Q3 2019 Earnings Call
At this time I would like to welcome everyone to the Walgreens Boots Alliance, Inc. Third quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad, if you would like to withdraw.
Your question. Please press the pound key thank you Mr. Gerald Gradwell you may begin your conference.
Good morning, ladies and gentlemen, and welcome to our third quarter earnings call.
I am here today with Stefano Pessina, our executive Vice Chairman and Chief Executive Officer of Walgreens Boots Alliance.
James Kehoe, our global Chief Financial Officer.
Good I co Chief operating officer of Walgreens Boots Alliance and President of Walgreens before I hand, you over to Stefano to make some opening comments I will as usual take you through the legal safe Harbor and cautionary declarations.
Certain statements and projections of future results made in this presentation constitute forward looking statements that are based on our current market competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially.
To the extent required by the law, we undertake no obligation to update publicly any forward looking statements. After this presentation, whether as a result of new information future events changes in assumptions or otherwise. Please see our latest Form 10-K , and 10-Q for a discussion of risk factors as they relate to forward looking statements.
In today's presentation, we will use certain non-GAAP financial measures.
Refer you to the appendix in the presentation materials available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information.
You'll find the link to the webcast on our Investor Relations website at Investor Adult Walgreens Boots Alliance Dot com. After the call. This presentation and webcast will be archived on the website for 12 months.
I will now hand, you over to Stefano.
Thank you Jan and Ann.
Everyone.
After what was a very disappointing second quarter for us.
It is pleasing to be able to report that this quarter has been broadly in line with our expectation that said the pressure. So we have seen for some times continue to impact our business.
And we still have a lot to do to get either the transformation that will allow us.
To get ahead of the market trying to gain and return our company to strong and consistent growth.
We were clear that.
The action, we were undertaking to address the market changes take time.
And the impact that will not.
Fully be reflected in our financial performance.
Still a future financial year.
But we have been working hard to accelerate our clients and program.
Hey, you have got basically said that we have within our company the scale and the assets that we need.
But the challenges that we face that as our markets evolve and control them.
Last quarter, we told you that we would focus on accelerating the work we are doing to confirm our company we are doing that.
The transformational cost management program that we began early this year is one of the underlying foundations of the changes that we need to make.
Most importantly, this program will help drive a structural change in the company.
Making gas and more efficient and more agile and more responsive organization.
It is expected to provide a significant portion of the funding required.
If all of our major technology upgrade.
And development investments.
And of course, an element of it.
Well ahead, but to give assay bridge in our financial performance.
S fracture how business is set to better meet the needs of an ever more rapidly changing market.
James and Alex will address some of these points as they talk you through the quarter.
Which I will ask them to do now James Thank you Stefano and good morning, everyone.
Third quarter adjusted EPS was $1.47.
Our constant currency decline of two 4% versus prior year.
The results were slightly ahead of our expectations and included some timing benefits from the fourth quarter.
Overall, we are tracking well against our strategic goals.
We are quite encouraged by U S comp sales, which were exactly what we needed to deliver to stay on track to meet our full year expectations.
And while it is still early days, our transformational cost management program is very much on track.
Celebrating.
Based on our performance in the quarter, we are reaffirming our full year adjusted EPS guidance.
We continue to expect the year to be roughly flat on a constant currency basis.
Let's now look in more detail at the numbers.
In the third quarter sales increased <unk>, 7%.
On a constant currency basis sales were up two 9%.
Mainly due to growth in retail pharmacy USA.
And the strong performance from our pharmaceutical wholesale division.
Adjusted operating income declined 11, 7% or.
Our 10, 4% on a constant currency basis. This was mainly due to lower pharmacy margins and a decline in front of store sales in the U S.
Lower results in boots UK.
Adjusted EPS declined 4%.
The $1 47.
A decrease of two 4% on a constant currency basis. This includes a five eight percentage point contribution from our share repurchase program.
GAAP operating income declined 24, 7%.
Including $86 million of expenses relating to the implementation of our transformational cost management program.
A $115 million relating to our share of Amerisourcebergen impairment of <unk> medium.
In total these adjustments account for more than 50% of the year on year decline.
GAAP EPS declined 16, 5%.
$1 13 per share.
Year to date sales increased four 9% <unk>.
Including a currency headwind of one 9%.
On a constant currency basis.
Year to date sales were up six 8%, reflecting seven 7% growth in retail pharmacy, USA and 8% growth in pharmaceutical wholesale.
Adjusted operating income declined eight 9%.
Our seven 8% on a constant currency basis.
This was more than offset by a four eight percentage point contribution from share repurchases.
Three 2% from tax.
Contributing to an increase in adjusted EPS, which was up one 6% on a constant currency basis.
Now.
Let's look at the performance of our divisions.
Harting with retail pharmacy USA.
Sales increased two 3% in the quarter, mainly due to pharmacy brand inflation and pharmacy script growth.
Organic sales increased two 9%.
Adjusted gross profit declined three 9% and gross margin declined 140 basis points, mostly due to pharmacy.
Adjusted SG&A spend decreased <unk>, 7% and adjusted SG&A was 17, 3% of sales and.
An improvement of 0.5 percentage points compared to the year ago quarter.
Adjusted operating income declined 13, 8% in the quarter procurements.
Procurement savings pharmacy script growth and continued SG&A savings.
Were not enough to offset reimbursement pressure and the lower front of store sales.
These results also included store and labor investments of $40 million in the quarter.
Evelyn to approximately 270 basis points of adjusted operating income.
Now, let's look in more detail at pharmacy.
Total pharmacy sales increased four 3%.
Reflecting higher brand inflation prescription volume growth and a strong growth in central specialty, which grew eight 6% year on year.
Comp pharmacy sales increased 6%.
Comp prescriptions grew four 7% in the quarter a.
A strong improvement on the first half growth of one 9%.
Market share was 21, 2% in the quarter down 50 basis points versus prior year.
You entirely to our store optimization program.
Pharmacy gross profit declined versus prior year, our script growth was more than offset by lower gross margin.
Gross margin was around 150 basis points lower than last year.
Due to continued reimbursement pressure.
Adverse mix associated with brand inflation, and a 50 basis point impact due to the faster growing specialty business.
These impacts were partially offset by procurement savings.
The key to offsetting long term reimbursement pressure is building scale driving efficiency and creating a sizable health care services business.
Turning next to our U S retail business.
Total retail sales decreased two 9% and were negatively impacted by our store optimization program.
Comp retail sales declined one 1% an improvement on the first half comp decline of three 5%.
Tobacco accounted for 150 basis points of the comp sales decline.
But we did benefit from a 65 basis point tailwind as a result of the cough cold flu season.
Retail gross profit declined mostly due to lower sales, which as I mentioned earlier were negatively impacted by our store optimization program.
Gross margin was down slightly by 20 basis points in.
An improving trend versus the second quarter.
As we rebalanced our promotional mix.
We expect to see a continued improvement in gross margin trends in the fourth quarter, turning next to retail pharmacy International.
As usual I'll talk to constant currency numbers.
Total sales declined one 6%.
Mainly due to a 1% decline in boots UK in a challenging market.
Boots, UK comp pharmacy sales increased <unk>, 8%, reflecting prescription growth in the quarter.
Whereas comp retail sales declined two 6% as we continued to gain share in a weak market.
Our beauty reinvention is now in place in 2006 stores.
And we remain on track to introduce 25, new brands in 2019.
Adjusted operating income was down 10, 5%.
Due to weak retail sales and lower pharmacy margins in the U K.
Our UK pharmacy business was impacted by temporary industry wide NHS underfunding.
And higher generic pricing.
These impacts were only partially offset by prescription volume growth.
We are taking actions to address our UK cost base.
I will cover these a little later, turning now to the pharmaceutical wholesale division, which I'll also discuss in constant currency.
The division delivered another strong quarter with.
With sales up eight 3%.
Led by emerging markets.
Our UK performance was aided in part by a customer contract change mentioned last quarter.
Which contributed two 3% revenue growth.
Adjusted operating income increased nine 4%.
Reflecting strong gains in Turkey, and solid results from our European business.
Turning next to cash flow.
Operating cash flow was $3 2 billion for the first nine months of the year.
Free cash flow was $2 billion.
Operating cash flow was impacted by headwinds of around $1 $4 billion.
We are lapping a one time prior year working capital benefit.
$502 million.
Cash tax payments of $395 million higher.
Mainly as a result of U S tax reform.
This year includes legal settlements of $276 million.
And we have $200 million of cash costs relating to the ongoing rite aid store optimization and integration and the transformational cost management program.
Underlying working capital increased approximately $500 million.
Primarily due to higher sales.
Cash capital investment was $1 $2 billion for the first nine months.
$264 million higher than the prior year.
This was due mostly to the impact of the Rite aid store conversions.
Turning now to our transformational cost management program.
We remain on target to deliver $1 $5 billion in annual cost savings by fiscal 2022.
Our smart spending benchmarking is complete.
Targets on execution plans are set up.
And we're accelerating a wide ranging program to reduce pharmacy cost to fill.
The 20% head count reduction that our boots UK headquarters.
The reorganization of our U S field supervision structure are now complete.
On digitalization.
Microsoft Cloud migration is moving at pace.
And we have now started working on optimizing our many vendors.
Work has also begun on building out compelling consumer value propositions.
Given the difficult market conditions in the U K.
We have completed the review of our store portfolio.
And have started our store optimization program that will impact around 200 locations over the course of the next 18 months.
Many of these 200 stores are loss, making.
On approximately two thirds of them are within walking distance of another boots store.
While the stores, we plan to close represent around 8% of our store base.
We expect the revenue impact will be around 1%.
We do not expect a significant impact on colleagues as we plan to redeploy to nearby stores.
We are also reviewing our real estate footprint in the U S and accelerating the pace of change, especially in our U S supply chain.
More to follow in the coming months as we work through these key opportunities.
Turning to guidance.
As I mentioned earlier, the third quarter was slightly ahead of our expectations aided by some timing benefits.
As a result, we.
We are reaffirming our full year guidance and we expect adjusted EPS to be roughly flat on a constant currency basis.
As a reminder.
Last quarter, we told you to expect a range of plus or minus 2%.
Given the normal level of volatility in the business of this size. We feel this range is still appropriate.
Let me just give you a couple of assumptions.
As you update your models you should now be building in six cents of negative currency impacts and this is <unk> <unk> worse than our prior guidance.
We continue to project full year share repurchases of $3 8 billion.
<unk> four eight percentage points to adjusted EPS growth.
And.
We now project, our full year adjusted effective tax rate of around 15, 5%.
Compared to our earlier guidance of 16% to 17%.
The lower rate reflects nonrecurring discrete benefits.
And changes to our geographic mix.
When we provided our original fiscal 19 guidance, we highlighted incremental store and labor investments of around $150 million.
As we accelerate the pace of our digital investments, we now expect total incremental spend of approximately $175 million.
With a significant portion of the additional spend coming in the fourth quarter.
Let me finish by highlighting the change in revenue trends coming from Rite aid.
We saw positive revenue contributions from the Rite aid acquisition in the first two quarters of the year.
From this quarter on <unk>.
<unk> is actually a headwind to reported revenue due to the ongoing store optimization program.
I'll now hand, you over to Alex and he will update you on some of the business initiatives, we have underway in the U S.
Thank you James and Hello, everyone. During the quarter, we continued to make progress on our four strategic priorities.
<unk> digitalization, transforming and restructuring our retail offering creating a neighborhood health care destination around a more and more than pharmacy unrolling, our transformational cost management program.
We're also continuing to develop our omnichannel offering our Walgreens App has now been downloaded 57 3 million times up 10, 5% since last year.
Our own 26% of Walgreens retail refill scripts were initiated through digital channels in the quarter.
Up 18, 4% since last year.
We have also increased our active balance reward members to $90 2 million in retail our leading beauty, Brian number seven performed exceptionally well in the quarter and Walgreens sales of number seven were up by over 50% helped by the launch and advertising or the number seven laboratory lane correcting booster seat them.
And our other retail partners saw significant growth.
In addition to beauty, we are working on refreshing our own brand portfolio in Walgreens to drive sales and improve the customer value proposition.
During the past two years over 60% of the Walgreens own brand product portfolio has been re launched all rebranded enhancing the customer offer through better value and quality to deliver improvements in sales and margin.
This work is ongoing right. It is very much on track against our store optimization program. We've completed 631 of the planned 750 store closures.
Continue to see good customer retention.
After the meeting Walgreens own ready stores 394 have been successfully converted to Walgreens and we expect to complete the ready integration by the end of fiscal year 2020.
We've taken further steps to develop a neighborhood health destinations working with our partners, including Labcorp and Humana and as we announced during the quarter village M D.
With village, Andy we will be opening five state of the art primary care clinics in the Houston area by the end of the year.
Brian utilities medical at Walgreens.
We also remain on track to open 125 lakh outlets in Walgreens stores this year.
And finally on Kroger the teams are working well together and so far the initial customer response has been positive.
I'll now hand, you back to Stefano Thank you Alex.
So have you had.
Third we have already delivered what we expected.
But we have a lot of work.
To get the business growing again.
We have been working hard to initiate our accelerated the changes there.
We need to keep us in line lease or leading the market.
We are investing heavily in updating our systems and infrastructure.
Creating efficiencies and capabilities.
<unk> will give us call preferred development for many years to come.
We're developing new ways to engage with our customers.
Introducing new services and products.
Cool new channels.
We are working with partner will bring us Keith.
<unk>.
<unk> and.
<unk>.
Complement our own Frac.
Federate, our development give us access to new teen Kingdom market and allow us to create significant net new income stream.
At the same time, we are continuing our focus on transforming our traditional areas of business.
Got to have the challenges of our core markets.
Economic at reimbursement pressure.
I have long been as domain.
Fact of life for us.
Over the years.
We have developed values at different levers to mitigate the impact of these pressure.
<unk> made.
A major element of these mitigation has been improvement in generic procurement.
Made possible by changes in the global generics manufacturing sector.
Ongoing patent Expiries.
And significant development in the actual procurement process.
All of which have led to continuous improvement in buying terms.
These volume benefits have enabled us to compensate for the significant demands made off the <unk>.
As we have made clear the level to which we can mitigate current and future reimbursement pressure toward generic procurement is reduced.
Although it will continue to be an important lever for many years to come.
Recognizing this we are.
We are accelerating other levers to mitigate the pressure.
We have more to do to cost saving and efficiency and we expect consistent savings well into the future.
There is no doubt that over time, we also have to be in the range of services and service level.
Drive benefits from our payer roadmap.
We believe that the future of pharmacy is aligned to a wider range of our healthcare service provider.
Provided efficiently and conveniently in a community setting.
This is why we are exploring partnerships with a wide range of innovative X 13 values field.
In gas it to offer a better service more effectively.
And at a lower cost to our fans.
Then we would be able to do if we had said that these services up on our own.
Made a significant premium for them.
Of course, many of these services are still being tested or still in development.
Let's be clear waiver.
While a number of partnerships we are piloting as the potential to have a meaningful impact on our business.
No single one of these.
Will define our future.
In total.
It will be a combination of products and services working together in.
In the convenience of a community pharmacy that will form the basis of our future customer proposition.
The mixture of products and services will inevitably bring together a range of complex and differentiated business models.
Their economics will be at least impact.
Based on changes to individuals.
Condition management and overall wellbeing over many years.
The consequences are getting these services right as a huge potential benefit for us for our partner and for our customers.
But if we rush into them without truly understanding the operational or financial model.
And there is a wasting an extraordinary amount of time resources and more.
We might be sure what we are doing before we enter into these businesses and scale.
Today, many people are looking at our company indeed at our sector focus on the immediate the reef vapor <unk> to face and I understand this.
We are far from complacent about the pressures that we face.
However.
We can see Dana and strength of our business.
There is an ever increasing demand for effective efficient and convenient support for people to manage their health conditions.
While leaving our productivity and fulfilling lives in download kind of communities.
The unique positioning of community pharmacy, and our place in the sector gives us practical and financial scale reach and strength.
It gave us.
<unk> platform on which to evolve and transform our company to meet the ever changing needs of the markets we serve.
And it gives us a fantastic foundation from which to deliver innovation.
And value.
Customers and our shareholders for many years to come.
Thank you now we will take your questions.
Thank you at this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad. Your first question comes from the line of Steven Valiquette from Barclays. Please go ahead.
Great. Thanks, Good morning, Stefano and James Thanks for taking the question so as the U S retail pharmacy business remains difficult really for all types of stores and operators across the entire industry.
We're getting a sense that there could be an additional opportunity among the larger mass merchandisers in the U S for a store within a store deal, where a walgreens or Cvs could.
Takeover the pharmacies within a specific large U S mass merchandiser. So I'm just curious to hear about your current appetite for an opportunity like this right now in the U S. Given the simultaneous.
Our store rationalization program that you're going through right now and also your other initiatives in the U S.
<unk>.
Hi, Steve It's Alex here.
One of our strategies clearly that it has to grow volume and to make our business bigger to get scale.
We also partnership is really important to us as we've said many many times.
So as the market changes and these changes are really you can see the five to 10 the number of pharmacies in the U S is in decline as measured.
The first time for a long time, we are obviously open to partnership in this area, we bring scale we bring expertise.
And we're investing in staff that we said that is.
And James had in pharmacy in the pharma supply chain.
So we will open.
Of course, we will do.
Every opportunity available providing it makes fiscal sense for us or our partners.
And improves the quality of our business.
Okay and just one other quick one as we think about the narrow network.
Opportunities for calendar 'twenty, just curious if you see the potential for meaningful market share shifts for 2020, among the large retail pharmacies like yourselves given the level of Rfps RFP activity or do you think it's going to be acquired or year for calendar 'twenty just in terms of narrow network opportunities and potential market share shifts.
Within the marketplace.
I think this is all again, we think there's probably more normal again, we've laid out.
Our plans are in the low <unk>.
<unk> of the item growth that we expect.
We think it's a more normal year and of course within that there's always opportunities and there's always challenges, but we think it's probably a more normal year in 2020.
Okay got it okay. Thanks.
Your next question comes from the line of Robert Jones from Goldman Sachs. Please go ahead.
Great. Thanks for the questions. James you mentioned that the results included some timing benefits from the fourth quarter. I was just curious if you could share the source of those benefits and anything around the size of those benefits would be helpful.
Hey.
Yeah, roughly the two impacts in the quarter one was timing.
And I would say that's around <unk> $35 million is our best estimate.
On the other one is where were we also highlighted in the comments, we're ramping up the amount of spending in store.
Labor and now digital and development expense.
So we've increased the spending on the full year by 152 from $1 50 to 175. It was about a sense of that in the fourth quarter, So think about roughly around $50 million.
Around 40 cents was it and when you get to the two timing items one was.
<unk> of the tree was essentially the timing of payroll contracts. When we do the compliance and throughput are you is outcomes or whatever you hit volumes in certain tiers and that's the normal course of business, but we expected that in Q4, and then incentives coming from expense timing, we accelerated some real estate savings from.
Q4 into Q3 so.
It was actually one of the quieter quarters in terms of volatility.
A few surprises.
Well, it's interesting here, maybe I'll take the opportunity as you start looking at I'm.
Looking out into Q4.
Because this takes some income out of Q4 or.
Q4 target is actually quite.
When you start working through it and you start working out your estimates bear in mind, we had two large one time items last year and on an EPS basis. We're cycling through these the first one as you will recall there was a large true curtailment benefit with relating to retiree medical that was $110 million.
And then in the prior quarter of last year, we made an adjustment for legal costs, which was one time and that was approximately 60.
So thats another five so if you think about it we have a 10 percentage point headwind on EPS in Q4. So we actually if you when you dissect Q4, we're looking forward to pretty good improving margin trends on the gross margin and the <unk>.
Headwind is all on the overheads and it's all due to <unk>.
One time items in the prior year, So I think as you.
As you shift through this the the volatility in Q3 was actually quite low when you get into Q4.
Great. Thanks, Thanks for all that.
Your next question comes from the line of Justin Lake from Wolfe Research. Please go ahead.
Hi, This is eugene dialing in for Justin.
Quick question on you.
U S pharmacy gross margin declined 150 basis points year over year, if we read it correctly.
And it seems like Q3 was a clean quarter to compare year over year because.
Specialty contract lapped.
How do we should think about how should we think about this going forward is this the right.
Our rate of decline in the near term that we can.
That we should consider.
Yeah, I'll take a shot.
Lastly, I'd like to.
<unk> rewards.
I think that I think.
We've cycled through the FEP contract.
Specialty business growing eight 6%, we would expect that all was the gorilla.
Clustered in the core business. So we will always be somewhat dilutive to margins.
101 thing there is there is other dynamics in the quarter. So in the quarter, we sold more random.
The margin on brand that is lower than it is generic and that creates a mix impact as well.
As significant as others on the other impact and the problem is we cant project with accuracy the individual mix in any single quarter, but if.
If you take out a lot of these mix items, the core reimbursement net of Av.
Of procurement and other mitigation was actually a pretty solid quarter.
<unk> D CS.
So it's very clear that we know how their opportunities with new tools capabilities and data, especially on the speed of the dates that we didn't have before so as that goes through we will we'll give more updates in terms of what that means in terms of projections, but we were encouraged by the progress there, but we're only halfway through it I think secondly, we've just hired as you saw quite.
We are very experienced global supply chain.
We don't call a Nielsen and again you know, we're working hard with the team to really understand how to be even more focused on the new capabilities. We're building in the business.
Going forward I think in terms of generics as Stefano said in his prepared remarks.
We continue to be very very pleased with the performance of our we bought office.
And again when you see the opportunity going forward to continue to drive value through that we bought office into a global platform, but also into into America.
So I think that's how we see the supply chain piece and what was the third part of the question you had on the generic deflation did you end up finishing yeah.
I mean, we don't see any difference to what it's been it caused in the marketplace to be honest, we see a we.
We see this I always say I know low single digit deflation.
As I've spoken about we see generics coming off patent in a way that it's been described by others.
We pay a lot of attention to this because it has a material impact on our own.
Our ability to just sort of cost of goods and we feel comfortable that all of that is captured.
And the guidance that we gave last quarter.
And Ricky just to add in the.
The low single digits like refers to includes new molecules, if you strip out new molecules. The most recent quarter.
I think these are our numbers not market numbers.
Saw deflation of around 9% right. So it's it's still up at a healthy clip and that will support.
Continued savings in generic procurement and.
You know this is the you know the.
Prior quarter was a nine 4% so it's still up there in a healthy hum.
Then you have the market those are new molecules.
And though we Linda a very important lesson here in the USA that if you retain.
A familiar face to the pharmacist in the health care assistance in a local pharmacy them very often the customers will transfer the script to the people who they know and trust. So this is economically important to us as well.
8% of the stores, it's 3% I believe of the square footage.
He impact is much lower than the percentage of stores and then the revenue impact is much lower because there are less efficient stores. So it's actually quite logical and then there's a fair amount of turnover in general and an employee base of 56000 people in the U K. So there's a fair amount of turnover and I think.
We've seen in the past.
You managed to place the majority of people.
Thank you.
Your next question comes from the line of Ross <unk> from Evercore. Please go ahead.
Hi, This is Elizabeth Anderson in for Ross.
I was wondering if you could expand on some of their comments.
Is it about generic generic procurement.
In particular should have areas of future savings that you see.
Okay.
Hi, it's Alex here, Yeah, I think I'll say, what I said already and stuff instead of but it clearly you know we we still have a very efficient effective and innovative modulate of Oh.
We bought <unk>.
We continue to to work.
And as I mentioned, which we think is slightly different we we prefer to halve our contracts.
With manufacturers to give them certainty of supply so that we get certainty of supply back in the marketplace that is really important for our customers and allows us to plan together in a different way and that's how we work.
Having said that we all know that the level of opportunities is definitely set us is changing and going forward. There's no. It's not a it's not with what can they make savings savings we will make savings it's just changing.
So are you know we we've set up some some innovative partnerships are already in it was a partnership we set up with express scripts example was one we were combining you know why they need the volume from a P. B M with the volume from a retail pharmacy.
We continue to look at other ways of making sure that we've got the right time.
Scale on mix of partners going into we bought like going forward.
Secondly, the manufacturers are thinking differently as well and again, we can't talk on their behalf, but you probably have some of the things that would be thing and we think that our approach to buying.
In partnership with them in the way that we organize how we work with them, we'll continue to give us advice into future going forward.
Of course any future other markets May open up we don't know that in reality and we're not we're not.
Banking and not particularly in how we how we see that in the plan going forward, but clearly you know things will change in one direction and Cuba change again, and having a global perspective.
On global volumes, we think will give us.
Global global opportunities in the future as well.
Alright.
Your next question comes from the line of Glenn.
Angela from Guggenheim. Please go ahead.
Yes, thanks for taking my question.
Relative to the <unk>.
Sequential gross margin improvement.
I think it's.
It's.
A little bit of everything you said actually because you have to go back on the journey in Q2 was reimbursement pressure, which we said I think was exceeded 30% of the full year reimbursement pressures. So we would've said an unprecedented level, yes, we saw it go back to more normalized level.
In Q3.
But we saw some slowness on the procurement savings in Q3.