Welcome to the First Quarter 2020 Financial Results Conference Call and Webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of zoetis.com.

The presentation slides can be managed by you, the viewer, and will not be forwarded automatically. In addition, a replay of this call will be available approximately two hours after the conclusion of this call via dial-in or on 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. [Operator Instructions] It is now my pleasure to turn the floor over to Steve Frank. Steve, you may begin..

Thank you. Good morning, everyone. I hope you are all doing well. Welcome to the Zoetis first quarter 2020 earnings call. I am joined today by Kristin Peck, our Chief Executive Officer; and Glenn David, 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 statement in today's press release and our SEC filings, including, but not limited to, our annual report on Form 10-K and our reports on Form 10-Q.

Our remarks today will also include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable U.S.

GAAP measures is included in the financial tables that accompany our earnings press release and in the company's 8-K filing dated today, May 6, 2020. We also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Kristin..

Thank you, Steve. Good morning, everyone. I hope you and your families are staying healthy and safe. I think it's fair to say the past few months have been unlike any we've ever experienced in business or that any of us could have imagined for our families, friends and communities.

The global COVID-19 pandemic has had such an incredible impact on our world and for many of us personally.

It has given me a chance to reflect, not just on the financial numbers we reported today, but on the true value our business provides society, the role we play in public health, the support we deliver for our customers in crisis and the safety and security we provide to our colleagues.

For Zoetis, we're privileged to play an essential role in sustaining and protecting animal and human life during the outbreak.

Our products and services play a critical part in animal health, helping support pet care and the food supply, and we've continued to manufacture products and serve customers even in places that have imposed stringent limits on businesses in the wake of the coronavirus.

Our colleagues are more committed than ever to supporting the nutrition and comfort that animals provide the world and that purpose has motivated us to continue serving our customers and communities in these extraordinary times.

I'm especially proud of the efforts of Zoetis colleagues in supporting our local communities, healthcare workers and businesses during the outbreak. We've been contributing surplus personal protective equipment from our operations.

We've been increasing production of human health diagnostics and answering requests from local hospitals for a variety of assistance. As far as the direct impact of COVID-19 on our colleagues, we've been fortunate to see only a small number of COVID-19 cases in our workforce of more than 10,000 colleagues.

Thanks to increased safety measures, hygiene protocols and adjustments to our operations. About 70% of our colleagues today are working remotely.

They are being productive as they adjust to new arrangements, juggle new home and family responsibilities and benefit from the use of technology infrastructure that we've invested in and continue to enhance at this time.

The other 30% of our colleagues are working at our sites supporting essential operations such as manufacturing, distribution and logistics, clinical trials and research and technical services and support for customers. Our teams in Zoetis sites are adhering to strict health and hygiene protocols recommended by the WHO and CDC.

They're practicing social distancing, operating in staggered shifts and participating in health monitoring, all as part of the adjustments we've made at each plant to limit potential exposure. Our 30 manufacturing sites remain open around the globe today and we've been able to maintain supply of critical product inventories.

We've also shown excellent agility to deal with the local market changes in terms of border controls, regulatory changes and freight operations. I'm also pleased to say that even under these difficult circumstances, we were able to meet our launch timing for Simparica Trio, our highly anticipated triple combination parasiticide.

We launched Simparica Trio in the UK, Spain, and Italy in February. Made initial shipments for distribution in the U.S. in March and initiated the full launch in the U.S. and Canada in April, with more markets to follow. We've seen significant interest in Trio and we've been supporting its introduction with consumer ads in the U.S. this spring.

While we're excited by the introduction and the receptiveness of customers and pet owners, we've had to revisit full year projections for Simparica Trio, given the expected impact of COVID-19 and the recession. Glenn will speak more to this in his remarks. We are grateful, we've been able to keep our major R&D programs on track.

We continue to advance our research in key areas such as monoclonal antibodies for osteoarthritis pain in cats and dogs and vector vaccines for poultry. We're continuing with regulatory reviews, commissions are going in and we're maintaining momentum at our most critical projects for the future, all while keeping colleagues safe.

From a P&L perspective, in the first quarter, the pandemic had a limited impact on our results given the February quarter-end for international markets and the timing of shelter in place across the U.S.

We generated 7% operational growth in revenue and 10% operational growth in adjusted net income, thanks to the strength of our diverse portfolio and global scope of our business.

We expect a more significant revenue impact from COVID-19 in Q2 and for the year as the lockdowns and recession have a continued impact on our business, especially in terms of traffic at companion animal clinics and reduction in demand for protein from their restaurant and dine out sectors.

We will need to watch carefully how the reopening of various markets in the coming weeks impact veterinary services for companion animals as well as livestock.

Glenn will discuss 2020 guidance in more detail in a few minutes, but I'm pleased to share that Zoetis remains a resilient company at times like these, given the essential nature of our business and our diverse portfolio.

In most markets, our sales teams are working virtually to respect local government guidance and limit potential exposure of COVID-19 for colleagues and customers. We've been keeping in regular contact with our customers through phone calls, video conferences, webinars and surveys.

And we're responding as best we can to anticipate and address their most important needs. We're here to help them maintain critical care and supply for their customers at this time and adapt to a new normal for the future of animal care.

For example, we've been advising customers on increasing digital content for their use of pet owners, offering telemedicine solutions through new partnerships, discussing their liquidity concerns, offering continuing education for veterinary staff and providing technical support services to deal with adjustments being made to food production.

We are seeing many of the trends you are in terms of animal health and food supply as well as decreased traffic to veterinary practices, but history tells us that animal health medicines, vaccines and other products remain essential even in a challenging economy.

On the livestock side of the business, the need for food hasn't gone away, but with restaurants and hotels closed, consumer demand has shifted to supermarkets. There's less demand for beef and dairy products while poultry remains strong as people choose less expensive proteins.

As with every front-line business today, the biggest challenge our livestock customers are having is maintaining their operations with enough healthy workers to handle processing, packing, and delivering food. On the pet side of the business, veterinary traffic is down in places where containment measures are in place.

Now, many vets are leveraging curbside check-ins, home visits, telemedicine and online pharmacy distribution to take the place of in-clinic visits. As you look ahead, our business continuity plans are working well and we continue to show great agility and responsiveness to this crisis.

We are carefully managing our expenses and doing scenario planning for the medium and long-term, including hiring freezes and rejections to discretionary spending such as travel, entertainment and consulting. We have not had to engage in furloughs or salary reductions for our colleagues.

Thanks to the resiliency and diversification of our business and our strong balance sheet. We continue to regularly assess any long-term needs depending on the duration of the pandemic and the resulting recession. Like all companies, we begun planning for the days when more of our colleagues will return to the workplace.

Over the last few months, we have safely maintained operations in our manufacturing distribution and R&D facilities to ensure continuous supply to our customers while maintaining strict quality standards and keeping our colleagues safe.

We plan to leverage these enhanced policies and procedures for a phased return to work that helps ensure the safety of not just our colleagues, but the customers they interact within the field. I am proud of our teams for their resourcefulness, flexibility and commitment to colleagues and customers.

Their efforts are helping us to envision an even better way to work over the long-term. When we began this year, my first as CEO, I laid out five priorities for Zoetis and those are as relevant today as they were then.

Our priorities remain driving innovative growth, enhancing customer experience, leading in digital and data analytics, cultivating a high performing organization and championing a healthier, more sustainable future. As we managed through the crisis to this new normal, we will find relevant new ways to adapt our strategies and tactics for the future.

Even in the midst of COVID-19, we continue to act on opportunities to advance these priorities. Since February, we received approval of Simparica Trio in the U.S. and Australia and have launched it in several markets with the support of direct-to-consumer advertising and digital marketing where applicable.

We acquired Performance Livestock Analytics, a company which brings us proven cloud-based management systems and data analytics for beef producers. And we announced Pumpkin, a new pet health startup is offering pet insurance and preventative care in the U.S.

Once again, I'm very proud of the results we've been able to deliver this quarter and I look forward to your questions. Now, let me hand over to Glenn for more detail on the first quarter results and our updated view for the rest of 2020.

Glenn?.

Thank you, Kristin and good morning. Echoing Kristin’s comments, we find ourselves in a world we never imagined. I’m grateful for our colleagues as they balance new working arrangements, caring for their families, and keeping our essential business running during this crisis.

Today I'll provide commentary on our Q1 results, provide clarity on our liquidity position and review our updated guidance for 2020. Historically, we know that Zoetis has remained a resilient company, given the essential nature of our business and our diverse portfolio.

But no one yet knows the full extent, duration or implications that this pandemic will have. Our updated guidance reflects our best estimates based on what we know today. Beginning with the first quarter results, we generated revenue of $1.5 billion, representing an increase of 5% on a reported basis and 7% operationally.

Adjusted net income of $455 million, increased 7% on a reported basis and 10% operationally. Foreign exchange in the quarter drove an unfavorable 2% impact on revenue, driven by the strengthening of the U.S. dollar. Operational revenue growth of 7% was driven by 3% price and 4% volume.

Volume growth of 4% includes 2% from key dermatology products, 2% from new products, 1% from acquisitions, and a decline of 1% in other inline products. The first quarter was not materially impacted by the outbreak of COVID-19, given the February quarter end for our international markets and the timing of quarantine guidelines in the U.S.

However, as indicated in our updated guidance ranges, we anticipate a more significant impact for the full year as the lockdowns and recessions have a continued impact on our business. Companion animal products led the way in terms of species growth, growing 10% operationally while livestock grew 3% operationally.

Companion animal performance was driven by continued strength of our key dermatology products and parasiticide portfolio, which includes initial sales of Simparica Trio in both the U.S. and certain European markets.

Revenue from the acquisition of Platinum Performance, which was acquired in the second half of 2019 and its nutritional products also contributed to strong equine growth. Livestock growth in the quarter was primarily driven by strong poultry, swine and fish performance partially offset by declines in cattle.

New products contributed 2% to overall growth in the quarter, driven by some Simparica Trio and ProHeart 12 and our Alpha Flux parasiticide for fish in Chile. We remain very excited and confident in our ability to successfully launch Simparica Trio beginning with key markets in Europe and the U.S.

However, we are now anticipating the incremental revenue for the full year to be in the range of $100 million to $125 million. The initial response from veterinarians has been extremely encouraging. However, due to the current COVID-19 situation, clinic penetration and adoption will be more gradual than initially expected.

Global sales of our key dermatology portfolio were $194 million in the quarter, growing 25% operationally and contributing 2% to overall revenue growth. The ongoing strength of this portfolio was driven by expanded usage of APOQUEL, resulting from promotional investments, increased adoption of CYTOPOINT, as well as entry into new markets and price.

Recent acquisitions and commercial agreements contributed 1% growth this quarter, which includes Platinum Performance, our reference lab acquisitions and the stable lab diagnostic test for equine. Other in-line products declined this quarter, primarily driven by declines in U.S. cattle related to ongoing beef and dairy market challenges.

Now, let's discuss the revenue growth by segment for the quarter. U.S. revenue grew 9% with companion animal products growing 12% and livestock products growing 5%. Companion animal growth in the quarter was driven by increased sales of our key dermatology products, growth of the Simparica franchise and the impact of recent acquisitions.

This growth was partially offset by declines in point-of-care diagnostics. U.S. key dermatology sales were $136 million for the quarter, growing, 31%. Growth this quarter was driven by ongoing promotional investments and expanded usage of CYTOPOINT in the clinic.

Simparica Trio revenue in the quarter included initial sales, the distribution channels with product becoming available to veterinarians for prescribing in mid-April. We're supporting the launch with strong field force engagement and direct-to-consumer advertising.

We remain confident in the long-term success of this product, despite launching within the current environment. Diagnostic sales in the quarter were primarily impacted by distributor purchasing patterns and slower demands in March related to COVID-19. U.S.

livestock returned to growth this quarter, supported by positive performance in poultry and swine, partially offset by cattle declines. Poultry continues to benefit from our portfolio of alternatives to antibiotics and medicated feed additives, driven by new customer adoption and efficacy challenges for a competitive product.

Swine also had a strong quarter, driven by increased sales of any effectives and the one-time replenishment of a classical swine fever vaccine stockpile by the USDA.

Cattle product sales continued to be negatively impacted by unfavorable beef market conditions driven by feedlot placements of heavier and healthier animals with a lower risk profile and dairy continue to face headwinds from negative producer profitability and oversupply. To summarize, U.S. performance was strong, despite ongoing challenges in U.S.

and dairy cattle markets. Our International segment had operational revenue growth of 4% in the quarter. Companion animal operational revenue growth was 8% and livestock operational growth was 2%.

Companion animal product growth resulted from increased sales of our Simparica franchise, including the launch of Simparica Trio in certain EU markets and growth in our key dermatology portfolio.

New diagnostic customer accounts and strong performance in China also contributed to growth in the quarter, despite the impact of social distancing measures in China. International livestock growth in the quarter was driven primarily by swine, fish and poultry.

Swine returned to growth in the quarter, due to expanding herd production and key account penetration across emerging markets including China. Our short-term outlook for China remains neutral to slightly positive as they rebuild due to lower incidents of African Swine Fever.

However, certain smaller markets in Asia continue to experiences challenges related to ASF. The fish portfolio benefited from the continued uptake of the Alpha Flux parasiticide in Chile, while poultry growth was driven primarily by price.

Overall, our International segment continued to be a positive contributor to revenue growth with all species flat to growing, including swine returning to growth even in the current challenging environment. Now moving on to the rest of the P&L.

Adjusted gross margin of 70.3% increased slightly on a reported basis compared to the prior year, due to price partially offset by the mildly deluded impact of recent acquisitions. Total adjusted operating expenses grew 7% operationally.

The increase was primarily related to the impact of recent acquisitions, investments to support future growth of the business and direct-to-consumer advertising. The adjusted effective tax rate for the quarter was 16.8%, the decrease from the comparable 2019 period is primarily driven by the tax benefits from share-based compensation.

Adjusted net income for the quarter grew 10% operationally driven by revenue growth and a lower effective tax rate and adjusted diluted EPS grew 10% operationally. Next I'd like to cover our liquidity position and our capital allocation priorities.

We ended the first quarter with approximately $2 billion in cash and cash equivalents, as well as access to $1 billion revolving credit facility and a coinciding commercial paper program, both of which are undrawn.

Given a strong cash flow and balance sheet, we remain committed to our capital allocation priorities of internal investment, M&A and returning excess cash to shareholders.

Consistent with what I mentioned last quarter, we are anticipating elevated capital expenditures this year to support investments in manufacturing, information technology to support our recent acquisitions and capabilities in digital and data analytics.

However, we are delaying expenditures that will not materially impact our medium and long-term growth strategy. Our strong liquidity also allows us to be opportunistic and continue executing on our M&A strategy. In consistent with what I've said before, our focus is on strategic acquisitions, not large scale transformational M&A.

Our recent acquisitions of Performance Livestock Analytics is a good example. With regards to returning excess cash to shareholders, we remain committed to our 2020 dividend, which represents a 22% increase over 2019.

In Q1, we also repurchased $250 million in Zoetis shares and we have approximately $1.4 billion remaining under our multi-year share repurchase program. However, in light of the current situation, we have decided to temporarily suspend our share repurchases and conserve cash. Now moving on to our updated guidance assumptions for 2020.

As I noted earlier, we cannot know the full extent of the COVID-19 pandemic, as the situation continues to evolve daily. Our updated guidance reflects our current assumptions and may change materially as the situation progresses.

Our guidance assumes that the economy begins to open up in the second half of the year with pet care visits returning to more normalized levels as the year progresses and our livestock customers being able to maintain their operations. It also assumes a continued recession this year.

We have increased the width of our ranges, as the timing of returning to normal operations and the depth of the recession is still uncertain.

Please note that guidance reflects foreign exchange rates as of late April and movement in foreign exchange rate has had a significant impact on our revenue and adjusted net income, since prior guidance, given our global footprint.

Our current guidance includes unstable foreign exchange revenue of approximately $150 million and approximately $50 million at adjusted net income, primarily driven by the Brazilian real, Mexican peso and the euro. We are now projecting revenue between $5.95 billion and $6.25 billion, representing a 2% operational decline to 3% operational growth.

Adjusted cost of sales as a percentage of revenue is now expected to be in the range of 30.5% to 31.5%, increasing slightly from February guidance due to increased manufacturing and freight costs related to COVID-19.

Adjusted SG&A expenses for the year are now expected to be between $1.455 billion and $1.545 billion with the decrease from the February guidance, driven by savings and compensation due to hiring freezes and reductions to discretionary spending, such as travel and entertainment and professional service spent.

As Kristin indicated, our key R&D programs are progressing and so adjusted R&D expenses are now expected to be between $440 million and $465 million, consistent with our commitment to invest in pipeline opportunities.

We're also continuing to invest in strategic areas of focus such as diagnostics, biodevices, and precision livestock farming and strategies to maximize the value of the continuum of care through integrated offerings.

While we were taking measures to reduce expenses this year, we also remain committed to bring medium and long-term growth and value to our shareholders. Adjusted interest and other income deductions is now expected to be approximately $215 million with the increase over February guidance driven by lower interest income and other factors.

Our adjusted effective tax rate for 2020 is expected to be in the range of 20% to 21%, consistent with February guidance. Adjusted net income is expected to be in a range of $1.52 billion to $1.64 billion representing an operational decline of 2% to 9%.

Adjusted diluted EPS is expected to be in the range of $3.17 to $3.42 and reported diluted EPS is expected to be in the range of $2.80 to $3.07.

While our guidance represents full year expectations, we do anticipate revenue and adjusted net income to be most significantly impacted in Q2, based upon quarantine and shelter in place guidelines that have been put in place in most major markets around the world and the economic impact of recession.

We anticipate the second half of the year will be impacted, but to a lesser extent. Now to summarize, before we move to Q&A. Pre COVID-19, 2020 was off to a strong start and inline with our expectations, with 7% operational revenue growth and 10% operational growth and adjusted net income.

The essential nature of our business, the diversity of our portfolio and the durability of our business will allow us to continue executing on our strategy during this period of uncertainty.

We're confident, we'll be able to maintain strong liquidity and manage effectively through this challenging environment, given our strong cash flow and balance sheet, and despite managing our spend in the short-term as we navigate through the impact of the COVID-19 pandemic, we remain committed to medium and long-term profitable growth through responsible investment.

Now, I have things over to the operator to open the line for your questions. Operator..

[Operator Instructions] We'll go first to Michael Ryskin with Bank of America. Please go ahead, your line is open..

Thanks for taking the questions. I'll ask sort of a big picture one to get the ball wrong. Steve, Glenn, Kristin, you’ve all alluded to various expense on the economic impacts of the recession, both about the press release and in your prepared remarks.

Could you just help us walk through the nuance of there and how you think about that affecting both the livestock markets and the companion animal market? Because as we think through it, all the other impacts through the livestock, slaughterhouse closures, the food service shift, the vet visits, that's still for the most part transient expected to bounce back later this year.

But the recessionary impact on the guide, that's something that could very well persistent 2021 and 2022. So how do you think about that affecting the business, if you could offer any pointers related to 2008, 2009 that'd be really helpful as we walk through it. Thanks..

Sure. Thanks, Mike. I'll talk a little bit about some of the broader trends and then I'll let Glenn talk a little bit about what that means overall and guidance and how that translates. If we start at the vet clinic side and the pet care side.

Q1, there really was limited impact just given the timing of the quarantine decisions across the world, and China tended to rebound a little bit. As we moved into early April, we did see significant impacts about – to about 20% to 30% reduction in the U.S., and in Europe, 30% to 50%.

The very good news right now is that those are turning around quite quickly. We're seeing a significant improvement both in the U.S. and Europe in overall clinic visits.

And so our expectation is obviously, overall a week Q2, but that will improve in Q3 and Q4, also because we strongly believe that that's our – being very thoughtful about how they increase their business, leveraging telemedicine, curbside, drop off, lots of different strategies there.

As you look at the livestock sector, I mean, there are two big trends impacting this. The first is the shift out of dine-out and into grocery stores. Historically that was about a 50-50 split. And now about 80% to 90% of consumption is coming out of grocery stores. Historically those supply chains were quite different.

So the channel migration there has been a little challenging as you've seen. And the second trend there has been an exacerbated in the U.S.

specifically around the reduction and the battery, and at this point about a 15% reduction of processing capacity, given some of the outbreaks at some of those sites, which continues to be obviously in the news every day. Again, the good news is that's a U.S. trend and that trend is not relevant internationally.

But what we do see sort of in the medium term as we look into Q2, Q3, Q4, as this will put a pressure on our customers, on livestock producers, it is decreasing price and therefore their profitability. It's likely going to decrease their herd size and also put pressure on their import costs and potentially have them trade down.

The question is, how fast that works through? It’s quick to work through that in poultry, a little more challenging in swine and in catalyst we’ve seen – that really is just exacerbating as Glenn mentioned in his remarks, a trend we've been seeing for awhile. We strongly believe the long-term fundamentals remain strong in all these sectors.

So the animal protein consumption will continue to grow. So I think a lot of this is a more of an impact as we work through some of these dynamics this year and the humanization of pets has never been more important than it is now, as you’ve seeing on adoptions of animals, and in previous recessions it’s pretty resilient.

But I'll let Glenn sort of talk through how he thinks about those trends as we did our guidance..

Absolutely. Mike, to your question on the economic impacts of the recession, as we saw back in 2008, 2009, the animal health industry was essentially flat, showing strong resiliency. And then it had a pretty rapid bounce back in the next year growing around 7%.

So in terms of the recessionary impacts, as Kristin said, the companion animal business, just due to a recession, we expect to be very resilient. We saw that back in 2008 and 2009, and the trends of pets becoming more part of the family has only continued even stronger there.

In terms of the livestock area of the business, though, that's where the recession may have a larger impact. A, as people trade down to lower cost proteins, but also our livestock producers tend to go to cheaper products as their profitability is challenged, and we do provide premium products.

So there will be some pricing challenges and just some overall challenges in the livestock industry more so than companion animal from a recession..

We'll take our next question from Erin Wright with Credit Suisse. Please go ahead..

Great. Thanks. A couple of questions here on the companion animal side.

How much did Simparica Trio stocking contribute in the quarter? And how should we be thinking about that quarterly cadence in light of some of the COVID dynamics for Simparica Trio? Is the $150 million target for Simparica Trio still intact? And can you speak to also some of the traction you're seeing across the alternative online channel in the companion animal segment just amidst COVID and some of the dynamics there? How big is that segment for you now? Thanks..

Thanks, Erin. I'll start off and let Glenn build on it. We've been very excited at the very strong awareness and anticipation for the launch of the really innovative Simparica Trio. We did see stocking, as I think we mentioned in Q1, of around $15 million. That was really just the distribution.

We did the full launch to vets and to customers in April, and we followed that shortly thereafter with a very strong direct-to-consumer advertising push, which has been very well received. We remain very excited about this product.

However, we are cognizant that with the pandemic, social distancing as well as the recession, the outlook for 2020 will be adjusted. I'll let Glenn talk a little bit about that guidance. But outside the U.S., we launched in February in the U.K., Italy and Spain. We also recently launched in Canada.

So we've remain very excited about the potential for this product, and we think we'll have a very good 2020, and we're pleased given – at the launch so far, and given what we're facing with the pandemic. But I'll let Glenn talk a little bit about the updated guidance..

Yes. In term of the updated guidance for Simparica Trio, we've now brought our estimate down from $150 million in incremental sales to $100 million to $125 million, and that's really based on launching in the face of the COVID-19 pandemic.

In terms of how we see the quarterly progression, we're not necessarily going to give quarterly forecast, but we did about $15 million in the quarter, and we do expect that to grow gradually over the year and to reflect more underlying demand throughout the year.

To your question on the alternative channels, Erin, we are definitely seeing a ramp-up in alternative channels as a way for our customers to get their prescriptions filled. However, it's important to remember that, that is off of a relatively lower base still today. And also about 50% of our products do need to be administered within the clinic.

So while we are seeing a rapid increase, it is off of a relatively small base..

We’ll take our next question from Louise Chen with Cantor. Please go ahead..

Hi, thanks for taking my question. So we're seeing a lot of headlines around protein supply chain. Are these headlines mostly noise? Or do they concern you in any way? And could you give more color on your producer supply chain assumptions in your guidance? Thank you..

Sure. Thanks, Louise. Unfortunately, I do not think they are noise, but they're indeed , very real to our customers. It is taking a large part of our field force and technical services supporting our customers through this. Shedding some of these packing plants and having 15% of the capacity of the U.S.

packing taken offline, backs up significantly to our producers. They have nowhere to put animals. We are an economy in the livestock space that was just in time, and they were – trying to make sure they were as efficient as possible. So it is a quite serious issue for our producers, and it does have impact that will be important in 2020.

It is decreasing the price that they're willing to pay. They don't need the animals. So they're paying less for them. That significantly hurts the profitability of our customers and certainly would courage them at this point to reduce herd sizes. So it does have an impact.

As I was trying to express before, some of that impact, as you look at it, it can be turned around quite quickly in poultry, where 43 days, you can make some new decisions there to expand production. There's a little more time in pork. The effects took a lot longer to work through in the beef side.

So we do think they will have an impact in 2020 significantly on the livestock side that was baked into the guidance we provided. But I'll let Glenn talk a little bit more to that..

Yes, to Kristin's point, we did bake this into the guidance. Now when you look at our guidance, we do expect that Q2 will be more severely impacted.

So the challenges that we're seeing now in livestock with the plant closures are baked in, and we do expect that Q2 will be more severely impacted for livestock and also for companion animal as well as this is when we see the clinic visit probably at their lowest in Q2.

When we look toward the full year guidance range, the higher end of our ranges do assume that our producer customers are able to return to more normal operations throughout the second half of the year..

We'll take our next question from John Kreger with William Blair. Please go ahead..

Hi, good morning. This is Jon Kaufman on for Kreger. Thank you for taking the question. So one on the Pumpkin insurance launch. Can you talk about your pricing strategy here? How do your prices and coverage compare to others in the market? And on the preventive aspect of this, the direct-to-pet owner shipping.

Is there a chance that you risk anchoring veterinarians because you're taking parasiticide sales out of the clinic? Or will there be some sort of reimbursement of that's related to these scripts? And then just another quick one here. I don't think I heard the dermatology sales breakout between U.S. and international. Can you provide those? Thank you..

Sure. I’ll start on Pumpkin, and then Glenn can follow-up on the derm question, John. We're very excited about the launch of Pumpkin. I think it's actually never been more relevant than it is as we enter a recession. The focus of the Pumpkin insurance and preventative plans is really increasing access to care.

It's one of the biggest issues that pet owners have and their vet struggle with is, what's the price? Can they get a pet and can they afford care? And really the new value proposition that we were trying to offer vets and pet owners is a real focus on preventative.

So our plan is unique and it really helps cover it completely two to three core vaccines for dogs and for cats, parasiticides for the year and that wellness visit, which is an important part. Many pet owners didn't want to get pet insurance in the U.S. because they felt like it only paid "if their animal got sick".

And under the new wave that we have combined the insurance and the preventative care plan, we think pet owners will see the value at day one.

And so although there are some changes to where that goes for a vet clinic, ensuring that those animals will be coming in regularly because that is a visit that's paid for, for the vaccines and the wellness visits and the parasiticides, we think, really does help the veterinarian.

So as we sat down, I think there was a lot of – I think, from some of our competitors, noise around that when it first launched. But as we sat down to explain the vet, what we're paying for overall in a wellness visit, how we'll be encouraging that, how we'll be covering vaccines.

I think veterinarians are quite excited at the opportunity as many new people have adopted pets.

And the opportunity in the space overall, in the U.S., with penetration levels of pet insurance very low at 2%, 3% versus the rest of the world at 20%, 30%, 40%, is significant And we think, especially going into recession, this is an important part of ensuring that pets get the care and that they go to the vet to get that care.

So I'll turn it over to Glenn to comment on the derm..

Yes. So in terms of the total derm sales breakout. So for the year, total was – for the quarter, total was $194 million with 25% growth, U.S. was $136 million with 31% growth and international was $28 million with 14% growth..

Thank you. We’ll go next to Jon Block with Stifel. Please go ahead..

Thanks, guys. Good morning. I'll ask both upfront. Kristin, maybe the first one for you.

I may have missed it, but I don't think I heard a revised market growth figure versus the previous 4% to 5%, is there one there? And then if so, is your 0.5% operational midpoint, call it, still above market expectations? And then the second one, Glenn, just the flowdown in EPS was a little bit more – was little bit bigger than what we were expecting.

So any color on the decremental margins as we think on how it impacted the P&L? I'm guessing maybe part of that is FX, but any color you can provide would be helpful. Thanks guys..

Sure, John. Great question. No, you did not miss the what is the new market projection to be. The groups that project the market growth, obviously, has not been able to do that yet, and this is a fast emerging. So there is no general sense.

As we look at it, we continue to see that pet care will probably have the strongest growth globally overall, followed by poultry. As we look at the swine growth overall, although that we're seeing significant impacts in the U.S.

right now, given ASF in China and really the strong demand that China is going to continue to have to import swine, we think swine will likely be okay. It will probably have some impact but will do better. And we see the greatest impact overall in cattle. As you look at our business, we're about 50% companion animal, 50% livestock.

So it really – we haven't seen updated market growth numbers to how we compare to that. But we think we will be doing better than the market. And I think it might be helpful.

Glenn can talk a little bit about you use the midpoint of the range, but we'll talk a little bit what the assumptions are for us at the high end of the range and what the assumptions are at the lower end of the range to help you better navigate that. So I'll let Glenn take that question as well as the EPS..

Yes. So John, when you look at the flow down to EPS, there are a couple of things that I want to point out. A, cost of goods is up since the last guidance, right, by about 50 basis points at the midpoint. Big part of that is driven by COVID-19 and some incremental freight costs.

Those incremental costs, we expect to have to pay our suppliers for some of our key ingredients for the product. So that's one area that impacts the flow down to the bottom line. We did take cuts in SG&A about $100 million at the midpoint, as we've discussed. Well, we also do have additional interest expense. The previous guidance was $215 million.

Current guidance is approximately $250 million, and that does take into account the fact that we will earn less interest income on our cash. And it also does contemplate that we may incur some additional debt throughout the year.

So it's really the cost of goods and the interest expense that offsets some of the benefits that we were seeing in the other expense line that are impacting the EPS..

We'll go next to Chris Schott with JPMorgan. Please go ahead..

Hi, great. Thanks so much for the questions. Maybe just the first one, just a clarification on the top line guidance update.

I know you've touched on this on a high level, but can you just quantify how much of the sales revision are these kind of near-term COVID disruptions? Are people just not able to get to production sites and not able to see the vets versus how much is longer-term recession-related headwind? And maybe in the same vein, how much of the reduction is livestock versus companion? Is it 50-50? Is it 60-40? Any color there? My second kind of bigger picture question was on the companion side of the business and how sensitive that part of the portfolio is to a recession.

Is that should we think about that business being more insulated than livestock? Or is there also some potential sensitivity we have to think about on that portion of the portfolio? Thanks so much..

Sure. I'll take pet care, and then Glenn can take overall guidance. With regards to pet care, in previous recessions, it has been a very resilient industry, and we think it will continue to be. I think if you look at the hit in Q2, it really obviously, recession impacts it, but less than most other sectors.

But Q2 with people not going to the vet, which is not necessarily right now in Q2 recession, it was more related to the pandemic and the quarantine situation. And as you look at it, we still have a very strong portfolio that doesn't even require you to go to the vet.

So even vet visit isn't always a great proxy for our business, since a lot of our products can be bought online. But there are a percentage of our business that's more in clinic. We're seeing much greater impact, for example, in diagnostics. But for us, diagnostics is only 5% of our business.

So we do think pet care will be quite resilient in the medium to long-term and will bounce back. And it has historically, as Glenn mentioned, been quite resilient historically.

But I think Glenn can do a good job of putting in context our assumptions as if we trend through the year at the high end of the guidance versus the low end of the guidance for both pet care and livestock..

Yes. So Chris, I'll just address your first question, and then we'll get into a little more of the details on the guidance. So in terms of COVID versus the recession, obviously, we think Q2 will be the most severely impacted, and COVID will be a big driver of that in both livestock and companion animal.

In terms of then going forward, we do expect an impact from the recession, and we do expect that the recessionary impact will be more impactful on livestock than companion animal based on the reasons that Kristin just shared.

However, I think when you look at the overall guidance, right, we did do a bottoms-up analysis to inform the guidance range because we do believe that the people in the markets are closest to this and have the best information.

And what we got back was pretty clear that Q2 will be the hardest hit due to the impact of social distancing and the recession and the fact that the companion animal visits will be lowest in Q2, and livestock plant closures will also impact the livestock side of the business.

When you look at the second half of the year, the high end of the guidance range assumes that the recessionary impacts continue, but that companion animal visits return to more normalized levels and that our livestock producers return to full operations.

If you look at the lower end of the revenue range, that really assumes a very deep recession and also contemplates a potential second wave of the virus with social distancing measures negatively impacting both companion animal and livestock further in the second half of the year.

So we're really just trying to be very transparent with investors as we always do, which is why we chose to provide the guidance with a broader range. However, as we look to the long-term future of both the industry and our business, we do expect that we will return to more normalized growth rates that we see in terms of revenue..

Our next question comes from David Westenberg with Guggenheim Securities. Please go ahead..

Hi. Thanks for taking the question. So I know you mentioned that, the online alternative channels is a little bit more of a low base, but we have seen a speed up in the adoption curve of online pharmacies.

Now as we look to compliance in maybe the back half of the year, I mean, do you think – could we see maybe some upside from reorders that we not – would normally not see? And then my second question is a little bit more continued granularity on the guidance.

So when we're looking at – in the last week, I think I've seen some data and talking to clinics about normalization almost in the last week. So when we're looking at Q2, I mean, should we assume the last couple of weeks is something that could happen in Q2? And I know that your crystal ball might not necessarily be perfect here.

But just as we're modeling that, it's moving so fast, and it does seem like there's some positive bounce back in the last week. I just want to be fairly accurate in the way we're modeling that, so, thank you..

Thanks, David. I'll start with the online channels, and I'll let Glenn pick up your question on the more detailed guidance and what you're seeing as the trends right now in vet visits. The online channels have been a significant trend. I'd say from a few different places. And if they continue, I do think there is an upside with regards to compliance.

We've seen a significant uptick in vets signing up for Covetrus as vet's first choice and vet source to make sure that their pet owners get their products, if they – even if they feel uncomfortable coming into the vet.

We have seen – and they publish as well studies that once you get a customer on to your online home delivery that their compliance goes up, because it ships once a month and there's less of the stress. So we do think that's a potential upside.

And again, it really just accelerated a trend that we thought would happen, but we have seen significant growth in that channel for us. And I think that's why, as I said before, our portfolio has been more resilient in some other companies, as many of our products you can get from home delivery.

The other big channel that's been quite – growing quite quickly for us remains e-commerce. So Chewy has also increased its sales dramatically with us. Again, I want to go back to Glenn's earlier point. This is off a very low base. This was historically a very small percentage.

It is growing very quickly and we do think, especially now consumers would like to get more shipped directly to them. So I think this is a trend that we're going to continue to see. And we do think it does have the upside over the medium term to improve compliance overall with pet owners. So that is a potential upside.

I'll let Glenn take the rest of your questions with regards to guidance..

Yes. So in terms of guidance and for Q2 in particular, in some of the trends that we're seeing in the more current weeks, I think it's important, a, to break it out between the U.S. and international. So again, reminding because of our international close, Q2 for us will be the month of March, April and May.

So recovery in terms of visits, we'll have a smaller benefit in international because it only applies to the end of April and early May. When you look at the U.S. however, in early April we were seeing visits down 20% to 30%. But to your point, we have seen those numbers begin to rise pretty significantly.

And to the extent that that continues, that could limit the impact that we would expect to see in Q2, particularly on the companion animal side of the business. So those are positive trends and we hope that those trends do continue..

Our next question is from Balaji Prasad with Barclays. Please go ahead..

Hi, good morning. Thanks for taking the questions. So Kristin could I – we're discussed much about the near-term impact in with what we're likely to see in Q2 and Q3.

Can I take a step back here and ask you about the longer term implications of COVID-19 on both livestock and companion animal side? How do you think about the change in industry dynamics here with user behavior, veterinary practices, meat producers and what it means more importantly for the long-term industry growth numbers that were discussed in both the companion animal and livestock side? Thanks..

Thanks. Absolutely, we very much still believe the longer term trends for this industry are very strong. If you look at the trend of the humanization of pets, I actually think has been accelerated. So as you look at the next few years of people likely spending more time at home, less travel, maybe potentially working from home more.

They're around their pets longer, they tend to therefore want to take better care of them. They also tend to notice issues before they might have noticed them historically. So we think really the long-term trend here is very positive. And we'll continue the humanization of pets. And the only thing that will temper that is obviously a recession.

But again, as we said in previous recessions, there has been quite a resilient space. I think as you look at the longer term trend in livestock, I think for the next, say as we've talked about this year, there's some significant impacts to many of our producers.

But over the medium to long-term, feeding the world is an important secular trend that is not going to change. So supply chains will realign themselves so that it's more – it goes to the grocery store, we'll be better aligned to do that. They'll change it in the sense of dine-in, dine-out. They'll also evolve across species.

So it may be that you will see poultry and pork do better over the short to medium-term. But in the end of the day, as we've seen over and over again in other crises and recessions, feeding the world is a strong secular trend. So we remain quite optimistic for the industry and specifically for our portfolio.

If you look at our portfolio, it's very diversified and that has been very good for us over the years with about half in the U.S., half outside the U.S. with a 50/50 split between livestock and companion animals and watching that evolve. So we're very optimistic, continue to believe that the industry and more importantly, Zoetis will be resilient..

Next question is from David Risinger with Morgan Stanley. Please go ahead..

Thanks very much. Sorry about that. So congrats on the Pumpkin innovative and compelling offering, it certainly differentiated.

Could you help us understand the insurance element of the promotional offering including acute illness coverage and exactly what Zoetis is pitching to pet owners with respect to the insurance aspect? And then just a side comment with respect to the second wave that you're modeling, you're assuming that second wave in the fourth quarter, not this summer.

Correct?.

Okay. So I'll start with the insurance. I'll let Glenn take the question on the second wave. We're very excited about Pumpkin. What we think truly differentiates it is a preventative wellness plan. The insurance, again, we are not taking underwriting risk in this that is taken by Crum & Forster. I can't get into comparing individual plans.

Obviously, it would depend on your pet, its age, as always all insurance does. I would say the insurance is a very strong insurance plans, but there's many comparable ones on the insurance.

The unique part of the offering is the real focus on the additional preventative wellness plans or I think we have a very unique offering there and it's quite differentiated. But from an insurance perspective, it's quite competitive with other things out there. I wouldn't say the insurance alone is as differentiated.

I would say how we work with our customers, the customer experience is quite differentiated. If you've checked it out and gone to the website, we're trying to make it easier for pet owners, simpler to understand, simpler to file claims. So we're really looking to innovate on user experience with regards to the insurance part of it.

But the plan itself is comparable. What's really different is the additional preventative wellness plan, which I think is quite different. But I'll let Glenn take the question on the second wave..

Yes. And in terms of the second wave, again, that's one of the assumptions within the lower end of our guidance range. We would anticipate that that would occur later in the year. Not necessarily in the coming months..

We'll go next to Nathan Rich with Goldman Sachs. Please go ahead..

Good morning. Just two quick questions for me. First, Kristin, just going back to your comment on Simparica Trio, could you maybe share some of the initial feedback that you've gotten from that? And how receptive do you think they might need to kind of using this product as the year-round treatment and potentially kind of switching has midyear.

And then have you seen any change in your response from competitors that’s factored into your outlook? That's kind of the first question. The second question for Glenn, I think the companion animal growth rate internationally I think slowed a little bit from what the recent trend has been.

Could you maybe just go into more details on what you saw there on the quarter?.

Sure. Thanks Nathan. If you look at Trio, we think our customers have been quite receptive. They've been excited. This has been a highly anticipated product and the reception from many of our vets having something exciting and new to discuss with their pet owners to make sure that they can take care of a deadly disease like heartworm.

And combine that with one of the best flea and tick products. It's been quite positive. We've been seeing a pickup even more in the last few weeks as vets have had more time to engage. So, honestly, from the market – the vets have been very excited. We've seen great receptivity to our direct-to-consumer advertising.

As we saw from some of our competitors, they did exactly what we expected. They definitely build the channel with as much product as they could in Q1 before our launch, as we had talked about at our Q4 call that was anticipated. And obviously, they will come after us, as they should.

This is the single largest sector as you know in animal health and in the U.S. alone it’s a $2.5 billion market. So we're really excited. We continue to see, as you saw our guidance that this will drive significant growth for us overall as a company and certainly in the U.S.

And we have been very pleased with the receptivity of both vets and pet owners to this new innovation.

So Glenn, do you want to take this companion animal question?.

Yes. So in terms of a companion animal in the international market, so we did see good growth of 8% in companion animal in the international markets. There were a couple of things that did factor into limiting that growth to some degree.

So a, China grew 8%, which was actually a little below our expectations because of the impact of COVID-19 and the timing of COVID-19 within that market. We also did see declines in markets such as Italy and Canada. Italy was changed – was impacted by some changes in prescribing laws that we think again will recover it through the rest of the year.

Whereas Canada was impacted somewhat by the timing of the launch of Simparica Trio, there was a hold on some of the sales for Simparica Trio from our customers in anticipation of Simparica Trio being provided shortly thereafter..

The next question is from Kathy Miner with Cowen and Company. Please go ahead..

Thank you for taking the question.

Just going to follow up a little bit more on the dermatology business, specifically, was there any stocking of Apoquel in the first quarter? And second of all, can you comment on Cytopoint, you've indicated that there was growth in the quarter and since this is a vet visit kind of product, just talk about those dynamics and how you see that as we get into Q2 and later in the year? And if there's any difference in this U.S.

versus O-U.S. also. Thank you..

Sure. So from Apoquel perspective and just from a broader companion animal perspective, we did not see stocking within the quarter. This is something that we monitor and manage very closely and we prefer ourselves to mirror our underlying demand. So we did not see significant stocking in the quarter of any extent.

And when you look at the breakout between Apoquel and Cytopoint, they both perform very well in the quarter, but Cytopoint did actually grow more rapidly as we think the convenience and the compliance and the fact that it is administered in the clinic certainly does help Cytopoint.

We also saw very rapid growth in Cytopoint in international, growing approximately 71% as it was introduced in new markets as well so very strong performance across the entire portfolio of both Cytopoint and Apoquel..

Our next question is from Elliot Wilbur with Raymond James. Please go ahead..

Thanks. Good morning. Question on return to baseline or normalcy trends in terms of vet visits on the companion animal side.

Assuming that, in effect, does happen near year-end or sometime in the second half of 2020 at least, how are you thinking about and how should we think about revenue per visit? Is there a possibility of a trade-down effect? Is that something that you've incorporated into expectations? And maybe any color from – experienced during the Great recession with respect to that aspect of vet visits would be helpful.

And just real quickly, if you could – could you just remind us of the relative margins within the livestock business between cattle versus swine and poultry? Thanks..

Sure. So in terms of the relative margins across the livestock business, they actually are starting to converge across them. But in general, cattle is a higher margin, then comes swine and then comes poultry, but they're all relatively close. And then in terms of the revenue per visit.

So, a, in the first quarter, we did see very positive trends in terms of revenue per visit in companion animal. We get most of that data honestly within the U.S.

So we haven't seen anything telling us that revenue per visit is declining significantly, but that is something that we will track throughout the year, but we have no data that indicates that, that is a trend that should reverse at any time soon..

Thank you. We'll go next to Greg Gilbert with SunTrust. Please go ahead..

Thank you. I know that you and others are offering telehealth to vet customers.

Can you talk about how that's being embraced and how that could affect the business longer term? And then secondly, what are you seeing in Asia? I realize it's early days, but what are you seeing in terms of a return to normal or an attempt to return to normal both from your own employee base as well as the customer base.

In the U.S., we see a lot of companies guiding to some return to normal for their business by year-end, but those companies that are guiding have employees who are terrified to go back to work anytime soon. So just trying to – maybe that's a very U.S. sort of New York centric way of thinking.

But I'm hoping you can offer some color from a more global perspective. Thanks..

Sure. Thanks so much, Greg. I'll start with looking at China. China really has come back. They have about 80% to 90% of vet clinics are now open. And they are seeing pet owners return, but they do – the pet owners do remain cautious. So I wouldn't say it's at exactly the same level. But if you look at – and we have significant operations in China.

We are continuing to operate our manufacturing sites and other sites there. And our experience there is the measures that the government has put in place to control the virus and to do staggered shifts, et cetera and track and trace are not measures that so far, most of Europe and the U.S. are willing or are able to implement anyway.

The ability to look at that as a proxy, we don't think that is a good proxy for what a return to the workplace looks like in the U.S. and in Europe. They're just – what they've done there is quite different. We did see a strong growth in China. As you look at Q1, they grew 13%, with 19% in livestock and 9% in companion animal.

But we caution that looking at China and extrapolating to the rest of the world is probably not the best strategy. We do see and we've put a lot of focus in what a return to work looks like. We are leveraging our experience in our manufacturing sites, distribution and R&D sites that have been operational as an essential business throughout.

And our plan is to leverage those learnings, where we looked at implementing health and hygiene measures such as social distancing, increased sanitization, temp checks and staggered shifts, and that is certainly the way we're looking to do that in the U.S.

I think we talk a lot about office-based colleagues but field-based colleagues is another big category for us. And so we think it's going to take a little longer, and we'll obviously be leveraging other opportunities such as telehealth with – and webinars and things like that with our customers.

We need to make sure that as our colleagues return, the customers are comfortable too. It's got to be two-sided. And with regards to your question, specifically on telehealth, we did see a quick uptick initially. It is a process change for clinics. So whether or not and at what level that really continues to take off, it's still early days.

I've actually been doing a telehealth visit. I'd say it does help the vet do really simple checkups on a procedure to just make sure the pet’s okay. Remotely, it is actually more efficient and to get them paid for something that sometimes they call a customer and they were never paid for.

So I do think it will take off, but it is a big process flow change for the vet and even integration to the system. So I think it will take a little time to see how fast that picks up. But we've heard a positive reception for most of our customers who've started to adopt it, but it does take a little time..

We'll take the next question from Navin Jacob with UBS. Please go ahead. Navin, check the mute button on your phone. Your line is open. We’ll go to the next one. We'll go next to Michael Ryskin with a follow-up. Please go ahead..

On channel and your opportunity to move over there. Could you just given us an overview of the companion animal product portfolio you have now between vaccines and other injectables like Cytopoint? There's a large part of the product that simply cannot be moved on.

And then on the other hand, you have parasiticides, growing presence there, Apoquel, other products that with a prescription, you can get it from Chewy and from other sites.

Could you just discuss how Zoetis is positioned here in the online channel? And sort of big picture, do you anticipate COVID could drive a longer-term shift to more online pharmacy purchases, as opposed to people going to the vet.

If people are trying to continue to practice some social distancing longer term?.

Sure. As we look at our portfolio, the first thing I'd start with is almost all of our portfolio does require a prescription. So the vet will remain at the center of anything that happens.

But to your question of sort of where they get products over whether it's in the clinic, through home delivery, via the clinic website or through Chewy, is really a focus. As you look about our portfolio, about 50% of our portfolio generally would be given in clinic.

That would be a vaccine, an injectable, a surgical, something for urgent care, et cetera, and about 50% of our portfolio could eventually go to home delivery or online. And I think you're seeing the acceleration of that as we look at the sort of the pandemic impact overall in Q1. And I think that will continue to accelerate.

But if you look at a lot of this, it still requires a wellness visit, it still requires a prescription. So the vet will stay center. But I do think you're seeing a real acceleration in home delivery and in places like Chewy. It has the upside of driving compliance, as we've talked about before and we do believe it will.

We'll see how fast it continues to go. But I think once you get a customer in the habit of a monthly home delivery, it certainly makes their lives easier. And it will drive compliance overall..

And it appears we have no further questions. I'll return the floor to you, Kristin, for closing remarks..

Thanks so much. These are certainly unprecedented times. But the one thing, as I started out with, Zoetis as an essential business has also been a quite resilient company, and I'm quite proud of what our colleagues across the world have done to ensure that they've taken care of each other and supported our customers.

Medicines, vaccines, diagnostics and many of our solutions will remain essential in the months and years to come.

We think Zoetis has a diverse portfolio that addresses a broad spectrum of needs, and given the diversification of our portfolio and our very strong balance sheet, we believe that Zoetis is strongly positioned to manage certainly over this year and in the years to come.

We're driven by two very important secular trends, both the humanization of pets and ensuring we feed the world. So we remain quite optimistic as we look to the end of 2020 and 2021 that Zoetis and our industry will continue to be essential and resilient. Thanks so much for joining us today..

And this will conclude today's program. Thanks for your participation. You may now disconnect..