Rite Aid Corporation

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rite Aid Corporation Fiscal Year 2023 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the meeting over to Brian Purcell. Please go ahead.

Thank you, Regina, and good morning, everyone. We welcome you to our fiscal 2023 first quarter earnings conference call. Edward Donegan, President and Chief Executive Officer, and Matt Schroeder, Executive Vice President and Chief Financial Officer, will begin the call with prepared remarks. Andre Persaud. Executive Vice President and Chief Retail Officer, and Chris Dupal, Chief Operating Officer at Elixir, will also join the call during the question and answer session. 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.rightaid.com. While management will not be speaking directly to these slides, these slides are meant to facilitate your review of the company's results and to be used as future reference documents 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'll 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 measures, are described in our press release and slides. And with that, let me turn the call over to Hayworth.

Thanks, Byron, and good morning, everyone. Thanks for joining us, and welcome to our first quarter earnings call. Coming out of fiscal 22, we continued to make strides, transforming Rite Aid. Our first quarter saw us build on the momentum and deliver solid results across the business. I'll take a few minutes to update you on our quarterly results, and then I want to spend some time talking to you about some of the key actions we're taking within our three strategic pillars and the measurable progress we're making. Revenues for the quarter were $6 billion compared to last year's first quarter revenues of $6.16 billion. Our adjusted EBITDA this quarter was $100 million, compared to last year's first quarter adjusted EBITDA of 138.9 million. This decrease was in line with our expectations. Our ability to weather the height of the pandemic, delivering life-enhancing and life-saving medications and vaccines and testing was really remarkable. And I'm proud of our team for getting back now to the core business and showing strong results. Now we're refocusing on becoming a leading full service and modern pharmacy with a team of 6,400 expert pharmacists and another 43,000 associates caring for our communities and customers we serve to drive better health outcomes. This is what we stand for as a company. And allow me to explain a little bit more. So defining the modern pharmacy, On our last earnings call, you heard me speak about what the modern pharmacy means to our marketplace. To recap, despite the size and maturity of parts of the traditional pharmacy marketplace, like much of healthcare, there are still systemic unmet needs. We have not lost sight of the fact that 60 million Americans are living in rural communities and do not have access to high-quality healthcare. One in seven Americans live more than five miles away from the nearest pharmacy. 29% of Americans fail to take their medications as prescribed because of the cost. And most notably, underutilization of medications drives $500 billion plus a year in avoidable medical costs. And even those who can afford their prescriptions and or have access to pharmacies They are overworked and stressed. A trip to the pharmacy is viewed as yet another errand on top of their three to four stops a day. But remember, these are prescriptions. They're life-saving and life-enhancing medications, so it's really important people get their prescriptions on a timely basis. All of this is why we have placed a relentless focus on expanding the possibilities of the pharmacy teams to meet customers and communities wherever they are. Rite Aid has advanced well beyond the single option of coming into a store. We have a significant infrastructure in place across channels to offer customers convenience and multiple ways to interact with a member of our pharmacy team 24 by 7, including chat. We're enhancing our digital capabilities advancing buy online, pick up in store, and expanding both our mail and delivery services options. These services encompass both prescriptions and retail goods to create a one-stop shopping experience. This is the modern pharmacy. So how do we continue to grow to improve both the health of our company and the health of our customers? This brings me to the growth pillars that I outlined on our Q4 call. We're focused on winning in three key areas, deepening our share in the markets and segments we currently serve, expanding our offerings to new markets, segments, and customers, and creating new offerings by leveraging our portfolio of assets to meet the evolving needs of customers and other stakeholders. Let me begin with deepening our market share and the segments we serve. Starting with our retail pharmacy business, Q1 saw a complete rebound in acute and maintenance scripts better than pre-pandemic levels. For maintenance scripts, Q1 was up 1.4% versus FY22 and up 12.3% versus FY20. For acute scripts, Q1 was up 11.9% versus FY22 and up 1.1% versus FY20. As people are going back to the doctor and also going back to living their lives, we are seeing an increased need for acute prescriptions, most notably cough and cold. We have been full steam ahead activating a number of adherence initiatives that will not only help our customers live a healthier life, but also deliver meaningful improvements in gross profit this fiscal year. Examples of these initiatives are increasing customer enrollment and courtesy refill and improving our 90-day fill rate, both driving adherence. To give you a sense of how this will impact our business on a go-forward basis, an improvement in adherence of just 1% provides $20 million in gross profit dollars. You'll also recall that last year we launched Rite Aid Rewards, a new customer loyalty program that makes it easier for more customers to engage and save. In the coming quarters, we'll speak to how we plan to further maximize this program and drive higher consumer engagement in both pharmacy and front end sales. We continue to enhance our new beauty assortment in the front end and had encouraging results on our new line item launches in our color cosmetic business. This resulted in a 5.7% revenue growth in the color cosmetics department this quarter. People are wearing lipstick again. And relative to inflation, our top goal is to stay competitive on prices while preserving gross margin. And looking forward to the rest of the year, we expect to do the same. We're also keeping a very close eye, like everybody, on inventory. Like others, we project some seasonal issues relative to the weather and delays in shipments. But overall, we plan to continue to show reductions in our inventory levels. Turning to our specialty pharmacy business, we have continued to increase access to a number of LDD networks And we're also actively working to grow dispensing volumes, both in the Elixir book of business, as well as expanding network participation across a broader set of payers. We're also focused on driving down our overall cost to fill in both our mail order and specialty businesses with an eye toward developing white label solutions to drive mail order volumes. Now, to turn to the PBM services business, Our strong network contracts, new rebate capabilities, innovative clinical services, and expertise in government programs have enabled us to add 80,000 new lives for January 1, 2023 start date. These are more new lives than we sold last year. And additionally, the selling season is still in progress, and we've got close to 1 million lives remaining in the pipeline, for January 1, 2023. On the Elixir Insurance side of the business, our Part D plan, we have recently submitted our bid for 2023. And as we've discussed before, we expect to reduce our membership as we've signaled that we need to manage the profitability of this business and continue to focus on growing our own customers in the government business. Our next growth pillar is expanding our offerings to new markets, new segments, and customers. As consumer discretionary spending comes under significant pressure, we're investing in our own brands, which provide value and options for the customer. As we've discussed, we've been on a journey to repackage, rename, and relaunch our own brand portfolio. This quarter, we launched 546, or 23%, of our newly designed products, and we have exciting new launches coming in the back half of this year. We're also on track to open our new small format pharmacies this year in underserved rural markets in Indiana, upstate New York, and Virginia. And speaking of rural markets, we recently announced our partnership with Homeward. a company that's aimed at re-architecting healthcare for the 60 million Americans I mentioned earlier living in these communities. Beginning this summer, with a partnership in rural Michigan, we'll be working with Homeward to provide an integrated pharmacy and clinical services offering to our mutual customers. And finally, we're creating new offerings by leveraging our portfolio of assets to meet the evolving needs of customers and other stakeholders. We've been focused on leveraging technology to enhance the customer experience and the overall health and wellness of our communities. Our recently announced partnership with Afterpay further enables us to do that. We were the first national drugstore chain to offer Afterpay's flexible payment solution to shop online and pay later. We were able to help our customers access and have flexibility when paying for everyday goods. Also, we're launching a new direct-to-consumer digital platform later this summer, and we'll discuss this in our next earnings call. These are just examples of how we're diversifying our business for long-term success. Turning to our financial position, as you'll hear momentarily from Matt, we continue to remain on solid footing and optimize our capital structure. We reduced retail SG&A expenses by $40 million this quarter, closed 87 stores ahead of schedule, and are taking steps to drive further efficiency through our business. We're on track to meet our annual savings target of $170 million that we outlined last quarter. As a reminder, we have no debt due until 2025, and we are constantly looking for opportunities that will help us achieve our target of a 4.5 times leverage ratio by the end of fiscal 2025. Our $1.7 billion in liquidity provides additional runway to invest in our business and continue to innovate our offerings. And we expect to generate free cash flow to pay down additional debt this year to further strengthen our financial position. So to close, I'm really energized by where Rite Aid is today, and I'm really excited for the future as we get back on track, back to our arcs evolution that we planned before the pandemic hit. And as we continue to execute on our strategy, I do believe that Rite Aid will be an investment that will yield meaningful long-term returns for all of our stakeholders. Now I'll turn it over to Matt to go over the financial performance.

Matt? Thanks, Hayward, and good morning, everyone. We've mentioned on previous calls that paying down debt is a top priority for the company. Recently, we took an additional step to improve our capital structure. We launched a tender offer to use up to $150 million of revolver availability to purchase back outstanding bonds at a discount. Through this transaction, we expect to pay down over $100 million of our 2025 bonds, plus lower our overall debt outstanding. This will also bring an additional benefit of interest savings as we are replacing these bond borrowings with revolver borrowings. that have a lower rate. Now I'll review our first quarter results in more detail. As Hayward stated, our results were in line with our expectations, with revenues of $6 billion, adjusted net loss per share of $0.60 a share, and adjusted EBITDA of $100.1 million. Going into the retail pharmacy segment, retail pharmacy segment revenue for the quarter was $4.35 billion. which was $6.3 million lower than last year's first quarter. This was driven by the expected decrease in COVID-related vaccine revenue and store closures, offset by an increase in non-COVID prescriptions. Retail pharmacy same-store sales increased 4.6%, with an increase in same-store pharmacy sales of 6.6%. We administered 1.7 million COVID vaccines in the first quarter of 2023, compared to 4.7 million in last year's first quarter. Outside of the vaccine impact, maintenance scripts were up 1.4%, and acute scripts were up 11.9%. Front-end same-store sales, excluding cigarette and tobacco products, were flat to last year. Front-end same-store sales were driven by increases in over-the-counter products, offset by decreases in alcohol and seasonal sales due to supply chain disruptions. First quarter retail pharmacy adjusted EBITDA was $73.7 million, or 1.7% of revenues, compared to last year's first quarter adjusted EBITDA of $94.9 million, or 2.2% of revenues. The decrease in adjusted EBITDA is attributed to lower COVID vaccinations and testing, offset by increased non-COVID prescription volumes, improved front-end margins, and reduced SG&A. As Hayward said, our retail pharmacy segment adjusted EBITDA SG&A expenses were $40.5 million or 90 basis points better as a percent of revenue than the prior year first quarter due to lower payroll, occupancy, and store operating expenses driven by store closures and our cost reduction initiatives. We expect to meet the cost reduction targets of $170 million that we discussed in our year-end earnings call. I'll now shift to our pharmacy services segment, Elixir. For our first quarter, Elixir saw revenues decrease $146 million, or 7.8%, to $1.7 billion, due primarily to a planned decrease in Elixir insurance membership and a previously announced client loss, slightly offset by our new rebate partnership, as well as higher utilization of high-cost drugs. Elixir's first quarter adjusted EBITDA was $26.4 million, or 1.5% of revenues, compared to last year's first quarter adjusted EBITDA of $44 million, or 2.4% of revenues. This was due to a loss of covered lives, an increase in costs related to client guarantees, and an increase in the medical loss ratio at Elixir Insurance, offset by benefits from our new rebate arrangement. It is important to note that this quarter's adjusted EBITDA on Elixir is not the anticipated quarterly run rate for the year, as we expect benefits from improved spread and rebate management and tight SG&A control. I'll now turn to our cash flows and balance sheet. Our cash flow statement for the quarter shows the use of cash from operating activities of $252 million, driven by the build of the CMS receivable, which we will securitize later in the year, increases in rebates receivable, and timing of accounts payable payments. All of these are timing items that will reverse later this year. Cash used in investing activities was $55 million for the quarter, including the net investing activities for proceeds from script file sales attributed to our store closings of over $30 million in the quarter. We continue to explore additional sale leaseback options on owned stores, to generate cash to pay down debt and expect to have proceeds from these transactions later in the year. Our net debt balance was approximately $3 billion at the end of the quarter due to the working capital timing differences I just described. We expect our leverage ratio to be in the low five times range by the end of the fiscal year. Now let's turn to guidance. We are raising our revenue guidance and affirming the adjusted EBITDA guidance that we outlined on our fourth quarter call. Adjusted EBITDA is expected to be between $460 million and $500 million. Adjusted EBITDA at the retail pharmacy segment is expected to be between $320 and $350 million, while adjusted EBITDA at Elixir is expected to be between $140 and $150 million. Total revenues are expected to be between $23.6 billion and $24 billion. We've increased our revenue guidance due to increases in utilization of higher cost drugs at Elixir. We've lowered our retail revenue guidance slightly to adjust for front-end sales trends that we saw in the first quarter and their expected impact on the rest of the year. Adjusted net loss per share is expected to be between $0.66 and $1.19 per share. Capital expenditures are expected to be $250 million. We are making investments that are driven toward growing our business, including prescription file purchases and investments in digital, and investments that are focused on driving efficiencies in our business by automating our supply chain and transforming our processes and technologies at Elixir. We are also making investments to improve our brand by refreshing stores in key markets. Interest expense is now projected to be $210 million for the year. This assumption includes Fed rate increases of approximately 300 basis points over the fiscal year, all set partially by the potential interest savings from our current bond tender. We expect to generate a working capital benefit of $60 million from inventory reductions and to generate positive free cash flow to continue to pay down debt. This completes our prepared remarks, and Regina, please open the phone line for questions.

At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Again, that is star one. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of George Hill with Deutsche Bank. Please go ahead.

Yeah, good morning, guys, and thanks for taking the question. I guess, Matt, my first question is kind of a big-picture question, which is that if you look at the $100 million in EBITDA that the company delivered this quarter, you take out $30 to $35 million in the VACs the business did, $65 million, of course, there will be a continuing benefit from the VACs, but the profitability of the business basically needs to double every quarter from this quarter to kind of hit around the midpoint of the guidance. You've talked about some of the embedded cost cuts. I guess what I would ask is, could you and Hayward kind of talk through where you see the growth opportunities versus the cost reductions? Kind of what I'm trying to get to is that are we or do we feel like we're back in the growth phase of the business coming out of the pandemic? Or are we still more than a shrink to grow type, Alex?

Yeah, George, it's Hayward. Thanks. I think it's a combination. We are, you know, we've shown that we can grow our scripts, even cycling the significant benefit we got from vaccines last year. So, you know, our core scripts are up. And that's just the beginning. We haven't even really tapped into yet some of the adherence, courtesy refill, and maintenance medication opportunities that we have in front of us. Also, while front end was flat as the quarter, the front end sales comps actually were increasing in the quarter. So we have seen strong momentum within the quarter. And as I mentioned earlier, we're seeing strong sales results on Elixir. So we've sold more so far this year than we sold at this time last year, and our retention rates are higher. So that's the growth story. And, you know, we talked about specialty mail and some of the other opportunities. I'll let Matt comment just on the economics and the SG&A efforts.

Yes, I think the other thing to add regarding kind of the trend of revenues for the year is just keep in mind that we have, you know, a lot of flu immunizations that we expect to do in the third and the fourth quarter of the year. And so some of our script growth is back and loaded, you know, in a year as you think about modeling. And then, Certainly on the SG&A side, and as Hayward said, George, this is a, you know, we've got to be able to both grow the business and also get more efficient. On the efficiency side, you know, as I said in my comments, we've basically finished closing all the stores we had targeted closed during the quarter. We got the benefits we expected from that during the quarter. I expect those benefits to ramp in the last three quarters of the year. And between that and, you know, some of the back-end loaded aspect of the cost-cutting initiatives we're working on, and some margin improvement opportunities at Elixir. Those are all the factors stirred together to give us comfort in maintaining EBITDA guidance.

Okay, if I can nag you with a couple more quick ones. I guess the $40 million in adjusted EBITDA SG&A savings in the quarter, is that a number that you feel is safe that we can annualize, or is that more of a one-time benefit?

Not only can you analyze, I think it's going to get better. Because again, we were still closing stores during the first quarter that are now closed. And with some of the cost savings initiatives that we have that we're just starting to get some traction on. So I think you can definitely annualize that number.

Okay, I'll throw one last one out and then I'll hop back in the queue, which is I think the noise in the space last week was around Walmart planning to raise pharmacy tech wages. I guess maybe talk more broadly about labor issues. And are you guys continuing to see labor wage inflation? Do you guys suspect that that could drive another round of cost pressures for you guys? And I guess how exposed you guys feel to your farm techs being pushed away and the potential for another round of rising wage costs?

We are in a very good position on wages and labor. So we cycled through wage increases last year, which are already reflected in our numbers. We don't expect to do any other additional significant wage increases. Andre can talk about specifically how we're positioned from a labor perspective competitively.

Yes, thanks, Hayward. Good morning, George. Yes, we did see the announcement from Walmart. And let me start with that note here at Rite Aid. We've been very focused on our technician training and hiring for more than a year. You know, relative to what was announced, we have a very comprehensive training program for all of our new technicians prior to them starting and opportunities for progression commensurate with K. We're very confident and we're very focused on staying competitive and we feel very good about where we are with our technicians right now. In regards to the general wage inflation, as Hayward mentioned, we have been working at this for over 24 months. And we made some strategic investments in Q4 of last year, which are modeled into our plan for this year. So at this point in time, we feel very good about our frontline hiring situation. And so from that perspective, we don't see much pressure for the back half of the year on wages for us.

Okay. I'll hop back in the queue. Thank you.

Your next question will come from the line of Elizabeth Anderson with Evercore. Please go ahead.

Hi, guys. Thanks so much for the question. I was just wondering if you could maybe start off by talking about the benefits of the new loyalty program in the quarter and how you expect those to ramp for the rest of the year. Thank you.

I'll start by saying that the benefits of the new loyalty program Rite Aid Rewards has largely been improved margin in the quarter because of the lack of having to accrue for these discounts that we were giving to some customers who actually didn't even, weren't even aware that they were earning the discounts. So, Andre, can you update on the new rewards program?

Absolutely. It's an exciting new program. We're very early in this. We actually have our Big Bang launch plan in the next 30 days. It is a points-based program relative to a discount program and a much more efficient spend over margin dollar investment. For us, it appeals to a much larger consumer base. It's a digital-first program, and the goal is to drive customer acquisition through that so we can be much more personalized in how we speak to our customers. The program year-end points are both online, brick-and-mortar spend, both pharmacy and front-end. And as we mature into the program in the back half of this year, there will be offers that extend beyond products. That really brings us in line with our overall purpose, which is, of course, help you achieve whole health for life. So very early, but excited about our progression for the next three months here.

So you still expect that in terms of, I think last quarter you talked about like a $30 million positive contribution from between that and private label. So you would still think of that as being on track versus what you said last quarter?

Elizabeth, this is Matt. That's exactly right. Between those two items, you know, we expect a $30 million, you know, gross margin benefit. And I, you know, on the loyalty program, on the The reduction of markdowns in particular, we were very pleased with what we saw from a bottom line benefit in the first quarter.

Got it. Sorry, go ahead.

No, go ahead.

I was just going to switch topics unless you had something else to add there. Just in terms of COVID testing volumes in the quarter, obviously that's been something that's been moving around as between sort of switching of PCR and home tests. So I was wondering if you could talk about that, whether it's sort of similar cadence to the vaccine drop-offs sequentially or something else that you're seeing there.

Well, we tend to see the vaccines and the testing move in concert with each other, and certainly the vaccines have dropped off. But as you know, there's still a lot of hot spots in the United States, the West Coast being the big one right now. So we are still seeing strong sales in home testing, and we – are also doing PCR testing as well. Matt, I don't know if you have some specifics you want to go over.

Yeah, I would say on the PCR test, certainly we saw that drop off over, you know, kind of quarter over quarter, but the demand for the over-the-counter test, the antigen test, remained strong. We probably did about $35 million worth of sales in antigen tests in the first quarter, and that that cadence was pretty steady over the quarter and it continues to be a high demand, you know, even as we move into the second quarter.

Okay, right. And just so that we remember, that would go in the front end sales, right?

So for us, we run the majority through the pharmacy because they're a covered benefit with some also coming through the front end. So I would say the mix is about 75% in the pharmacy and about 25% in the front end.

okay and then so if i was if i had a pcr test it's something like 300 000 that's roughly is that ballpark sort of right kind of area um probably a little less than that probably a little less than that for the for the quarter okay perfect and then maybe sorry one last question on the stores um can i just want to make sure i have the cadence of the stores uh for the year obviously uh versus my original expectations you obviously closed a bunch of the stores um earlier than i expected which is fine so i just want to understand just in terms of the total store closure cadence for the rest of the year and then you talked about the rural store openings in um new york and virginia etc so do those count as sort of full new stores in the store and the store count and how do we think about how many you're adding um in the rest of the year

Well, you know, think of us closing 145 stores by June, so this will be largely behind us. And then we will be opening anywhere between, let's say, 5 and 20, just depending right now on, frankly, how fast we can find real estate, how fast we can get the real estate branded and into, you know, our formats, as well as ensuring that we get it staffed to standard. I would look for us to at least minimally be opening five stores this year with an eye toward opening 20 within months after that.

Okay. And those count as sort of still like full types of stores versus the other small format? Yes.

Yeah, I'd still call it a store, but just to round that thought out, they will be pharmacies with limited over-the-counter front end. Think of them as like a European apothecary where really a trusted healthcare frontline healthcare professional in those markets where we depend on McKesson for the supply chain instead of having to deal with a lot of our own inventory and rent. on the front end. So, but definitely consider the store.

Elizabeth, from a modeling and statistical standpoint, it is definitely a discreet store.

Got it. Okay. Thank you very much. Appreciate it.

Thank you.

Your next question will come from the line of William Reuter with Bank of America. Please go ahead.

Good morning. Given the high incidence of COVID still across the U.S., is the number of vaccines that you're administering I guess, into the second quarter above your previous expectation? And is this potentially a tailwind that was maybe not foreseen at the beginning of the year?

So, Bill, this is Matt. You know, we had said last quarter that we expected a vaccine decline for the full year, you know, to levels of 20 to 30 percent of what they were in fiscal 22. And I think that's a number that, you know, we're still expecting. You know, as far as expectations for cadence, candidly, it's a little hard to have expectations of exactly what the cadence is going to be quarter over quarter or month over month. This has been very kind of difficult to predict. You know, so I think, if anything, what we saw in the first quarter of the 1.7 probably gives me even a little more confidence that we're going to be well within that 20 to 30 percent kind of reduction range over last year. But beyond that, so that's The baseline for our guidance, that's what we're sticking with, and that's our best thoughts until all those facts change as we go forward.

Yeah, we saw more than we expected in the first quarter, and then we are now expecting and counting on a version of a vaccine that comes out that is effective against Omicron. Whether it's the current variant or the new variant, that's what they're working on. And so we do expect that. We can't really predict what the uptake will be, but we anticipate there will be an uptake since it's likely to be a different variant version. And then, of course, also pointing to what we think will be a very strong flu season.

Got it. Yeah, I didn't know if the 70% to 80% reduction, it would be your expectation it might be less than that at this point. given it seems like everyone I know continues to get COVID, but okay. The second question is, you mentioned the 80,000 additional lives for Elixir that you've attained, and there's still a million potentially that you're going to be getting. I guess, what's your degree of confidence in that additional potential million? What percent might be reasonable that you would attain of those? And then, has there been anything else in terms of losses of lives I'm trying to think about next 2023, that calendar year, how Elixir is shaking out.

I'll let Chris answer. Thank you for the question. So just to clarify a bit, taking you down through the numbers, the million lives that Hayward referenced are the lives that we still have active in our pipeline inside of our target markets. So that's business that is up for bid right now, 41123. So out of that million, we expect to win a portion of those. Where we are right now in terms of our new life count for next year, I think in our last earnings call we talked about we'd set a goal to try and win 300,000 new lives. At the time, we'd had a pretty strong start to our selling season, particularly on the health plan side. As we've moved into more of the commercial book, that's slowed a bit as we've seen more clients sticking with incumbents. That said, we are still expecting to have the strongest selling season that we've had in several years at Elixir. So we feel really good about where our life count is headed. Our retention rate is still expected to come in right around 95%, and we did retain our largest client, MCS, earlier in the year. So we're feeling really good about where our lives are headed going into 1-1-23, and that's sort of how we get there.

Great. That's all for me. Thank you.

Your next question will come from the line of Carew Martinson with Jefferies. Please go ahead.

Good morning. When you look at the store closures and the liquidation of scripts where you had them, what was the benefit to the quarter in terms of the asset sales, and are those valuations still coming in that 10 to 20 range that you were looking for?

Gross, Matt. The benefit for the quarter from a proceeds standpoint of the asset sales is about $30 million. And the valuations that we're seeing, I think, both on the buy side and the sell side, you know, because we are out in the market, obviously doing script file buys are in that $10 and $20 range.

Okay. And then when you look at the opioid litigation, is that what the ad back here for the stock expenses, the ad back for the litigation expenses? Or is that separate there and kind of any update on the litigation expense and outlook?

So the litigation at-backs were not related to opioids. They were related to other kind of longstanding matters that we did settlements on during the quarter. And, you know, the opioids, you know, I think nothing really new from the last quarter where we talked about we've had some targeted settlements in some key areas that kept us out of, you know, kept us out of the bellwether cases. Other than that, no new news report.

Okay, and just lastly, on the revolver draw, is the right way to think about it? We've kind of funded the store closures on that front, so that we'll continue to work that revolver down as we go through the course of the year?

Well, the store closures I expect to be an EBITDA benefit and actually help us against revolver draws because we're getting out stores here that are negative EBITDA, and so that's really between that and some of the proceeds we're getting on selling scripts, you know, when we can't transfer them to other stores, I actually look at the store closure program as cash accretive.

All right. Thank you very much, guys. Appreciate it. Thank you, Karrue.

Your next question will come from the line of Jenna Janelli with Goldman Sachs. Please go ahead.

Hi there. Thanks for taking my question. I know you've called out and emphasized a lot the strong liquidity position. I guess, can you just, can you speak a little bit to just your vendor relations, any changes in terms that you may have seen? And, you know, sometimes, I guess, with the rating agencies, the speculative default rating update on the back of the exchange, I guess, have there been any questions, you know, from some of your vendors around that that have needed to be clarified?

The short answer, Jen, is no. No questions need to be clarified. relationship with vendors are good. No term changes. Our vendor partners are very supportive. And Byron and I have actually been pretty proactive in going out and talking to vendors about the bond tender and the expectation of a potential speculative default. And they actually get it, they understand it, and they're not concerned about it. So we feel very good about where we are for vendor relationships.

Awesome. Good. That's great to hear. And then, you know, you addressed it in an earlier question just on the PBM side around the confidence in the full-year guidance and that being embedded in the expectation of increased lives. But maybe just, I mean, right now we're still run rating below where the full-year EBITDA guide is. I guess just in terms of the expected benefits of the cost savings and the benefits from the rebate aggregator, when we can really expect to see those come through, is that going to be the primary driver of to pick up in EBITDA on the PBM side in the back half of the year?

I would say it's a combination of all the above, but just to reaffirm that we are sticking with our guidance on the Elixir business of $140 to $150 million in EBITDA. We have a high level of confidence around that. That would represent a range of 24% to 33% EBITDA growth for the year from Elixir. It's a combination of relentless focus on improving our network management, our rebate opportunities, selling business, and also getting more efficient.

Okay, great. Thanks so much for answering my questions.

Thanks, Shannon.

Our final question will come from the line of Carla Casella with JPMorgan. Please go ahead.

Hi. Most of mine have been answered, but just a couple of follow-ups. There's an ad back in your adjustments for APDOT for the full year guide of $18.3 million for litigation and other contractual settlements. Have you said what that's related to and kind of where you stand in any of the opioid settlements?

So the 18.3 in the guide is related to the litigation settlements that we actually had this quarter. There were non-opioid longstanding other cases that we had settlements for. And on the opioid, really, Carla, no change from where we were a few months ago when we reported out. You know, we've had some success in doing some targeted settlements in New York and Ohio that have kept us out of the bellwether cases, and we're pretty pleased about that. Other than that, no news to report.

Okay. And then the revolver draw for the bond tender and also this quarter, just the additional revolver draw, do you expect to... be able to pay that down over a certain... Is there a time frame you target to be able to be out of the revolver?

Well, by year end, we expect to have generated positive cash flow in our business and be able to pay down debt, and I expect that revolver draw to get at the end of the year to be in the same kind of zip code as it was at the beginning of the year. A lot of what happened this quarter was all timing.

Right, exactly. Okay, and then on Elixir... It sounds great that you're getting more lives and you're seeing up to that revenue guidance. The margin's a little bit lower than what we were targeting. Can you just give any kind of puts and takes to the drivers of that Alexa gross or EBITDA margin?

Yeah, I think, you know, some of the revenue guide that we have for this year and the change for this year's revenue guide is really around utilization of high-cost drugs, which is really a pass-through. So that's going to have a little bit of a negative impact on your margin rate. So that's the kind of push and pull between the rates and the revenue guidance and the fact that we kept EBITDA consistent with what our guidance was before, you know, that you're getting a little bit of a tradeoff in margin rate there. As we said about some of the spread and rebate management initiatives that we have, we do expect PBM margins to get better in the second and third and fourth quarter.

Okay, so it's not that the underlying business is coming in lower margins. It's purely those higher cost drugs that you're talking about, the higher price point.

Yes, this higher utilization, the higher drug cost is going to have, basically, it's going to have a negative impact on margin rate. You know, from a gross profit dollar standpoint, we're still in good shape.

Okay, great. Thank you. Thank you, Carla.

And I'll now turn the conference back over to Hayward Donigan for any closing remarks.

All right. Well, thank you, everyone, for your questions. Really appreciate it. And most importantly, for your interest in Rite Aid, We are maintaining our focus on becoming a leading full-service and modern pharmacy. We have a team of 6,400 expert pharmacists available to you 24 by 7. And please do take advantage of that opportunity to ask an expert. And then we have another 43,000 associates caring for the communities and customers we serve to drive better health outcomes because that's what this is all about. That's what we stand for as a company and it's what we expect will drive long-term shareholder value. Thank you.

Ladies and gentlemen, that does conclude today's meeting. Thank you all for joining. You may now disconnect.