The paragraph is an introduction to the Walgreens Boots Alliance Fourth Quarter 2024 Results Earnings Conference Call. Tiffany Kanaga, Vice President of Global Investor Relations, announces the call, introduces key executives, and explains that projections and forward-looking statements will be made. She highlights the possibility of actual results differing due to various factors, references the company's Form 10-K with the SEC, and notes that there is no obligation to update forward-looking statements. The press release and related slides can be found on the Walgreens Boots Alliance website, and non-GAAP financial measures will be discussed.

The paragraph discusses the company's financial performance and strategic initiatives under Tim Wentworth's leadership. The company focused on building a new management team, reducing costs, lowering capital expenditures, and improving working capital, resulting in positive cash flow for the fourth quarter and fiscal year. These initiatives led to a net debt reduction of $1.9 billion in fiscal 2024. The company also conducted a strategic review to focus on two guiding principles with clear operational and financial priorities, emphasizing the importance of stabilizing core economics, improving operating cash flow, and strengthening the balance sheet.

WBA is refocusing on its strength as a retail pharmacy-led company by leveraging consumer trust, convenience, and relevance. The company plans to optimize its store footprint by investing in profitable stores and closing about 1,200 underperforming ones over the next three years. This strategy aims to align their store base to better respond to consumer behavior changes and improve competitiveness. While closing stores is challenging, WBA intends to redeploy most affected employees and maintain relevance in today’s market.

The paragraph outlines the company's strategy to revamp its merchandising approach by focusing on its own brands in key categories like health and wellness, particularly women's health. They plan to release over 300 new products annually and emphasize a disciplined financial model aimed at generating strong free cash flow. Key financial actions include improving operating cash flows, working capital initiatives, reducing capital expenditures, and monetizing non-core assets like VillageMD to reduce debt and enhance the balance sheet. The company will continue to extract value from its public equity investments in Cencora and BrightSpring to aid in debt reduction. Their main priorities are stabilizing pharmacy margins, advancing retail strategy execution, and improving the net debt position, with guidance from leadership on financial priorities.

The paragraph discusses Walgreens' ongoing efforts to reshape its relationship with Pharmacy Benefit Managers (PBMs) regarding pharmacy margins and reimbursement rates. Walgreens aims to ensure fair drug pricing and appropriate compensation for their services while maintaining broad network access. They emphasize their intention to make tough decisions if PBMs do not offer reasonable reimbursement, as they aim to serve communities across America. Walgreens has high visibility into reimbursement for a substantial portion of their expected volume in fiscal 2025 and is negotiating several significant contracts to secure fair reimbursement. The company is encouraged by some PBMs' willingness to adjust compensation in line with current trends. They also highlight the importance of stabilizing NADAC (National Average Drug Acquisition Cost) and call for regulatory collaboration to ensure it remains a reliable benchmark. Additionally, Walgreens continues to expand the range of services for which they are compensated.

The paragraph discusses the importance of achieving provider status and new payment arrangements to enhance pharmacist capabilities and improve pharmacy economics. Despite ongoing challenges, the speaker expresses confidence in the team's strategy and highlights fiscal 2025 as crucial for long-term value creation. The paragraph also details Walgreens' response to Hurricanes Helene and Milton, including raising over $5 million with the American Red Cross to aid affected communities and restoring most of the 1,050 stores impacted by the storms. Finally, it transitions to Manmohan Mahajan, who is set to review the company's financial results.

The paragraph discusses the company's financial performance for the recent quarter and full year. The quarter saw a 41% year-over-year decrease in adjusted EPS primarily due to reduced sale leaseback gains and lower equity income, despite growth in the US Healthcare segment and cost-saving initiatives. The company faced challenges in US Retail Pharmacy but continued to perform well internationally. GAAP results included significant non-cash charges, such as a $2.3 billion valuation allowance on deferred tax assets related to opioid liabilities and $696 million in impairment charges for CareCentrix and a Chinese pharma company. For the full year, adjusted EPS declined by 28%, impacted by weaker US Retail Pharmacy results and lower sale leaseback gains, partially offset by US Healthcare profitability improvements. The GAAP net loss was $8.6 billion, with impairment charges and previous year opioid-related charges. The upcoming section will delve into the US Retail Pharmacy segment.

The paragraph discusses a financial update, highlighting an 8.3% year-on-year growth in comparable sales driven by the pharmacy sector, despite a decline in retail sales. The AOI decreased by 60% compared to the previous year, mainly due to fewer sale leaseback gains, a reversal of incentive accruals, and lower Cencora equity income. Cost-saving initiatives helped offset some headwinds, with over $1 billion saved, primarily in the US Retail Pharmacy segment. US Pharmacy saw an 11.7% increase in comparable sales due to brand inflation and mix impacts, though the gross margin declined due to reimbursement pressure and brand inflation. Meanwhile, US retail sales dropped by 1.7% due to non-essential categories, but adjustments in pricing strategies improved gross profit margins and increased own brand sales penetration. Retail adjusted gross margin improved thanks to a mix shift towards health and wellness products, though faced some offset from increased shrink levels. The International segment will be discussed in constant currency terms.

The article paragraph reports on the financial performance of a company, highlighting key figures such as total sales growth of 3.7% and increases in Germany wholesale and Boots UK sales. Despite a 2% rise in segment adjusted gross profit, adjusted operating income dropped by 11% due to real estate gains in the previous year. Boots UK saw a 6% rise in comparable retail sales and a 19% increase in Boots.com sales, which now account for 15% of UK retail sales. In the US Healthcare segment, sales grew by 7% to $2.1 billion, with VillageMD contributing $1.5 billion and Shields sales up by 28%. The segment's adjusted EBITDA finished at $65 million, a significant improvement. Operating cash flow was affected by legal payments and pension contributions, while capital expenditure savings and working capital initiatives exceeded targets. Free cash flow for the year declined due to lower earnings and legal payments but improved significantly in the fourth quarter, increasing by 98% compared to the previous year.

The paragraph discusses a company's financial performance and strategic priorities. In fiscal year 2024, the company improved its liquidity by reducing net debt and lease obligations, and ended the year with significant cash reserves and revolver capacity. Looking ahead to fiscal 2025, the company aims to strengthen its balance sheet and improve cash flow through operational and asset monetization actions. Key priorities include stabilizing core operations amid long-term turnaround efforts and navigating expected challenges in its US pharmacy segment due to reimbursement pressure and cost-sensitive customer behavior. The company plans to optimize its retail operations and footprint to enhance cash flow, with adjusted EPS guidance set between $1.40 and $1.80, based on these assumptions.

The company anticipates growth in its Healthcare and International segments while implementing a footprint optimization program to close approximately 1,200 underperforming or cash flow-negative stores over the next three years, focusing mainly on fiscal year 2025. This strategy aims to reduce dark rent costs and working capital needs, with an expected in-year financial benefit of around $100 million in AOI. The closures will serve to fund improvements in more profitable stores to enhance customer experience. Additionally, besides the stores marked for closure, the company is working to improve the performance of 800 other stores as part of overall optimization efforts.

The paragraph provides guidance on financial expectations for a company's upcoming fiscal year. It notes a decline in adjusted EPS, mainly due to a higher tax rate and reduced earnings from sale leaseback transactions and Cencora. The US Retail Pharmacy segment is expected to experience a significant decrease in income, influenced by the absence of previous gains and reimbursement pressures. The company forecasts a slight growth in prescription volume, but store closures will have an impact. Vaccinations are expected to decrease slightly, and retail sales are projected to decline. The International segment is expected to see profitability growth, driven by the Boots retail business in Germany.

The paragraph discusses the company's financial outlook and strategies for improving cash flow and capital allocation. The US Healthcare segment's adjusted EBITDA is expected to rise by $250 million, reaching a range of $280 million to $350 million. The company plans to bolster free cash flows through working capital optimization and reducing capital expenditures, aiming to generate $500 million in free cash flows and cut $150 million in capital expenditures by fiscal 2025. Although there's an anticipated AOI headwind of $400 million, this won't impact free cash flow. The company is refocusing its financial philosophy, simplifying reporting by winding down sale-leaseback programs and selling Cencora shares. They reduced net debt by $1.9 billion in fiscal 2024 and plan to continue monetizing non-core assets to strengthen the balance sheet. They also expect lease liabilities to decline, improving cash position and flexibility to support the company's turnaround.

The company expressed confidence in its team and strategy, emphasizing its focus on being a retail pharmacy-led organization with sustainable and disciplined economics. They plan to strengthen their balance sheet by stabilizing financial performance, monetizing non-strategic assets, reducing lease exposure, and addressing net debt. A flexible capital allocation strategy is part of their approach, aiming for a well-positioned store fleet and industry-leading customer experience. They believe in the value of adjacent strategic businesses and are in the early stages of a turnaround, expecting further progress in fiscal 2025. Following this, the floor was opened to questions, with Lisa Gill from JPMorgan asking about restructuring reimbursements and potential contract negotiations, seeking clarity on the timeline for rate improvements, whether expected in 2025 or over a longer three-year plan.

The paragraph discusses the evolving reimbursement dynamics in the healthcare market leading up to 2025. Tim Wentworth highlights a reduction in reimbursement pressure as payers become more realistic about financial expectations. Contracts with payers and PBMs are seeing diverse arrangements, such as cost-plus models and specific carve-outs for expensive drugs, reflecting the changing environment. About 80% of the contracts are already established with these varying terms, while the remaining 20% are still in constructive negotiations. Wentworth emphasizes being open-minded and prepared to make tough decisions to ensure fair compensation without necessarily raising prices.

The paragraph discusses the company's approach to addressing downward financial pressures by not removing money from the market and managing reimbursement dynamics. The speaker emphasizes the company's willingness to exit unprofitable business lines, preferring cash-paying customers over less profitable reimbursed ones. They express confidence in resetting reimbursement frameworks over the next few years to focus on value creation rather than just reducing costs. In terms of financial outlook, they mention the impact of store closures, which are expected to be more pronounced in the latter half of the fiscal year 2025, with benefits from these closures scaling over the following years. The conversation then transitions to a question about free cash flow timing.

In the paragraph, Ann Hynes asks Tim Wentworth about the timing for stabilizing and growing AOI, specifically mentioning fiscal 2025 as a rebasing year, and inquires about progress on renegotiating supplier contracts. Wentworth responds by emphasizing that the company's turnaround is a multiyear process, with 2025 as a foundational year, but avoids providing specific three-year guidance. He claims that current initiatives are setting the stage for long-term growth in pharmacy services, healthcare, and retail. Regarding supplier contracts, Wentworth clarifies that the company has a long-term deal with Cencora until 2029.

The paragraph outlines a collaborative strategy between a company and its partners to assess operational and acquisition cost efficiencies to foster growth beneficial to all parties. While no specific updates were provided, there are ongoing constructive discussions on inventory, working capital, micro-fulfillment, and purchasing costs. Manmohan Mahajan comments on not providing long-term guidance but emphasizes the aim to grow AOI and free cash flows over three years. Fiscal year 2025 is expected to provide earnings from Cencora and improvements in US Healthcare and International growth. There's a focus on pharmacy margin and retail sales growth in the US for long-term success.

The paragraph discusses a strategy involving store closures and optimization to improve financial performance over the next few years. In fiscal year 2025, the company expects to gain approximately $100 million in operating income from these efforts, which will continue to grow in 2026 and 2027 as more locations are closed. This initiative aims to be financially beneficial by improving working capital and monetizing certain owned locations, offsetting the costs of closures and benefiting the company's US Pharmacy business.

In the paragraph, Tim Wentworth discusses the renegotiation of contracts, noting that 80% of the contracts have been renegotiated to set a new baseline. He emphasizes that the process is ongoing and dynamic, involving multiyear contracts, and involves adjusting contracts to ensure appropriate and sustainable risk and reimbursement levels. Tim suggests that even when contracts are renegotiated, they are not considered finalized as it is an ongoing process. Additionally, Tim defers a question about fiscal '25 free cash flow to Manmohan, indicating that while it involves many variables, they expect to address concerns regarding their earnings per share (EPS) guidance.

The paragraph discusses the status and expectations related to contracts, free cash flow, and capital allocation for the company's 2025 plan year. It notes that 80% of contracts anticipated for renegotiation are on track, which aligns with the typical January planning cycle. Some remaining contracts require more effort to finalize. Manmohan Mahajan, addressing free cash flow for 2025, anticipates a decline in adjusted operating income, partly due to reduced sale leaseback contributions and lower earnings from Cencora, although these won't affect free cash flow. Legal payments are expected to increase to approximately $1.50 billion but will decrease in 2026. To counterbalance these challenges, the company plans to optimize working capital by $500 million and reduce CapEx by $150 million in 2025. Additionally, the company will maintain a pragmatic capital allocation strategy, as evidenced by asset monetization in Q4.

The paragraph features a discussion about the strategic focus of a company's US healthcare operations, particularly around its Retail Pharmacy customers and the VillageMD operation. Tim Wentworth emphasizes that the company's core asset is its clinicians and teams, which underpin its healthcare strategy centered on pharmacies. This includes leveraging their specialty pharmacy as a significant growth area, serving patient and payer needs, and collaborating with pharma and biosimilar companies. There is also an acknowledgment of focusing on profitability or stable growth within VillageMD, with Manmohan set to address details around any investment changes in this area.

The paragraph discusses the performance and growth expectations for the US Healthcare segment, specifically mentioning Shields and VillageMD. Shields is continuing to grow through its existing partnerships with health systems, while VillageMD has improved due to a significant cost reduction program. There was a higher contribution from risk-based operations in Q4, leading to slight overperformance. The same growth themes are expected to continue into 2025, with Shields expanding within partnerships and VillageMD benefiting from fiscal 2024 cost reductions and improved contribution margins. The conversation then shifts to a question from Kevin Caliendo of UBS regarding anticipated Rx and foot traffic retention following store closures, with Tim Wentworth expected to respond.

The paragraph discusses the strategic evaluation and closure of 1,200 stores by a company, explaining their precision in calculating the recapture rate of transferring patients to other locations. The company has experience with store closures and emphasizes the importance of customer engagement and loyalty programs. They aim to maintain patient care through various strategies, including digital interfaces and home delivery, although these are not factored into their base projections but are expected to help retain and possibly increase their customer base.

The paragraph involves a discussion about the company's financial strategy, focusing on deleveraging, reducing net debt, and improving free cash flow. Kevin Caliendo inquires about the company's stance on its elevated dividend, asking if maintaining it is part of the strategy for shareholders. Tim Wentworth responds by stating that the company has a flexible and pragmatic capital allocation approach and will continue to evaluate their situation. They are committed to capital efficiency and might adjust the dividend to align with long-term earnings if deemed necessary, after discussions with the Board. He notes that they aim to monetize non-strategic assets to enhance the balance sheet but indicates that all options remain open. The conversation then shifts to Elizabeth Anderson from Evercore ISI, who asks about working capital improvement.

The paragraph discusses the strategies and efforts undertaken by a company to optimize its working capital. Tim Wentworth praises his team's disciplined management across various business dimensions. Manmohan Mahajan elaborates on specific initiatives, such as adjusting the retail assortment mix to remove unproductive inventory and improve cash conversion. The company has also focused on optimizing inventory levels through micro-fulfillment centers, enhancing account receivables collectability, and adjusting accounts payable timing. These measures contribute to better cash flow management over multiple years.

The paragraph discusses the company's strategy for fiscal year 2025, focusing on store closures and operational expense (OpEx) improvements. Closing 1,200 stores over the next two to three years will allow for inventory optimization and cash generation, but also presents "stranded costs" that need managing. The company is committed to proactively addressing these costs and maintaining a culture of continuous fiscal prudence, particularly concerning non-direct store expenses. Investments will be made in store capital and employee training. The opportunity for OpEx improvements isn't as substantial as it was when the company initially saved $4 billion, but disciplined management and execution remain priorities.

The paragraph discusses the ongoing efforts to optimize business operations, particularly at a corporate level, while emphasizing the importance of maintaining staff levels in retail stores, which are already operating efficiently. The speaker highlights the crucial role of in-store employees as key customer touchpoints and mentions ongoing investments in this area, despite broader restructuring efforts. The conversation then shifts to a question from Michael Cherny regarding the US Healthcare sector, specifically focusing on the monetization of assets like VillageMD. Tim Wentworth responds, indicating that VillageMD is a primary asset targeted for monetization, and the discussion suggests balancing free cash flow and dividend flexibility in the process.

The paragraph discusses the company's strategy to monetize a business without destroying value and emphasizes their careful, methodical approach due to the complexity of the situation. The company has taken actions such as selling Cencora and paying down debt to improve its short-term cash situation, indicating a deliberate approach to avoid rushing decisions that could destroy value. There's also mention of being thoughtful about their employees, particularly physicians, to ensure they remain an employer of choice. Stephanie Davis from Barclays asks about margin improvement initiatives beyond cost reduction and the impact of a new CCO hire with value-based experience on the business. The company is committed to keeping stakeholders updated as they progress.

Tim Wentworth and Mary Langowski discuss the recent hiring of Jason as the new Chief Commercial Officer (CCO), noting his enthusiasm and discussing how he fits into the company's growth strategy. They highlight that while margin expansion isn't solely about cost-cutting, there are several growth initiatives underway. These initiatives, led by Mary, include areas like specialty pharma services and data analytics, and although they are in early stages with long sales cycles, they are believed to be valuable. They emphasize the importance of disciplined growth and creating shareholder value, expressing excitement about what Jason brings to the team.

In the paragraph, the speaker discusses recent strategic changes and achievements at Walgreens over the past year. They mention the exit from nonessential programs to focus on growing core and adjacent assets, particularly in areas like specialty pharmacy and data analytics. With new leadership, including Jason's involvement, the company is concentrating on commercialization and B2B partnerships. The speaker, reflecting on their first year, highlights building a new leadership team in Chicago, achieving financial goals like reducing net debt by $1.9 billion, simplifying financial reporting, and maintaining market share in pharmacy for the first time in years.

The company has conducted a strategic review that is influencing the VillageMD process and a six-pillar retail modernization initiative, which includes merchandising, brand ownership, loyalty programs, digital enhancements, and footprint evaluation. They've also set a framework for restructuring pharmacy reimbursement over multiple years. The company intends to meet consumers where they are currently, without assuming any significant improvement in consumer strength by year-end. Emphasizing the realistic approach to consumer behavior, the company has also focused on evolving its culture. Their 300,000 team members are considered a key differentiator in improving the experiences of patients and customers. Updates on progress will be provided in future quarters.

This summary was generated with AI and may contain some inaccuracies.