Zoetis Inc. (ZTS) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you so much for joining us. My name is Nathan Rich, and I cover the animal health space here at Goldman. We're very pleased to kick off our conference today with Zoetis. We have Wetteny Joseph, CFO; and Steve Frank for Investor Relations, live with all you. Unfortunately, for those of you in the room, you can see that I'm having to do this virtual. COVID threw a bit of a wrench in my plans, but I'm glad to have the opportunity to host virtually and my colleague [ Chloe Segal ] is on stage, who may jump in with some questions as well. So Wetteny, thank you very much for joining us and glad that you are able to do this in person.

It's my pleasure, Nate. Thanks for having me.

Great. Before we jump in, we are required to make certain disclosures in public appearances about Goldman Sachs' relationship with companies that we discuss. The disclosures relate to investment banking relationships, compensation received and [ percentage ] of your ownership. We're prepared to read the disclosures allowed for any issuer upon request. However, these disclosures are available in our most recent reports available to those clients on our Form [indiscernible]. Disclosures and updates. Those disclosure are also available by ticker on the Goldman Sachs website at www.gs.com/research/hedge. [indiscernible] necessarily looks like those in Goldman Sachs.

Great. So disclosures out of the way, let's jump into questions. We will turn it over to the audience towards the end. If you do have any questions, feel free to raise your hand. But Wetteny, why don't we start with a high level run on the pet health side. I'd be -- it'd be great to get your view on how Zoetis is thinking about the durability of taking serious spend on their [indiscernible]. I mean we've all seen the data on the traffic this year. Inflation is starting to change the way the consumer spend in certain areas. Your results on the companion animal side, was trying in the first quarter. Historically, the industry has been -- spending has been very stable, been very resilient. I guess when you look out over the next 12 to 24 months, how are you thinking about how -- what kind of the industry works from a consumer spending standpoint, from an overall demand standpoint? And then I guess tied into that, I'd be interested, Zoetis has a unique perspective of seeing different economic cycles outside of what for us is a very U.S.-centric view sometimes. So I guess with a broader lens, I mean, how would you describe kind of demand elasticity for pet health, and therapeutics specifically? And maybe are there any examples from other economies that you could draw that might be relevant to our current situation here in the U.S.?

Yes, Nate. Indeed, when we look back, this is a space that has proven to be very resilient through different economic cycles. If we think back and what's happened since the last cycle, if you will, this is a space that has gotten structurally even more sound, not only in terms of pet owners' and pet parents' willingness to spend on their pets, the prioritization they put on them, generations that are picking up more pets now, if we're looking at millennials and Gen Z, et cetera, it's even a higher willingness and a higher level that they're willing to spend. And there's been more innovation led by Zoetis, certainly, that's providing therapeutics for chronic conditions and so on, where pet owners are accustomed to a higher standard of care for their pets. And so you mentioned other markets that we've seen, when we look across markets like Brazil, for example, and Turkey and Argentina, where we've seen inflation levels, far [indiscernible] what we're seeing here now in the U.S., we have taken price at or above inflation levels, and we continue to see really strong demand. And when I think about what we're seeing in terms of pet health and animal health, companion animal, for example, we're seeing it being real universal, certainly in the U.S. and Western European markets. But across emerging markets, we're seeing companion animal continue to really increase. Markets like China, for example, where not too long ago, China was primarily a livestock market for us, for example. And now today, China is about 50-50 companion animal and livestock because of just the sheer growth that we've seen in companion animal in that market as well. So we see this universal sort of increase in standard of care for pets that we see continuing to see being very resilient. One other point you mentioned is really what we're seeing around traffic in the clinic in the U.S. What we're seeing here is exactly what we anticipated we would see about this time a year ago. If you track traffic in the clinic over the last several years, you see the stairstep. If you do it by quarter, for example, in Q1, stairstep year-after-year, where you have an increased number of visits in the quarter and in Q2, similarly in Q3, et cetera. And as we track last year, you saw a much higher increase in the first quarter and in the second quarter than you saw in the previous 3 or 4 years. And we said this is not necessarily sustainable. We think we will continue to see growth at levels above prepandemic, but you're not going to sustain a growth rate above sort of this bolus that we saw kind of coming out of 2020 towards the end of 2020 and the first half of 2021. So what we're seeing now is exactly what we thought. And as we get out and meet with vets, I've had my fair share and certainly members of the company see customers on a regular daily basis, they're saying that they're as busy as they've ever been and they don't see a demand issue in terms of coming into their clinics. So I just want to make sure I sort of cycle that into your question around what we're seeing. It's no surprise for us. And there's significant resiliency that we've seen in the past, and the market has gotten structurally even stronger since the last cycle we went through.

And that ties well into where I wanted to go next. Because the vet clinic or the vet traffic comparisons do ease pretty significantly as we get into the back half of the year, obviously, coming off of those highs that we saw during the pandemic. I guess do you think that we'll see a return to sort of more normalized vet traffic levels in the back half? And then separately from that, I mean, I guess how correlated do you feel like your business is to vet traffic? Because I mean, if I look at your results, I think double-digit volume growth on the companion animal side in the first quarter despite traffic being down. So I mean do you feel like you're maybe less reliant on vet traffic in order to grow your companion animal business?

Yes. Well, first of all, from a comp perspective, I think as you get into the back half of the year, it gets a little bit easier from a vet perspective, visit perspective compared to the first half, where we saw double-digit growth in the first half of last year from a revenue perspective. We actually think that there's a higher correlation in terms of revenue growth for the vet than visits, growth in terms of what happens with our business. So if we track over the last 10, 12 quarters, for example, you're going to see visit increases average around 1.5% across that period of time. Meanwhile, revenue -- total revenue and revenue per visit for the vet in the U.S. has grown about 8% or 9% during that same time period. And our revenue has been double digits from there. So I think there's a higher correlation in terms of revenue at the vet clinic than there is visits per se. And I think it makes sense when you think about the type of products that we have from a prescription perspective, treating chronic conditions that will be more likely to be sort of recurring. And also there's another element, which is, over time, we see in the alternative channels. So if you think about the Chewys of this world, et cetera, have become a bigger proportion than they were in the past. So if you look 2 years ago, that was about 5% of our companion animal revenues in the U.S. A year ago, it was about 7%. In this year so far, if you look at the first quarter, it's 10% of our revenues. Those are not going to be captured by any sort of traffic as well. And the last point is the traffic data doesn't include some of the large corporates as well. It includes some but not all of them. So I think there's some limitation to the traffic data. But for us, certainly, the correlation is much higher on the revenue than it is on the visits. So in the first quarter, where visits were down 4% -- and by the way, if you go back over the last 10 or 11 quarters, you're going to see 2 or 3 where visits were down. And in each of those, revenue was up high single digits, and our growth was up high single digits or double digits as well. And so in the first quarter, visits were down 4%. Our companion animal business in the U.S. grew 18% in the first quarter. And if you think that we had about 5 or 6 points of price in that, that's still 12% to 13% volume growth in the quarter where visits were down 4%.

Okay. Great. One more high level one on the companion animal side, and then we'll move over to livestock. But you saw a 6% price realization on companion in the first quarter. What are the plans for additional price increases over the balance of the year? And kind of when you look across the portfolio, where did you see opportunities to take incremental price this year? And I'd be curious, just given the kind of economic backdrop that we're in, are you thinking any differently about demand elasticity as it relates to price increases and the consumers' capability to purchase?

Well, we've consistently taken price, and we do so on a market-by-market, SKU-by-SKU basis to look at value pricing and so on. And in each case, and I referenced some markets, for example, that have been higher inflation, and we've consistently done that over years. And what we're seeing is we continue to see volume growth as we're taking price. And we took price up to the tune of 5% or 6% on the companion animal side this year, and we still saw significant volume growth as well. So we do think that there's certainly elasticity, particularly when you think about the innovative products that we have and the higher importance and value of pet health that we see across the spectrum. So we do believe that this is extremely resilient even through inflationary periods, including markets that have seen this for years, where we've taken price consistently, and we're seeing growth in those markets as well.

Makes sense. And let me go over to livestock. The producers are also seeing high input cost pressure. In the past, I feel like sometimes this would lead to trade-downs or cutbacks in the usage of therapeutics. And I guess when that occurred in the past, I mean, what parts of the portfolio does it impact most? And are you seeing any signs of that now? Or is the fact that retail food prices and the ability to pass on inflation has seemingly been pretty strong, has that relieved some of the pressure that producers are under?

Yes. So look, certainly, as we look at input prices and so on, the other element to look at really is what does the end market price look like for these proteins. So if you look at beef prices, for example, in the U.S., they're at all-time highs. So certainly, meatpackers are going to make -- going to be very profitable. So you have to look at producers and what their profitability is versus what the market prices and what their inputs are doing, and that's going to be the first level to look at to indicate what they might do in that case. So as long as prices remain strong and they're profitable, they'll continue to invest. And by the way, they want their animals to be healthy because they don't make money on them if they are sick. So they're going to make sure they do vaccinations, right, from a competitive standpoint. And maybe some of the higher-end injectables antibiotics, they might trade on those, depending on what they see as their risk appetite. But that risk appetite in the context of sort of what their overall P&L looks like as well, going back to the point of where end market prices are. So it's relatively complex, but those are the layers that you have to look at. What's the end market and is it enough for them to make money? And if so, then they may make a different decision even if the input prices are going up. And if it's conversed, then they're definitely not going to sort of take the risk of not vaccinate and so on. So it depends on the categories and what they might look at in terms of their options and what their disease burden might look like at that point in time.

Got it. Okay. Makes sense. Definitely seemed pretty complicated. But hopefully, the fact that retail food prices have been strong, takes off -- alleviates some of that burden. I guess the other macro dynamic that we're starting to hear retailers talk about is some change in consumer behavior and trade-down to cheaper proteins. I guess if we were to see that happen on a more widespread basis, can you talk about how that might impact your livestock business?

Yes. Look, the great thing about Zoetis is that we're very diversified. If you look at our portfolio, not only across species, companion animal and livestock, but also within livestock, of course, every major category of species, right, whether you look at beef, pork, poultry, fish and then, of course, you have dairy from the cattle side and eggs on the poultry side, and we're across all of those when you think about it. So if consumers are trading from certain class of beef to different sort of cuts of beef or to pork or to poultry, they're still navigating across species that we have business in and we have products to support. So I think overall, we're highly diversified in that regard. And I think you have to look at different markets as well in terms of where we are in the cycle. Again, we've seen -- continue to see really strong resiliency. You have markets like Brazil, for example, which is a very big beef sort of market, but the exports into China have been really strong given consumption of beef that's increasing. So it's good for both local beef sort of producers in China as well as export from Brazil, for example. So you kind of have to -- another layer of complexity to think about when you think about different markets and what exports might look like.

Makes sense. And then I wanted to ask on the China swine market. It's obviously been a tough market and been pretty volatile. I think pork prices are still about 20% below where they were last year on average, but they have improved directionally. I guess what do you think it will take to see more sustainable improvement in that market? And do you really -- do we need to see prices kind of get back up to that prior year level for the market to really improve more sustainably?

Yes. So if you track the swine market in China, this is about the time, I think it was late May, June when prices started to come off of their all-time -- near all-time highs and come down. So yes, if you look at on average, we're still about 20 sort of percent below where the average might have been. But versus where they were in the back half of the year, we're starting to track towards that because in the back half has started to come down, if you will. So definitely moving in the right direction when we start to see the increases we've seen over the last month or so. In China, the other element to look at, again, going back to the point around input prices, is what are input prices doing and what does that mean for their ability to get to breakeven and then start to make money, and that impacts and influences what decisions they make. So as the market starts to open up and you see potential increases in consumption across the market, that is going to help as well from a price -- continuing to drive price and their profitability. And that's the combination that will be definitely beneficial. So certainly, it's a good directional indicator if you look at where prices are going because that is taking producers to breakeven and then making -- and then profitable, and then consumption is the other element that looks to be improving as well.

Okay. Makes sense. Maybe sticking with China. Could you maybe talk us through the impact of the lockdowns and how that would impact kind of both sides of the business? And I think with the way that your international quarters fall, it's sort of lines up with the heart of the lockdowns, which I think hopefully are beginning to ease, but there's been some fits and starts on that front. So could you maybe just -- how should we think about that for the second quarter and then coming out of that, hopefully, in the back half of the year?

As we entered into our second quarter, we certainly were well into the lockdowns, and we saw implications for us given -- Shanghai, in particular, is an important port of entry for products going in that gets distributed elsewhere throughout China. So we saw that and factored that into our thinking and our expectations for the second quarter. But as we exited the quarter, things started to open up. So we exited the quarter for our International business at the end of May. So it's 1 month ahead of the rest of the business, if you will, the U.S. And so we exited where the market was opening up, and we're seeing a flow of goods come through, which is very encouraging. But we saw the impact that we expected in the second quarter from the lockdowns, certainly.

And we were thinking sort of like a 50, 100 basis point headwind, something in that ballpark. Is that generally the right way to think about it just in terms of the fact that the lockdowns might have had in the second quarter?

Yes. So look, we came into the second quarter, and we said that we expect the second quarter to be slightly below where our first quarter was from an operational growth perspective, and that's largely driven by what we just discussed with respect to the flow of goods into China and throughout -- through Shanghai and to West of -- to China. So I would say things sort of transpired as we expected.

Makes sense. Okay. I wanted to go through a number of your key products. And maybe starting with Librela, just have a few questions there. I think you said that you expect Librela to remain on allocation for the balance of the year due to the supply issues that you had. I guess how much visibility do you have that these issues will resolve and that you'll be able to supply both the U.S. and European markets as we get into next year? And we hope to get the U.S. approval by the end of this year.

Yes. We couldn't be more pleased with what we're seeing from a demand perspective for Librela. So Librela is an osteoarthritis product for pain in dogs -- osteoarthritis pain in dogs and Solensia is for cats. And we launched across markets in Europe. And within the first year, the product is already the #1 OA pain product in Europe. And the product will be a blockbuster this year, 2022, just from those markets alone, so before we get approval and launch in the U.S. So we're very encouraged by that. Demand is coming in above our expectations. And if you look at the underlying dynamic statistics that we're seeing so far, the reorder rates, the months on therapy, we expect it to be longer than you would be on an NSAID, for example. And it's even above what we would have expected, let's say. And then as we look to expand the market, an element of that is going to be expanding into dogs that were not being treated, for example, right? And what we're seeing so far is that about 40% of dogs that are being treated with Librela are new to the category, they were not being treated before. So that's a very meaningful sort of indicator in terms of what the expansion potential is here. And so we couldn't be happier with what we're seeing. But because demand is above what we expected and clearly, as we were exiting last year given some of the inputs that we use for monoclonal antibody manufacturing are overlap the use for biologics and human manufacturing for vaccines and so on, it did have an impact on our ability to get enough inputs to feel confident we can deliver to the level of demand, which is why we're saying that we expect the product to be on allocation through this year given that it's above the expectations that we had from a demand perspective, and demand is coming really strong. But this is a long lead-time product, right, so it takes months to manufacture. So that's the reflection that you see in terms of how long it takes to react to that. But certainly, we have high confidence in delivering our commitments to our customers for this product and to ramp up to the level of demand that we see. It's just a longer lead time to do that. And the demand profile that we're seeing couldn't be more encouraging here as well.

Yes. No, definitely. And I think what is interesting is that we're seeing pets that are new to the category, dogs that are new to the category. You're seeing more months on therapy. I'd imagine a lot of this is without a lot of marketing on your front just given the supply constraints. So I guess, can you maybe talk about from a marketing standpoint and with kind of that education standpoint, what you've done so far, but maybe as these supply constraints ease like maybe what we should expect to see from the company next year to really push this product?

Yes. Certainly. I mean, look, coming into this, we certainly executed a well-designed program where we had early experience programs. We had key opinion leaders get on the product to get comfortable with it. It is a monoclonal antibody, so it's a different technology than your typical product across pet care and so on. So we wanted to make sure that we did that and that works very successfully, I would say. And as you can imagine, there's not a lot of marketing or DTC and so on going after the product given the landscape that we have with demand is outstripping supply currently. And yet we still see this strong demand for the product. Again, that's a super encouraging element for us as we look ahead beyond this year, but also as we look at approval in the U.S. and launch in the U.S. down the road.

And just one question on the U.S. [ with Google ]. Have you gotten any greater visibility from the FDA on the time line for the facility inspection? I think it's really like the key hurdle that needs to be overcome in order to get approved in the U.S.

Look, we -- the progress on this is continue to be as expected, I would say. It's -- this is a process that does include an inspection of a facility outside the U.S., as we've described previously. In order to get the Solensia approval in the U.S., we needed the agency to do -- to conduct an inspection outside the U.S. as well, which they did in the middle of the COVID scenarios we've gone through over the last year or 2. So clearly, this is just part of the program. And again, as we look at the various milestones along the way and the interactions we have with the agency and so on, everything continues to progress according to plan. But it does -- one of those steps is going to be an inspection at a facility outside the U.S.

Makes sense. I wanted to jump over to Simparica Trio. The growth of Trio has obviously been very impressive. I guess one of the things that I'd be curious to know because I think this is sort of one of the kind of key elements of the value proposition when Trio launch was compliance rates. And how those for Trio maybe compared to Simparica or the broader parasiticide portfolio in general? And kind of how much -- how critical is that to really driving the growth of a product like Trio?

Yes. Look, I think we've been very, very pleased with the growth we've seen with Trio. The U.S. is the largest sort of market when you think about triple combination because of heartworm prevalence, which is in the -- across every state in the U.S. So it is the most -- is the biggest and most important market for a product like this, and to be first to market certainly has significant advantages here as well. So we've been very pleased. We saw about 83% growth in the quarter for Trio for Q1 continue to be really high. Reorder rates, compliance is very strong as well across the product given, again, the compliance and the need for heartworm and the convenience of having one product cover across those as well. So we've been very pleased to see reorder rates, the penetration across large corporate accounts, for example, has done very well for us. We continue to put more DTC and campaign behind the product. We also just launched in the second quarter Trio in Japan, which is an important market as well for triple combination. So that launch just happened last quarter, again, as we continue to look at that in other markets where it makes sense for Trio. As you know not every market is a heartworm market, and therefore, a triple combination may not be as big. But Japan, U.S., those are important markets.

And I guess when we look at the future of Trio, the EU, there hasn't been a ton of adoption, probably related to the heartworm prevalence there. I guess, as you ramp in geographies like Japan and maybe China, like where do you ultimately see maybe the mix of Trio sales going versus where they are today between U.S. and OUS?

First of all, I would say there's a lot more room to continue to grow Trio in the U.S. If you look at what happens on the parasiticides, parasiticides is a $5 billion-plus market. And as we innovate in this space, you see more and more of the market growing towards the oral medications versus the topicals and the collars, et cetera. So we're seeing expansion of the market via these oral products that are a higher price point. And we see that continue to happen, which is why you see growth rates that are above what parasiticides' growth rate might be, which could be -- so let's say parasiticides has grown about 5%. We've seen growth rates that are above that when you look at the oral indication, certainly you see that in Trio. So the first point is we still see significantly more room to grow Trio in the U.S. And then there are markets outside the U.S. where we've gotten approvals and we're doing launches that we'll continue to see. I think as we step back and look, the U.S. will always be the biggest market for Trio, but we do see other markets like Japan and other areas where the product will do well as well if it's a heartworm-type market.

And then a question we often get is just around competition and when a triple combination eventually comes. I guess at a high level, can you maybe just talk about the company's approach to life cycle management on the pet health side, how that might be different than -- from the livestock side and how you view that -- like with respect to competition, like just the company's approach to using life cycle management is a tool to maintain that volume share that you have?

Absolutely. If you look at our R&D spend, last year, we spent just north of $500 million in R&D at the company, spread across livestock, companion animal, diagnostics, et cetera. So when you look -- when you double-click on our spending, it's almost equally on new innovation as well as incremental innovation for products that we already have. And so life cycle management is an important part of that. And as we look at different markets, whether it's parasiticides or derm, et cetera, we'll continue to innovate on existing products as well as new products that we look across therapeutic areas. One example I would share is on the derm side, for example, if you take Apoquel, we now have approval for Apoquel chewable in the European markets that we're launching, which clearly is life cycle management opportunity. If we look at across that market, that will be yet another product that we have in the portfolio across derm. So I think it's just one example to look at. So we do spend about equal, I would say, attention on new product innovation as well as incremental innovation on existing products. And these are important franchises for us that we'll continue to innovate in, whether you look at parasiticide, derm, including with the osteoarthritis pain franchise and monoclonal antibody as a platform gives us an opportunity to introduce products as well across different therapeutic areas, which we continue to capitalize on.

Great. One more from my end, and then maybe we'll see if anyone in the audience has any questions. But I wanted to ask on margins. The business went through a period of very significant margin expansion. Looking between 2016 and 2019, I think it averaged over 200 basis points a year. In the 2 years since, margins are up about 100 basis points in total. I feel like the drivers, maybe of top line at least, haven't really changed. Wetteny, I'd be curious to get your view, when you look over the next like 3 to 5 years, kind of how you see margins progressing for the business? And do you see us going back to that more historical level of annual margin expansion? Or has something about the business changed where we maybe see more modest kind of incremental increases in margin year-to-year? I'd just be curious to get your longer-term view on that.

So look, when I look at margins, first of all, the business naturally or inherently has the ability to continue to expand margins. And we're seeing that in how the mix is shifting towards more companion animal that has a higher gross margin element. Sure, you have more marketing and DTC behind it than you would say, livestock, but overall, favorable from a margin mix standpoint when you look at companion animal. If you look at the innovation with more injectables from mAbs and the growth that we're seeing in derm, for example, where we're seeing 25% growth in derm across the last couple of years. We saw 28% growth in derm in the first quarter this year. So these are all elements that are putting tail behind sort of margin expansion and margin growth for the business. So it naturally has the ability to do that, and we can leverage that all the way through the P&L. The level of leverage you see from that is going to depend on where we see opportunities to drive investments that are going to drive long-term growth. And we'll make those decisions where we see the opportunity and capitalize on those while making sure that we grow the bottom line still faster than the top line is just the level with the extent, if you will, of that bottom line growth above the top line is going to depend on where we see those happening in what we're doing. So this year, for example, we're making investments, certainly, as we have consistently done across R&D. We're making investments in CapEx to -- given the demand that we see across existing products, new products that are coming on in the pipeline, our monoclonal antibodies, our oral solids manufacturing, for example. So we're making substantial investments there. We're making investments in our field force. We see opportunities given the breadth of products that we have as well as innovation that's coming out that if we look at our sales field force and their ability to drive every product can maximize those. It gets diluted the more products that they have to carry into the clinic, if you will, if you look at it that way. And plus delivering on diagnostics expectations as well. So we split diagnostics to its own field force this second quarter. We were hiring in the first quarter, making the transition throughout the second quarter. So we'll see the benefits of those as we go into the second half and beyond. But we're making investments in the business. And yet while we're making those investments, we're still delivering a leveraged P&L, if you will, from an operational perspective. So I think if we -- naturally, the business has the ability to do more. We're going to be selective in making investments where we see a high return on those investments. We enjoy high ROIC. But when we make those investments, we see incrementally improve our ROIC on those and returns on those. And we're going to make those, but we'll deliver on higher growth on the bottom line then top.

Great. I think at this point, we'll probably turn it over to the audience for questions. Thank you all again for being here in California. We're thrilled to have Zoetis here. We'll wait a couple of seconds, see if anyone has anything. Maybe I'll kick it off for now then. I don't think I'm missing anyone. I guess you just started talking a little bit about ROIC and making investments for the future. Maybe if we can talk a little bit about capital deployment and acquisitions. I know you've done a few over the past few years, Basepaws, Pumpkin and others. These are small, but they're very fast growing in markets. They can probably be more material over time. How do deals like these fit into the larger overall strategy? And do we see a point where these deals really start to scale?

Yes. Sure. Look, I think BD is an important lever for us. We, first of all, most look for internal investments. And we have a track record of delivering really strong returns on those, whether you look at R&D or what have you. So that's always going to be the first place we go. BD comes right after that in terms of opportunities to potentially accelerate on our strategy. There may be some smaller deals in areas that are emerging like the Basepaws one given the -- look, the companion animal genetics space is an emerging market that's fast growing. There's also another element here where we're going to get genetic biomarkers on a number of areas that will influence where we go in the future in terms of pipeline development and identify earlier animals that may be more sort of predisposed for certain disease states, where we may be able to have an earlier sort of introduction to some of our therapeutics that might address those, including osteoarthritis pain, et cetera. So these deals, while they may be small, they can be very important in the emerging areas that are growing -- fast growing, what might support, I would say, faster growth for our base business, and we'll continue to do those. I think given the landscape in the space, you may not see large transformative deals per se. And nature of BD is such that timing is never something you can really predict. Some deals take years to materialize and others never materialize and so on. So no way to really predict those. But in between, we do have the flexibility given our balance sheet position, given our cash generation ability and so on where we can invest fully in our core, take advantage of where we can -- we have actionability on BD targets and yet still have an opportunity to return cash to shareholders. So we have that type of flexibility given our balance sheet, which given all else is an important position to be in. And you've seen us execute on share buybacks, for example, in the first quarter. Was a record number in terms of dollars for us, where we bought back $360 million of our shares, et cetera. So those are all part of the equation, but the first place is internal investments followed by BD.

Great. Well, thank you so much, maybe we just have like 1.5 minutes left. Is there anyone else have a question in the audience? If not, I'll kick it back to Nate. All right. Nate, maybe I'll flip it back to you. So we have maybe a final question.

Wetteny, maybe just to follow up on that last question. The balance sheet, you're currently about 1x kind of levered on a net basis. I mean, do you feel comfortable with that level? And should we -- I guess, how do you -- what's your approach to kind of share repurchases? Or are you just going to use excess free cash flow kind of after CapEx, after M&A to buy back stock? Or would you consider levering up the balance sheet a little bit more to buy back shares, especially given the pullback in the stock price that we've seen in [indiscernible]

Look, we're committed to maintaining an investment-grade profile. Beyond that, we're going to get the flexibility and agility to capitalize on opportunistic windows with respect to buybacks and otherwise continue to invest in the business internally. I think outside of perhaps a significant acquisition that would cause us to do more from a debt perspective, I don't know if we would do that sort of proactively just from a leverage perspective. But maintaining investment-grade is what's important. We continue to be very active on the BD front. It's just a matter of -- we can't really predict the timing. So having the flexibility to be able to do that is important to us. And in between, we'll be opportunistic in the market.

Great. Why don't we leave it at that. Wetteny, thank you very much for your time. We really appreciate it.

Thank you.

Thanks, Nate.

Thanks, everyone.

Thank you.