Results In Line with Expectations; Executing in
a Challenging Environment
First quarter and recent financial
highlights
- First quarter loss per share* was $0.08 compared to a loss per
share of $4.31 in the year-ago quarter; first quarter results
included $278 million after-tax charge for fair value adjustments
on variable prepaid forward derivatives related to the monetization
of Cencora shares
- Adjusted earnings per share (EPS**) decreased 43.1 percent to
$0.66, down 43.7 percent on a constant currency basis reflecting
challenging retail market trends in the U.S. and a 21 percentage
point headwind from a higher tax rate
- First quarter sales increased 10.0 percent year-over-year to
$36.7 billion, up 8.7 percent on a constant currency basis
- Announcing a 48 percent reduction in quarterly dividend payment
to $0.25 per share
Fiscal 2024 guidance
- Maintaining fiscal 2024 adjusted EPS guidance of $3.20 to
$3.50, with underlying earnings growth more than offset by lower
sale and leaseback contribution, a higher tax rate, and lower
COVID-19 contribution
- Maintaining U.S. Healthcare adjusted EBITDA to be breakeven at
the midpoint of the guidance range of ($50) million to $50
million
Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced
financial results for the first quarter of fiscal 2024, which ended
November 30, 2023.
Chief Executive Officer Tim Wentworth said:
"WBA delivered fiscal first quarter results in line with overall
expectations, reflecting disciplined execution in a challenging
consumer backdrop. We are evaluating all strategic options to drive
sustainable long-term shareholder value, focusing on swift actions
to right-size costs and increase cash flow, with a balanced
approach to capital allocation priorities. Today we are announcing
a 48 percent reduction in our quarterly dividend payment, while
maintaining a competitive yield. We are proud to be a trusted and
independent partner of choice, delivering healthcare to millions of
people. And, we will leverage our local, convenient presence to
engage with patients and help payors, providers, and pharma
companies also achieve better health outcomes at an affordable
cost."
Overview of First Quarter Results
WBA first quarter sales increased 10.0 percent from the year-ago
quarter to $36.7 billion, an increase of 8.7 percent on a constant
currency basis, reflecting sales growth in the U.S. Retail Pharmacy
and International segments, and sales contributions from the U.S.
Healthcare segment.
First quarter operating loss was $39 million compared to an
operating loss of $6.2 billion in the year-ago quarter. Year over
year improvement in operating loss is due to lapping the $6.5
billion pre-tax charge for opioid-related claims and litigation
recorded in the year-ago quarter. Adjusted operating income was
$687 million, a decrease of 33.0 percent on a constant currency
basis reflecting softer U.S. retail market trends, partly offset by
improved profitability in U.S. Healthcare and International
growth.
Net loss in the first quarter was $67 million compared to a net
loss of $3.7 billion in the year-ago quarter. Net loss in the first
quarter included $278 million after-tax charge for fair value
adjustments on financial derivatives related to forward sale of
Cencora shares. Year over year improvement in net loss is primarily
driven by higher operating income, partially offset by lapping the
$0.9 billion post-tax gain from the partial sale of the Company's
equity method investment in Cencora in the year-ago quarter.
Adjusted net earnings decreased 43.1 percent to $571 million, down
43.7 percent on a constant currency basis, reflecting lower
adjusted operating income and a higher adjusted effective tax rate
primarily due to lapping of a valuation allowance release related
to capital loss carryforwards in the year-ago quarter.
Loss per share in the first quarter was $0.08 compared to loss
per share of $4.31 in the year-ago quarter. Adjusted earnings per
share decreased 43.1 percent to $0.66, reflecting a decrease of
43.7 percent on a constant currency basis.
Net cash used for operating activities was $281 million in the
first quarter. Operating cash flow was negatively impacted by an
anticipated inventory build for the U.S. and UK holiday season and
timing of payor reimbursement. Free cash flow was negative $788
million, a $671 million decrease compared with the year-ago quarter
primarily driven by phasing of working capital and lower earnings.
Capital expenditures decreased by $104 million compared to the
year-ago quarter.
Business Segments
U.S. Retail Pharmacy
Three months ended November
30,
2023
2022
Sales
$
28,944
$
27,204
Adjusted operating income ***
$
694
$
1,105
The U.S. Retail Pharmacy segment had first quarter sales of
$28.9 billion, an increase of 6.4 percent from the year-ago
quarter. Comparable sales increased 8.1 percent from the year-ago
quarter.
Pharmacy sales increased 10.7 percent compared to the year-ago
quarter. Comparable pharmacy sales increased 13.1 percent in the
quarter compared to the year-ago quarter, benefiting from higher
branded drug inflation and strong execution in pharmacy services.
Comparable prescriptions filled in the first quarter increased 1.3
percent from the year-ago quarter while comparable prescriptions
excluding immunizations increased 1.8 percent, impacted by lower
market growth due to a weaker flu and respiratory season, and
Medicaid redeterminations. Total prescriptions filled in the
quarter, including immunizations, adjusted to 30-day equivalents
was 311.6 million, flat versus the prior year quarter.
Retail sales decreased 6.1 percent and comparable retail sales
decreased 5.0 percent compared with the year-ago quarter,
reflecting macroeconomic-driven consumer trends, a 160 basis point
direct impact from a weaker flu and respiratory season, and
Thanksgiving holiday store closures.
Adjusted operating income decreased 37.2 percent to $694 million
compared to $1.1 billion in the year-ago quarter, reflecting a
weaker flu and respiratory season, lower retail sales, and
continued pharmacy reimbursement pressure net of procurement
savings, partly offset by execution in pharmacy services and cost
savings.
International
Three months ended November
30,
2023
2022
Sales
$
5,832
$
5,189
Adjusted operating income ***
$
142
$
116
The International segment had first quarter sales of $5.8
billion, an increase of 12.4 percent from the year-ago quarter,
including a favorable currency impact of 8.0 percent. Sales
increased 4.4 percent on a constant currency basis, with Boots UK
sales growing 6.2 percent, and the Germany wholesale business
growing 3.7 percent.
Boots UK comparable pharmacy sales increased 0.8 percent
compared with the year-ago quarter. Boots UK comparable retail
sales increased 9.8 percent compared to the year-ago quarter with
growth across all categories and formats, and increased total
retail market share for the 11th consecutive quarter. Boots.com
continued to perform strongly with sales growing 17.5 percent,
representing over 19 percent of Boots total retail sales.
Adjusted operating income increased 22.3 percent to $142
million, an increase of 15.0 percent on a constant currency basis
compared with the year-ago quarter, led by strong retail sales in
the UK partially offset by inflationary cost pressures.
U.S. Healthcare
Three months ended November
30,
2023
2022
Sales
$
1,931
$
989
Operating loss
$
(436
)
$
(436
)
Adjusted operating loss ***
$
(96
)
$
(152
)
Adjusted EBITDA (Non-GAAP measure)
$
(39
)
$
(124
)
The U.S. Healthcare segment had first quarter sales of $1.9
billion, reflecting the acquisition of Summit Health by VillageMD,
and growth in all businesses compared to the year-ago quarter. On a
pro forma basis, the segment's businesses grew sales at a combined
rate of 12 percent in the quarter, led by VillageMD and Shields.
VillageMD grew 14 percent on a pro forma basis, reflecting same
clinic growth, additional full-risk lives, and increased
multi-specialty productivity. Shields grew 27 percent, driven by
recent contract wins and further expansion of existing
partnerships.
Operating loss was $436 million, flat versus the year-ago
quarter. Adjusted operating loss, which excludes certain costs
related to stock compensation expense and amortization of acquired
intangible assets, was $96 million compared to $152 million in the
year-ago quarter.
Adjusted EBITDA loss of $39 million improved by $84 million
versus the prior year quarter reflecting growth across all
businesses and cost discipline.
Conference Call
WBA will hold a conference call to discuss the first quarter
results beginning at 8:30 a.m. Eastern time today, January 4, 2024.
A live simulcast as well as related presentation materials will be
available through WBA’s investor relations website at:
https://investor.walgreensbootsalliance.com. A replay of the
conference will be archived on the website for at least 12 months
after the event.
*All references to net earnings or net loss are to net earnings
or net loss attributable to WBA, and all references to EPS are to
diluted EPS attributable to WBA.
**"Adjusted," "constant currency" and free cash flow amounts are
non-GAAP financial measures. Measures identified as "comparable"
constitute key performance indicators. See the appendix to this
release for a discussion of non-GAAP financial measures, including
a reconciliation to the most closely correlated GAAP measure, and
key performance indicators.
*** The Company uses Adjusted operating income (loss) as its
principal measure of segment performance as it enhances the
Company’s ability to compare past financial performance with
current performance and analyze underlying segment performance and
trends. The consolidated WBA measure is not determined in
accordance with GAAP and should not be considered a substitute for,
or superior to, the most directly comparable GAAP measure,
consolidated operating income. See the appendix to this release for
a discussion of non-GAAP financial measures, including a
reconciliation to the most closely correlated GAAP measure.
Cautionary Note Regarding Forward-Looking Statements: This
release contains forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These include, without limitation, estimates of and
goals for future operating, financial and tax performance and
results, including the impact of opioid related claims and
litigation settlements, our fiscal year 2024 guidance, outlook and
targets and related assumptions and drivers, as well as
forward-looking statements concerning the expected execution and
effect of our business strategies, including the potential impacts
on our business of COVID-19, the impact of adverse global
macroeconomic conditions caused by factors including, among others,
inflation, high interest rates, labor shortages, supply chain
disruptions and pandemics like COVID-19 on our operations and
financial results, the financial performance of our equity method
investees, including Cencora, the influence of certain holidays and
seasonality, our cost-savings and growth initiatives, including
statements relating to our expected cost savings under our
Transformational Cost Management Program and expansion and future
operating and financial results of our U.S. Healthcare segment,
including our long-term sales targets and profitability
expectations. All statements in the future tense and all statements
accompanied by words such as “expect,” “outlook,” “forecast,”
“would,” “could,” “should,” “can,” “will,” “project,” “intend,”
“plan,” “goal,” “guidance,” “target,” “aim,” continue,”
“transform,” “accelerate,” “model,” “long-term,” “believe,” “seek,”
“estimate,” “anticipate,” “may,” “possible,” “assume,” "potential,"
and variations of such words and similar expressions are intended
to identify such forward-looking statements.
These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties and
assumptions, known or unknown, that could cause actual results to
vary materially from those indicated or anticipated.
These risks, assumptions and uncertainties include those
described in Item 1A (Risk Factors) of our Form 10-K for the fiscal
year ended August 31, 2023, as amended, and in other documents that
we file or furnish with the Securities and Exchange Commission (the
"SEC"). If one or more of these risks or uncertainties
materializes, or if underlying assumptions prove incorrect, actual
results may vary materially from those indicated or anticipated by
such forward-looking statements. All forward-looking statements we
make or that are made on our behalf are qualified by these
cautionary statements. You should not place undue reliance on
forward-looking statements, which speak only as of the date they
are made.
We do not undertake, and expressly disclaim, any duty or
obligation to update publicly any forward-looking statement after
the date of this release, whether as a result of new information,
future events, changes in assumptions or otherwise.
Please refer to the supplemental information presented below for
reconciliations of the non-GAAP financial measures used in this
release to the most comparable GAAP financial measure and related
disclosures.
Notes to Editors:
About Walgreens Boots Alliance
Walgreens Boots Alliance (Nasdaq: WBA) is an integrated
healthcare, pharmacy and retail leader serving millions of
customers and patients every day, with a 170-year heritage of
caring for communities.
A trusted, global innovator in retail pharmacy with
approximately 12,500 locations across the U.S., Europe and Latin
America, WBA plays a critical role in the healthcare ecosystem. The
Company is reimagining local healthcare and well-being for all as
part of its purpose – to create more joyful lives through better
health. Through dispensing medicines, improving access to a wide
range of health services, providing high quality health and beauty
products and offering anytime, anywhere convenience across its
digital platforms, WBA is shaping the future of healthcare.
WBA employs approximately 330,000 people and has a presence in
eight countries through its portfolio of consumer brands:
Walgreens, Boots, Duane Reade, the No7 Beauty Company, and
Benavides in Mexico. Additionally, WBA has a portfolio of
healthcare-focused investments located in several countries,
including China and the U.S.
The Company is proud of its contributions to healthy
communities, a healthy planet, an inclusive workplace and a
sustainable marketplace. WBA has been recognized for its commitment
to being an inclusive workplace. In fiscal 2023, the Company
received a score of 100 from the Human Rights Campaign’s Corporate
Equality Index, scored 100 percent on the Disability Equality Index
for disability inclusion and was named Disability:IN’s 2023
Employer of the Year. In addition, WBA has been recognized for its
commitment to operating sustainably as the company is an index
component of the Dow Jones Sustainability Indices (DJSI).
More Company information is available at
www.walgreensbootsalliance.com.
(WBA-ER)
WALGREENS BOOTS ALLIANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF EARNINGS
(UNAUDITED)
(in millions, except per share
amounts)
Three months ended November
30,
2023
2022
Sales
$
36,707
$
33,382
Cost of sales
29,937
26,429
Gross profit
6,771
6,953
Selling, general and administrative
expenses
6,851
13,158
Equity earnings in Cencora
42
53
Operating loss
(39
)
(6,151
)
Other (expense) income, net
(220
)
992
Loss before interest and income tax
benefit
(259
)
(5,159
)
Interest expense, net
99
110
Loss before income tax benefit
(358
)
(5,270
)
Income tax benefit
(74
)
(1,447
)
Post-tax earnings from other equity method
investments
6
7
Net loss
(278
)
(3,816
)
Net loss attributable to non-controlling
interests
(210
)
(94
)
Net loss attributable to Walgreens
Boots Alliance, Inc.
$
(67
)
$
(3,721
)
Net loss per common share:
Basic
$
(0.08
)
$
(4.31
)
Diluted
$
(0.08
)
$
(4.31
)
Weighted average common shares
outstanding:
Basic
863.0
863.6
Diluted
863.0
863.6
WALGREENS BOOTS ALLIANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE
SHEETS
(UNAUDITED)
(in millions)
November 30, 2023
August 31, 2023
Assets
Current assets:
Cash and cash equivalents
$
784
$
739
Accounts receivable, net
5,972
5,381
Inventories
9,454
8,257
Other current assets
1,134
1,127
Total current assets
17,345
15,503
Non-current assets:
Property, plant and equipment, net
11,176
11,587
Operating lease right-of-use assets
21,708
21,667
Goodwill
28,184
28,187
Intangible assets, net
13,278
13,635
Equity method investments
3,400
3,497
Other non-current assets
2,732
2,550
Total non-current assets
80,478
81,125
Total assets
$
97,823
$
96,628
Liabilities, redeemable non-controlling
interests and equity
Current liabilities:
Short-term debt
$
1,670
$
917
Trade accounts payable
13,593
12,635
Operating lease obligations
2,350
2,347
Accrued expenses and other liabilities
8,226
8,426
Income taxes
276
209
Total current liabilities
26,116
24,535
Non-current liabilities:
Long-term debt
7,585
8,145
Operating lease obligations
22,132
22,124
Deferred income taxes
1,279
1,318
Accrued litigation obligations
6,366
6,261
Other non-current liabilities
6,589
5,757
Total non-current liabilities
43,951
43,605
Redeemable non-controlling interests
169
167
Total equity
27,588
28,322
Total liabilities, redeemable
non-controlling interests and equity
$
97,823
$
96,628
WALGREENS BOOTS ALLIANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Three months ended November
30,
2023
2022
Cash flows from operating
activities:
Net loss
$
(278
)
$
(3,816
)
Adjustments to reconcile net loss to net
cash (used for) provided by operating activities:
Depreciation and amortization
616
495
Deferred income taxes
(196
)
(1,602
)
Stock compensation expense
51
222
Earnings from equity method
investments
(48
)
(61
)
Impairment of intangibles and long-lived
assets
165
94
Gain on sale of equity method
investments
(139
)
(969
)
Gain on sale-leaseback transactions
(160
)
(189
)
Loss on variable prepaid forward
contracts
366
—
Other
35
(34
)
Changes in certain assets and
liabilities:
Accounts receivable, net
(618
)
151
Inventories
(1,180
)
(918
)
Other current assets
(42
)
(68
)
Trade accounts payable
966
867
Accrued expenses and other liabilities
205
(269
)
Income taxes
96
153
Accrued litigation obligations
(54
)
6,494
Other non-current assets and
liabilities
(67
)
(58
)
Net cash (used for) provided by operating
activities
(281
)
493
Cash flows from investing
activities:
Additions to property, plant and
equipment
(506
)
(610
)
Proceeds from sale-leaseback
transactions
427
409
Proceeds from sale of other assets
304
2,068
Business, investment and asset
acquisitions, net of cash acquired
(109
)
(80
)
Other
(31
)
70
Net cash provided by investing
activities
85
1,858
Cash flows from financing
activities:
Net change in short-term debt with
maturities of 3 months or less
155
22
Proceeds from debt
3,826
17
Payments of debt
(3,776
)
(11
)
Proceeds from variable prepaid forward
contracts
424
—
Treasury stock purchases
(69
)
(150
)
Cash dividends paid
(415
)
(415
)
Other
41
(63
)
Net cash provided by (used for) financing
activities
186
(599
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
—
4
Changes in cash, cash equivalents and
restricted cash:
Net (decrease) increase in cash, cash
equivalents and restricted cash
(10
)
1,756
Cash, cash equivalents and restricted cash
at beginning of period
856
2,558
Cash, cash equivalents and restricted
cash at end of period
$
846
$
4,314
WALGREENS BOOTS ALLIANCE, INC. AND
SUBSIDIARIES SUPPLEMENTAL INFORMATION (UNAUDITED)
REGARDING NON-GAAP FINANCIAL MEASURES
The following information provides reconciliations of the
supplemental non-GAAP financial measures, as defined under the SEC
rules, presented in this press release to the most directly
comparable financial measures calculated and presented in
accordance with generally accepted accounting principles in the
United States (GAAP). The Company has provided the non-GAAP
financial measures in the press release, which are not calculated
or presented in accordance with GAAP, as supplemental information
and in addition to the financial measures that are calculated and
presented in accordance with GAAP.
These supplemental non-GAAP financial measures are presented
because management has evaluated the Company’s financial results
both including and excluding the adjusted items or the effects of
foreign currency translation, as applicable, and believes that the
supplemental non-GAAP financial measures presented provide
additional perspective and insights when analyzing the core
operating performance of the Company from period to period and
trends in the Company’s historical operating results. The Company
also uses non-GAAP financial measures as a basis for certain
compensation programs it sponsors. These supplemental non-GAAP
financial measures should not be considered superior to, as a
substitute for or as an alternative to, and should be considered in
conjunction with, the GAAP financial measures presented in the
press release.
The Company does not provide a reconciliation for non-GAAP
estimates to the most directly comparable GAAP financial measures
on a forward-looking basis where it is unable to provide a
meaningful or accurate calculation or estimation of reconciling
items and the information is not available without unreasonable
effort. This is due to the inherent difficulty of forecasting the
timing or amount of various items that have not yet occurred, are
out of the Company’s control and/or cannot be reasonably predicted,
such as unusual one-time charges, tax expenses, and material
litigation expenses, and that would impact diluted net earnings per
share, the most directly comparable forward-looking GAAP financial
measure. For the same reasons, the Company is unable to address the
probable significance of the unavailable information.
Forward-looking non-GAAP financial measures provided without the
most directly comparable GAAP financial measures may vary
materially from the corresponding GAAP financial measures.
Constant currency
The Company also presents certain information related to current
period operating results in “constant currency,” which is a
non-GAAP financial measure. These amounts are calculated by
translating current period results at the foreign currency exchange
rates used in the comparable period in the prior year. The Company
presents such constant currency financial information because it
has significant operations outside of the U.S. reporting in
currencies other than the U.S. dollar and such presentation
provides a framework to assess how its business performed excluding
the impact of foreign currency exchange rate fluctuations.
Comparable sales
For the Company's U.S. Retail Pharmacy and International
segments, Comparable sales are defined as sales from stores that
have been open for at least twelve consecutive months without
closure for seven or more consecutive days, including due to
looting or store damage, and without a major remodel or being
subject to a natural disaster, in the past twelve months as well as
e-commerce sales. E-commerce sales include digitally initiated
sales online or through mobile applications. Relocated stores are
not included as comparable sales for the first twelve months after
the relocation. Acquired stores are not included as comparable
sales for the first twelve months after acquisition or conversion,
when applicable, whichever is later. Comparable sales, comparable
pharmacy sales, comparable retail sales, comparable number of
prescriptions and comparable number of 30-day equivalent
prescriptions refer to total sales, pharmacy sales, retail sales,
number of prescriptions and number of 30-day equivalent
prescriptions, respectively. The method of calculating comparable
sales varies across the retail industry and our method of
calculating comparable sales may not be the same as other
retailers’ methods.
With respect to the International segment, comparable sales,
comparable pharmacy sales and comparable retail sales, are
presented on a constant currency basis, which is a non-GAAP
financial measure. Refer to the discussion above in "Constant
currency" for further details on constant currency
calculations.
Key Performance Indicators
The Company considers certain metrics, such as comparable sales
(in constant currency), comparable pharmacy sales (in constant
currency), comparable retail sales (in constant currency),
comparable number of prescriptions, and comparable 30-day
equivalent prescriptions to be key performance indicators because
the Company’s management has evaluated its results of operations
using these metrics and believes that these key performance
indicators presented provide additional perspective and insights
when analyzing the core operating performance of the Company from
period to period and trends in its historical operating results.
These key performance indicators should not be considered superior
to, as a substitute for or as an alternative to, and should be
considered in conjunction with, the GAAP financial measures
presented herein. These measures may not be comparable to
similarly-titled performance indicators used by other
companies.
NET LOSS TO ADJUSTED NET EARNINGS AND
DILUTED NET LOSS PER SHARE
TO ADJUSTED DILUTED NET EARNINGS PER
SHARE
(in millions, except per share
amounts)
Three months ended November
30,
2023
2022
Net loss attributable to Walgreens
Boots Alliance, Inc. (GAAP)
$
(67
)
$
(3,721
)
Adjustments to operating loss:
Acquisition-related amortization 1
275
330
Acquisition-related costs 2
163
39
Transformational cost management 3
109
138
Adjustments to equity earnings in Cencora
4
50
86
LIFO provision 5
48
18
Certain legal and regulatory accruals and
settlements 6
82
6,554
Total adjustments to operating loss
726
7,166
Adjustments to other (expense) income,
net:
Loss on certain non-hedging derivatives
7
366
—
Gain on sale of equity method investment
8
(139
)
(969
)
Loss on disposal of business 9
4
—
Total adjustments to other (expense)
income, net
230
(969
)
Adjustments to income tax
benefit:
Tax impact of adjustments 10
(203
)
(1,438
)
Equity method non-cash tax 10
4
8
Total adjustments to income tax
benefit
(199
)
(1,430
)
Adjustments to post-tax earnings from
other equity method investments:
Adjustments to earnings in other equity
method investments 11
9
8
Total adjustments to post-tax earnings
from other equity method investments
9
8
Adjustments to net loss attributable to
non-controlling interests:
Acquisition-related costs 2
(70
)
(14
)
Acquisition-related amortization 1
(58
)
(37
)
Total adjustments to net loss attributable
to non-controlling interests
(128
)
(51
)
Adjusted net earnings attributable to
Walgreens Boots Alliance, Inc. (Non-GAAP measure)
$
571
$
1,004
Diluted net loss per common share
(GAAP) 12
$
(0.08
)
$
(4.31
)
Adjustments to operating loss
0.84
8.29
Adjustments to other (expense) income,
net
0.27
(1.12
)
Adjustments to income tax benefit
(0.23
)
(1.65
)
Adjustments to post-tax earnings from
other equity method investments
0.01
0.01
Adjustments to net loss attributable to
non-controlling interests
(0.15
)
(0.06
)
Adjusted diluted net earnings per
common share (Non-GAAP measure) 13
$
0.66
$
1.16
Weighted average common shares
outstanding, diluted (in millions) 13
864.0
864.3
1
Acquisition-related amortization includes
amortization of acquisition-related intangible assets, inventory
valuation adjustments and stock-based compensation fair valuation
adjustments. Amortization of acquisition-related intangible assets
includes amortization of intangible assets such as customer
relationships, trade names, trademarks, developed technology and
contract intangibles. Intangible asset amortization excluded from
the related non-GAAP measure represents the entire amount recorded
within the Company’s GAAP financial statements. The revenue
generated by the associated intangible assets has not been excluded
from the related non-GAAP measures. Amortization expense, unlike
the related revenue, is not affected by operations of any
particular period unless an intangible asset becomes impaired, or
the estimated useful life of an intangible asset is revised. These
charges are primarily recorded within Selling, general and
administrative expenses within the Consolidated Condensed
Statements of Earnings. The stock-based compensation fair valuation
adjustment reflects the difference between the fair value based
remeasurement of awards under purchase accounting and the grant
date fair valuation. Post-acquisition compensation expense
recognized in excess of the original grant date fair value of
acquiree awards are excluded from the related non-GAAP measures as
these arise from acquisition-related accounting requirements or
agreements, and are not reflective of normal operating
activities.
2
Acquisition-related costs are transaction
and integration costs associated with certain merger, acquisition
and divestitures related activities recorded in Operating loss
within the Consolidated Condensed Statement of Earnings. Examples
of such costs include deal costs, severance, stock-based
compensation and employee transaction success bonuses. These
charges are primarily recorded within Selling, general and
administrative expenses within the Consolidated Condensed
Statements of Earnings. These costs are significantly impacted by
the timing and complexity of the underlying merger, acquisition and
divestitures related activities and do not reflect the Company’s
current operating performance.
3
Transformational Cost Management Program
charges are costs associated with a formal restructuring plan.
These charges are primarily recorded in Selling, general and
administrative expenses within the Consolidated Condensed
Statements of Earnings. These costs do not reflect current
operating performance and are impacted by the timing of
restructuring activity.
4
Adjustments to equity earnings in Cencora
consist of the Company’s proportionate share of non-GAAP
adjustments reported by Cencora consistent with the Company’s
non-GAAP measures.
5
The Company’s U.S. Retail Pharmacy segment
inventory is accounted for using the last-in-first-out (“LIFO”)
method. This adjustment represents the impact on cost of sales as
if the U.S. Retail Pharmacy segment inventory is accounted for
using first-in first-out (“FIFO”) method. The LIFO provision is
affected by changes in inventory quantities, product mix, and
manufacturer pricing practices, which may be impacted by market and
other external influences. Therefore, the Company cannot control
the amounts recognized or timing of these items.
6
Certain legal and regulatory accruals and
settlements relate to significant charges associated with certain
legal proceedings, including legal defense costs. The Company
excludes these charges when evaluating operating performance
because it does not incur such charges on a predictable basis and
exclusion of such charges enables more consistent evaluation of the
Company’s operating performance. These charges are recorded in
Selling, general and administrative expenses within the
Consolidated Condensed Statements of Earnings. In fiscal 2023, the
Company recorded charges related to the opioid litigation
settlement frameworks and certain other legal matters.
7
Includes fair value gains or losses on the
variable prepaid forward derivatives and certain derivative
instruments used as economic hedges of the Company’s net
investments in foreign subsidiaries. These charges are recorded
within Other (expense) income, net. The Company does not believe
this volatility related to the mark-to-market adjustments on the
underlying derivative instruments reflects the Company’s
operational performance.
8
Gains on the sale of equity method
investments are recorded in Other (expense) income, net within the
Consolidated Condensed Statements of Earnings. The Company excludes
these charges when evaluating operating performance because these
do not relate to the ordinary course of the Company’s business.
9
Includes losses related to the sale of
businesses. These charges are recorded in Other (expense) income,
net, within the Consolidated Condensed Statements of Earnings.
10
Adjustments to income tax benefit include
adjustments to the GAAP basis tax benefit commensurate with
non-GAAP adjustments and certain discrete tax items and equity
method non-cash tax. These charges are recorded in Income tax
benefit within the Consolidated Condensed Statements of
Earnings.
11
Adjustments to post-tax earnings from
other equity method investments consist of the proportionate share
of certain equity method investees’ non-cash items or unusual or
infrequent items consistent with the Company’s non-GAAP
adjustments. These charges are recorded in Post-tax earnings from
other equity method investments within the Consolidated Condensed
Statements of Earnings. Although the Company may have shareholder
rights and board representation commensurate with its ownership
interests in these equity method investees, adjustments relating to
equity method investments are not intended to imply that the
Company has direct control over their operations and resulting
revenue and expenses. Moreover, these non-GAAP financial measures
have limitations in that they do not reflect all revenue and
expenses of these equity method investees.
12
Due to the anti-dilutive effect resulting
from the reported net loss, the impact of potentially dilutive
securities on the per share amounts has been omitted from the
calculation of weighted-average common shares outstanding for
diluted net loss per common share.
13
Includes impact of potentially dilutive
securities in the calculation of weighted-average common shares,
diluted for adjusted diluted net earnings per common share
calculation purposes.
NON-GAAP RECONCILIATIONS BY SEGMENT AND
ON A CONSOLIDATED BASIS
(in millions)
Three months ended November
30, 2023
U.S. Retail Pharmacy1
International
U.S. Healthcare
Corporate and Other
Walgreens Boots Alliance,
Inc.
Sales
$
28,944
$
5,832
$
1,931
$
—
$
36,707
Gross profit (GAAP)
$
5,434
$
1,211
$
126
$
—
$
6,771
LIFO provision
48
—
—
—
48
Acquisition-related amortization
5
—
21
—
26
Transformational cost management
6
—
—
—
6
Adjusted gross profit (Non-GAAP
measure)
$
5,493
$
1,211
$
146
$
—
$
6,850
Selling, general and administrative
expenses (GAAP)
$
5,179
$
1,095
$
561
$
17
$
6,851
Acquisition-related amortization
(89
)
(15
)
(144
)
—
(249
)
Acquisition-related costs
(26
)
(4
)
(173
)
41
(163
)
Transformational cost management
(91
)
(6
)
(2
)
(4
)
(103
)
Certain legal and regulatory accruals and
settlements
(82
)
—
—
—
(82
)
Adjusted selling, general and
administrative expenses (Non-GAAP measure)
$
4,891
$
1,069
$
242
$
53
$
6,255
Operating income (loss) (GAAP)
$
297
$
116
$
(436
)
$
(17
)
$
(39
)
Acquisition-related amortization
94
15
165
—
275
Acquisition-related costs
26
4
173
(41
)
163
Transformational cost management
97
6
2
4
109
Adjustments to equity earnings in
Cencora
50
—
—
—
50
LIFO provision
48
—
—
—
48
Certain legal and regulatory accruals and
settlements
82
—
—
—
82
Adjusted operating income (loss)
(Non-GAAP measure)
$
694
$
142
$
(96
)
$
(53
)
$
687
Gross margin (GAAP)
18.8
%
20.8
%
6.5
%
18.4
%
Adjusted gross margin (Non-GAAP
measure)
19.0
%
20.8
%
7.6
%
18.7
%
Selling, general and administrative
expenses percent to sales (GAAP)
17.9
%
18.8
%
29.1
%
18.7
%
Adjusted selling, general and
administrative expenses percent to sales (Non-GAAP measure)
16.9
%
18.3
%
12.5
%
17.0
%
Operating Margin 2
0.9
%
2.0
%
(22.6
)%
(0.2
)%
Adjusted Operating Margin (Non-GAAP
measure) 2
2.1
%
2.4
%
(5.0
)%
1.6
%
1
Operating income for U.S. Retail Pharmacy
includes equity earnings in Cencora. As a result of the two-month
reporting lag, operating income for the three month period ended
November 30, 2023 includes Cencora equity earnings for the period
of July 1, 2023 through September 30, 2023.
2
Operating margins and adjusted operating
margins have been calculated excluding equity earnings in Cencora
and adjusted equity earnings in Cencora, respectively.
(in millions)
Three months ended November
30, 2022
U.S. Retail Pharmacy1
International
U.S. Healthcare
Corporate and Other
Walgreens Boots Alliance,
Inc.
Sales
$
27,204
$
5,189
$
989
$
—
$
33,382
Gross profit (GAAP)
$
5,886
$
1,050
$
17
$
—
$
6,953
LIFO provision
18
—
—
—
18
Acquisition-related amortization
5
—
26
—
31
Adjusted gross profit (Non-GAAP
measure)
$
5,910
$
1,050
$
43
$
—
$
7,003
Selling, general and administrative
expenses (GAAP)
$
11,698
$
944
$
454
$
63
$
13,158
Acquisition-related costs
(1
)
11
(47
)
(3
)
(39
)
Certain legal and regulatory accruals and
settlements
(6,554
)
—
—
—
(6,554
)
Transformational cost management
(127
)
(7
)
—
(4
)
(138
)
Acquisition-related amortization
(73
)
(14
)
(212
)
—
(298
)
Adjusted selling, general and
administrative expenses (Non-GAAP measure)
$
4,943
$
933
$
195
$
56
$
6,128
Operating (loss) income (GAAP)
$
(5,758
)
$
106
$
(436
)
$
(63
)
$
(6,151
)
Adjustments to equity earnings in
Cencora
86
—
—
—
86
Acquisition-related amortization
78
14
238
—
330
Transformational cost management
127
7
—
4
138
LIFO provision
18
—
—
—
18
Certain legal and regulatory accruals and
settlements
6,554
—
—
—
6,554
Acquisition-related costs
1
(11
)
47
3
39
Adjusted operating income (loss)
(Non-GAAP measure)
$
1,105
$
116
$
(152
)
$
(56
)
$
1,014
Gross margin (GAAP)
21.6
%
20.2
%
1.7
%
20.8
%
Adjusted gross margin (Non-GAAP
measure)
21.7
%
20.2
%
4.4
%
21.0
%
Selling, general and administrative
expenses percent to sales (GAAP)
43.0
%
18.2
%
45.9
%
39.4
%
Adjusted selling, general and
administrative expenses percent to sales (Non-GAAP measure)
18.2
%
18.0
%
19.7
%
18.4
%
Operating margin 2
(21.4
)%
2.0
%
(44.1
)%
(18.6
)%
Adjusted operating margin (Non-GAAP
measure) 2
3.6
%
2.2
%
(15.3
)%
2.6
%
1
Operating income for U.S. Retail Pharmacy
includes equity earnings in Cencora. As a result of the two-month
reporting lag, operating income for the three month period ended
November 30, 2022 includes Cencora equity earnings for the period
of July 1, 2022 through September 30, 2022.
2
Operating margins and adjusted operating
margins have been calculated excluding equity earnings in Cencora
and adjusted equity earnings in Cencora, respectively.
OPERATING LOSS TO ADJUSTED EBITDA FOR
U.S. HEALTHCARE SEGMENT
(in millions)
Three months ended November
30,
2023
2022
Operating loss (GAAP) 1
$
(436
)
$
(436
)
Acquisition-related amortization 2
165
238
Acquisition-related costs 3
173
47
Transformational cost management 4
2
—
Adjusted operating loss
(96
)
(152
)
Depreciation expense
43
15
Stock-based compensation expense 5
13
12
Adjusted EBITDA (Non-GAAP
measure)
$
(39
)
$
(124
)
1
The Company reconciles Adjusted EBITDA for
the U.S. Healthcare segment to Operating loss as the closest GAAP
measure for the segment profitability. The Company does not measure
Net earnings attributable to Walgreens Boots Alliance, Inc. for its
segments.
2
Acquisition-related amortization includes
amortization of acquisition-related intangible assets, inventory
valuation adjustments and stock-based compensation fair valuation
adjustments. Amortization of acquisition-related intangible assets
includes amortization of intangible assets such as customer
relationships, trade names, trademarks, developed technology and
contract intangibles. Intangible asset amortization excluded from
the related non-GAAP measure represents the entire amount recorded
within the Company’s GAAP financial statements. The revenue
generated by the associated intangible assets has not been excluded
from the related non-GAAP measures. Amortization expense, unlike
the related revenue, is not affected by operations of any
particular period unless an intangible asset becomes impaired, or
the estimated useful life of an intangible asset is revised. These
charges are primarily recorded within Selling, general and
administrative expenses within the Consolidated Condensed
Statements of Earnings. The stock-based compensation fair valuation
adjustment reflects the difference between the fair value based
remeasurement of awards under purchase accounting and the grant
date fair valuation. Post-acquisition compensation expense
recognized in excess of the original grant date fair value of
acquiree awards are excluded from the related non-GAAP measures as
these arise from acquisition-related accounting requirements or
agreements, and are not reflective of normal operating
activities.
3
Acquisition-related costs are transaction
and integration costs associated with certain merger, acquisition
and divestitures related activities recorded in Operating loss
within the Consolidated Condensed Statement of Earnings. Examples
of such costs include deal costs, severance, stock-based
compensation and employee transaction success bonuses. These
charges are primarily recorded within Selling, general and
administrative expenses within the Consolidated Condensed
Statements of Earnings. These costs are significantly impacted by
the timing and complexity of the underlying merger, acquisition and
divestitures related activities and do not reflect the Company’s
current operating performance.
4
Transformational Cost Management Program
charges are costs associated with a formal restructuring plan.
These charges are primarily recorded in Selling, general and
administrative expenses within the Consolidated Condensed
Statements of Earnings. These costs do not reflect current
operating performance and are impacted by the timing of
restructuring activity.
5
Includes GAAP stock-based compensation
expense excluding expenses related to acquisition-related
amortization and acquisition-related costs.
EQUITY EARNINGS IN
CENCORA
(in millions)
Three months ended November
30,
2023
2022
Equity earnings in Cencora
(GAAP)
$
42
$
53
Acquisition-related intangibles
amortization
34
39
LIFO expense
11
20
Restructuring and other expenses
6
—
Acquisition-related deal and integration
expenses
5
18
Turkey hyperinflation impact
5
5
Tax reform
2
4
Litigation and opioid-related expenses
2
3
Amortization of basis difference in
OneOncology investment
1
—
Gain on remeasurement of equity
investment
—
(1
)
Certain discrete tax expense
—
(2
)
Gain/Loss from divestitures
(7
)
—
Gain from antitrust litigation
settlements
(9
)
—
Adjusted equity earnings in Cencora
(Non-GAAP measure)
$
92
$
139
ADJUSTED EFFECTIVE TAX
RATE
(in millions)
Three months ended November
30, 2023
Three months ended November
30, 2022
(Loss) Earnings before income
tax benefit
Income tax (benefit)
provision
Effective tax rate
(Loss) Earnings before income
tax benefit
Income tax benefit
Effective tax rate
Effective tax rate (GAAP)
$
(358
)
$
(74
)
20.7
%
$
(5,270
)
$
(1,447
)
27.5
%
Impact of non-GAAP adjustments
956
232
6,197
1,273
Equity method non-cash tax
—
(4
)
—
(8
)
Adjusted tax rate true-up
—
(29
)
—
165
Subtotal
$
598
$
125
$
928
$
(17
)
Exclude adjusted equity earnings in
Cencora
(92
)
—
(139
)
—
Adjusted effective tax rate excluding
adjusted equity earnings in Cencora (Non-GAAP measure)
$
507
$
125
24.7
%
$
788
$
(17
)
(2.2
)%
FREE CASH FLOW
(in millions)
Three months ended November
30,
2023
2022
Net cash (used for) provided by
operating activities (GAAP)
$
(281
)
$
493
Less: Additions to property, plant and
equipment
(506
)
(610
)
Free cash flow (Non-GAAP measure)
1
$
(788
)
$
(117
)
1
Free cash flow is defined as net cash
provided by operating activities in a period less additions to
property, plant and equipment (capital expenditures), plus
acquisition related payments made in that period. This measure does
not represent residual cash flows available for discretionary
expenditures as the measure does not deduct the payments required
for debt service and other contractual obligations or payments for
future business acquisitions. Therefore, we believe it is important
to view free cash flow as a measure that provides supplemental
information to the Consolidated Condensed Statement of Cash
Flows.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240104975216/en/
Media Relations U.S. / Jim Cohn, +1 224 813 9057
International, +44 (0)20 7980 8585
Investor Relations Tiffany Kanaga, +1 847 315 2922
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