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?

Thank you, Hayward. I am struck by the passion and perseverance that our teams continue to show each and every day as they tirelessly serve our customers and communities. and proud of the performance of our associates, who executed with determination and, once again this quarter, took more market share. Our teams continue to prove that we can execute at the highest levels to drive growth throughout the business and swiftly deploy initiatives that revitalize Rite Aid and stake our claim to our key expanding role in the broader healthcare ecosystem. Much important work lies ahead of us. We know that. but I am energized by the progress we're making as we aggressively implement the RxEvolution strategy and work together to become a growing, differentiated, and thriving organization. In terms of our pharmacy business, our team delivered strong comps for the quarter, increasing same-store prescription counts by 2.6% year-over-year when adjusted to 30-day equivalents. As we did on the front end, our pharmacy gained market share this quarter. With share increases versus last year in each of the top 10 therapeutic classes, our share across all age groups has increased, led by an increase in share of pharmacy customers under 55 years old. We drove this growth through disciplined, yet relatively straightforward, execution. Our increase in maintenance medication fills was achieved in large part by finding creative, effective ways to connect with our customers to help them stay on course with their chronic medications. For example, engaging them through personalized medication therapy management or MTM interventions and expanding home delivery. Our strong results came despite acute prescriptions being 4.9% down from same quarter last year. as consumers continue to postpone doctor's office visits, delay elective procedures, and have a lower incidence of infections and cough, cold, and flu from people just staying at home. We are encouraged, as the 4.9% represents a continued upward trend compared to 15% below baseline we saw and reported in Q1, and encouraged that our month-to-month trend within Q2 itself reflected that same upward trend with August finishing at just 1.5% below acutes last year. And another positive rebound, ancillary immunizations, which had been down during our early COVID days last quarter, given CDC guidance, are also trending back to plan, specifically with our vaccines that protect against pneumonia. We continue to drive additional medication therapy management interventions, and notably, we advanced this quarter to second place among large chains through Outcomes MTM. As you know, increased MTM drives better economics from increased scripts and better performance on DIR-related quality measures from improved adherence and safe and effective use of medications. In addition, as federal and state regulations and policies evolve at a rapid pace during these times, We've embraced the expanded role our pharmacists have been asked to play. From COVID test administration to expanded immunization scope, our pharmacists continue to play an increasingly vital role in healthcare. HHS recently issued an order, for example, that allows our pharmacists to immunize down to age three. This came following a CDC report that found a troubling drop in routine childhood immunizations resulting from families staying at home. Our pharmacists have responded, and we continue to expand according to these guidelines so that we can help protect our customers in the communities we serve. And this year, helping people protect against the flu is among our most important responsibilities and opportunities. We expect increased demand and have ordered enough flu vaccine to immunize 40% more customers than last year. with the arrival of our first shipments of flu shots hitting our stores just last month. And we're off to a strong start, with early results trending above last year and above plan as we head into the height of flu season in Q3. We continue to expand COVID testing and achieve positive consumer feedback for our drive-through, pain-free, reliable COVID tests that have seen recent turnaround times averaging just under two days. And I, too, would like to pause here. We've been able to balance Speed of results, turnaround times, less than two days, but not sacrificed on test quality or reliability. Our tests indicate whether the virus is actually present, not simply whether you've had it at one point in the past. And as Hayward mentioned, we are expanding to over 300 Rite Aid stores and have conducted over a half million tests. We expect that the healthcare system will continue to increasingly rely on pharmacists to help combat COVID, and accordingly, we expect to play a critical role in distribution of the vaccine when available. As you can see, our pharmacists are already playing an expanded role in supporting the healthcare delivery system in a critical time. But it's important to note that our RxEvolution strategy goes well beyond simply acting on the expanded responsibilities the industry has afforded pharmacists. Within Rite Aid specifically, we are elevating the pharmacist role in a way that frees them to engage with customers around a broad spectrum of whole health solutions, helping them find the perfect balance between traditional medicines and alternative remedies. No longer are Rite Aid pharmacists simply filling pill bottles. As part of this evolution, nearly all of our 6,400 pharmacists have already been trained and certified on holistic care and are leveraging modern tools to support customer engagement around key health topics like sleep, anxiety, stress, and immunity. These efforts empower Rite Aid pharmacists to engage in informed discussions with our customers and educate them on a broader spectrum of remedies that not only support their whole health, but also position Rite Aid to continue to grow share and sales through mixed basket purchases. By supporting our customers in a holistic way, we're confident Rite Aid pharmacists will continue to emerge as the ultimate last mile connectors to the broader healthcare delivery system. On the retail side, we had another strong quarter, and like last quarter, took market share in the chain drug segment as we grew front-end same-store sales by more than 6% when excluding tobacco items. According to IRI reports, which exclude tobacco, cigarettes, and greeting cards, we grew in-store front-end market share by 130 basis points in dollars and 150 basis points in unit sales within the drugstore channel. In addition to higher demand for COVID-related items that you would imagine, like cleaning supplies, paper products, and OTC items, along with growth in liquor as at-home consumption increases, we also recorded growth in summer seasonal and everyday categories like hair care, nail, and baby care. While own brand performance increased in dollars, it did not keep pace with stronger than expected branded sales. Therefore, despite positive sales growth in own brands, Our actual own brand penetration actually decreased 112 basis points to just about 18.2% year over year. As we grow our retail business, we remain on track with our re-merchandising efforts that support our new brand strategy. Based on consumer research, we're overhauling our approach to merchandising, curating an assortment that supports the whole health needs of our growth target consumers and those they care for. This means reducing or eliminating categories like hardware, electronics, and home entertainment, while enhancing and expanding categories like holistic skin care and sleep remedies, healthy beverages and snacks, vitamins and supplements, including CBD products. Through these skew rationalization and assortment optimization efforts, we're more purposefully providing our growth consumer the assortment and mix she wants, which we expect to increase inventory turns and drive net new customer growth. As I alluded to earlier, we are connecting the front end in pharmacy like never before through our new merchandising strategy, which takes us essentially from a seller of everything to a purveyor of select curated products and services that help her and her family thrive. And in line with this connectivity, pharmacists are actively involved in our re-merchandising process and assortment reviews. So we've discussed another strong quarter on the retail pharmacy business. What's exciting is that our teams delivered these results even before we formally launched our new brand. Customers are noticing that it's a new day at Rite Aid, even before our full brand launch later this fall. We're quietly yet steadily bringing evidence of real change to consumers. We are actively refreshing the facades and pylons of our stores across the fleet, reflecting our new blue and green logo and freshly painted exteriors. And we've completed 200 stores. Just this past Sunday, we launched our newly redesigned RiteAid.com website and mobile app, not only reflecting our new brand identity, but bringing a much-needed modern online consumer shopping experience that we're proud of and our customers expect. We've cut down on our print circular and revitalized in a smaller format by designing it consistent with our new brand and showcasing our better-for-you assortments. And we continue to migrate from print to digital to engage and drive growth within our key consumer segments. This gives us momentum as we prepare to launch our full-scale brand campaign later this fall. And we're revitalizing all aspects of our consumer experience to deliver the kind of seamless, omnichannel journeys that our growth target consumers want. In addition to delivering an elevated, totally redesigned website and app this past weekend, as I mentioned, we continue to push forward with a robust digital roadmap, which will guide future enhancements on a defined cadence. And digital sales growth remains strong across all channels, our online stores, Amazon, Instacart, and digital scripts. These all remain key channels in reaching our new growth target consumers. Instacart transactions were up 267% from the prior quarter, and we launched alcohol delivery across half of our eligible stores with plans to launch in additional states in the coming weeks. Following the successful expansion of pay-and-go to all stores, which significantly expedited prescription pickup both in-store and at the drive-through, we have also launched a partnership with ScriptDrop to strengthen our portfolio for prescription delivery. Through ScriptDrop, we'll be expanding doorstep delivery on eligible prescriptions from all stores. We're rolling out ScriptDrop in phases and expect to have this convenient service available at every store by the end of the fiscal year. During the quarter and in line with our strategy, we closed all of our physical ready clinic locations while expanding telehealth and virtual care. Simply put and consistent with our strategy, we believe the best way to add value to the healthcare system is by connecting our customers to care teams, not getting into or owning care delivery itself. We will now capitalize on the strong demand for virtual care by building up our network of partnering providers. These provider partners will serve as an added resource that our pharmacists can recommend based on the unique needs of our customers, further strengthening our pharmacist role as true extensions of our customers' care teams. And finally, as Hayward alluded to, we couldn't be more excited to unveil our first-ever stores of the future. And like our brand launch, this will come into full bloom in Q3. As we reported at Analyst Day, our stores of the future will be completely remodeled with a fresh, updated, and inviting look and feel, and feature curated health and wellness products and services to meet our customers' personal, family, pet, and caregiver needs. Our pharmacists will no longer be walled off and underutilized. Instead, they will be out front and in center of the pharmacy and repositioned as trusted and accessible health advocates. Our consumers will have unprecedented on-demand access to our pharmacists, setting a new standard for the industry. These stores will also feature telehealth capabilities, modern technology infrastructure, and engaging digital signage. Our stores of the future are the ultimate physical embodiment of our new brand, with all elements of the new Rite Aid reflected in an environment specifically designed to attract net new customers and retain our core. We're confident our consumer will view these stores of the future as a destination, a place she wants to go, a place that meets her whole health needs, and ultimately, a place that helps her thrive. In the coming weeks, we will begin our rollout with grand openings in Edders, Pennsylvania and Littleton, New Hampshire, and accelerate our launch schedule early in the calendar year. Before I turn it over, I'd just like to say that we are moving swiftly and confidently to execute our plan and build a whole new Rite Aid by relaunching our brand, overhauling our stores and merchandise, building our stores of the future, and evolving the role the pharmacist plays as a community health provider and connector. And while we know it will take some time to realize our full potential, we remain fully focused on delivering quarterly results from our business and reaching our ultimate destination of becoming the pharmacy of choice in our communities. And let me remind you, our pharmacy services business, Elixir, is a core driver of our company's future growth. And with that, I'd now like to turn it over to Dan for an update on Elixir. Dan?

Thanks, Jim. Since we last spoke, Elixir continues to make good progress against our rebranding, our integration, and our modernization strategies. And at the same time, we're finalizing our go-to market strategies that will drive future growth across our strategic lines of business. A quick note on rebranding. We will fully complete our transition to Elixir in December. On the Rite Aid integration front, we've completed organizational realignments of shared service functions. Integration work within Elixir's core operational functions continues in earnest, and we are actively working on a number of vendor consolidation initiatives that will yield both operational efficiencies as well as cost savings. The next few quarters will be critical as we take the first big steps towards realizing our vision for modernization. Just as Rite Aid is transforming from a retail pharmacy to a healthcare company, Elixir is transforming as well. Today, we have a strong PBM book of business, a large population of Medicare Part D members, as well as a growing mail order and specialty pharmacy business. In addition, we have good growth in our PBM services for discount card clients. Our PBM clients, they want something more than a standard benefit administration. They want a connected experience that closes care gaps and enables better health savings and outcomes. Elixir members, they want the same convenience, seamless administration, cost savings, and even more on-demand consultation they get from their other healthcare companies. They want better health outcomes. Moreover, they want access to access all this with just a few clicks of their thumb. So we are investing in the operational and technology capabilities to deliver a more tangible, more meaningful digital healthcare experience for those we serve. and we are partnering closely with both Rite Aid and Health Dialogue to significantly enhance our clinical value proposition to members. Addressing our clients' requirements to deliver a stronger member experience, this will be a clear market differentiator for Elixir. And while we are executing on this new vision, we are putting significant focus on narrowing our target markets. We're seeing a strong market for health plans and employers both looking for solutions from an independent PBM with a national footprint. For health plans, we see this through a solid value proposition of small and midsize regional plans that predominantly serve Medicaid and our Medicare populations. With midsize employers, our strategic targets, our strategy targets specifically regional markets, where we have a right to win, as well as specific verticals, such as state and local governments. healthcare and manufacturing in which we already excel. Supporting this, we have already aligned our client management team, according to these verticals, to more effectively deliver the expertise and the knowledge required by these clients. All of these initiatives will play a big role as we move into the 2022 selling season. Now, regarding second quarter performance, We grew our membership in Medicare Part D business and benefited from strong expense control, especially as we continue to integrate Rite Aid and Elixir. Adjusted EBITDA was $29.3 million, or 1.4 percent of revenues for the second quarter, compared to last year's second quarter adjusted EBITDA of $41.5 million, or 2.6 percent of revenues. The decrease of $12.3 million was primarily due to a reduction of $21 million in gross profit related to a change in a rebate aggregator at Medtrak subsidiary. We anticipate that our new rebate aggregator contract will drive gross profit for our company and savings for our clients. The unfavorable gross profit reduction was partially offset by increased revenues, improved pharmacy network management, and strong expense control. Revenue was favorable to the prior year by $459 million, or 29.1%. This increase in revenue was principally due to an increase in Medicare Part D membership. At our Elixir Pharmacy, mail order revenues are up 21% year over year due to Medicare Part D membership growth, as well as members stockpiling maintenance medications as a result of the pandemic. Specialty revenues are up 5% year over year due to an increased utilization by our commercial as well as Medicare Part D members. In addition, we continue to realize positive returns for our focus on improving margin, including significant efforts to optimize our network strategy. Our savings card business is performing nicely, and we continue to see growth from industry relationships. That said, we are highly focused on the 2022 selling season. and capitalizing on our opportunity to win new business with the midsize employers, as well as with regional health plans. With that said, I'll now turn it over to Matt for some comments on Q2 financial performance. Matt?

Thanks, Dan, and good morning. Good morning. On the call, I'll walk through our second quarter results and our revised guidance for fiscal 2021. Revenues for the quarter were up $616 million, or 11.5%, from the prior year's second quarter to $6 billion. We generated strong revenue growth in both our pharmacy services and retail pharmacy segments. Net loss for the quarter was $13.2 million, or 25 cents per diluted share, compared to a loss of $78.7 million, or or $1.48 per diluted share in last year's second quarter. Adjusted net income increased $7.2 million to $13.5 million or $0.25 per diluted share compared to adjusted net income of $6.3 million or $0.12 per diluted share in the prior year quarter. The improvement in our adjusted net income was due to higher adjusted EBITDA and lower interest expense partially offset by an increase in lease termination and impairment charges caused by the wind down of our Ready Clinic business this quarter. Adjusted EBITDA was $151.6 million in the current quarter compared to $134.2 million in the prior year quarter. The improvement in adjusted EBITDA was driven by increased revenues and a reduction in SG&A expenses. Retail pharmacy segment revenue for the quarter was $4 billion, which was 170 million higher than last year's second quarter. Our increase in retail pharmacy segment revenue was driven by an increase in same-store sales of 3.5%. Front-end same-store sales were up 6.1% after excluding cigarette and tobacco sales. Pharmacy same-store sales increased by 2.3%, with same-store prescription count up 2.6% on a 30-day adjusted basis due to growth in maintenance prescriptions offset by a reduction in acute prescriptions of 4.9%, resulting from the postponement of doctor's office visits and elective surgical procedures in connection with COVID and a lower incident of infections and cough, cold, and flu from people staying at home. While acute prescription count was down this quarter, It was a significant improvement over the 14.8% decrease we experienced during the first quarter. We will continue to focus on driving script growth through our broad immunization initiatives and medication adherence interventions, as well as aggressively pursuing prescription file buys and by working to gain further access to new networks in markets where we have strong market presence. During the first three weeks of September, we are seeing high demand for flu immunizations. Retail pharmacy segment gross profit dollars increased $29.5 million over the prior year's second quarter. Adjusted EBITDA gross profit was favorable to last year's second quarter by $11 million, but 87 basis points worse than prior year as a percent of revenues. Our increase in adjusted EBITDA gross profit was driven by improvements in our revenue. The decline in adjusted EBITDA gross profit as a percent of revenues is concentrated in pharmacy margin and is due to reimbursement rate pressure. Retail pharmacy segment SG&A expense for the quarter was $14.7 million and 151 basis points lower as a percentage of revenues to last year's second quarter. Our adjusted EBITDA SG&A was $18.7 million and 151 basis points lower than last year's second quarter. Current year's adjusted EBITDA SG&A was impacted by a $40 million benefit driven by the modernization of our PTO plan. We incurred $9.5 million in incremental costs associated with COVID, which included pandemic pay to associates, incremental cleaning costs, and increases in pharmacy delivery charges. We also recorded $11 million of transition services income from Walgreens in the prior year quarter that did not recur, as services under that agreement have been completed. After adjusting for these three items, adjusted EBITDA SG&A expense would have been flat to the prior year, but 104 basis points favorable as a percent of sales, as we have benefited from the cost reduction initiatives that we launched earlier this year. As announced last quarter, we expect to achieve an incremental $40 million in cost savings in fiscal 2021 through reductions to payroll, advertising, rent, travel, and call center expenses, and we are tracking toward that goal. Our pharmacy services segment, Elixir, saw revenues increase $459 million, or 29%, to $2 billion. The growth was due to an increase in revenues for Medicare Part D membership growth. Adjusted EBITDA for the pharmacy services segment of $29.3 million was $12.3 million worse than last year's second quarter adjusted EBITDA. The decrease in adjusted EBITDA was primarily due to a reduction of $21 million in gross profit related to a change in rebate aggregator at our MedTrac subsidiary. The unfavorable gross profit reduction was partially offset by increased revenues, improved pharmacy network management, and the impact of the cost reduction initiatives that I just discussed. Now let's turn to our cash flows and balance sheet. Our cash flow statement for the quarter shows a use of cash from operating activities of $358 million in the current year quarter compared to a use of cash from operating activities of $279 million in the prior year quarter. The use in cash in the second quarter is driven by an expected increase in our CMS receivable, other receivable timing differences, and seasonal inventory build. We expect to securitize the CMS receivable similar to last year and expect to generate positive operating cash flow for the year driven by our inventory reduction initiatives. Our debt balance net of cash was approximately $3.4 billion at the end of our second quarter, and our leverage ratio was 6.2 times adjusted EBITDA. We expect our leverage ratio to improve over the back half of the year. During the quarter, we completed an exchange of $1.1 billion of our 6% and 8% notes due April 2023 for $850 million of 8% second lien secured notes due November of 2026 and $206 million of cash, which we funded with a draw on our revolver. As a result of this exchange and the one we completed earlier in the year, We now have only $91 million left outstanding on our 6% and 8% notes to April 2023, which significantly improves our debt maturity profile. These exchanges, combined with our strong quarter-end liquidity of $1.35 billion, gives us the flexibility and runway to execute our strategic initiatives. Now let's turn to our reissued fiscal 2021 guidance. While the pandemic continues, we have gained insights into its impact on our operations over the last quarter. Key guidance assumptions in the retail pharmacy segment are our expectations for strong demand for flu immunizations, savings from our previously announced cost reduction initiatives, and incremental benefit from our recently announced PTO plan modernization, offset by continued reimbursement rate pressure and the impact of a less severe cough, cold, and flu season than prior year on OTC revenues and flu-related prescriptions. Note that we expect the benefit from increased immunizations to be weighted toward the third quarter, while we expect the headwind from a soft cough, cold, and flu season to be weighted toward the fourth quarter. Key guidance assumptions for our pharmacy services segment include continued growth in MedD revenues through the remainder of the calendar year, improvement in pharmacy network management, and benefits from our previously announced cost reduction initiatives. We expect total revenues to be between $23.5 billion and $24 billion, and same-store sales increases to be in a range of 3% to 4%. We expect net loss to be between $140 million and $190 million, and we expect adjusted EBITDA to be between $475 million and $525 million. We expect adjusted net income per share to be between a loss of $0.67 share and income of $0.09 share. Our fiscal 2021 capital expenditures are estimated to be $275 million, and we expect to generate between $110 million and $160 million in free cash flow. And finally, we expect our year-end leverage ratio to be approximately 5.3 times. This completes our prepared remarks. Jack, we are ready to open the phone lines for questions.

Certainly. At this time, if you'd like to ask a question, please press star 1. As a reminder, please limit yourself to one question and one follow-up to allow everyone an opportunity. Bob Jones with Goldman Sachs. Your line is open.

Great. Thanks for the questions. I guess you start with the retail business. You doubled the EBITDA sequentially. You know, despite gross profit not really seeing growth quarter to quarter, I was hoping maybe you could just talk a little bit to the specific drivers here and, you know, what might be more permanent as it relates to the $40 million, Matt, that you just highlighted, you know, for this year related to the PTO initiative versus maybe anything that was maybe more one-time in nature related to this year.

Matt? Sure. Thanks, Bob. Yeah, I would say from the standpoint of permanent and one-time, the PTO initiative is a one-time benefit to this year. There'll probably be some more incremental impacts of that in the third and fourth quarter of this year, but then that's done. And certainly the other thing that's kind of a one-time benefit, which is more in the pharmacy services segment, is the rebate adjustment we talked about. You know, the COVID expenses I expect to continue, you know, through the remainder of the year in SG&A. You know, and then certainly I think on the top line, while still a lot of kind of, you know, uncertainty in the business, I think you're seeing front end start to normalize and, you know, acute scripts kind of come back to, you know, maybe a little more normal trend line, recognizing that we've got, you know, some, you know, what ifs in both immunizations and cough, cold, and flu coming later in the year.

No, that's helpful. I guess just the follow-up, and it's related, you know, if I look at the EBITDA, Guidance for the back half seems like at the midpoint, it's pointing to being down about 18% versus the growth you saw in the front half. You mentioned the reimbursement rate pressure, which one of your large competitors had also mentioned as it relates to the pharmacy side and PBM reimbursement rates. Can you maybe just walk through some of the moving pieces as it relates to what you're expecting in the back half within EBITDA versus what you saw in the front half?

Yeah, I think the moving pieces are certainly the continued reimbursement rate pressure. You know, the benefit from the PTO benefit that we got this quarter won't be as pronounced in the back part of the year. And then I think a couple moving pieces that, you know, we've put some guardrails around in the guidance but are still yet to be determined are, you know, benefit from immunizations, you know, offset by an expectation we do think it's going to be a pretty soft cough, cold, and flu season compared to last year. Okay, got it. Thanks so much.

Lisa Gill with JP Morgan, your line is open.

Thanks very much and good morning. I just really wanted to focus for a couple minutes on Alexa. So you talked about this being the biggest long-term opportunity, and I just want to understand a few things. So first, on the rebate aggregation, I know that that's a headwind as we move into the back half of the year, but can you talk about the new contract and the benefit from that would be first? And then secondly, you talk about the 2022 selling season, but I know 2021 was probably a more difficult selling season because of COVID, but can you maybe just give us a Any thoughts around how things played out for 2021? And then if you think about Part D, you talk about, you know, continuing to see an improvement in scripts going into the next couple of months. But how do we think about the open enrollment season for Part D?

Yeah. Hi, Lisa Hayward. That's a lot of, that's a lot. Okay, let me try to remember. I was scrambling to write this all down. Well, Elixir, you know, the way I'm going to, the way I would phrase the opportunity is, you know, $400 billion market. There's basically 20% of that market is up for grabs because it's not controlled by the big three and not likely to be controlled by the big three because they're just not particularly interested in or focused on those segments. And we've currently represent 1%. So, you know, we've talked about this before. You know, we can gain 1% market share and double the size of the company. So we're going after, you know, the markets where the big three aren't focused, and it is a big market to go after. The rebates are actually not a headwind, per se. It's a one-time situation, and we do anticipate that we're going to have a favorable trend experience now with financial and otherwise with our new rebate aggregator going forward, which will benefit both us and our clients. The 21 sales cycle is very slow, as you suggested, due to COVID. The good news is it's resulted in higher, you know, high retention because people really aren't moving. But it is also resulted in the delay of pretty much, you know, all major open bids. because people don't want to change. And so that's one reason we're focused on 22. But the practical reality is when you're going through as much change as this organization is going through in terms of modernizing and updating its technology platform, integrating all the assets within Elixir, Medtrak, Laker, Envision, Specialty, eFarm, and then also integrating that organization with Rite Aid in terms of backroom operations, for example, to drive efficiencies. And then we're launching our new digital, entirely new digital experience, redoing our product portfolio, our clinical solutions and our brand, and our go-to-market strategy and building out our sales team. The way the sales cycle works, we're really practically 21 states. pretty much over, you know, in terms of the 1-1 business. So we're really selling into 7-1 and 1-1-22. In terms of Part B, as we stated before, we're really going to right-size this business. We have bid for next year accordingly. We want to reduce the number of low-income subsidy members that we have. and increase the number of choosers that we have, balancing our enterprise EBITDA, which benefits from this business, particularly in the area of scripts, as you mentioned. So we do not have enough information right now to know exactly how this is going to play out next year, but I would say expect a reduction in revenue, but an improvement in the profits for the students. Does that answer your question?

Yes, that answers my question. I just want to make sure that I understood your first comment around the rebate aggregator. So you're saying that basically that $12 million is just a one-time and that it will not repeat. It's not like it was a lower aggregation and so therefore it's kind of pulling it through and you have to have a new contract. It's just one time in nature and now you have a new contract where that rebate aggregation is going to be better than what it was before.

Well, Matt, I'll let you comment on this because I want to make sure.

Yeah, Lisa, you got that right. The charge is actually $21 million, but the charge was related to the contract transition, and that's a one-time number that I would not model in anything going forward.

Okay, that's very helpful. Thank you very much.

George Hill with Deutsche Bank, your line is open.

Hey, good morning, guys, and thanks for taking the questions. And some of these might just be kind of house-clearing or clarification questions. And I guess, Matt, one of the things I'm thinking about is that if we go back to your original – the company's original guide for EBITDA for the year 500 to 540 million, it sounds like the $40 million in cost savings that were not in the prior guide were the benefits from the PTO plan that were identified in this quarter. And now – So that would bump up the prior guide, which was pre-COVID, and now our current guide is the 475 to 525. I guess what I'm trying to ask is, I guess, can you help me bridge the gap between the old guide, the increase in the synergies, and the new guide? And I guess, how much is core business challenges related to COVID, and how much is business challenges related to changes in reimbursement and other issues?

Yeah, thanks, George. So, you know, certainly you hit the, you know, a couple of the benefits to the old guide versus the new guide. I think some of the headwinds in the old guide versus the new guide are, one, you know, the COVID expenses we did have in the first quarter. You know, we talked about a $30 million negative impact in the first quarter related to COVID. And that was even net of the front-end sales benefit that we got. So we had some pretty sniffing of COVID expenses in Q1. We had the, you know, elixir, you know, one-time rebate charge that we talked about this quarter. That was not included in the original guide. And then in the back half of the year, some of the things that we have, you know, thought about as far as differences in the old guide versus a new guide are, you know, A, reimbursement rate pressure. I would say that, you know, that's something that was really in, you know, both. But then... you know, expectations both around, you know, benefit probably for a little bit better immunizations of what we originally thought, but also some expectations around, you know, cough, cold, and flu in the fourth quarter being solved.

Okay, that's helpful. And then maybe just two very quick follow-ups would be in the commercial part of the PBM business, can you talk about what you're seeing in employment trends and, I guess, enrollment there? And I'll leave it with that. Thank you. Oh, yeah, on the commercial part. I'm sorry, and Hayward, I'm sorry, my other question was, I guess, can you guys talk down to the step down in retail rates for 1-1-21? Thank you.

I'll just answer the commercial, and I'll hand it back over to Matt. The commercial membership impact from the economy, is that what you mean?

Yes, thank you.

I mean, from the, yeah. So it's really minimal. It's like 25,000 of all of our, you know, over 3 million lives. So it's had a very modest impact on us.

Yeah, and as far as your rate question, George, we certainly expect, you know, a step down of 1.1. You know, that's pretty consistent with what always happens. We've got that built into the last two months of our guidance for this year too early, you know, to talk about the impact on fiscal 22.

Okay, thank you. Glenn Santangelo with Guggenheim, your line is open.

Oh, yeah, thanks for taking my question. I'm just going to ask a little bit more about the same-store scripts you reported in the quarter of up 2.6%. If you look at your acute scripts down almost 5%, that would kind of imply that your maintenance scripts were, you know, up in the high single-digit territory. And I think what we're all trying to really assess is the sustainability of Of that sort of level, particularly as the acute scripts start to normalize even more. And I think, Matt, in your prepared remarks, you said we're starting to move to a more normal trend line. Could you maybe give us some, I don't know if you're willing to talk about it, but can you maybe comment on what you're seeing in September on this front?

Well, I'll start. Glenn, I think September is a little skewed just because we include in scripts for immunizations and we're seeing some pretty strong immunization numbers out of the gate. It's still probably too early to say where we're going to land with flu shots just because I think there's going to be a lot of demand, but there's probably a lot of people who are also getting a little bit earlier maybe than what they would have been in previous seasons. You know, we don't give specific script guidance for, you know, script numbers in our guidance. I would tell you that, you know, there's probably, you know, I would expect scripts in the third quarter to be pretty strong driven by flu immunizations. I would expect scripts in the fourth quarter, you know, to be, compared to last year, to be somewhat challenged, again, due to cough, cold, and flu. And that's really kind of what we're seeing here, I think, in the back half of the year.

Yeah, let me just add a little – can I add a little color? Yeah, sure. You know, I think – so what – there's sort of a weird set of dynamics that are going on, and this is, you know, well-known in public, and that is in the states that we operate, we have some states that are not only back in business from, like, a doctor's office dental and elective surgery procedure, but actually oversubscribed because of the pent-up demand, like Virginia. Yeah. And then you have other states like California, which are still in lockdown. I mean, they literally just opened the salons this week, hair salons. So you see differences in acute scripts for that reason. And so we believe that, you know, it's my opinion that more and more of these doctor's offices are just going to continue to open and unlikely to probably ever shut down again. because it's too important for people to get the health care that they haven't gotten. But on the flip side, because everyone's sheltering in place to some degree, they're safe, kids haven't gone back to school, people aren't getting sick with the kind of common stuff that you see that's contagious. So that's what we hadn't quite expected. When you think about it logically, it makes sense. So especially on OTC, you know, cough cold, we're not expecting this to be a big cough cold season. And that does have an impact on acute. So it's sort of like a two-edged sword situation.

So, Glenn, just consistent with what Hayward just mentioned, that's why on the acutes we're seeing, you know, we see pressure on antibiotics, antivirals. As Hayward mentioned, cold, cough, flu. ear, eye, nose, and throat meds because people just aren't going to docs and muscle relaxants because people aren't getting injured as they shelter in place relative to past periods. But our maintenance meds, which you did mention, our maintenance meds were up and consistent month to month within each of the three months of Q2. So not quite as high as very high single digits, which I think is what you had mentioned, but very steady and continue to look steady going forward.

Yeah, and as Jim mentioned earlier, we are starting to see a share shift toward us in Scripps.

I appreciate all that commentary. It's very helpful. And I think just to sort of follow up on Bob's earlier question, I think what we're all trying to do is sort of reconcile the experience this quarter with the guidance in the back half. And even considering you did over $150 million in EBITDA this quarter, and that includes that rebate aggregator charge for $21 million, which would have implied you did north of $170 million in EBITDA on an operating basis or an adjusted basis. And when we look at the EBITDA guidance in the back half, it would suggest a pretty significant sequential sort of drop-off. And I guess it's partially explained by what you're expecting in terms of maybe a weaker cold, cough, and flu season. And I know there's some comparability issues with with PTO. And so I just want to make sure I'm not missing anything else in terms of what you're applying within the back half.

Yeah, Matt, totally understand, totally get it. PTO, of course, is a big thing. Matt, I'll turn it back to you.

Yeah, I would just remind you that the benefit we got from the PTO change was $40 million in this quarter, and while that's largely one time, there'll probably be a smaller benefit in the back half of the year. But I think you've got to take that number into account when you're trying to do the math you were just doing.

Okay, super helpful. Thank you.

William Reuter with Bank of America. Your line is open.

Hi. You've been pretty consistent with regard to commentary about being, you know, somewhat active in file buys. But commentary about opportunistic M&A was something I wasn't necessarily expecting. I guess, are you expecting that this is a meaningful change? And are these potential acquisitions of size that you would need additional capital?

I would start just by saying that we're not likely to do any real large M&A activities on either the ELIXIR or the Rite Aid side due to our capital structure. But there are emerging opportunities that are bite-sized. that we are looking at and that we think we could afford. And we're not aggressively going after M&A. We're very busy right now, and we're doing well, as you can see. But we do have the goal of being number one or number two in our markets on the retail pharmacy side, and we also do have the goal of being the dominant mid-market PBM. And so we don't want to miss an opportunity that we could afford, let me put it that way. Matt, any additional comments?

No, I think you nailed it, Hayward.

Okay. And then just as a follow-up for me, when you were discussing the 2022 selling cycle and this is on the pharmacy services side, I think that the takeaway at the end was that you expect revenues will be down a little bit but profits up. Maybe I'm not understanding why your revenues would be down. It seemed like you guys continue to think you're going to be able to get more covered lives. So did I misunderstand that?

You're talking about the Elixir business?

Correct.

Yeah. No, I do think we're going to see. We are going to, in the short term, focus on the profitability of the business and ensuring that we have good customer fits. And that is likely to result in the short term in a revenue drop, both on the Medicare Part D side as well as on the commercial membership side, because we want to make sure that we have good fit with our customers and that we're maximizing the profitability of the business. And that's more on the existing portfolio. As we move into 2022, that's when I think you'll start to see growth on the what I'll call regional health plan and commercial business. We're going to continue to focus on making sure we have the right members on Part D. So do expect, you know, to see this portfolio get right size and profitability to be our key focus, customer fit.

Got it. Makes sense. All right. I'll pass to others. Thank you.

Elizabeth Anderson with Evercore. Your line is open.

Hi, good morning, guys. Thanks for answering so many of our questions. Can you talk a little bit more about the PBM integration with Rite Aid? Where do you see what remains to be done and any kind of potential cost implications there?

Well, the first, I'll let Matt answer that in a minute, but I do want to say we have two major integrations going on, which result in both cost savings and revenue upside in the longer term, revenue and profit upside. The assets within Elixir, which, as I mentioned earlier, are the Medtrak, the Laker, the Specialty Farm, the eFarm, which is our mail order, the Envision platform. All of that is being integrated and right-sized and modernized. And there's money we're going after, significant dollars that we're going after within that particular integration. At the same time, we're integrating the back office functions between Rite Aid and Elixir. And more importantly, and I'll let Matt comment on the economics, but more importantly, sizable value creation between Rite Aid and Elixir in our health dialogue asset using it to support the Elixir growth and our clients solutions in our health plan go-to-market strategy with right care using solving for care gaps between the retail pharmacies and our Elixir clients driving a improved compliance, better outcomes, lower costs. So there's a significant amount of synergy here for growth. But Matt, you can talk a little bit about the economics in terms of savings.

Sure. So, Elizabeth, we talked on the last quarter call about taking cost savings initiatives that were going to benefit us $40 million in this year and $55 million on a run rate basis. And part of that cost savings is furthering the integration work, back office integration work that Hayward talked about, both between the Elixir subsidiaries and between Elixir and Rite Aid subsidiaries. I would say there's probably still some more to do between, you know, Elixir and Rite Aid that will, you know, that could result in some future savings that I think we'll kind of put together and quantify as we, you know, when we get to the point of talking about guidance for fiscal 22.

Okay, that's helpful. And just to clarify, you guys don't have any contribution from the potential COVID vaccine distribution in your guidance at the moment. Am I understanding that correctly?

You know, absolutely not. We absolutely believe that, you know, actually Fauci came out today and said that they believe every American will have a vaccine by April. That's a pretty bold statement. That means, you know, over 300 million vaccines will be distributed. And we believe that it's actually mathematically impossible for them to do this without pharmacists administering the vaccine. But we have no commitments. You know, and we don't know if the vaccine actually is going to happen, and we have not gotten any commitments that we actually can do the vaccine. So right now, you know, we're just assuming. We're assuming in our hearts that we're going to do it, but not in our financials.

Got it. Okay, that's helpful context. Thank you.

Karu Martinson with Jeffries. Your line is open. Good morning.

Good morning. I'm just trying to reconcile the leverage today at 6-2 with the year-end guidance at 4-3 when the midpoint is going to be about 500 on the EBITDA. What needs to transpire between now and year-end to get to that level, and how do we get to that level?

Yeah, so, Cruz, Matt, first of all, I think you said 4-3 on the year-end leverage target. The year-end leverage target is 5-3, yeah. So I think two – a couple things. The big thing is securitizing the CMS receivable that's building right now this year, which we're very confident we can do. But you see a pretty significant build in accounts receivable. If you look at our balance sheet and our cash flow statement over the first half of the year and that, you know, should reverse in the second half of the year as we sell that receivable. And then the other thing is, I think what's getting masked in the numbers just because of, you know, some stockpiling of generic medications and normal front-end seasonal builds is the fact that we're making quite a bit of progress on skew rationalization or reducing inventory in our stores. And you're going to see that continue to flow through in the back part of the year as well. So, you know, those two pieces along with You know, the math around, you know, the EBITDA guidance range and what we expect to spend from a capital expenditure standpoint gets you to that number at year end.

Okay. And then just when we look at the contract change and the rebate aggregator, you know, what changes in the contract and does that $21 million hit this quarter? Is there any kind of that spills over into the third quarter? And basically, how quickly does that contract kind of build to replace that as we get better terms on it?

Matt?

So the $21 million is a one-time charge just in the second quarter. It does not spill over into the third quarter. I think there are some benefits we're going to get from the new contract that's already modeled into our guidance. As far as any specific comments on the contract, I don't think it's appropriate to get into that.

Thank you very much, guys. Appreciate it.

Brian Hunt with Wells Fargo. Your line is open.

Thank you for the questions. I was wondering, and you all touched on a lot of these factors in the current quarter, with the expansion of delivery to new formats, growth of Instacart, can you touch on what your total e-com or out-of-store sales were in the current quarter relative to the year ago, as well as maybe what the expectation of what it contributes to growth in the second half?

Tim or Matt?

Sure. Yeah, it's early days, and because of the significant growth that we've had, because we started from a very small base last year, we don't disclose those numbers. What I can tell you is that we are tracking very well from a growth perspective on all the key metrics that we track for growth. for all digital sales, including, you know, and in that I include home delivery. So, for example, home delivery prescriptions this past quarter, we were up 77%. I already mentioned Instacart and our growth there, but I think the key is to just understand that we're growing across all channels. This isn't one channel overweighting all the others. We're growing across all channels, and we expect that growth to continue.

Yeah, I might add that we just, for all to look and hopefully admire, we just launched our new branded and newly developed app in the App Store and also our website. So I encourage you to go see our new look and feel digitally if you can't go physically.

I will, Hayward. And just a follow-up to that question, when I look at that 77% growth and you all have an abundance of customer loyalty data, how much of these new 77% growth that you're saying is new customers versus existing customers transferring onto the app or an e-com platform?

Jim?

Yeah, we don't break that out. What we can tell you, though, is it's relatively consistent. We find that, you know, a little bit more weighted toward new relative to our in-store business, which is really weighted quite heavily by our gold and silver members, our more loyal base. You know, as you might understand, certainly throughout early days of COVID, you know, everyone was taking all commerce because all commerce were looking everywhere to find specific COVID-related products. As we emerge from that, we see a trending toward more loyal, but still many more as a relative basis, many more net news than we would find on the retail side in-store.

Yeah, and on the pharmacy side, actually, and Jim, correct me if I'm wrong, but we're seeing a significant uptick in people coming in for flu shots that we've never seen before. And so that presents a real opportunity for us on the front end side as well.

Yeah, we are, Hayward, and a lot of that is digitally driven. That's great. And then my second topic is when you look at, you know, moving to virtual care and telehealth and exiting all your ready clinics, Is there any way you can discuss a little bit about the revenue and the earnings model from that shift relative to Ready Clinic, which I think was a little bit easier to understand? And was Ready Clinic profitable for you all? And that's it for me. And thank you, and best of luck.

Let me just start by saying, and then I'll turn it over to Jim, that it's very – very early days for us in terms of our virtual care, but I shouldn't say very, very early days. I should say we're not quite ready to discuss that, but we should be within the next quarter or two be able to start to present a very robust and well-formed picture of how we're going to roll this out. So more to come on that. In the short term though, Jim, you want to answer the Ready Clinic question?

Sure. Yeah. I'm a healthcare guy, as I think you know, and I built actually retail clinic business in the past. you know, the reality is we have no interest in being anything other than the best pharmacists we can possibly be. We are at our core a pharmacy. And with such a new opportunity to really play a critical role in supporting the same metrics that health plans and providers care about, that is quality, cost, and access, we're a key enabler for those things. And those very things mean a lot economically to those health ecosystem partners like plans and providers. So the value we will extract is, you're right, it's less binary, you know, visit bill, visit bill, like you saw in Ready Clinic, and much more nuanced but much more valuable to capture a piece of the upside that we helped create. or piece of the downside that we help protect for those health care partners. So as Hayward said, more to come. But Ready Clinic did not stand for what we believe going forward, which is, again, not to own primary care, but to bind people to their care teams with people who, with entities that are squarely in primary through specialty care.

Matt, can you answer the economic question? Sure.

Yeah, I would say that once we saw a pretty significant downturn in traffic from the impacts of COVID, the ready clinics were not profitable.

Very good. Best of luck, and thank you for your time. Thanks, Brian.

And we have time for one final question. Carla Casella with J.P. Morgan. Your line is open.

Hi. I have a couple quick housekeeping items. Did you give the amount of the CMS receivable odds of 2Qs?

We did not, Carla, but it's a sizable part of our receivable bill.

Okay. And would it be higher in two Qs than Q1 and grow steadily until you monetize it?

Yes, it grows throughout the year, the calendar year.

Okay, great. And then I may have missed it, but do you give the store opening and closing data and how many stores you expect to open or close through the balance of the year?

We did not, Carla, but I would expect our store base to remain pretty stable.

Okay. And then you talk about the flu shots and ordering 40% more. That sounds like a big number, and you mentioned it helps the front end as well. Any order magnitude where you can give us the benefit, even if it's just the shots?

Well, I think we've got the benefit, you know, from what we think we're going to get from immunizations included in our guidance for second half, if that's what you mean, Carla. We're not breaking this specific benefit out in any of our numbers.

Okay. And then when we look at your retail business and how much of the business today is coming from pharmacy versus where was it pre-COVID and where do you see that going longer term?

Yeah, the typical split has been something in the high 60% pharmacy, low 30% front end. I would say in the first quarter that got a little skewed just because of the ramp up in front end sales that we had in the first quarter. But overall, we're hanging pretty steady in that high 60% pharmacy sales mix versus low 30% front end sales when you look at our retail revenues.

Okay, great. Thank you. The rest of mine have been answered.

Great. Thanks, Carla.

And I'll now turn it back over to Hayward for closing remarks.

Okay. Thanks, everyone, for your questions. Before we end the call, I'd just like to say, you know, obviously we're continuing our work on our multi-year turnaround, building a foundation for long-term sustainable growth. Many of you had mentioned, you know, that strategies sort of, Sounds good, but it's all in the execution. I think it's obvious. I hope it's obvious that we're doing a pretty good job of executing in the face of not only a turnaround, but also a global pandemic. And so we're excited to continue to achieve strong quarterly results and take market share. We're also making good progress in building a whole new righty By relaunching our brand, overhauling our stores, our merchandise, building our stores of the future, and evolving the role the pharmacist plays as a community healthcare provider and connector, I'm not sure that any retailer has ever gone through as much change as we're going through right now in a one-year period, especially in the middle of a pandemic. So we're pretty proud of that. We're also optimistic about the progress to date with Elixir, including a new leadership team, launch of a new brand, integration of the assets within Elixir and between Elixir and Rite Aid, and developing an entirely new suite of digital capabilities for our customers. In Q3, we are going to be heads down launching both new brands, and we're really looking forward to share our progress with you. I want to just remind everyone that the results we've seen on retail to date do not yet include the benefit of the brand rehaul or the new merchandise or the new service experiences that we're going to be talking about with you more in the next quarter and two. In the meantime, I really want to encourage all of you to take a very important step in protecting your health this year. With the emergence of COVID, I can't tell you how important it is to get a flu shot. I actually heard the CEO of Cleveland Clinic speak the other day, and he said, while very rare, when there's a convergence of COVID and flu, the outcome is very bad. So whether you're in a Rite Aid market or not, whether you visit a pharmacy or a doctor's office, I really encourage all of you to get immunized this year. to help protect not only your own health, but also the health of your families and your communities. This concludes today's call. Thank you for joining us, and we'll talk again in December when we'll report out on our brand launch and our Q3 results.

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