I think overall, not just from a companion animal perspective, overall, I would expect the third quarter to be another strong quarter for us. I would expect us to come in somewhere between the mid and high-end of our annual range. We said after last quarter, given the distributor destocking impact to a normalized growth for the rest of the year which would translate to somewhere -- if you just pick the midpoint of our guidance, that will be around 8%. We came in slightly above that, really in line with our expectations on the quarter. And so you can map out what that means for the rest of the year, but I would expect Q3 to be slightly above Q4 given what I just shared from a companion animal perspective versus less like that has a tougher comp in the third quarter, particularly in the U.S. Trio, like Kristin said, we are starting [ph] very strong quarter in third quarter despite the competitive launch, which we believe to be imminent here. Part of that is the cadence last year. I think the rhythm of supply last year clearly had an impact where we saw a bigger Q2 last year than in Q3. So I think you're going to see that play out with respect to the Trio growth. And given the first mover advantages that we have with Trio that's been in the market for over 3 years and our confidence in terms of our label, et cetera, we expect to see continued growth across Trio and a strong year for the year for Trio.

Thank you. We will take our next question from Jon Block with Stifel.

Great. Thanks, guys. Good morning. I'll [indiscernible] the front. I guess the first one, just any color on the gross margin. Wetteny, I think the 2Q '23 gross margin, I believe, might have been the best in the company's history. So maybe you could talk about the drivers there and more importantly, are some of those drivers sustainable? And then the second question might build a little bit on a prior question, which is, is Trio the modest, call it, downside driver of the implied companion animal '23 growth? Because I think I've got it right. Essentially, livestock went from flattish to up low single digits. Obviously, overall operational stayed unchanged at 6% to 8%. So the implied CA came down a bit. Do we think about Trio being responsible for that? And maybe just a byproduct of some of the promotions that you called out earlier? Thanks for your time.

Yes. Look, with respect to gross margin, you saw 72.4% gross margin on the quarter in Q2. That's up about 260 basis points versus last year. FX is about 200 basis points of that. And clearly, we've pegged our overall guidance on FX based on where rates were at the end of July. So I'm not going to venture to forecast what that might mean. But in terms of the other components that are driving our gross margin, price and mix, certainly were favorable for us. And as we've just discussed with respect to livestock having a tougher comp in the back half versus companion animal particularly into the third quarter, we expect price mix to continue to contribute favorably here. The other element, of course, is really manufacturing -- higher manufacturing costs. I think typically what you see is this first half is a little bit higher for us than the second half. Part of that is the mix with respect to cattle run in the fall that tends to have a little bit of a mix down on us overall. But I would say the overall mix for the company, given the back half strength in companion animal is going to be -- continue to be favorable. So we see that being something that will consistently sustain. And again, we won't get into next year's element until we get there. With respect to the second half, look, clearly, our expectations with Trio remain that we'll see strong growth contribution for Trio and we are going to see a very strong third quarter. I think some of the -- and by the way, the year has played out, as we said, we gave a range of 6% to 8% operationally, sitting here today after delivering a very strong second quarter, we remain in line with our expectations for the year at 6% to 8%. I think if you look at some of the areas that we're watching from a macro perspective, China is one of them. I think if you look at the data coming out of China, confidence levels for consumers are low, the savings rates are very high. And so we're watching that as well as the impact it has on the Southeast Asia region given the tourism impact that China has on that region. That's one of the areas. Certainly, we are watching here in terms of what goes into our thinking with respect to the balance of the year.

Yes, I just want to reiterate, it is not -- I would not call Trio what is driving any change in the second half. I really want to emphasize what Wetteny said and what we said in our remarks. It really is, as we are looking at uncertainties with China, Southeast Asia, Australia with the drought. So I mean, as always, when you run a large global company, I think the advantage of

Thank you. We will take our next question from Westenberg with Piper Sandler.

Hi. Thank you for taking the question. So can you talk about the derm market in 2024? I'm not talking necessarily, but you're specifically -- but how you expect growth in monoclonals versus growth in small molecule with an incoming competitor. And if I could just squeeze in one really short one. Just want to confirm, Librela U.S. is not in the 2023 guidance. Thank you.

Sure. I can start with your second. Yes, Librela U.S. is in, as we did note, obviously, in Wetteny's remarks. But to get to your question on derm and Wetteny can certainly follow-up with you once on the derm question -- on the Librela question. But we have led the way, as you know, in dermatology with both a small molecule and large molecule. We've been driving awareness through DTC. We still think there's significant market potential here in developed and emerging markets. There's still plenty of dogs that are untreated here. We are really focusing on investing in direct-to-consumer branded in the U.S. and in some markets and unbranded outside. With that, if you're seeing this year, we are looking at double-digit growth. In Q2, we had 14% growth with double-digit growth in both products in the quarter, so real strength. And we are continuing to innovate here. I think you saw also approval for Apoquel-2 in the U.S. We will look for long-acting Cytopoint, look at species, we are expecting obviously competition. We've been expecting it for a while. We'll say again, we're expecting it in 2024, and we'll see what happens. But we really are seeing more of a preference from both the vet and the pet owner moving more to Cytopoint for compliance reasons, obviously, for EE [ph]. So I think we'll continue to see that. So we are seeing very strong growth in dermatology. Again, we are expecting double digits for the year. In the quarter, we had great strength against both, but I would like to be clear that as we are seeing do we think will grow faster. We are seeing greater focus from the vet and the pet owner on Cytopoint being a greater driver of our overall dermatology franchise, but really expect to follow that up with strong innovation continuing in what we think is a really important space, Wetteny do you want to add anything on derma's question or Librela?

Yes. Look, I think clearly, a really strong quarter for us in derm in the second quarter, and we are expecting another strong quarter and strong back half for derm across and clearly Cytopoint driving that as well. Just with respect to Librela, I just wanted to add a little bit of color in terms of our thinking there. Certainly, very pleased to have received approval in May. But really, consistent with our expectations, we've been sharing for the last, I think, 2 or 3 quarters, we've been expecting an approval to be -- to come in the first half of this year followed by an early experience program and then the launch late in the year is what we've been saying. We remain on track with that. We are planning to begin the early experience program next month with the launch to follow somewhere in the November time frame. Given the holidays and what's typically a little bit slower time frame with respect to clinics, et cetera, we're not expecting the contribution here to be significant to the growth for the year. And look, we continue to see great performance outside the U.S., and we are launching in other markets as well in line with our expectations as I shared a little bit earlier with an 89% growth rate on Librela on the quarter. And so we have factored that into the guidance here, but again, not a significant contribution.

Thank you. We will take our next question from Brandon Vazquez with William Blair.

Good morning. Thanks for taking the question. Just first on EPS and guidance. I just wanted to clarify the beat was pretty strong in the quarter, I think about $0.09 relative to the industry [ph]. EPS at the midpoint for guidance came up 3 points and just clarify, is that entirely the delta between those two? Is that entirely FX? Or is there anything else there we should be keeping in mind? And then as we think of the rest of the year kind of following up on that guidance, I think you said 4% pricing in the quarter. Can you just remind us when some of these pricing increases came in? Does the benefit of pricing kind of slow down in the back half? And does that imply any improvements in volume and guidance? Thanks.

Yes, happy to answer. Look, as we said, we really reflected two things in our guidance today is, as we said, in fact, last quarter, FX was an area that we are watching, given the volatility that we are seeing across certain currencies that we operate in. And so we've updated guidance for FX both at the revenue line, which is negative. About -- it's about 75 basis points of growth essentially on a reported basis, that's impacting FX. So we reflected that here. But it's actually a positive contribution when you come down to EPS to the [indiscernible] $0.03. So what you're seeing there from an adjusted basis is really all FX. From a reported standpoint, we're also reflecting some gains that we saw from a couple of DB [ph] deals that are elevating the reported rate from an EPS perspective. The only other color I would ask -- add here with respect to the second half from the cadence is, again, we are expecting a very strong second half from a companion animal perspective versus livestock with the comps. I think if you look at the third quarter, we probably saw a bit lower OpEx in the prior year versus the fourth quarter. So I would expect OpEx will also be a little bit higher in Q3 versus Q4 as you look at the balance of the year. But other than that, I think price is something we typically do early in the year. There are certain markets where we may do a midyear price increase as well. But overall, price is something that happens fairly early in the year and pretty consistent with what you've seen in our numbers today.

Thank you. We will take our next question from Chris Schott with J.P. Morgan

Hi. Thank you so much. This is [indiscernible] on for Chris. So first question, on dermatology, can you just remind us where you are in terms of life cycle management? Any additional color that you kind of see with the dermatology portfolio kind of evolving over the next several years in terms of maybe potential new mechanisms or mode of administration. And then the second question is on Europe. You obviously had a very strong quarter for companion ex U.S. this quarter. Can you just elaborate a bit on the trends that you're seeing there and how you see them holding up in the second half of the year? Thank you so much.

Sure. Thanks, [indiscernible]. I'll take your questions and see what Wetteny wants to build on it. Life cycle innovation, obviously, is critical in dermatology. We're quite focused on it in a number of areas. I think you saw approval in May of -- or in the quarter of Apoquel Chewable which we had approved outside the U.S., but now got approved in the U.S. This is really important for a lot of pet owners who have trouble getting their dogs to take pills. So a chewable has real value there. We are also looking at monoclonal antibodies, looking at more long acting in that space. We are also looking at life cycle innovation around other species. Clearly, dermatology is a significant issue amongst many companion animals. So we'll continue to look for opportunities there. It is a big market. We will continue to lead in innovation and in life cycle innovation across a number of different areas. I said, from small molecules to monoclonal antibodies to additional species. So we are really focused there. As you look at Europe, I mean, I think for most companies that we say, the growth in Europe was ahead of what many of us expected for the year, mostly because I think we were expecting energy to be a much bigger issue certainly through the winter, et cetera. But we've seen a great strength, particularly in Northern Europe. But I would say that if you look at Southern Europe, I don't think it's performing as well as Northern Europe. They've got greater inflationary markets there as well as a number of weather issues with severe heat waves and drought across markets like Spain. But we really see the underlying demand in Europe and Northern Europe remaining strong, and we are seeing strong growth there. So I'm not sure, Wetteny, if you want to build on any of those comments.

Yes. Look, I think just stepping back from a companion animal performance perspective, we've continued to see strength there across our international markets. Even in emerging markets, just in Poland recently you're seeing a real uptick in terms of companion animal continuing to take hold. I think some of the innovation that we have may take some time to take hold in other markets outside the U.S. and it takes longer to get to those peak sales. We are continuing to see really strong derm growth across our international markets and so on. So we believe that is sustainable. The first half, we've seen really strong growth there in terms of companion animal. Across international, we saw 17% operational growth in companion animal in the quarter following a 10% growth in Q1. I would continue to expect double-digit growth, maybe not at the level we saw in Q2 in the back half for international, we continue to see double-digit growth there.

Thank you. We will take our next question from Louise Chen with Cantor. Louise, your line is unmuted. Please go ahead with your question.

Hi. Thanks for taking my question. So I wanted to ask you some of the pushes and pulls to your commitment to the mid to high single-digit revenue growth that you've talked about over the next 3 to 5 years? Thank you.

Sure. Thanks, Louise. We remain committed to the guidance we provided at Investor Day back in May. We really -- I would start with just the resiliency of the animal health industry. The industry itself, historically, as you know, grows at 4% to 6%. We see really strong tailwinds driving the industry over the next medium to long-term, increasing medicalization, especially in emerging markets, increases in population, really, the strength of the human animal bond. We are seeing increasing willingness to pay with 86% of pet owners say they'll pay whatever it takes to take care of their pet. But really where I think it differentiates

Thank you. We will take our next question from Balaji Prasad with Barclays. And Balaji, your line is open. Please go ahead.

Good morning. This is [indiscernible] for Balaji. Thanks for taking our question. A quick one on the global parasiticide market. On the Investor Day, you expect the global parasiticide market to expand from 6.3 billion in 2022 to around 10 billion to 12 billion by 2032, which implies a CAGR of around 6%. You also mentioned that

Sure. Thanks for the question. I'll start and I'll let obviously Wetteny build there. We are the leader in parasiticides. We are really proud of that. We really see this as an important franchise. We have a broad set of products from Revolution to ProHeart to Simparica to Simparica Trio. We will be continuing to innovate in this important area. It is, by far, as you talked about, the largest therapeutic area in animal health. We really see a few things. Obviously, we are going to lead with innovation. We are going to lead with innovation in products that are easy to use, that really meet the customer demand as well as what our veterinarians are looking for. And we believe there's continued innovation in the space. We are looking at long actables, we are looking at injectables. We are looking at other combinations. Controlling parasites is critical to the overall health of the animal because if you don't, it creates lots of other issues. for animals. So we'll continue to grow in this important space. We think it will continue to be a major contributor to

Yes. Look, what I would say is parasiticide is a -- the biggest sort of market segment within animal health. It's also a very competitive space. Now if you look at [indiscernible] combination, all medications, these are relatively new standard of care, and we are going to continue to see those expand the market with respect to the number of doses as well as from a price perspective. And this is the area that we play in the oral space largely. And so I would expect us to grow faster than the market. But again, it's a competitive space, and we'll continue to innovate as others do as well.

Yes. The only thing I'd also add there is one other growth that we haven't talked about much today is increase in compliance. I think if you look at retail and auto ship [ph] and injectables, I think right now, if you believe that the research will show you the average pet is really on a bet 6 to 7 months, when they should be on 12 months for many of these products. So I think if we can do a better job of driving compliance either through auto ship on e-commerce or home delivery through the vet or dual [ph] as injectables where you can guarantee compliance. So we think there's lots of potential growth drivers for

Thank you. We will take our next question from Steve Scala with TD Cowen.

Hi. Good morning. This is Chris on for Steve. We had two questions. First, on the U.S. pet health market. You mentioned U.S. vet visits were flat in the quarter. Is this capacity driven? Or is it more related to demand and weakening new patient visits and oneness visits? And then second, do you expect any headwind from the restart of student [ph] loan repayments this fall? Thank you.

Sure. Thanks. As you look at the vet visits, they -- we really have seen them, on average, be flattish for the first half of the year. But to be clear, they're still ahead of where they were pre-pandemic, we do not see that as a demand issue. As we've talked about on previous calls, it's really more of a supply issue in the sense of the veterinary workforce challenges. We are working hard to partner with vets to help address this. Certainly, we are finding new efficiencies in their clinic helping to support as we can, adding more vet tech, et cetera, financial support, you name it, to support it. But we are not seeing any concerns around demand for veterinary health care. We are really focused on making sure that the supply is there. So no, we are not seeing , we don't look at the flat vet visits and have a cause for concern. Historically, just so you know, vet visits have been, give or take, flat to 1-ish historically. So this is not really concerning. And if you look at the first half of the year, we saw a 9% increase in both average revenue per visit and revenue overall in the clinic. So we are continuing to see really strong demand for veterinary care and for our product, and we don't really see that changing. And now on your second question on headwinds from student loan, we're not expecting that to be a significant driver for us in the back half of this year or in 2024.

Thank you. At this time, we have no further questions in queue. I'll turn the floor over to Kristin Peck for any additional or closing remarks.

Great. Thank you all for your questions today, and importantly, for your continued interest in

This does conclude the