Q2 2022 Rite Aid Corp Earnings Call
Got it.
[music].
Okay.
Yes.
Thank you.
Okay.
[music].
Yeah.
Tom.
Yes.
[music].
Yeah.
And thank you for standing by when it comes to the Rite Aid Corporation fiscal year 2022 second quarter 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 answer questions. During the session you will need to pass.
Power one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like behind the conference over to your Speaker today Triumph Crazy. Please go ahead.
Alright, Thank you Jerome and good morning, everyone.
Welcome you to our fiscal 2022 second quarter earnings conference call on the call with me. This morning are Heyward Donigan, Jim Peters and naturally as we mentioned in our release, we're providing slides related to the material. We will be discussing today. These slides are provided on our website investors that rite aid dot com, while management will not be speaking directly to the slides. These slides are meant to.
<unk>, who will 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 <unk> of our most recent annual report on Form 10-K and in other documents that we filed or furnished 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 a reconciliation to the related GAAP measure are described in our press release and slides and with that let me turn the call over to Heyward.
And where do you maybe high please name Bonnie Hammer got disconnected.
Alright, Hayward now connected.
<unk> I'm, sorry, I got kicked out.
<unk>.
That's okay.
Ready for you in Europe.
Good morning, and I apologize for our technical difficulties. This morning, I want to thank you Trent and good morning, everyone.
I'm very pleased with our second quarter performance, which we announced earlier this morning before digging into the results I want to spend a moment on the big picture. Our Rx evolution strategy is showing promising results and I'm encouraged that we're not only exceeding expectations, but also demonstrating that our strategy.
With gaining momentum.
No the important of all pharmacists play in the health of the communities. We serve never has that been more obvious and during a pandemic.
We're also seeing our retail and digital evolution drive new growth and demonstrate our new rite aid for our retail customers.
And at Elixir, we're making progress on our competitive positioning and building out our leadership tools and integrating our various assets.
As a reminder, we are relentlessly focused on three things growing.
Growing our business, reducing cost and improving our leverage ratio.
One recent example of our work to reduce cost is the announcement of our new remote first work approach. This new approach will not only help us attract and retain the best talent in a very competitive labor market, while also providing our associates the flexibility they desire, but it will.
Also deliver expense savings through our efforts to reduce our corporate real estate footprint.
Our entire team is really excited about our re imagine workplace model.
While the environment, we do business and will continue to be dynamic and at times as we've seen very unpredictable I'm really optimistic about our company's future and excited about the new Rite aid we're building.
As for the second quarter, we grew our revenue two 2% to $7.0 billion billion, including a six 5% increase in our retail segment and we improved our inventory turn by 7%.
Continuing our strong trend in inventory turns from prior quarter, demonstrating that people are really liking our new merchandise.
Our results were driven by our vaccine administration improved profitability at elixir and strong results in categories, such as vitamins and upper respiratory this generated adjusted EBITDA of $106 million, which exceeded our expectations.
We also importantly.
Wondered and extended our revolving credit facility successfully pushing maturity out to August 2020, as we continue to enhance our financial flexibility to drive and deliver on our RF evolution strategy.
These results reflect our continuing effort to serve our customers and communities.
Actually in this rapidly changing environment when they need us the very modest they ever have.
Now, let me briefly discuss our most recent COVID-19 vaccine and testing efforts.
[noise] administered nearly $7.0 million COVID-19 vaccines in the quarter.
First of all you need them to continue at an increasing demand of our customers.
As of today, we have now provided over 8 million vaccines in total since we began administering the vaccine late last year.
In addition, we saw Covid testing demand increase notably during the quarter and we can test conducted over 700000 free can see our path with turnaround times.
I think that there were two days in spite of the volume.
Also in partnership with health and Human services, we supported Summer school testing in several school district to ensure a school or a safe environment for learning and we believe that our support for testing has the potential to further expand and we're ready to grow our partnerships to support additional school district.
For 4043 school years.
As we move ahead, we're working closely with all of our partners at the CDC and the White House and we are preparing for increased vaccinations to support workplaces when it comes to their mandate.
And probably booster, although it's still a little bit undetermined.
Now, let me say a few words about elixir.
A reminder, I'm now overseeing both rite aid and elixir on a day to day basis, and as I mentioned earlier I'm very proud, but we own all the assets we need to be successful.
Laker, which is the industry, leading adjudication platform.
Our own mail order and specialty pharmacies in our large and growing cash card business all of which provides the scale to drive increased economic for us and our customers.
However.
We still have much work to do to modernize and integrate our assets and finalize and launch the next phase of our new clinical and digital solutions. We continue to focus on preparing for the one 123 selling season.
So this and we are making progress on a number of plants. We recently announced that Lance meal has joined elixir as chief operating officer. He comes to US from Centene and has additional senior leadership experience at diplomat pharmacy, and Walmart just to name a few so clearly he.
Bring significant industry experience to elixir.
He's going to be overseeing our near team working on the business process and technology integration of our P. V M M.
And he has responsibility for core operations, including member eligibility enrollment and billing client implementation and claims operation.
He is also responsible for government programs and are on Medicare part D plan Elixir and shrunk.
And at this time.
His experience he will oversee strategy development for I'll, let Sarah ensuring that the company remains positioned for continued innovation and growth.
We've also hired a new head of pricing and underwriting and were currently searching for key leaders to round out our current team.
We're also close to selecting a single rebate aggregation partner to serve our health plan and employer P. B M business.
This critical initiative will enable us to deliver a significant increase in rebate value to our clients in the new year and benefit the elixir bottomline wherever it allows us to improve our pricing as we pursue new business.
We introduced our new pricing and most recent proposals and we are already seeing a sizable increase in the number of groups, where we have been invited to the final stage of the evaluation process.
Invitations to the final stage.
More opportunity to introduce our enterprise value proposition to clients and that means more opportunities to win our fair share of the regional health plan in mid market employer business.
In addition, we're completing overall integration of elixir and Rite aid back office functions.
While stabilizing and modernizing our infrastructure and technology solutions.
We continue to refine our go to market strategies and solutions to compete nationally in the segments, where we are best positioned for success, leveraging our elixir pharmacists and then clinical and analytic capabilities powered by health dialogue.
Additionally, and I'm very excited about this we're focused on growing rite aid anchored limited networks and rite aid markets with elixir, which leverage our in store pharmacists engaged consumers and personalized health solution.
So far we're seeing favorable responses from customers and consultants on these models.
We anticipate an additional increase in opportunities in next year's selling season, and we believe the investments that we're making now and are focused on enhancing our product offering will enable us to win our fair share.
Okay, so before passing it over to Jim who hopefully you saw on the phone.
It provided an update on our retail business I would like to make a few closing comments, we continue to prepare and adapt to the changing needs of our customers and communities and at the same time of course focus on delivering strong results for our shareholders.
That end and as Matt is going to discuss later on the call based on our strong first.
Cash resolved and anticipated COVID-19 kind of a vaccine in testing demand, we're raising our full year 2022, adjusted EBITDA guidance.
I've said it many times before but I can't say it enough.
Is are the heart of variety and our success begins and ends with that I want to thank each and every one of you knew and Pam for everything that they do to help our customers thrive.
And now I'll turn it over to Jim for some comments on the retail pharmacy segment.
Thank you Heyward I still am on the call and good morning, everyone.
I'd like to start by echoing Hayward's comments about our teams I'm incredibly proud of our amazing associates, who continue to hustle with humility to be there for our customers communities and each other.
At the quarter, we grew our business and executed well around Covid vaccine administration, while also significantly ramping back up our COVID-19 testing activities to meet the needs of the communities and neighborhoods as positivity rates continue to increase.
I continue to be inspired by the profound role pharmacies in general have assumed as the trusted everyday care connector for both individuals and for the broader health care system.
As you've heard me say before we will continue to work tirelessly together to serve our customers. While also strengthening our business operationally through the ongoing implementation of lean methodology.
Our lean work is already positively influenced productivity and availability of our pharmacists to engage in consultations with customers to build our business enhance our working capital to give COVID-19 vaccines and is helping to foster an environment of continuous improvement.
At the heart of our retail operations, our pharmacists and store teams the importance of our pharmacists has never been clear as they are the front line of defense in Americas health care delivery system.
As he wouldn't noted we administered another $7.0 million Covid vaccines. This quarter. While also beginning hour administration of third series shots for immune compromised individuals.
And we conducted over 700000 Covid tests.
Now as we looked at our pharmacy results. We grew our 30 day adjusted comp scripts by seven 1% in the quarter and nine 9% on a two year stack basis.
In addition, maintenance scripts grew approximately two 4% for the quarter and are up seven 1% on a two year stack.
And when excluding Covid vaccines, we saw acute scripts grow one 5%.
However, on a two year stacked basis acute you're still down three 5%, which highlights that we're still not fully recovered to pre pandemic levels.
During the quarter, we successfully completed over 124000 medication therapy management or MTM claims, which represents nearly 58% increase in completed claims versus last quarter.
These efforts allow us to provide a higher level of care help our customers achieve better health outcomes and reduce costs in the health care system.
We continue to invest in our own online scheduling platform and now enable customers to schedule an appointment not only for Covid vaccine, but also blue and other vaccines.
With these changes customers have booked almost 700000 future appointments.
Our pharmacists remained committed to encourage customers to take advantage of the clinical services in our stores to ensure our customers are protected with all recommended immunizations.
In fact their focus has allowed us to increase the number of ancillary vaccines administered per store per week by nearly 140% compared to where we began the quarter.
We also routine our pharmacists with education and training around focused health optics. For example, this quarter, we focused on women's health and children's health, we developed and provided resources pertaining to traditional alternative and lifestyle therapies to help women feel and look good from the inside out.
Additional resources incorporated a variety of ways to prevent common summer energies and illnesses and tips to boost immunity and promote healthy habits as kids in back to school.
We are excited to continue our efforts to truly unlock our pharmacists full potential to drive increased productivity and meaningfully improve the profitability of our stores.
Beyond the incredible work of our pharmacists, we continue to make progress on creating a more engaging and enduring consumer experience across our physical and digital touch points.
The investments we've made over the past year to adapt to our customers' expectations and strengthen our competitive position are delivering results.
While our front end comps were down two 4% for the quarter were up three 8% on a two year stack basis.
We saw some pressure on the front end this quarter given the prepayments given the pandemic induced buying surge of last year that you may recall.
We saw continued encouraging signs in our front end business with strength in key categories for us such as vitamins color cosmetics and baby care three areas, where the team has focused to enhance the assortment for our customers.
Of note our strategic focus categories on the front end were up approximately 7% in total on a two year stack basis.
Looking across our entire footprint customers are continuing to see fresh exciting product offerings as we work to improve our merchandise mix.
As a result of our re merchandising efforts, we continued to see improved inventory turns including a gain of 7% this quarter.
Turning to the physical rejuvenation of our store base, we progressed on our exterior refresh program with now almost 2200 stores or 90% of our chain updated and we expect to complete this work in the coming months.
We are also continuing our test and learn approach for our new flagship prototype stores.
These flagship store remodels are allowing us to test new concepts around merchandise services and workflow in a way that truly elevate the consumer experience.
We know there is not a single one size fits all solution that translates across geographies and demographics and that each investment requires a surgical approach to accommodate the many differences that exist among the unique communities we serve.
This work is helping to pave the way for an approach that will enable us to scale. The right type of remodel for each particular store end market across our entire fleet.
Now shifting to the evolution of our own brands, we continue to make progress to reinvent our owned brand portfolio with product attributes our customers desire like green organic and better for you.
We're still we started this journey, but we've already completed the refreshed packaging brand design, a port town within the pet category and are nearly complete with the redesign of our new baby brand.
Both of these brands will be hitting shelves. This fall with many more exciting new brands and updates to come thereafter.
Owned brands remains a critical component to our updated merchandise assortment, while also positioning us to deliver improved profitability as they typically carry a margin rate about two times higher than that of national brands.
Although ongoing supply challenges have affected our in stock rates, we still saw our own brand sales growth versus last year and on a two year stack basis in the second quarter.
Speaking of the supply challenges facing all retailers, we feel pretty good about our positioning today, but continue to monitor and adjust as needed to mitigate any risks.
In addition, the labor market continues to be pressured as well.
Again, an industry phenomenon.
To address these challenges we continue to invest in wages for associates and have launched a new digitally enabled recruiting platform, while also providing training and differentiated career development paths for our associates.
Also our digital experience remains a core priority for us and we continue to see significant growth overall in our bond demand delivery options third party marketplaces and buy online pick up at store.
We also see strong growth in digital refills.
In fact, we launched our latest delivery collaboration would shift furthering our commitment to be everywhere, our new target consumer needs to be and when she needs us.
We delivered another strong quarter in our marketplace and delivery business with 183% revenue growth versus last year.
These channels deliver incremental profitability and now represent nearly 75% of our digital business versus only about a third of our digital business at this time last year.
We also continued to enhance the customer experience in digital and are seeing customers take more advantage of features like digital script refills, where we saw a nearly 34% increase in the number of refills process digitally compared to last year.
And I'm happy to report that we have now rolled out buy online pick up at store to 1600, plus stores and our curbside experience will be fully rolled out by October.
We expect these investments to have a continued halo effect across the rest of our business.
Attracting new customers driving bigger basket sizes, increasing product availability, enhancing overall consumer experience and improving sales across our chain.
In closing, we continue to drive progress as we build top line momentum and maintain a relentless focus on improving profitability.
Thanks to the energy passion and commitment of our teams. We are confident that we can continue to deliver on our strategy build relevance and gain market share both today and in the future.
Thank you so much and with that I'll turn it over to Matt for some comments on our financial performance Matt.
Thanks, Jim.
Good morning, everyone.
Before diving into the second quarter results in more detail.
I want to touch on a couple of transactions that we completed during the quarter strengthening our debt maturity profile and capital structure.
As Heyward said earlier, we amended and extended our revolving credit facility.
Delivering a reduction in our interest expense.
Moving the maturity out until August of 2026.
We now have no debt maturing before July of 2025.
We also accelerated the annual sale of our CMS receivable splitting.
Splitting the transaction and the three parts and so the two parts from last year.
Which reduces the volatility in our liquidity during the fiscal year.
We ended the second quarter with $8.0 billion in liquidity.
Our strong liquidity and the steps we have taken to extend maturities gives.
It gives us ample flexibility and runway to execute on our strategic initiatives.
Our efforts to improve our performance and solidify our capital structure and maturity profile have been noticed by S&P, who upgraded our credit rating during the quarter.
Now turning to the quarterly results revenues were up $131 million or two 2% from the prior year's second quarter.
Driven by growth at the retail pharmacy segment parse.
Partially offset by a decline at the pharmacy services segment.
Second quarter net loss was $103 million or $87.0 per share compared to last year's second quarter net loss from continuing operations of $15.0 million or <unk> 25 per share.
Current year's higher net loss was due to a decrease in adjusted EBITDA.
Higher nonrecurring litigation settlements.
A higher loss from sale of assets, resulting from the sale of the CMS receivable.
And a loss on debt modification and retirements compared to a gain on debt modifications and retirements in the prior year second quarter.
These items were partially offset by lower restructuring related costs.
Adjusted net loss from continuing operations was $22 million or <unk> 41 per share.
Versus an adjusted net income of $18.0 million or <unk> 25 per share for the prior year quarter.
Adjusted EBITDA for the quarter was $108.0 million, a decrease of $49.0 million in the prior year's result of $157.0 billion.
The primary driver of the decrease was an increase in selling and selling general and administrative expenses.
Due to the site to cycling the prior year benefit from a change to modernize our associate paid time off plans.
Incremental costs from our recently acquired Barts health stores and.
And cost incurred to drive Covid vaccines.
Partially offset by an increase in gross profit.
Resulting from an increase in prescription volume in our retail pharmacy segment.
Now, let's discuss the key drivers of operating results and our business segments.
Retail pharmacy segment revenue for the quarter was $7.0 billion, which was $259 million higher or an increase of six 5% over last year's second quarter.
Due to an increase in same store sales and the inclusion of <unk>.
Retail pharmacy same store sales increased two 6%.
With same store prescription count up seven 1%.
Excluding the impact of Covid vaccines maintenance prescriptions increased two 4% on a same store basis.
While same store acute scripts increased one 5%.
As Jim mentioned, although we are seeing continued increases in acute scripts were still down three 5%.
On a two year stack basis.
Front end same store sales, excluding cigarettes, and tobacco products decreased two 4%.
The decline in front end same store sales was driven by the cycling of last year's Covid related front end sales team.
Second quarter retail pharmacy segment, adjusted EBITDA was $73.0 million or 186% of revenues.
Impaired to last year's second quarter, adjusted EBITDA of $122 million or 3% of revenues.
The decline in adjusted EBITDA was due to an increase in SG&A expenses, partially offset by increased gross profit.
Retail pharmacy expense on adjusted EBITDA SG&A basis was $142.0 million.
Higher than 177 basis points higher than last year's second quarter.
The increase in SG&A dollars was primarily due to the following.
Cycling the benefit from prior year's change to modernize our associate paid time off plans.
The inclusion of Park Hills, SG&A cost and.
And incremental payroll and marketing costs associated with increased Covid vaccinations in the current year quarter.
After adjusting for these items SG&A costs would have been in line with the prior year's second quarter.
I'll now shift to our pharmacy services segment elixir.
For our second quarter Elixir saw revenues decreased $140 million or six 9% to $10.0 billion.
Due to a planned reduction in our elixir insurance membership and an expected decrease in membership in our <unk> business.
Elixir second quarter, adjusted EBITDA was $44.0 million or one 9% of revenues an increase over last year's second quarter, adjusted EBITDA of $32.0 million or one 4% of revenues.
The increase in adjusted EBITDA as a result of cycling the prior year negative impact from the rebate aggregator switch had med track.
Plus improvements in our discount card business and network management.
Offset by cost pressures and elixir insurance.
I'll now turn to our cash flows.
Our cash flow statement for the quarter shows a source of cash from operating activities of $32.0 million.
Compared to a use of $358 million last year.
The difference is due to the early sale of the CMS receivable in the current year plus timing related changes in accounts payable and accrued liabilities.
We expect to generate a working capital benefit in fiscal 2022 from continued inventory reduction initiatives.
Cash used in investing activities was $43.0 million for the quarter.
Completed a few additional store sale leaseback transactions that generated total proceeds of $13.0 million in the quarter.
Our net debt balance was approximately $3 billion.
At the end of the second quarter.
Now turning to updated guidance for fiscal 2022.
As a result of the momentum we have seen in the first half of this year.
And our expectation for an increase in demand for Covid vaccines and testing versus our prior expectations.
We are raising our adjusted EBITDA guidance.
Total revenues are expected to be between $26.0 billion and $30.0 billion in fiscal 2022.
Pharmacy services segment revenue is expected to be between 777.8 billion.
Net loss is expected to be between $197 million and 221 billion.
Adjusted EBITDA is expected to be between $460 million and $500 million.
And that's a $20 million.
Increase over our previously.
Previous guidance of $440 million to $480 million.
Capital expenditures are expected to be approximately $300 million with a focus on investments in our store base followed by purchases.
Digital and technology initiatives and elixir.
This completes our prepared remarks, Sharon could you. Please open the phone lines for questions.
Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad to withdraw your question press the pound key.
Next question comes from the line of Elizabeth Anderson with Evercore. Your line is open.
Hey, guys. Thanks, so much for that question.
Just wondering if you could talk about on my math it looks like the contribution from Covid on an EBITDA basis was probably about $43 million in the quarter. So I was wondering if one you could.
Tell me if that seems correct Hugh and two if you can talk about.
Over the back half of the year, how you see that.
The Colgate contribution specifically and then the core EBITDA contribution specifically trending thank you.
Matt.
Thanks, Heyward and thanks Elizabeth good morning.
First of all I think your math is probably is directionally correct. I mean, we don't give a specific.
Covid impact just because there's so many moving parts to it.
To COVID-19 contribution but.
But I would say your math is in the right Zip code.
I think a couple of things to think about for the back half of the year and ongoing and the other factors in the business. Besides the vaccinations in the testing.
First of all obviously, we still expect some vaccine activity in the back half of the year.
Would it be so precise to say its coming from boosters versus mandates versus other things.
As everybody knows.
A wildly changing environment, but we do expect to see continued demand in.
In the back half of the year and honestly continued demand going forward for vaccines in one form or another for Covid.
Other things that we're kind of seeing in the business.
We're still.
We operate in some of the most impacted markets. So we still see some depressed traffic levels in our stores in general result.
Cough cold and flu certainly last year was very depressed.
I would I would tell you that our our guidance for the back half of the year contemplates.
Cold and flu is probably better than last year, but not at historical levels.
And then acute continue to be down.
From a pre COVID-19 level theyre down three 5% percent on a two year stack basis, and I think we expect that trend to somewhat continue in the back half of the year anything I would remind you that is that.
<unk> being down hurt scripts, but it also hurts underlying rate.
Because acute to have a higher generic penetration that maintenance dose.
Generics are more profitable scripts and maintenance scripts.
So those are kind of things, we're looking at Elizabeth and again I think.
Certainly still a very volatile impact in the back half of the year a lot of things could go one way or another but I think enough line of sight into vaccine demand that we're comfortable raising the guidance.
Got it that's really helpful.
And have you can you also.
And positives if you mentioned it.
So just to quantify the contribution of by calendar quarter, maybe just from a revenue or profit basis.
Yeah.
Yes, something that we haven't drawn out yet I would say the <unk>.
Contribution from Bartow on an EBITDA basis was probably a relatively minimal.
Okay, and you expect it to improve as we that we have now completed the conversion to and I think as we expect to now that we've completed the conversion I think.
Certainly expect to realize more synergies in the back half of the year and ongoing years, but it's going to take some time.
Well I think we're ahead of plan on synergies and right right against the plan on the system conversions, but the Pacific Northwest has been particularly hard hit with Covid and has been slower to come back in a tougher labor market than the rest of the country. So I think they're kind of swept up in that with that.
Got it that's helpful. Thank you.
Okay.
And your next question comes from George Hill with Deutsche Bank. Your line is open.
Good morning, guys and thanks for taking the questions I guess as you I guess I wanted to ask as you guys think about the rebrand and the store repositioning can you talk about how youre thinking about the portfolio and then like you kind of called out the impact of the stores ex cigarettes and alcohol in the quarter I guess.
Do you see those as categories that are going to continue to be important to the company.
As you move forward with the store rebrand or are there any categories you would consider exiting.
Well, we've already exited quite a number of categories that we've actually reset 75% of our merchandise.
Within the last year, so much more oriented toward better for you organic safe and on trend and our beauty skincare lines and now launching our own brands. So we're really excited about offering and curated merchandise that is attractive to our target growth.
Customer and also is generating the highest turns that we're seeing in many many years on inventory.
We have.
Then over time exiting categories with tobacco. So we were the first to exit Datang and implement.
The age and one that we're paying.
And many state for the regulated out of tobacco, we are not at this point exiting tobacco, but it's almost exiting itself over time.
So there is no short term plan for us.
Tobacco, but.
It's clearly something that we're looking at and.
And in the meantime, really focused on the rest of our merchandising upgrades.
George I can just add a little to that as well that might give you. The color on kind of where we are really deemphasizing and emphasizing an additional heyward said.
Really deemphasizing areas like automotive and home electronics and in hardware.
Really emphasized in general merchandise subcategories in general.
And really emphasizing areas that have shown really strong lift in our remodels that you referenced so.
Our early Remodels, we've seen a significant not only in scripts, but in the front end categories double digit growth in areas like beauty and wellness and personal care.
So that along with the benefits of inventory turns where we've also had double digit growth in these remodels and shelf productivity, we feel like we're onto something and are positioning ourselves to scale across our fleet.
That's helpful and maybe just a quick follow up for Matt just to be clear as we think about the guidance change for the balance of the year. It seems it's an increased contribution from I guess vaccines and tests, but is there any underlying change in NAV what are I guess, the core performance metrics versus <unk>.
Our expectations a quarter ago.
George I mean, the main driver is vaccines and testing and the NDA demand. That's the main driver of that.
<unk> guidance change.
Okay. So just kind of nothing else in the quarter. Okay. That's helpful. Thank you.
Your next.
Churn comes from Lisa Gill with JP Morgan Your line is open.
Thanks, very much good morning, Jason.
Coming back to Tim's comment around labor and that.
Briefing that's across the board both of your competitors actually called it out because it's such a headwind can you maybe just talk about what youre seeing and is that also weighing on your expectation for this year.
Well first I just wanted to call out that we are already above minimum wage and the majority of our space and our state.
We've recently made adjustments in starting wages in a number of the states, where we felt we were uncompetitive and expect to continue to expand these efforts. We also recently launched a new digitally enabled recruiting platform, that's really showing great results. So far and are cautiously optimistic and were also providing enhanced.
Training and differentiated career development opportunities for our associates.
So as a reminder, we do have wage increases baked into our guidance for this year and in fact utilized some of our strong first half results to continue to invest in wages overall at Rite aid. So we will continue to monitor them, but I just wanted to call out that we already are over minimum wage and the majority of our.
Okay.
That's helpful.
Hey, Mike as we think about the <unk> selling season, you talked about really focusing on 2023, but when we think about the middle market right in the heart of the selling season for this year can you give us any kind of update as to your expectations for one 122 starts.
Well there is very little for 122 because.
Season is essentially over and so while we do have a few hundred thousand.
Lives in the pipeline for 2022.
Some of which could close in some of which have closed. It was we've been we are understaffed on our sales team and we're just just hired our new sales leader. So we really while we're currently responding to beds, we've really been focused on the health plan.
Are coming in for 23.
And ramping up our sales team to get ready for the 23 sales cycle. So yeah. A lot of this has to do with the fact that we haven't had the staff and so we've been taking our teams and really focusing on operational efficiency for our clients driving improved economics, which is really.
<unk> will pay off as I mentioned in my comments.
And getting our go to market strategy solutions and analytics team oriented toward with our consultants and sales teams oriented toward the 20.
The employer and health plan sales cycle for 'twenty three.
And then if I can just squeeze one Brian around the rebate aggregation you talked about that you are looking.
At partnering with some land there can you maybe just give us an update around the timing of that would you anticipate that that will be in place in the next couple of months as we think about having an impact on the pbms guidance.
I'm, sorry, I missed the question about.
Yeah.
<unk> time.
I can maybe Jonathan Hayward, Amanda can maybe jump in Lisa.
So we would expect that that arrangement to be in place for 112022.
Okay perfect.
Minimal impact on this year, but and in but certainly the impact for next fiscal year. Okay. Great. Thanks, correct correct.
Our next question comes from William Reuter with Bank of America. Your line is open.
Hi.
Good morning.
I guess, maybe if you could talk a little bit about what your expectations are flu.
For flu shot administration, whether you've seen hesitation, which people have talked may be the case, given the COVID-19 vaccines as well.
Tim why don't you take that.
Yeah, I think you've characterized it well I don't know that its hesitation, but we've seen volumes be slower.
And then they have in past years, and so we're cautiously optimistic as flu season really ramps up that kick back up toward prior levels, but they certainly are slower than they have been in past years.
Okay and then.
I guess as maybe we were to think about the next six months. If you could do your best to aggregate.
The tailwind from a better cough cold season.
You Werent administering COVID-19 vaccines at this time last year.
Vaccine administration, probably I don't know, maybe it's up a little bit I guess as a whole over the next six months are those still kind of.
It'd be meaningful tailwind or I guess could cough and cold I don't know I guess, how do you view that at all.
Tom.
Matt I think you can take that yeah, Bill it's Matt.
I would say a range of outcomes on all of those things. So I think and one of the reasons for the range that we have in our guidance.
For the full year, even with half of the year already known.
So I think cough cold and flu.
Again, our guidance really assumes it's going to be stronger than last year, but not as strong as.
Other years, but.
It's frankly, a little too early to tell.
That's going to shake out Jim talked about how you know immunizations are off to a slower start than last year from a fluid standpoint, I would tell you at this time last year people were rushing out to get polymerization is kind of early in the season and so it's again too early to call what the ultimate.
Impacts going to be we've tried to take our best.
Estimate for these type for the the range of outcomes in these items and bake them into our guidance.
But.
Still.
Kind of wide range of outcomes on both of those and again, that's one of the reasons for a $40 million range.
Even with half of the year gone.
Sorry for the complex question I know it just started from an outside perspective, Okay I'll pass to others. Thank you.
Your next question comes from Carey <unk> with Jefferies. Your line is open.
Good morning.
In terms of the SGA run rate, especially in pharmacy.
Are we expecting those payroll investments that are baked into the guidance the bartow and the benefit from the time off that will continue and then we're going to run out at this 25% of revenue for the second half of the year as well or how should we think about SG&A.
Matt Yes currently Karoo.
The cycling of the.
The benefit from the PTO adoption last year was largely a second quarter item.
And so from that standpoint.
It probably made the last year comparison artificially low.
Some of the rest of the SG&A run rate for the back half of the year is somewhat dependent on.
The level of a vaccine activity that we have for the back half of the year, if we kind of exceed or and if we do.
The vaccine level goes down I think youre going to see the SG&A level go down because we have invested payroll and advertising.
Marketing cost into driving that vaccine volume if there continues to be.
Reasons for increased demand and we need payroll to staff that and we also feel like additional marketing dollars are.
A good spend to try to get more than our fair share of that then you can see these run rate levels continue for the back half of the year I think it's somewhat.
Volume dependent.
Okay and just knowledge.
When we look at the investment in the cycle of winning new sales for 2023, I mean is the expectation that it kind of continues flat here.
<unk> over quarter at this run rate or even should we be modeling in a little bit of a benefit as we do reduce some of those.
So very similar to what we saw in the first year.
Too early to comment on Mexico.
Scott here.
Okay.
The level of investment and collectors is not actually particular that high it's not a capital intensive business. So our capex tightly tied to elixir.
It's very nominal relative to the rest of the business and.
The investments are largely right now and what I would call people process.
Improvement.
Increasing experience and talent of our.
Teams investing in our team.
And really really re investing in the reengineering of.
This processes and technology. So it's not a significant dollar investment is going to generate I believe.
Very strong improvements in the efficiency of the organization, we've already seen the savings from all of our integration with them Elixir and Rite aid so while we won't comment on next year.
Sure.
We think I think that's more of just a business process and staffing.
Investments and right now just finding talent and getting the efficiencies out of the business and getting prepared for the selling season.
Okay.
In terms of that staffing I mean.
What is kind of the magnitude of you. So you said not a capex intensive business, but on a staffing level what is kind of the investment that you feel that you need to have the business be ready to compete for the 2023 business.
Matt you can correct me if I'm wrong.
We're not going to see meaningful increases in the cost of head count, it's really about getting the right people in the current rate positions and with the experience to be able to drive efficiencies, Matt I don't know if you want to comment on them.
I agree I agree that Hayward. This is not something that's going to cause a meaningful ramp in SG&A dollars are right yeah yeah.
Over time is actually ramping down our SG&A.
Just through efficiencies.
So one of the key issues. We have right now is the cost of handling the calls for part D and a lot of that is driven by what I would call upstream.
Inefficiencies.
Actually I believe there's going to be good savings available to us.
Over the next couple of years by driving efficiencies into the organization.
Thank you very much guys I appreciate it.
And your last question comes from Carla Casella with Jpmorgan. Your line is open.
Yeah.
Hi.
Did you give your theory here and there.
Steve has already ended the quarter.
Yes.
Carloads map, we did not give the dollar value at the end of the quarter, what I would tell you is that.
The way the transaction is structured this year as we have sold the receivable to built through June. So there is two months worth of receivable on our books as of at the end of August and then we'll break it up into two more tranches, where we sell the receivable that's incurred through September by the end of the third quarter and enter December by the end of the fourth.
Okay. So does this mean.
Could go to a quarterly.
The sale or is that kind of how you are starting to set up or is it the thing that's great.
In theory.
I think it's three times a year, it's not the build in the first three months of the year is not meaningful enough to justify a quarterly sale.
Okay great.
What kind of build should we expect in the back half is it still I think some symptom.
<unk>.
I would say that I don't know if its 100, a month, it's probably less than that but it's going to be.
No I think if you look at kind of some of the quarterly build.
Built over last year and model it out that way, it's probably kitchen ballpark.
Okay, Great and then I'm just wondering have you.
The currency here are indicating similar.
Discount rates as you sell it or are there any changes there and the structure of the deal.
Now the structure and the terms are very similar to prior.
Prior year.
Okay, great. Thank you so much Chris Casey.
Thanks Carl.
Yeah.
Thank you and that concludes our Q&A session of today's call I will hand, the call back to Heyward donigan for any closing remarks.
Alright, so on the call. Thanks, everyone for your questions as we close the call I just want to acknowledge the likelihood that the second half of the year will continue to be volatile.
Particularly in light of the ongoing uncertainties surrounding the Delta and now.
New variant.
And the average shifting landscape on additional COVID-19 doses doses for kids mandates and testing.
But I will say you know the last 18 months have proven beyond a doubt the flexibility and resilience of our team and our business model.
Yes.
In a weird way sort of thrilling to see that the elevated role of the pharmacists is really critical to the future success of variety and the health care system more broadly.
So.
It's great to have been doing good by doing good and as pleased as we are with our results in the first half of this year and our ongoing strategic progress much of the opportunity is still ahead of us.
Especially it I'll, let sir as we're transforming our business to be more relevant.
At more competitive and on the retail side.
Really hyper exciting for our target customers and then overall as a company.
More efficient on how we operate with that we thank you for joining our call today and look forward to speaking with you again at the credit Suisse Healthcare Conference. This November.
Thank you.
Ladies and gentlemen, thank you for joining by the Corporation fiscal year 2017 second quarter earnings Conference call. You may now disconnect.
[music].