Walgreens Boots Alliance, Inc.

Good day and thank you for standing by. Welcome to the Walgreens Boots Alliance second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today. Chris Dale, Group Vice President, Finance, Planning, and Analysis. Please go ahead.

Good morning. Thank you for joining us for the Walgreens Boots Alliance earnings call for the second quarter of fiscal 2024. I'm Chris Deo, Group Vice President of Financial Planning and Analysis, filling in for Tiffany. Joining me on today's call are Tim Wentworth, our Chief Executive Officer, Mary Langowski, President of U.S. Healthcare, and Momohan Mahajan, Global Chief Financial Officer. In addition, 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. 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 statements 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. 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 to the Investors 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, Chris, and good morning, everyone. WBA's second quarter operational results were in line with our expectations despite continued challenges in the U.S. retail environment. Adjusted EPS of $1.20 reflects good execution and cost discipline in our U.S. retail pharmacy segment, continued strong performance in international, our first quarter of positive adjusted EBITDA in U.S. healthcare, and positive impacts from tax planning benefits. During the quarter, we recognized a $5.8 billion after-tax non-cash goodwill impairment charge, net of non-controlling interest, related to our investment in VillageMD. This charge is excluded from any of our adjusted non-GAAP earnings measures. We are narrowing full-year adjusted EPS guidance to a range of $3.20 to $3.35. This guidance reflects a challenging retail environment in the U.S. and our decisions to both wind down the sale-leaseback program and to sell additional shares of Sencora in a further effort to simplify our financial reporting. We expect these impacts to be partially offset by execution in pharmacy services and tax favorability. We have recently solidified our leadership team, which I believe has the capabilities and commitment to best lead WBA into its future. Once again, I'm excited to welcome our newest WBA leaders who were announced this quarter. Elizabeth Berger as Chief Human Resources Officer, Lanisha Minix as Chief Legal Officer, and Mary Langowski as President of U.S. Healthcare. They joined Momohan Mahanjan, who was confirmed as our Chief Financial Officer, and Beth Leonard, who was named our Chief Corporate Affairs Officer in rounding out our Executive Committee. Together, our Executive Committee is comprised of individuals that bring an established track record of operational excellence and are all based together in Chicago. working to drive collaboration and acting with urgency to drive results. Over the next three months, we will continue the intense review of our portfolio of assets in an effort to ensure that each contributes to the growth we aspire to deliver and drives our go-forward strategy to be the leading retail pharmacy and health services partner that creates deep relationships and trust. Let me share further detail on the progress happening across our businesses to date. In our U.S. retail pharmacy business, we are navigating a challenging backdrop and exploring innovative pathways to boost profitability and growth. Within retail, our U.S. customers confronting considerable pressure from multi-year inflationary trends and depleted household savings, with U.S. household debt at record levels and delinquency rates on the rise. Our shopper is making deliberate choices to seek value resulting in channel shifting behavior. We're responding to these market dynamics by making investments in key value items and focusing our capabilities to engage with customers in an intelligent, targeted way. Additionally, we have implemented initiatives to improve front end performance. We are leaning into the massive and timely opportunity to increase own brand penetration now standing at 17.1%, up 95 basis points year over year. We expect that we can further expand with a meaningful margin advantage over national brands. We plan to deepen our partnership with a reduced set of national suppliers, carefully selecting who we work with alongside our own brands. Operationally, we're intensely focused on the customer experience and meeting customers where, when, and how they want to shop. That means enhancing the experience, not only in store, but ordering online for pickup in store and also same day delivery where over 80% of orders are received in less than an hour. Additionally, we are empowering our store managers and field leaders to share in our company's anticipated growth and increase their ability to impact areas that matter most to their stores and their customers. To do this, we are realigning incentives in an effort to place much greater weight on individual store performance. Moving to pharmacy, we delivered another quarter of strong execution without performance in pharmacy services led by our vaccines portfolio. While market growth was slower than originally anticipated, we maintained market share. Our 11 micro-fulfillment centers currently support 4,600 stores, which is over half our footprint. Earlier this year, we talked about pausing the rollout of additional micro-fulfillment centers as we work to optimize the model that gives our pharmacists and technicians the ability to spend more time on customer-facing activities and less time on core dispensing. We're seeing benefits such as improved MPS scores, patient retention, and adherence. Not only is this better for the patient, it improves team member retention and talent acquisition as they perform more of the clinical activities that they are so well trained to do. We are focused on creating an environment that makes us the practice setting of choice for pharmacists. In fact, earlier this month, we kicked off our first Dean's Advisory Council meeting with the mission of re-energizing and evolving the definition of community pharmacy as demand for pharmacy services increases while the industry faces a pronounced labor shortage. We are on a mission to achieve provider status for our pharmacists given their influence, which was so clearly highlighted during the pandemic. This would allow them to be reimbursed for providing select healthcare services to patients. These are highly trained clinical professionals, just five miles or less from most Americans whose scope of practice goes well beyond dispensing medications and includes immunizations, patient counseling, and point-of-care testing for infectious diseases. As an example of what is ultimately possible, in the UK, the NHS Pharmacy First service, which launched on January 31st, expands the role of Boots pharmacists throughout England to advise and prescribe for the treatment of seven common health conditions. This model serves as a use case of new ways to fully deploy pharmacist capabilities to lighten the burden on the broader healthcare system. Speaking of value, there is real opportunity for change and transparency in reimbursement models to help slow the inflationary pressures on drug prices and our patients' wallets. We already operate in a number of cost plus and other alternative reimbursement models very successfully. and welcome any model that reimburses us for the unmatched value we provide patients. We are having more active and constructive conversations with PBMs and other payers around cost plus models. Many of these discussions are still in early stages, but they share a general theme. There is value to all from a transparent, predictable model where what patients pay at the counter is rationally tied to the cost of the drug. We don't expect an industry shift to happen overnight, as there are a number of dynamics that need to be worked out, but it's especially encouraging to see PBMs and payers open to these models. Now turning to U.S. healthcare, we have reached an important milestone, delivering our first-ever quarter of positive adjusted EBITDA and another quarter of significant year-on-year growth. Shields continues to deliver strong top and bottom line performance as their differentiated model is driving significant value for health system partners, which has resulted in several recent long-term extensions. VillageMD's actions to accelerate profitability, including recent right-sizing of their cost structure, optimizing their clinic footprint, and growing patient panels are driving improvement in adjusted EBITDA. Full risk lives grew by 19% year on year in the second quarter. As Village prioritizes density in their highest opportunity markets, they decided in January to exit a total of approximately 160 clinics, inclusive of the 60 that had been previously communicated. As of today, they have already exited 140 locations. Momohan will discuss in more detail our recent reevaluation of our investment in VillageMD. Shifting to international, the business once again performed well, demonstrating strong and consistent execution, highlighted by meaningful retail comp growth at Boots UK and a 12th successive quarter of market share gains. Finally, let me offer further detail on the progress of our swift actions to right-size the WBA cost structure and increase cash flow across the company. We have a very high degree of visibility into the $1 billion in cost savings this year as actions already taken to date will account for a significant majority of the total. We're driving savings primarily in our US retail pharmacy segment in three ways. Organizational initiatives, including support office workforce reductions, location optimization, and additional pharmacy and retail operating model improvements. We are also working to improve cash flow by prioritizing projects and capital spend. In the first half, CapEx was $250 million lower than the prior year period. We are on track to deliver a $600 million reduction for the full year and $500 million in working capital benefits in fiscal 2024. Next, I'd like to introduce Mary Langowski to say a few words. She'll then hand it over to Momoin to review our financial results in further detail.