Rite Aid Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Rite Aid Corporation second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. We ask that you keep yourself to one question and one follow-up to allow everyone an opportunity. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. Thank you. I would now like to hand the conference over to your speaker for today. Trent Kruse, Senior Vice President of Investor Relations and Treasury. Please go ahead.

All right. Thank you, Jack. And good morning, everyone. We welcome you to our fiscal 2021 second quarter earnings conference call. On a personal note, I'm really excited to be a part of the Rite Aid team and I'm eager to help the team deliver on our vision and, of course, to work with all of you listening today. On the call with me this morning are Hayward Donegan, Jim Peters, Dan Robson, and Matt Schroeder. As we mentioned in our release, we are providing slides related to the material we will be discussing today. These slides are provided on our website at Rite Aid.com under the investor relations information tab. While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the company's results and to be used as a reference document following the call. Before we start, I'd like to remind you that today's conference call includes certain forward-looking statements. These forward-looking statements are presented in the context of certain risks and uncertainties that can cause actual results to differ. These risks and uncertainties are described in our press release in item 1A of our most recent annual report on Form 10-K and in other documents that we file or furnish to the SEC. Also, we will be using certain non-GAAP measures in our release and in the accompanying slides. The definition of the non-GAAP measures, along with the reconciliation to the related GAAP measure, are described in our press release and slides. With that, let me turn the call over to Hayward. Hayward?

Thanks, Trent. We are really excited to have you on board in this newly created role as we continue aligning key personnel with our company's RX evolution strategy. And as a member of our senior team, Trent will play an essential role for our company, not only by leading our investor relations and treasury efforts, but also overseeing the enhancements of our environmental, social, and governance policies, which are more important than ever in this environment. I wanted to thank Byron Purcell for all the great work he's done in covering both IR and treasury during a really busy time for our company. And as a crucial member of our go-forward team, Byron will continue serving as treasurer and will be working closely with Trent to help drive our business forward. Now, let's turn our attention to our results for Q2 and the progress we're making to bring our new RX evolution strategy to life. As a company, we're taking significant steps in our journey to revolutionize our industry and elevate our role as an indispensable healthcare provider. Whether in retail pharmacy, mail order, or specialty pharmacy, we're focused on fulfilling our critical role on the front lines of health care, providing life-saving medications, clinical services, and immunity support during a time when our communities and customers need immunity and clinical care the most. We're aggressively accelerating the key initiatives that will drive our transformation through the Rx evolution strategy, which focuses on becoming a dominant mid-market PBM, unlocking the value of our pharmacists, and revitalizing our retail and digital experiences. And finally, we're focused on continuing to drive the operational excellence needed to achieve strong results and position our company for future long-term sustainable growth. I'm pleased to report that thanks to the passion and spirit of our more than 50,000 associates, we more than met this challenge in the second quarter and continue to build important momentum for the back half of fiscal 2021 and beyond. In our real pharmacy business, our teams worked tirelessly to provide service, support, and a safe shopping environment to our customers during this unprecedented global pandemic. In partnership with the U.S. Department of Health and Human Services, by the end of this week, we will offer COVID testing at more than 300 Rite Aid stores and have conducted more than 550,000 tests. At these locations, and this is important for you all to know, we provide not only convenient drive-thru access but highly reliable, painless, these are the painless ones, tests at no charge to the customer, free. And most importantly, with recent turnaround times for results averaging just under two days. COVID testing represents one of the many ways in which we're looking to expand our role as essential healthcare providers in the communities we serve. Our retail pharmacists and associates have always been deeply committed to our communities, and they're doing a great job protecting our customers during a global pandemic. Thanks to them, we gained retail market share and increased both same-store prescription count and front-end sales. We also grew revenue, controlled expenses, and generated savings by modernizing our pay-time-off program. Although COVID-19 continues to affect our business, the impact was less severe than in Q1. This is really the new normal. In addition to higher demand for COVID-related items like cleaning supplies, paper products, and OTC items, along with growth in liquor, of course, and at-home consumption, as at-home consumption increases, we also recorded growth in things like summer seasonal and everyday categories like hair care, nail, and baby care. With doctors' offices reopening and more elective surgeries being performed, our acute prescription trends improved compared to Q1, although they're still down significantly compared to the second quarter, last year's second quarter. And we continue to incur additional expenses to ensure that all of our stores are safe and clean for all associates and customers. In the pharmacy services segment, our ELIXIR teams work diligently to continue serving our clients and meeting their unique needs during the COVID crisis. We drove substantial revenue growth, which was fueled by an increase in Medicare Part D membership. We continue to optimize our pharmacy network management. by utilizing a market-competitive approach that provides a margin benefit. As we continued our integration both within Elixir and between Elixir and Rite Aid, we're also seeing strong results in expense management. While adjusted EBITDA was negatively impacted by a reduction in gross profit related to a change in the rebate aggregator at our MedTrak subsidiary, We anticipate that our new rebate aggregator contract will drive improved gross profit for our company and savings for our clients. As a total organization, our strong performance helped yield revenue growth of more than 11% as we increased adjusted net income by 13 cents per share and grew adjusted EBITDA by 17.4 million compared to the prior year's second quarter. Overall, the fundamentals of our business are strong, and our team is laying the foundation for sustainable growth through our bold new RxEvolution strategy. We're committed to becoming a dominant mid-market PBM, unlocking the value of our pharmacists, and revitalizing our retail and digital experiences. Thanks to our team's relentless focus on execution, we haven't missed a beat in bringing our strategy to life. Every day, There will be more and more visible signs of a whole new righty. This is a very exciting quarter for the company coming up. New products supporting total health and wellness will be arriving in our stores daily. We are in the process of updating the facades of all of our stores, rebranded with our new logo to be completed by the middle of next year. We have already finished 200 stores. Our first commercial featuring our new branding hit the airwaves earlier this month to support our flu shot and immunity campaign, which will be critical in helping protect the health of our communities this year. Our new ad campaign also highlights our point of differentiation to deliver the perfect fusion of traditional medicine and alternative remedies. We're preparing to open our first doors of the future in the coming weeks, And we cannot wait to unveil this new experience for our customers. And we'll be hitting on all cylinders later this fall as we launch our full-scale media campaign. As we execute our launch, we're dialed into meeting the needs of our new growth target consumer, millennial and Gen X women between the ages of 25 and 49 who care for multigenerational households, including children, parents, and pets. We continue to double down on markets in which we have a strong presence, with our goal to be the number one or number two retail pharmacy in the markets we serve. We will do this by gaining share through excellent service, increased network participation, continued file buys, partnerships with regional health plans, and opportunistic M&A. All of this with an eye toward elevating the role of our pharmacists as the last mile care connectors who provide levels of consumer engagement never before seen in healthcare. At Elixir, we have our new leadership team in place and are taking significant steps to repackage and modernize our key assets and deliver additional value in the healthcare marketplace. The launch of our new Elixir brand remains on track. And we're building out our curated solutions, products, clinical services, and our new enhanced digital experience. And we're continuing to integrate Elixir and Rite Aid to realize operational synergies, and more importantly, to take full advantage of how these businesses really complement each other and will really help each other grow. While our transformation will take time, we remain bullish on Elixir. and believe it represents our biggest long-term growth opportunity. As an organization, we'll continue our focus on freeing up working capital, reducing our debt, and improving our leverage ratio. As we look ahead, I couldn't be more proud of our 50,000 associates and how they're working together each and every day to deliver operational excellence and help our customers to not just get healthy, but get thriving. While we know we have important hard work ahead of us, we're excited to be pushing forward to achieve our vision for the future. So with that, I'd like to turn it over to Jim for some additional updates on our Q2 performance and the strategic progress we're making. Jim?