Analyst Conference Summary

biotechnology

conference date: October 14, 2021
for quarter ending: August 31, 2021 (fiscal fourth quarter, Q4 2021)

Forward-looking statements

Overview: Revenue and profits well up from year-earlier. Exceeded expectations.

Basic data (GAAP):

Revenue was $34.3 billion, up 13% from $30.4 billion year-earlier.

Net income was $627 million, up 68% from $373 million year-earlier.

Earnings per share (EPS), diluted, were $0.72, up 67% from $0.43 year-earlier. But $0.31 was from discontinued operations.

Guidance:

Long term expects 11% to 13% non-GAAP EPS growth [Slide 90]. However, EPS growth will be flat in fiscal 2022, followed by mid-single digit growth in 2023 and 2024. Overall EPS growth over next 3 years 4% per year. The lower initial growth rate will be due to a higher level of investment. Does not plan for significant share repurchases in the short term.

Conference Highlights:

Walgreens aim is to build the pharmacy of the future by being a low-cost provider with a multi-channel experience. Acceleration of growth will allow it to expand its care model, in turn lowering costs. Will expand Walgreens at health system sites, and clinics at Walgreens. Believes many customers want the hyper-local service. Believes intergrated retail health and well-being channel is a $1 trillion business.

Adjusted (non-GAAP) EPS was $1.17, up 29.5% y/y.

Walgreens provided 13.5 millon Covid vaccinations in fiscal Q4.

The Transformational Cost Management Program helped with $2 billion in annual cost savings in fiscal 2021. Hopes for an addition billion per year by 2024 (for $3.3 billion per year total).

CEO Roz Brewer said, "Our fourth quarter and fiscal year results exceeded expectations, driven by strong performance in our core business. Comparable U.S. pharmacy and retail sales both saw robust growth and recovery continued in our UK business as COVID-19 restrictions eased in the quarter. I remain extremely proud of our team members' unwavering commitment to meeting the needs of our patients, customers and communities. The role of the pharmacist and local pharmacy is now more vital than ever."

The International segment had Q4 sales of $5.5 billion, up 61.8% from the year-ago quarter; includes a favorable currency impact of 9.2 percent. Boots is one of the UK's leading COVID-19 test providers with more than 3.7 million COVID-19 tests administered to date. Beauty products were expanded so market share hit a record.

Walgreens recognized pharmacy team members for their critical role with new bonuses and rewards and increased starting wages for U.S. hourly team to $15.00 an hour. Curbside and drive-through pickup contributing to strong digital growth in the fourth quarter. MyWalgreens membership increased to 85 million members, up sequentially from 75 million members. Also launched the Scarlet bank account and debit card nationwide.

WBA announced a majority investment in Shields, an industry leader in integrated, health system-owned specialty pharmacy care. WBA and VillageMD continued rollout of Village Medical at Walgreens, with 52 primary care practice locations now open, with more than 80 planned by the end of calendar year 2021. The investment increases WBA's ownership in VillageMD to 63% from 30%. In California, Blue Shield of California and Walgreens announced a new strategic collaboration to expand access to healthcare.

Cash and equivalents ended at $1.19 billion; inventories $8.16 billion. Equity investments $6.99 billion. Accounts receivable $5.66 billion;. Accounts payable $11.1 billion. Long-term debt $7.68 billion. Cash flow from operations was $5.56 billion. Free cash flow $4.2 billion. Cash dividends paid cost $1.62 billion.

Cost of sales (GAAP) was $26.8 billion, leaving gross profit of $7.5 billion. G&A expense wsa $6.65 billion. Equity earnings in AmerisourceBergen was 56 million. Leaving operating income of $910 million. Other income $85 million. Interest expense $88 million. Income Tax $586 million. Other post-tax earnings $23 million. Net loss attributable to noncontrolling interests $14 million.

For the full fiscal year 2021 revenue wsa $132.5 billion, net income was $2.54 billion, and GAAP EPS was $2.93 (diluted).

Q&A [very selective, went on for over an hour]:

Why didn't you buy the companies outright, instead of taking a majority investment? It is about a healthcare ecosystem. It allows acceleration. The stakes give us relationships that are important. It gives us a direction for investment. We are being very strategic. We used to have many minority positions, we did change strategy to taking majority stakes. We can go to 100%, but we want to keep the teams involved.

Hopes to build out the best primary care physician network in the US.

Plans for current store base?

Physical stores have proven very relevant during the pandemic. Adding clinics and health corners will help growth. Stores will continue to play a critical role going forward [but note no statement about numbers].

Our share of vaccines was 21%.

We have assumed continued margin pressures from reimbursement over time in our guidance. But in the new system we can discuss reimbursements with the insurers instead of the PBMs.

We do not project a full economic recover to pre-pandemic levels in the UK until 2023.

Inflation? In some cases we are passing cost increases on. But we are benefitting from our cost management program. We have been increasing wages and engaging employees.

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