Walgreens Boots Alliance, Inc.

Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Walgreens Boots Alliance third quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Tiffany Kanega, Vice President, Global Investor Relations. You may begin.

Good morning. Thank you for joining us for the Walgreens Boots Alliance earnings call for the third quarter of fiscal year 2022. I'm Tiffany Kanega, Vice President of Global Investor Relations. Joining me on today's call are Roz Brewer, our Chief Executive Officer, James Keogh, our Chief Financial Officer, and John Stanley, President of Walgreens. As always, during the conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on slide two and those outlined in our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. We undertake no obligation to publicly update any forward-looking statement after this presentation, whether as a result of new information, future events, changes in assumptions, or otherwise. You can find our press release and the slides referenced on this call in the investor section of the Walgreens Boots Alliance website. The slides in the press release also contain further information about non-GAAP financial measures that we will discuss today during this call. I will now turn the call over to Roz.

Thanks, Tiffany, and good morning, everyone. Walgreens Boots Alliance delivered consistent execution in the third quarter against very robust growth last year. Sales increased low single digits on a core basis in constant currency, excluding the negative impact of Alliance RX Walgreens and the 65% pro forma sales growth at Walgreens Health. The international business more than doubled its adjusted operating income with its retail sales recovery, and the U.S. segment achieved solid retail comp growth against challenging multi-year comparisons. with positive traffic trends as consumers continue to depend on Walgreens for their essential needs. Our business model is resilient and we are now successfully navigating a difficult operating environment that is especially impacting more discretionary retail. We have been agile and proactive in managing inflationary cost pressures and supply chain disruptions while further enhancing our relevance to consumers through our loyalty, omnichannel, and owned brand initiatives. Our commitment to serve local communities with convenience and real value is resonating well. At the same time, we're making important strides in building our next growth engine, Walgreens Health. VillageMD and Shield continue to realize tremendous top-line growth, and we've added a third strategic partner for our Walgreens Health organic venture, bringing the number of lives covered above the 2022 year-end target of 2 million. Additionally, we launched our clinical trials business to improve access and diversity. We are moving quickly to implement our vision of consumer-centric, tech-enabled healthcare solutions that improve outcomes and lower costs for patients, providers, and payers. During the quarter, we also took further action to better align our investment portfolio with our strategic priorities. The partial monetization of AmerisourceBergen shares augments our balance sheet and is consistent with our efforts to generate shareholder value. We also have now completed a thorough review of the Boots business, with the outcome reflecting rapidly evolving and challenging financial market conditions beyond our control. As recent results show, it is an exciting time for Boots in number seven, which are uniquely positioned to continue to capture future opportunities presented by the growing healthcare and beauty markets. The Board and I remain confident that they hold strong fundamental value and longer term, we will stay open to all opportunities to maximize shareholder values for these businesses and across our company. Looking ahead, given our sustained execution We are maintaining our full year adjusted EPS guidance of low single digit growth, which we raised in January. We are well positioned to drive our next stage of growth and value creation in the years ahead. In October, we introduced four strategic priorities. First, transform and align the core business. Second, build our next growth engine, Walgreens Health. Third, focus a portfolio and optimize capital allocation, and fourth, build a high-performance culture and a winning team. We are making good progress against each initiative as we are becoming the leading partner in reimagining local healthcare and well-being for all. First, we are transforming and aligning the core business and building a pharmacy of the future that will enable and support our healthcare strategy. U.S. and Boots UK retail comp sales both reflected very good execution in the quarter with several of our initiatives continuing to gain traction. U.S. digital sales grew 25% in the quarter on top of 95% growth a year ago. My Walgreens membership is approaching a big milestone of 100 million customers. We are focusing labor investments to return about 3,000 stores to normal operating hours, which I expect will accelerate script volume recovery as we head into fiscal 2023. Recently, we opened our fourth automated micro-fulfillment center and are now supporting 1,100 total stores. More store locations will continue to be added as these facilities become fully operational. These micro-fulfillment centers remove routine tasks and excess inventory from the pharmacy, allowing pharmacists more time to focus on patient care and clinical services, expanding on the critical role they already provide in communities. The centers fill about 20% of store scripts today, heading to 40 to 50% over time. And finally, in the U.S., we've expanded our partnership with Aalto U.S., a provider of loss prevention and tech-enabled security services. We're now working together across more than 2,200 stores, which is already having a positive impact on shrink. At Boots UK, I want to highlight our innovative digital healthcare service, Boots Online Doctor, which has already reached nearly 500,000 customer orders. On the retail side, we are driving share gains across all major categories. Now, let me take this opportunity to discuss the health of the consumer. given our insights from our store network across the best corners of America and the UK, as well as what we're all observing through macro uncertainty and record low consumer sentiment. We see our customers making deliberate choices to prioritize overall value and convenience. There's a shifting calculus due to food and fuel inflation, but health and wellness will always be a priority. Pricing is just the start of our customer set of considerations, where we are collaborating closely with suppliers and maintaining price gaps versus competitors. Walgreens and Boots are trusted brands with strong community ties established over many decades of pharmacy leadership. Historically, we have seen stable script trends and a downturn, which should be aided today by the ongoing return to normalized healthcare utilization levels. Additionally, we see upside at Walgreens as we address staffing challenges at stores to enable a return to normal operating hours. Our front-end momentum is bolstered through our owned brand loyalty and omnichannel initiatives. Additionally, in this era of rising gas prices, we have leveraged our hyper-local footprint and highly relevant retail offering to achieve positive comp store transaction growth. We are seeing higher levels of traffic to our stores and our websites as consumers are looking to optimize their spending dollars across quality, value, and convenience. We're meeting our customers with robust in-stock levels that are slightly above last year despite ongoing supply chain headwinds. We've also been ahead of the curve in managing through inflation. This is all alongside raising the target for the transformational cost management program for the fifth time. Underpinning our efforts is our strengthened retail products and customer leadership team with three new executives. Walgreens chief marketing officer, Lynn Peters, joins us from Calvin Klein, where she served as their global chief marketing officer with experience also at Starbucks, Target, and Ulta Beauty. This Aletha is in our newly created role of chief product officer, having most recently been vice president of e-commerce at Walmart U.S. And finally, Luke Rauch is our new chief merchant, rejoining the merchandising organization after focusing on strategy as my chief of staff. We have the right team in place to support our high-performance culture, to guide our resilient core business, and to serve our customers through these turbulent times. Next, I want to take a moment to recap Walgreens' progress in providing local communities with access to COVID-19 resources as we cross over into an endemic scenario. In the U.S., we administered 4.7 million COVID-19 vaccinations within the quarter and over 67 million in the program to date. As of early April, Walgreens has been offering additional boosters to adults age 50 and older and certain immunocompromised individuals. I am pleased to add that as of Saturday, Walgreens has begun administering vaccines to children aged three years and older at select locations nationwide. This follows our offering of boosters to children aged five and up starting in May. Walgreens pharmacy team members are among the most trusted health resources readily available to administer vaccines and provide education to this newly eligible population and their parents or guardians. Our experience has established Walgreens as the largest pediatric COVID-19 vaccine provider in the pharmacy channel. On the COVID-19 testing front, we completed 3.9 million in-store tests during the quarter and over 32 million in the program to date. Last month, Walgreens expanded access to offering PIXL by LabCorp, at-home PCR kits at no cost through curbside and in-store pickup. This initiative is important particularly for uninsured, socially vulnerable, and medically underserved populations who continue to be among those most impacted by COVID-19. Walgreens Health is reimagining healthcare by making it personal. To achieve this goal, we are creating a network of industry-leading healthcare service providers with the experience and capabilities to help people build relationships with primary care professionals, pharmacists, and in-home care teams in their communities. Our largest partnership, VillageMD, continues its rollout of co-located clinics with 120 now open, on pace towards 200 by the end of 2022. VillageMD is in 22 markets today with over 1.6 million patients. Shields continues to rapidly expand its platform, including new deals with three significant health systems and the launch of Boston Children's Pharmacy. Together, VillageMD and Shields drove pro forma sales growth of 65% for Walgreens Health in the quarter. In our organic Walgreens Health business, we are excited to have signed on our third payer partner, Buckeye Health Plan. Importantly, this development brings the lives under coverage to 2.3 million, exceeding our 2022 target. Our collaboration with Buckeye also extends beyond health corners to include asthma and COPD patients as part of a multi-phased approach to support comprehensive, expanded clinical services. Through this pilot, Walgreens pharmacists counsel patients on how to use their inhalers, provide proactive outreach to non-adherent patients, and use predictive modeling to reach out to people at high risk for becoming non-adherent. Buckeye Health Plan is one of the first payers to reimburse pharmacists for these services in Ohio, made possible through recent state legislative changes. With 56 health corners in operation, Our health advisors logged over 60,000 consumer conversations in the quarter. It's been very inspiring to hear some specific stories. For example, a customer who came in looking for a blood pressure monitor. Our health advisor had a conversation with him about the causes of high blood pressure and its potential complications. As they were talking, the advisor noticed the customer's face was red and flushed, asked to check his blood pressure, and it was very high. The advisor insisted that he go to the emergency room. The following week, he came in to thank the advisor, saying, this new service saved my life. Our consumer-centric model of increased access, engagement, and convenience is working. We are tracking well against all of our key milestones for Walgreens Health this year and remain very optimistic about our long-term growth potential. Finally, as part of our continued work in building healthcare solutions, we recently launched a comprehensive offering of clinical trial services to redefine the end-to-end patient experience and increase access and retention in drug development research. Nearly 80% of trials fail to meet their enrollment goals in their stated timeframes, contributing to billions of dollars in delays every year. We believe we can increase participation, especially among diverse populations, and support sponsors in meeting their trial goals by leveraging our well-established presence across the nation and enterprise-wide health capabilities. The opportunity is clear, and I look forward to sharing more with you ahead. With that, I'll hand it over to James to provide more color on our results and our outlook.