Rite Aid Corporation

Hello, and thank you for standing by, and welcome to Rite Aid Corporation Full Year 2021 Q4 Earnings Conference Call. At this time, 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 this session, you will need to press star 1 on your telephone pad. If you require any further assistance, please press star zero. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Trent Kruse, Senior Vice President of Investor Relations and Treasury. Please go ahead.

All right. Thank you, Michelle. And good morning, everyone. Welcome you to our fiscal 2021 fourth quarter and full year earnings conference call. On the call with me this morning are Hayward Donegan, Jim Peters, 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, www.rideaid.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 or 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. And with that, let me turn the call over to Hayward. Hayward?

Thanks, Trent. And good morning, everyone. I probably don't need to say this, but this past year was truly a year like no other. And as we begin our fiscal year, we had only just heard rumblings about COVID-19. And we certainly didn't expect that one year later we'd be playing a crucial role in testing and vaccinating Americans in an effort to end this unprecedented global healthcare pandemic that's upended to all of our lives as we know it. As our teams were battling on the front lines throughout the year, COVID-19 enabled us to live our purpose of not only keeping our communities healthy, but to get them thriving. So serving our customers has never been more challenging, but as we've demonstrated, we are really up for the task. And the entire Rite Aid team is honored to play an integral role in helping bring an end to this pandemic. Before I discuss the quarterly results and some of our key accomplishments over the past year, I just want to pause and recognize all of our associates across the company. I am so proud of the way our team has stepped up to help each other, our customers, and our communities. Together, we met the many challenges this past year presented. We served our communities and neighborhoods with unmatched determination, hustle, and spirit. We supported our team members in new and inspiring ways. We pushed our strategy forward despite the incredible external challenges we face. And we will continue to focus on delivering value for all of our stakeholders. It was also a year in which our RX evolution strategy was not only validated but proven essential. I'm really eager to share more on how our strategy came to life throughout the years. But first, a few headlines on the fourth quarter results, which were clearly challenging due to COVID and on weather. As we previewed a few weeks back, a confluence of external factors impacted our performance. We experienced a nearly 37% decline in cough, cold, and flu-related categories and the resulting impact on margin, as these are high-margin categories. This decline was greater than we anticipated and was of course, you know, driven by everyone continuing to mask up and also certainly from kids not being back socializing at school. We also experienced a greater than 14% decline in acute prescriptions resulting from the continued impacts of COVID-19 on the deferral of elective procedures and doctors visits, et cetera. But despite these external factors, we continued growing share in the front end during the quarter, drove a nearly 170% increase in digital sales, and delivered an almost 4% increase in revenue at Elixir. We've seen share and revenue growth throughout the year, and that gives us confidence in our overall plan that's on track. In one of the most extraordinary times in history, the numbers certainly do not tell the whole story. Just over a year ago at our analyst day, we told you we would be a demonstrably different company within the next year. And we have delivered on that promise, making substantial changes to position us for profitable growth. We've redefined the role of the pharmacist, our customers' expectations of them, and even their daily workflows. We introduced lean tools and processes to free up our pharmacists' time to further enable their ability to proactively engage with customers and be whole health advocates. All Rite Aid pharmacists receive specialized training this year to qualify them as integrative pharmacy specialists. We introduced the new Rite Aid brand to showcase the company's focus on delivering whole health, the perfect fusion of traditional medicines and alternative remedies. We've implemented extensive changes to our merchandising, replacing thousands of products and adjusting our presentation standards to highlight the better-for-you characteristics that our growth target customer craves. We refreshed the exterior of over 1,200 Rite Aid stores and launched an all-new website and new mobile app. We opened our first three flagship store remodels, and we continue to be pleased with both the sales and margin performance in these stores. We completed the strategic acquisition of Bartels in Seattle, which we identified as a key market variety. We rebranded our pharmacy services segment, Elixir, to signal the move to crafted Rx solutions for our target customer, and we launched our exciting new member portal. We refinanced and extended the maturity to the significant portion of our debt while also executing on a number of sale leaseback opportunities to generate cash and further our debt reduction efforts. We continue to build an outstanding team and shifted our entire corporate team and call center associates to remote without missing a beat. We delivered new solutions and innovated to meet customer needs for COVID testing, and vaccine administration in the communities we serve. And importantly, we supported our associates as they were in stores, same hours, didn't close doors ever since the beginning of the pandemic. We supported them and their families by providing numerous programs such as hero bonuses for our frontline associates, pandemic pay, administrative leave for associates who didn't feel comfortable coming to work due to health concerns, and expanded resources to assist associates with the stress created by the pandemic. And we provided much-needed assistance to thousands of associates through our Rite Aid Associate Relief Fund. We doubled down our focus to support diversity, equity, and inclusion. We hired a diversity leader and are developing a long-term plan. We're proud of the leading diversity of our board, And we're making good progress in increasing diversity across our team. It's also critically important to us to ensure equity in vaccine administration. So we're using the CDC vulnerability index to prioritize underserved communities for COVID-19 testing and vaccines. We've partnered with government and nonprofit leaders from local mayors all the way up to the White House to support our efforts to keep communities healthy and thriving through events such as COVID-19 vaccine clinics. To date, we've hosted nearly 700 clinics across our footprint, which, as noted before, is in both urban and remote areas with high socially vulnerable indexes. And finally, we've progressed our ESG initiative and performance through fleet fuel reduction, decreased energy usage, and our continued management of toxic chemicals. Now, let me provide an update on Elixir. As you know, we've been working to integrate the Rite Aid and Elixir businesses, systems, and processes, as well as our management. And through this work, we identified an opportunity to further streamline the management structure at Elixir. As such, I want to let you know that Dan Robson has left the company and I will now oversee both Rite Aid and Elixir on a day-to-day basis. Just as background, so you know, I have extensive experience with the health plan business and I've been working with PBMs my whole career. My expertise will serve our Elixir business well during this important time in our turnaround. Now more than ever, we're bullish on Elixir. It's clear that the market wants a sophisticated, scalable, and nimble alternative. Following our executive briefings with key benefit consultants last year, we're experiencing an increase in opportunity within our target segment. In fact, we're seeing strong membership growth in our sales pipeline, and have recently been awarded over 200,000 new lives with an annualized script count of over 6 million, with still most decisions pending in this current sales cycle. The coming months will be very busy with both proposals, contract negotiations, and implementation. So the market is speaking very clearly to us, and we must concentrate all our efforts towards capitalizing on this great opportunity. To this end, a number of existing team members and capable leaders in key areas like marketing, communications, clinical, and customer care are stepping up to help us win new business at Elixir. We're also adding seasoned PBM leaders in sales and account management. All of these leaders know what our clients want and have been instrumental in our recent wins. We're going to give the Elixir team every tool they need to win more business. We continue to improve on our operational and technology capabilities. Our pricing and our clinical products are very competitive, and we will continue to employ every component of the Rite Aid enterprise to keep pushing forward with market innovation. In fact, we're focused on putting forward Rite Aid-anchored limited networks in relevant territories and customer-oriented health solutions with significant clinical and analytic capabilities powered now by Rite Aid and Health Dialog. This is a really exciting time at Elixir with many opportunities in front of us, and so I'll be working very closely with the Rite Aid, Elixir, and the Health Dialog team to ensure we're focused on our objectives. So before passing it over to Jim, I just want to make a few closing comments. While we've made much progress in the last year, much work remains. As we look to fiscal year 2022, there remains significant uncertainty and limited visibility to the pace and magnitude of COVID recovery, such as seen in the recent spikes we're currently dealing with in Michigan. This could lead to a range of potential financial outcomes in our retail business. Despite the short-term challenges, our teams are clear on what needs to be done. Win today and in the future by creating real healthcare value, improving the consumer engagement, and transforming our work to improve financial performance. With these initiatives well underway, we're accelerating our actions toward a more nimble, efficient, and effective Rite Aid. We have and will continue to effectively manage through this crisis. while positioning our business for current and long-term success. We will continue to partner with the government and community leaders to ensure no communities are left behind in the fight against COVID-19. And we'll likewise continue to provide fast, effective, and free COVID testing in all of our drive-thru locations. And as more doses become available, we stand ready to ramp up our vaccine efforts to help bring an end to the pandemic. Now, none of this will be or has been easy, but I have faith in the leaders we've put in place, as well as the frontline associates who have truly earned their stripes as hometown heroes throughout the pandemic. And we'll continue to work together to deliver the operational excellence needed to achieve our objectives of generating free cash flow, reducing our debt, and improving our leverage ratio. Important work lies ahead of us, but I'm inspired by the significant progress we've made as a team and optimistic that we'll achieve our goals through the Rx evolution. So now I'll turn it over to Jim for some additional comments on our overall progress in the retail pharmacy segment. Jim?