Walgreens Boots Alliance, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Walgreens Boost Alliance fourth quarter 2024 results earnings conference call. At this time, all participants are on a listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to speaker host, Tiffany Kanega, Vice President of Global Investor Relations. Please go ahead.

Good morning. Thank you for joining us for the Walgreens Boots Alliance earnings call for the fourth quarter of fiscal year 2024. I'm Tiffany Kanega, Vice President of Global Investor Relations. Joining me on today's call are Tim Wentworth, our Chief Executive Officer, and Manmohan Mahajan, Global Chief Financial Officer. In addition, Mary Lungowski, President of U.S. Healthcare, Rick Gates, Senior Vice President and Walgreens Chief Pharmacy Officer, and Tracy Brown, President of Walgreens Retail and Chief Customer Officer, will participate in Q&A. Also in the room this morning is Eric Wasserstrom, Senior Vice President of Investor Relations. 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 Form 10-K 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 Investors section of the Walgreens Boots Alliance website. During this call, we will discuss certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures, and the reconciliations are set forth in the press release. You may also refer to the slides posted in the investor section of our website for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. We encourage you to review the comparable GAAP measures and reconciliation to non-GAAP values in the other earnings materials we provided. I will now turn the call over to Tim.

Thanks, Tiffany, and good morning, everyone. Our fourth quarter and fiscal full year results reflected our focused execution on several critical initiatives against a challenging backdrop for our consumer. When I joined, I had three immediate priorities. First, build a new management team. Second, address items within our control that could improve our financial condition within the year. And third, undertake a strategic review of our collection of valuable assets to lay the groundwork for our longer term turnaround. With respect to the short-term actions, we successfully hit our three declared goals, cutting costs by over $1 billion, reducing capex by over $700 million, and realizing over $600 million in benefits from working capital initiatives. These factors contributed to our positive cash flow in the fourth quarter and helped achieve full-year cash flow that was also positive. Building on this momentum is critical as we turn our executional focus to stabilizing our core economics improving our operating cash flow, and strengthening our balance sheet beyond the $1.9 billion net debt reduction achieved in fiscal 2024. Equally important, we have conducted a thorough strategic review. Coming out of this work, we are an organization focused on two guiding principles with clear operational and financial priorities. The first guiding principle relates to our operating model. WBA is reorienting to its legacy strength as a retail pharmacy-led company. This reorientation allows us to leverage our key strategic assets of consumer trust, convenience, and relevance. Our position of trust stems from the millions of face-to-face interactions our consumers have with our pharmacy personnel every day. And we will continue to take actions now and for the long term to be the first choice for retail pharmacy and health services. Having earned our consumers' trust, indeed our reason to exist, we also want to be accessible and convenient, but we need to be appropriately sized. Consequently, we are announcing an expanded footprint optimization program. We have over 8,000 stores of which the majority, approximately 6,000, are profitable. This solid base supports our conviction in a retail pharmacy-led model that is relevant to our consumers and we intend to invest in these stores over the next several years. Part of the funding for this investment will come from accelerating the closure of underperforming stores. We expect to close approximately 1,200 of those over the next three years and reduce the fixed costs associated with them. Executing on this program will realign our footprint to a healthier store base that we believe will enable us to respond more dynamically to shifts in consumer behavior and buying preferences. Our ability to respond to a changing environment needs to improve and was a critical objective of our strategic review. We intend to close this competitive gap with some of our peers who have invested in similar capabilities over the past several years. While the decision to close the store is never an easy one, We feel confident in our ability to continue to serve our customers. And we intend to follow our historic practice to redeploy the majority of the workforce in those stores that we close. In addition to being trusted and convenient, we must be relevant to today's consumer. To this end, we are reevaluating our merchandising strategy to offer a refreshed assortment of products, including our own brands. By being more selective with national brands and expanding our own brands, We are sharpening our focus as a destination for categories for which we believe we are uniquely positioned to lead like health and wellness and specifically women's health. We launched over 300 new own brand SKUs this year focused in key categories and we expect to launch another 300 plus in fiscal 2025. Our second guiding principle is a disciplined financial model which targets strong free cash flow generation and appropriate leverage. Our focus in the near term is on improving our operating cash flows through cost and working capital management, while establishing the baseline for AOI growth. In fiscal 2025, we expect to realize $500 million in working capital initiatives and $150 million in further capex reduction. In addition, we are focused on monetizing non-core assets to generate cash. Chief among these is VillageMD. While our plans with this investment may take several different forms, in all scenarios related to VillageMD, we are committed to redeploying any proceeds to reduce our net debt and improve the health of our balance sheet. Our efforts around VillageMD are just one example of how, on a go forward basis, we are maximizing optionality around our portfolio of assets. As we consider if and when to appropriately monetize these assets, We will continue to harvest gains from our portfolio of public equities, Sikora, and Bright Spring to generate cash and further enable debt reduction. As we go forward, we have three priorities. To stabilize pharmacy margin, advance the execution of our retail strategy, and improve our net debt position. This emphasis on improving the strength and quality of our balance sheet underscores Momohan's leadership in establishing our financial priorities to which he will speak in a few moments. Let me now bring some visibility to the status of our discussions surrounding pharmacy margin and reimbursement rates. We continue to be confident that we are in a multi-year process to reframe our relationship with PBMs on reimbursement. We are changing the dialogue to ensure we both procure drugs at a fair price and that we are paid fairly for the value that we provide. As part of our efforts, we have worked with some PBMs to bring more stability and predictability to our reimbursement while maintaining broad network access. It continues to be our goal to serve as many patients and communities as possible. However, going forward, Walgreens will make difficult decisions if a PBM will not provide reasonable reimbursement for our services in order to maintain our presence in communities across America. Today, we have a high level of visibility. into reimbursement for approximately 80% of the anticipated script volume in fiscal 2025. We are pleased with the willingness that some of our PBM partners have shown to consider current trends and adjust reimbursement, such as rebalancing brands and generics, and we look forward to working with those partners on how we can grow together. Several significant contracts are in the process of being negotiated over the next year, and we will pursue rational reimbursement that ensures we are paid fairly. Turning to NADAC, based on the latest data, we have seen it begin to stabilize. However, it is critical that regulators work alongside us and industry groups to implement a solution that reduces future instability and ensures that NADAC is a predictable product benchmark for pharmacy reimbursement. Finally, outside of working with PBMs and payers to evolve reimbursement, we continue to progress our efforts to broaden and deepen the services we get paid for. Provider status and other new payment arrangements remain a key opportunity for us to fully deploy our pharmacist capabilities lighten the burden on the broader healthcare system and further stabilize and improve our overall pharmacy economics. Many of our actions across this turnaround will take time, but I am confident that we have the right team, the right focus and the right strategy. Manmohan will detail our expectations for fiscal 2025 in a moment. Our most recent quarterly results underscore the importance of executing with intent to stabilize the core business, irrespective of the macro economic backdrop. We have a lot of work to do and 2025 will be an important rebasing year to drive longer term value creation. And before I conclude, I wanted to say a few things about how we're supporting the communities recently impacted by hurricanes Helene and Milton. Of course, our thoughts are with all our patients, customers, team members, and everyone else that's been impacted by these terrible natural disasters. In times of crisis, it is always heartening to see the generosity of America's response. At Walgreens, we've leveraged our public private partnerships to implement a national pin pad program with the American Red Cross to raise over $5 million, which has been used to donate water and other urgent supplies for the communities in need. Tim Stenzel, Walgreens has also made a donation to the American Red Cross hurricane Helene fund. Tim Stenzel, In terms of the impact to us about 1050 of our stores were brought offline by the storms or in preparation for them, but we have restored all but 16 of them. Tim Stenzel, we're working to make sure we continue to provide essential services to these impacted communities, I will now turn it over to mom on to review our financial results, thank you, Tim and good morning everyone.