Walgreens Boots Alliance Reports Fiscal 2024 First Quarter Results

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.

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.

(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.

(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

(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)