Jon Block

Jon Block asked for granular detail on 2026 Invisalign ASPs, specifically if they are expected to be down around 2% year-over-year, and the reasons for the Q4 sequential ASP decline. He also inquired about the impact of tax receipts/stimulus on Q1 and the rollout strategy for NoAA products.

Answer

CFO John Morici guided 2026 ASPs to be down 1-2% year-over-year due to country and product mix. He explained the Q4 sequential ASP decline was due to slight unfavorable foreign exchange and strong growth in lower-list-price countries. President and CEO Joseph Hogan stated that Q1 North America planning assumes stability, viewing potential tax receipts/stimulus as possible upside but not planned. He added that NoAA products are rolling out geographically, with full rollout expected by Q2 2026, and customers appreciate the options.

Jon Block asked for color on the 2026 international CAG Diagnostics recurring revenue growth rate compared to the U.S., considering commercial investments and the infancy stage of innovation internationally. He also questioned why the Q1 2026 CAG Dx recurring revenue growth guidance (9.5% midpoint, 14% two-year stack) was a decent discount to the full-year guide (9% midpoint, 17% stack), and asked about any impact from January weather challenges.

Answer

CEO Jay Mazelsky explained that international regions offer a higher growth profile due to lower diagnostics usage, substantial investments in commercial teams (Germany, UK, Ireland, Australia), and reference lab networks. CFO Andrew Emerson clarified that Q1 guidance is consistent with the full-year outlook when normalizing for days benefit. He noted planning for a 2% clinical visit decline for Q1 and full year, similar to Q4 2025, and mentioned no specific call-out for January weather.

Jon Block asked about the strong U.S. mask revenue growth, inquiring about the specific benefit from the Virtuox acquisition and any potential stocking impact from the new F30 mask launch.

Answer

CEO Mick Farrell confirmed solid double-digit mask growth even without Virtuox, highlighting the F30i Clear and F30i Comfort masks as changing the basis of competition and noting seasonality from high-deductible health plans. CFO Brett Sandercock reiterated strong double-digit growth excluding Virtuox and a good quarter for Virtuox.

Jon Block asked about the strong U.S. mask revenue growth, specifically inquiring about the contribution from VirtuOx and any stocking impact from the new F30i masks.

Answer

CEO Mick Farrell confirmed double-digit mask growth even without VirtuOx, noting that the F30i Comfort and Clear masks are changing the basis of competition and are expected to see strong adoption. CFO Brett Sandercock added that VirtuOx had a good quarter and the F30i impact is incremental.

Jon Block questioned the company's 4%-5% contact lens market growth expectation for 2026, given the year-to-date 4% market growth and perceived fading industry pricing power. He also asked for geographic direction, specifically regarding Asia-Pac's performance and its potential clawback to mid-single digits in fiscal 2026.

Answer

President and CEO Al White clarified that calendar Q3 market growth was 5%, suggesting a potential closer-to-5% market growth for next year with global pricing around 1%. Regarding Asia-Pac, he attributed past struggles to low-margin e-commerce channels in China, noting that these markets will represent a smaller percentage of overall business in 2026, reducing future detriment.

Jon Block from Stifel inquired about Elanco's aspirations and timing for achieving a 'cleaner label' for Zenrelia in the U.S., specifically regarding the removal of the box warning, and how this relates to Zenrelia's higher market share gains internationally.

Answer

President and CEO Jeff Simmons highlighted Zenrelia's double-digit market share in initial international launch markets (Japan, Canada, Brazil) due to its strong efficacy. He detailed a multi-pronged regulatory strategy, including a recent data submission to the FDA regarding booster vaccinations, aiming to align the U.S. label with less restrictive international versions. Simmons noted that the September label update (removing vaccine-induced disease language) already spurred interest, with clinic adoption and monthly sales per clinic increasing significantly.

Jon Block asked for more details on Elanco's aspirations for a 'cleaner label' for Zenrelia in the U.S., including the timing and necessary steps, drawing a comparison to Zenrelia's higher market share gains in international markets despite shorter launch periods. He also inquired about the 2025 EBITDA guidance, the impact of incremental OpEx investments, and how these investments might continue into 2026.

Answer

Jeff Simmons, President and CEO, highlighted Zenrelia's double-digit market share in Japan, Canada, and Brazil, attributing it to the product's efficacy profile and strong testimonials in a double-digit growing dermatology market. He detailed a multi-pronged regulatory approach, including the recent removal of vaccine-induced disease language and a new data submission to the FDA to further align the U.S. label with international non-restrictive labels. Simmons noted the positive impact of the September label update, with increased clinic adoption and a nearly 50% rise in monthly sales per clinic since Q1. Bob VanHimbergen, CFO, confirmed the raised EBITDA guidance, attributing it to Q3 outperformance and strategic incremental OpEx investments in launches. He stated that Elanco would continue a data-driven 'no-regrets approach' to investments, expecting top-line, EBITDA, and EPS growth in 2026.

Jon Block of Stifel challenged the assertion that Zoetis's implied 3% organic operational growth exit in Q4 2025, despite an easier comparison, is not indicative of 2026 performance, questioning what changes in the price/volume algorithm would drive a rebound given anticipated zero-ish volume in 2H 2025 and increasing competition in key franchises like dermatology.

Answer

CFO Wetteny Joseph reiterated that the Q4 exit is not a read-through for 2026, citing expected stabilization and return to growth for Librela. He explained that competitive pressures, while aggressive, have resulted in limited patient share gains, and their impact is amplified by the current macro environment of fewer therapeutic visits. Joseph noted that international dermatology grew 7% despite aggressive competition due to market expansion, and historically, initial launch promotions are short-lived. He expressed confidence in Zoetis's strong portfolio and upcoming approvals.

Jon Block pressed on why the implied 3% organic operational growth in Q4 2025, despite an easier comparison, is not considered indicative for 2026. He asked what changes in the price/volume algorithm are expected, specifically if price will go higher or if volumes will rebound, and the rationale behind this outlook.

Answer

Wetteny Joseph, Chief Financial Officer, reiterated that the Q4 exit is not indicative of 2026, citing expected Librela stabilization and a return to growth. He acknowledged competitive pressure but emphasized Zoetis's strong market position in dermatology (11 years, 120 million doses of Apoquel/Cytopoint) and high customer satisfaction. Joseph noted that the macro environment (fewer therapeutic visits) amplifies competitive impact, but highlighted that international dermatology grew 7% despite aggressive competition due to market expansion. He stated that initial launch promotions are typically short-lived and Zoetis will maintain discipline.

Jon Block asked about the sustainability of OpEx leverage into 2026, questioning if it's a 'pure role reversal' due to the 15-day sensor or if additional OpEx opportunities exist, and whether 'catch-up spend' is anticipated.

Answer

Jereme Sylvain, CFO, stated that 2025 OpEx leverage resulted from efficiency improvements, not deferrals, so no significant 'catch-up spend' is anticipated. He expects continued gross margin improvement in 2026 and opportunities for further OpEx leverage, balancing investment for growth (especially with potential coverage expansions) with delivering operating margin improvement to shareholders.

Jon Block asked about OpEx leverage in 2025 offsetting gross margin shortfalls, and whether 2026 will see a 'pure role reversal' due to 15-Day, additional OpEx opportunities, or 'catch-up spend.'

Answer

Jereme Sylvain, CFO, stated that 2025 OpEx work focused on efficiency and leveraging existing investments, not deferrals or 'catch-up spend.' He expects gross margin opportunities in 2026 and continued OpEx leverage, balancing investment with delivering operating margin improvement, especially if coverage expands.

Jon Block of Stifel asked about the key performance indicators Nexeo will track for its GENEO system launch through the end of 2025, and inquired how the company plans to leverage its differentiated product label in its go-to-market strategy.

Answer

CFO John Landry stated that Nexeo is tracking leading indicators like the number of trained physicians and value analysis committee (VAC) applications, with more metrics to be shared on future calls. CEO Olivier Talman added that the differentiated label, particularly the data on positional OSA and the lack of a contraindication for complete concentric collapse (CCC), is a significant competitive advantage that will be used to persuade physicians to choose GENEO.

Joe Federico, on behalf of Jon Block, questioned the Q2 revenue result, which was below models, and asked if competitor supply issues in prior quarters had played a role. He also sought clarity on the expected timing of FDA approval (late 2024 vs. early 2025) and the planned size of the initial U.S. sales team.

Answer

CEO Olivier Taelman attributed the quarterly revenue variability to the small size of the German market, while noting year-over-year growth remains strong. He downplayed the impact of competitor shortages and expressed confidence in second-half growth, partly driven by the ResMed collaboration. Taelman reiterated confidence in a late 2024 FDA approval based on the 180-day review clock but added a prudent mention of early 2025. He confirmed the initial U.S. launch team would consist of 15 territory managers supported by 15 field engineers and specialists.