Walgreens Boots Alliance, Inc.

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Walgreens Boots Alliance first quarter 2023 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you. Tiffany Kanega, Vice President of Global Investor Relations. You may begin your conference.

Good morning. Thank you for joining us for the Walgreens Boots Alliance earnings call for the first quarter of fiscal year 2023. I'm Tiffany Kanega, Vice President of Global Investor Relations. Joining me on today's call are Roz Brewer, our Chief Executive Officer, and James Kehoe, our Chief Financial Officer. Rick Gates, Senior Vice President of Pharmacy and Healthcare at Walgreens, will participate in Q&A. Today's call will be approximately one hour in length, including Q&A. Let me note that all references to the COVID-19 headwind include U.S. vaccines, drive-through tests, and OTC tests. 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.

WBA entered fiscal 2023 with good momentum, and we delivered a solid start to the year. Sales grew 1% in constant currency, or over 3%, excluding the headwind from Alliance RX Walgreens, and tailwinds from our new healthcare assets. The decline in adjusted EPS comes against very strong growth of 53% last year and reflects the anticipated headwinds from lapping COVID execution and our investments in the U.S. healthcare segment and labor. Our core business remains resilient despite historic macro challenges. We are driving healthy retail comp growth on top of record prior year performances. Our script volume growth is on track with plans as our restaffing and marketing initiatives are gaining traction. We made an important announcement on our opioid legal matters in November, reaching an agreement in principle to pay approximately $5.7 billion over 15 years to resolve a substantial majority of our opioid-related litigation by states, political subdivisions, and tribes. This allows us to move forward and focus on our purpose, helping consumers lead more joyful lives through better health. We are making great progress to accelerate our transformation to healthcare, most notably in the quarter with the VillageMD acquisition of Summit Health. At the same time, we're unlocking value and strengthening the company by simplifying the portfolio. Our execution to date reinforces our confidence in achieving our full year guidance for adjusted EPS of 445 to 465. We are raising our sales guidance, and we have greater visibility toward the strong 8 to 10% core growth that underpins our results, offsetting the COVID headwind of 16 to 18%. We are quickly scaling U.S. healthcare with a defined path to achieve profitability exiting this fiscal year. Our strategic actions are working to create sustainable shareholder value as we reimagine local healthcare and wellness for all. We are making progress against each of our four strategic priorities. U.S. and Boots UK retail comp sales were both strong, with the U.S. excluding tobacco up over 2% on top of almost 12% last year, and Boots up 9% on top of 16% last year. I am especially pleased with this good performance against a tougher consumer backdrop. The convenience and value that we offer are resonating well, and our initiatives to align the core are driving traffic and margin expansion. Walgreens launched 24-hour same-day delivery, offering the widest range of retail items for around-the-clock delivery across the country. This adds to our broad range of channel access, including one-hour delivery and 30-minute pickups. The Boots consumer responded very favorably to holiday campaigns and promotions, delivering record Black Friday online sales. Boots.com was one of the UK's top 10 most visited retail websites on that day. And we're maintaining price positioning versus competitors and benefiting from inventory availability through our proactive buying ahead of this year's cold, cough, and flu season. In the pharmacy, Our team members administered over 8 million COVID-19 vaccinations in the quarter against our goal of 16 million for the full year. Walgreens has been a leading contributor to the national pandemic response with a study from the Commonwealth Fund showing that total industry efforts have prevented 18.5 million hospitalizations, saved 3.2 million patient lives, and prevented 120 million COVID infections. This adds up to an estimated over $1 trillion in medical cost savings through the US vaccination program. I could not be prouder of our pharmacy team's tireless execution being among the most trusted health resources available. We continue to care for our local communities in countless ways, and we are focusing investments to return stores to normal pharmacy operating hours. Pharmacy staffing has been positive nearly every week since mid-July, and we are leveraging our digital platform to reconnect on a personal level with customers. Our efforts are on pace, resulting in over 2% comp script growth, excluding immunizations in the quarter, up 220 basis points sequentially. Importantly, we are seeing mid single digit growth in stores with normal hours. We have also opened our ninth automated micro-fulfillment center, now supporting about 3,000 total stores. These facilities remove routine tasks and excess inventory from the pharmacy, supporting our team and the path to script recovery. They give pharmacists more time for services and outreach that drive adherence and improve patient health. Turning to our second strategic priority, This was a landmark quarter for accelerating the build-out of our next growth engine, the U.S. healthcare segment. We invested $3.5 billion to support VillageMD's acquisition of Summit Health, creating one of the leading independent provider groups in the country. We recognize the critical importance of scale in value-based care delivery and density in attractive markets. This highly strategic transaction expands VillageMD's addressable market with primary care, multispecialty, and urgent care, and reinforces our approach across the care continuum. We see meaningful synergy potential over time. The deal is also immediately EPS accretive and accelerates profitability for U.S. healthcare. We expect to exit fiscal 23 with positive adjusted EBITDA. Shields Health Solutions and CareCentrics continue to perform well, which led to the accelerated acquisition of both entities. Shields closed on December 28th, and CareCentrics is scheduled to close in the third quarter of fiscal 23. VillageMD is leading the way in value-based care for the country, with 393 clinics as of year-end, including 200 co-located with Walgreens. achieving the calendar 2022 target. Following the close of the summit transaction earlier this week, VillageMD now operates over 680 locations across 26 markets. We also exceeded our goal for Health Corners with 112 now versus the 100 we had expected by the end of December. Our health care strategy is coming to life through all of our best in class assets. which drove a combined 38% pro forma sales growth in the quarter. This growth is funded through actions we continue to take to better align our investment portfolio and simplify the business. In November and December, we unlocked $3 billion in after-tax cash proceeds from the sale of 19 million Amerisource Bergen shares, executing with tight discounts and near 52-week highs. We also realized approximately $150 million in proceeds from the sale of our stake in GPC. Lastly, we have a strong team that is fully aligned with our strategy, including a new structure for U.S. retail pharmacy and John Driscoll leading U.S. healthcare. Perhaps most crucially, we are continuing to invest in our people to recruit and retain the very best talent, which is key to providing a superior customer experience. Fiscal 23 includes further investments in our pharmacy team and minimum wage, as previously stated. We're also reinventing the role of the pharmacist through micro-fulfillment centers and eliminating task-based metrics, further enabling them to practice at the top of their license while creating a differentiated work environment. Our retail pharmacy business provides a foundation for our leading healthcare assets to deliver value across the full care continuum. We are able to unite digital and physical models to guide consumers through the complex healthcare landscape. We are building the scale and resources to help health plans and patients improve outcomes and lower costs as only Walgreens can do. There are significant opportunities for synergies, allowing us to pursue value-based care and risk arrangements, which will demonstrate the value of an integrated approach. We are focused on expanding our risk business, supporting integrated care models, expanding our pharmacy value proposition, and driving operational efficiencies. I'm looking 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.