Rite Aid Corporation

Good day, and thank you for standing by. Welcome to the Rite Aid Corporation Fiscal Year 22 Q3 Earnings Conference 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. Please be advised that today's conference is being recorded. If you require any further assistance, press star zero. I will now like to hand the conference over to your speaker today, Trent Kruse. Please go ahead, sir.

All right. Thank you, DeShondra, and good morning, everyone. We welcome you to our fiscal 2022 third quarter 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, investors.rideaid.com. 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. And with that, let me turn the call over to Hayward. Hayward?

Thanks, Trent, and good morning, everyone. I'm pleased with our third quarter performance as we grew our revenue and increased adjusted EBITDA by nearly 13%. Now, before I turn the call over to Jim and Matt to talk through our quarterly results and updated guidance, I wanted to spend some time discussing the very bright future we see ahead for Rite Aid. As we move forward, We are unleashing the next evolution of our strategy, and we are laser focused on an evolved view of the pharmacy of the future. What that really means is a pharmacy business that's not limited to what we usually think about, a traditional in-store definition of pharmacy. Rather, our efforts, and we've been talking about this for a couple of years, are centered on an expanded view of pharmacy, and what we've been calling internally our Omni Pharmacy strategy. That is, our RxEvolution is driving our transition from a company with numerous loosely tied pharmacy parts to an Omni Pharmacy business whose value and relevance as a whole is far greater than the sum of its individual parts. To be clear, we are going after the digital, retail, PDM, specialty, and mail order pharmacy markets. that will allow us also to expand beyond our 17-state footprint to be a national provider of pharmacy in an omni-channel way, not in a brick-and-mortar way just the way we are today. Rite Aid is in a really strong position to be a pure-play omni-pharmacy company that serves consumers and enterprise customers, utilizing a full suite of pharmacy services, including thousands of retail pharmacies with hundreds of millions of trusted customer touchpoints, engaging with consumers and their whole health and well-being as no one else can. Our own specialty pharmacy, through which we currently distribute and manage pharmacy and medical benefits for specialty pharmaceuticals, which is core to our growth strategy. Our own mail-order pharmacy with a 50-state license, and leading NPS scores, which position us well for traditional PBM clients and other fulfillment opportunities. Our own pharmacy benefit management company, Elixir, that is large enough to scale and small enough to be nimble. More on that in a little while. Our modernized Laker platform, a best-in-class claims identification platform that powers PBMs across the country. Our virtual pharmacist chat capabilities that connect consumers to pharmacies online as they seek to get more than just in-person pharmacy touchpoints. And our central fill operations that offer compliance packaging solutions that help individuals receive personalized weekly packages of their medications that are neatly organized and by time of day. and exciting soon to be announced direct to consumer digital offering. We look forward to sharing more about this initiative in the near future. Our strategy also continues to focus on utilizing pharmacists to engage as everyday care connectors to ensure our customers get and stay on the traditional medication and alternative remedies that they need to stay healthy. And we can deliver these medications to our customers in ways that suit them best, through the mail, same-day courier, in-store, via your smartphone, and as I just mentioned, via modern direct-to-consumer digital offering in the near future. That's what we mean by Omni Pharmacy, and we are energized by the potential of the Omni Pharmacy market, which is significant in size. with a total addressable market of approximately $1 trillion, yes, that's with a T, and growing. And while there's much more to do to advance our Omni Pharmacy strategy, we're also focused on using the power of our pharmacists to help our health plan partners achieve superior member health outcomes, lower overall health care costs, and maximize health plan revenues. When we launched our arts evolution strategy back in March of last year, it was with a conviction that pharmacy has a critical role to play in healthcare. And we all see that today, as recently as in yesterday's Wall Street Journal, how the events of the last almost two years have highlighted, and yes, stressed, the pharmacy system, but highlighted the role that pharmacists play, one that we probably couldn't even imagine when we first started talking about this. We're really excited now, even more so than we were, about the future of the Rite Aid enterprise as we further leverage all of our strategic pharmacy assets to be a leader in omni-pharmacy in America. Now, let me provide an update on Elixir. I want to acknowledge that we have not yet made the progress on the PBM membership growth in the timeframe we previously expected. Even though we have strong network economics and robust clinical offerings, we were unable to be competitive on rebates. As announced today, we've taken steps to address our rebate economics by partnering with Prime Therapeutics, who will be able to help us significantly increase our rebate value given their membership in the Ascent GPO. This new rebate aggregation agreement will deliver significant value to Elixir and to our clients, as well as make us more price competitive in the market. Now, with our strong rebate and network economics, we can point to recent signs of success that lead us to be optimistic, but the upcoming selling season will be telling. So far, in the last couple of months, we've seen 10 new customer wins in recent, I'm sorry, 10 new customer wins, and we're getting to the final round 20% more often than last year. And we're closing 50% of the business when we get to the final round. This shows that when we have the economics to get to the finalist stage, our suite of assets provides a very compelling value proposition. In addition, we have received 80% more RFPs in the last two months than we received during the same period last year. So there will be no shortage of opportunities for us to win. On the Elixir insurance side of the business, our Part D business that we own, our results have been disappointing, primarily due to the deterioration of the medical loss ratio. We continue to look to ways to reduce our exposure to our Medicare Part B business, elixir insurance, and look forward to sharing more on our go-forward plans here in the coming months as well. As we move forward, we're focusing on optimizing the many assets we have, modernizing Laker, which is our adjudication platform, leveraging our mail order on specialty pharmacies, and continuing the strong growth of our cash card business. all of which produce economics and growth in ways beyond pure play membership increases. In addition to this growth, Elixir continues to build on its PBM operational capabilities to drive improved efficiencies, great service, and analytics for our customers. On the leadership front, we continue to bring in top talent. Last quarter, we noted that Lance Neal had joined the team as Elixir's Chief Operating Officer. For personal reasons, Lance was with us only briefly. We were able to quickly move forward, and I'm happy to announce that Chris DePaul has joined our team as our new COO, and Chris is on the phone with us today. Chris comes to us with many years of experience, particularly at CVS, where he led the $4.5 billion clinical products and services business. He also led the development and management of healthcare products and services across the CVS retail pharmacy and PBM business units. We're very excited to add Chris to the Elixir team. In addition to Chris, we've recently recruited seasoned healthcare executives across key functional areas within Elixir and brought on a new CFO who has significant healthcare experience. And we have recently assembled a very strong seasoned sales team aligned to all of our key target market segments. These new hires are critical to Elixir. However, we are maintaining our synergies across the organization from our prior integrations in HR, IT, legal, and within the finance organization. And we are continuing our focus on driving lean, and process synergies and principles across the enterprise. We have seen measurable results in several areas, including implementations and customer care, and we are now institutionalizing our loan efforts as we continue to focus on expense management. Lastly, we have a formal rollout of a more targeted go-to-market strategy for market segments where we have a right to win, particularly in the health plan, health systems, employer groups over 1,000 lives, labor, and public sector lines of business. We're encouraged by our recent momentum and believe Elixir can win its fair share of business during the 2023 selling season and in the years to come, but the proof will be in the pudding, so to speak. I remain optimistic. So overall for our business, we are relentlessly focused on three things, growing our business, reducing costs, and improving our leverage ratio, all of which we believe will drive shareholder value. To that end, and as we announced this morning, we are rigorously assessing our store base and executing a store closure plan to reduce costs, drive improved profitability, and ensure we have a healthy foundation to grow our Omni Pharmacy from, including the right stores in the right locations for the communities we serve, and for our businesses. We've identified 63 stores for closure that we expect to provide an annual EBITDA benefit of approximately $25 million. This review will continue, and we would anticipate this closure number and related EBITDA benefit to grow as we finalize these efforts over the next several months. The decision to close the store is one we take very seriously as we evaluate the impact on our associates, our customers, and our community. First and foremost, we work hard to ensure the transfer of prescriptions is automatic and seamless for our customers and that all their prescription needs are met. Importantly, associates impacted by these store closures are being offered the opportunity to transfer to another store. These tough decisions allow us to ensure our company continues to thrive and provides us the opportunity to continue to invest in and drive our Omni Pharmacy strategy. And now I'll turn it over to Jim for some comments on our retail pharmacy segment. Jim?