Q1 2023 Rite Aid Corp Earnings Call
non-GAAP measures along with a reconciliation to GAAP measures are described in our press release and slides and with that let me turn the call over to Heyward. Thanks, Byron and good morning, everyone. Thanks for joining us and welcome to our first quarter earnings call.
Coming out of fiscal 'twenty, two 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 $1 6 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.
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Our ability to weather the height of the pandemic delivering life enhancing and life saving medications in vaccines and testing was really remarkable and I am proud of our team for getting back now to the core business and showing strong results now.
Now we are refocusing on becoming a leading full service and modern pharmacy with a team of 6400 expert pharmacists and another 43000 associates caring for our communities and customers, we serve to drive better health outcomes.
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 health care. There are still 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 <unk>.
Quality healthcare one in seven Americans live more than five miles away from the nearest pharmacy.
9% of Americans failed to take their medications as prescribed because of the cost.
And most notably Underutilization of medications drive 500 billion, plus a year and avoidable medical costs.
And even those who can't 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 that there are three to four stops a day.
But remember these are prescriptions that are lifesaving 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 our 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 seven including chat.
We're enhancing our digital capabilities advancing buy online pickup in store and expanding both our male 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 market 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 in the segments we serve.
Starting with our retail pharmacy business Q1 saw a complete rebound in acute and maintenance scripts better.
Other than pre pandemic levels.
For maintenance scripts Q1 was up one 4% versus FY 'twenty, two and up 12, 3% versus FY 'twenty.
For acute scripts Q1 was up 11, 9% versus FY 'twenty, two and up one 1% versus FY 'twenty.
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 and improvement in adherence of just 1% provide.
It's $20 million and gross profit dollars.
You'll also recall that last year, we launched rite aid rewards, our new customer loyalty program that makes it easier for more customers to engage in safe in the coming quarters, we will speak to how we plan to further maximize this program and drive higher consumer engagement in both farm.
Let's see 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 five 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 LTE networks and we are 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 Pbms services business our.
Our strong network contracts, new rebate capabilities innovative clinical services and expertise in government programs have enabled us to add 80000, new lives for January one 2023 start date. These are more new lives than we sold last year and additionally.
<unk> the selling season is still in progress and we've got close to 1 million lives remaining in the pipeline for January one 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 signaled that we need to manage the profitability of this business and continue to focus on growing our own customers and 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 renamed and relaunched our owned 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, an underserved rural markets, and Indiana, Upstate New York and Virginia.
And speaking of rural markets, We recently announced our partnership with homework a company that's aimed at re architect and healthcare to the 60 million Americans I mentioned more living in these communities mentioned earlier living in these communities beginning this summer with a partnership in rural Michigan will be working with <unk>.
<unk> 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 after pay further enables us to do that we were the first national drugstore chain to offer after pays 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 are launching a new direct to consumer digital platform. Later this summer and we will 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 will 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 efficient.
Through our business, we're on track to meet our annual savings target of $117 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 four five 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 back on track back to our Rx 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, Edward and good morning, everyone.
We've mentioned on previous calls.
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're replacing these bond borrowings with revolver borrowings that have a lower rate.
Now I'll review, our first quarter results in more detail.
As Heyward stated our results were in line with our expectations with revenues of $6 billion adjusted.
Adjusted net loss per share of <unk> 60, a share and adjusted EBITDA of 100 $101 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 historical and store closures offset by an increase in non COVID-19 prescriptions.
Retail pharmacy same store sales increased four 6% with an increase in same store pharmacy sales up six 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 one 4% and acute scripts were up 11, 9%.
Front end same store sales, excluding cigarettes, and tobacco products were flat to last year.
And 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 one 7% of revenues compared to last year's first quarter, adjusted EBITDA of $94 9 million or two 2% of revenues.
The decrease in adjusted EBITDA is attributed to lower Covid vaccinations and testing offset by increase in October prescription volumes improved front end margins and reduced SG&A.
As Heyward said, our retail pharmacy segment, adjusted EBITDA, SG&A expenses were $45 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 decreased $146 million or seven 8% to $1 7 billion due primarily to a planned decrease in elixir insurance membership and the previously announced client loss slightly offset by a new rebate partnership as well as higher utilization of high.
Cost structure.
Elixirs first quarter, adjusted EBITDA was $26 $4 million or one 5% of revenues compared to last year's first quarter adjusted EBITDA of $44 million.
Or two 4% of revenues.
This was due to a loss of covered lives and increase in costs related to client guarantees and an increase in the medical loss ratio. It will extra insurance offset by benefits from our new rebate arrangement.
It is important to note that this quarter's adjusted EBITDA 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 a 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.
<unk> and 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.
Included in 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.
Due to the timing of 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 <unk> 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 66 and $1 19 per share.
Capital expenditures are expected to be $250 million, we are making investments that are driven towards growing our business, including prescription file purchases and investments in digital.
And investments that are that are focused on driving efficiencies in our business by automating our supply chain and transforming our processes and technologies that elixir.
We're 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 offset partially by the potential interest savings from our current bond tender.
We expect to generate a working capital benefit of $60 million from inventory reduction.
And to generate positive free cash flow to continue to pay down debt.
This completes our prepared remarks and Regina Please open the phone lines 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.
Yes.
Our first question will come from the line of George Hill with Deutsche Bank. Please go ahead.
Yes.
Guys. 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 vaccine business did.
$65 million of course, there will be a continuing benefit from the back back, but the profitability of that 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 heyward kind of talk through where you see the growth opportunities versus the cost reductions.
Kind of what I'm trying to get to is it are we do we feel like we're back into growth phase of the business coming out of the pandemic or are we still more than a shrink to grow type.
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Yes, George it's heyward thanks.
I think it's a combination we are we've shown that we can grow our scripts even cycling the significant benefit we got from vaccines last year. So in our core scripts are up and that's just the beginning we haven't even really tapped into yet some of the adherence courtesy retail and maintenance.
Medication.
Opportunities that we have in front of US also while front end was flat as to quarter.
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 resorts results on elixir. So we 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 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.
A lot of flu immunizations that we expect to do in the third and the fourth quarter and the year and so some of our script growth is backend loaded year as you think about modeling and then certainly on the SG&A side and as Heyward said George This is a.
We've got to be able to both grow the business and also get more efficient on the efficiency side.
As I said in my in my comments, we 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 some of the backend loaded aspect of the cost cutting initiatives, we're working on and some margin improvement.
Opportunities elixir those are all the factors together it gives us comfort in.
Maintaining EBITDA guidance.
Okay. If I can thank you a couple more quick ones I guess, the $40 million and adjusted EBITDA SG&A savings in the quarter is that a number that you feel is that we can annualize or is that more of a onetime benefit.
Not only can you analyze I think they're 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 cost savings initiatives that we have that we're just starting to get some traction on so I think you can definitely you can definitely handle annualize that number.
Okay I'll throw one last one and then I'll hop back in the queue, which is I think the noise in this space last week was around Walmart planting trees pharmacy tech wages.
I guess.
I guess, maybe talk more broadly about labor 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.
Steel to your farm techs being poached 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.
Hey, good morning, George.
Yes, we did see the announcement from Walmart and let me start with that.
<unk> be very focus on our technician training and hiring for more than a year.
Relative to what was announced we have a very comprehensive training program for all of our new technicians prior to them starting in opportunities for progression commensurate with K.
We're very confident and we're very focused on staying competitive in the field.
Good about where we are with our technicians right now in regards to the the.
General wage inflation as Heyward mentioned, we've been working at this for over 24 months.
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.
Hey, 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 do 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 an 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 born even aware that they were earning the discounts. So Andre can you update on the new rewards program.
Hopefully, it's an exciting new program. We're very early in this we actually have a big Bang launch plan in the next 30 days.
As a points based program relative to a discount program and a much more efficient spend over margin dollar of investment.
For us it appeals to a much larger consumer base.
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 for both online and 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 holthaus realized so very early but.
Cited above.
Progression over 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 sheet with still think of that as being on track versus what you said last quarter.
Elizabeth This is Matt Thats exactly right in between those two items, we expect a $30 million.
Gross margin benefit.
On the loyalty program.
The reduction in markdowns in particular, we're very pleased what we saw from a bottom line benefit in the first quarter.
Got it.
Yes.
Sorry go ahead.
No go ahead.
I would just switch topics, if unless you had something else to add there just in terms of COVID-19 testing volumes in the quarter. Obviously, that's been something that's been moving around as between to the switching of PCI in home test. So just wondering if you could.
If you could talk about that whether it's sort of similar cadence too.
The vaccine dropbox sequentially or something else that youre 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 is still a lot of hotspots 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 the I would say on the PCR test certainly we saw that that drop off over kind of quarter over quarter, but the demand for the over the counter test for the antigen tests remained strong we probably did about $35 million worth of sales.
<unk> test in the first quarter and that that that cadence was pretty pretty steady over the quarter and continues to be a high demand even as we move into the second quarter.
Right and just just so that we remember that would go in the front end of finance sales right. So for US we run the majority through the pharmacy because they are a covered benefit with some also coming through the finance. So I would say the mix is about 75% in the pharmacy and about 25% in front of it okay.
Okay and then so if I was if I had PCR test is something like 300000, roughly is that ballpark sort of right kind of area.
Probably a little less than that probably less than that for the quarter.
Perfect and then maybe one last question on the storage.
I just want to make sure I have the cadence of the stores for the year obviously.
Versus my original expectations, you, obviously closed a bunch of the stores.
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.
New York, Virginia, et cetera, So do those cowen and sort of full new stores in the store and the store count and how do we think about how many you're adding in the rest of the year.
Well 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 five and 'twenty just depending right now on frankly, how fast we can find real estate, how fast we can get the real estate branded.
Into.
Our formats as well as.
Ensuring that we get our staff to standards. So 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, So and those count is sort of still like full types of stores like versus yet is there. Another small format, yes, yes, yes.
Store, just just but just to round that thought out they will be pharmacies with limited over the counter front and think of them as like a European apothecary.
Sure.
Really a trusted healthcare frontline health care 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.
Just from a modeling a statistical standpoint. It is definitely is definitely a discrete 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 are 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 Phil this is Matt we had said last quarter that we expected the vaccine decline for the full year two levels of 20% to 30% of what they were in fiscal 'twenty, two and I think that's a number that we are still expecting.
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 once a month over month has been very.
Difficult to predict.
So I think if anything what we saw in the first quarter of the $1 seven probably gives them even a little more confidence that we're going to be well within that 20% to 30% kind of reduction range over.
Over last year, but beyond that so that's fine for our guidance, that's what we're sticking with.
That's our best thoughts until.
Unless facts change as we go we saw 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.
It's the current variance on the new variant that's what they're working on and so we do expect that we.
We can't really predict what the uptake will be but we anticipate there will be an uptake since its 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 yes, I didn't note that 70% to 80% reduction it would be your expectation that might be less than that at this point given it seems like everyone. I know continues to be a coup it but okay.
The second question is you mentioned the 80000 additional lives for elixir that you've obtained and Theres still a million potentially that youre going to be getting I guess whats your degree of confidence in that additional potential million look like.
It might be reasonable that you would attain of those and then than anything else in terms of losses of life I'm trying to think about next 2023 that calendar year, how it sort of shaking out.
I'll, let Chris answer thank.
Thank you for the question, so just to clarify a bit.
<unk> down through the numbers the 1 million lives at Hayward referenced are the lives that we still have active and our pipeline inside of our target market.
So those are the business that are up for bid right now for 123.
So out of that million dollars, 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 had talked about we had set a goal to try and win 300000 new lives.
At the time it 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.
That slowed a bit as we've seen more and more clients sticking with incumbents that said, we are still expecting to have the strongest selling season than we've had in several years that elixir and so we feel really good about where our life count is headed.
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 123, and that's sort of how we get there.
Great. That's all for me thank you.
Okay.
Your next question will come from the line of Cameron Martinsen with Jefferies. Please go ahead.
Good morning.
When you look at the store closures and.
Liquidation of scripts were you had what was the benefit to the quarter in terms of the asset sales are those valuations still coming in that 10 to 20 range that you were looking for.
So the <unk>, Matt those 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 because we are out in the market. Obviously script file buys are in that 10 to $20 range.
Okay, and then when you look at the.
The opioid litigation is that what.
The add back here for the stock expenses the.
The add back for the litigation expenses or is that separate there and then kind of any update on the litigation expense and outlook.
So the litigation add backs were not related to opioids it related to other kind of long standing patterns that we did settlements on during the quarter and the opioids.
Thank you.
Nothing really new from the last quarter, we talked about we've had some vessels some targeted settlements and some key in some key areas has kept us out of.
Kept us out of a bellwether cases other than that no news to 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 and so that will continue to work that revolver down as we go through the course of the year.
While the store closures I expect to be an EBITDA benefit and actually help us against the revolver draws as we're getting our stores here that are negative EBITDA and so that's really between that and some of the proceeds were hitting on solid scripts.
When we can transfer to other stores actually look at the closed stores.
The store closure program is cash accretive.
Alright, Thank you very much guys I appreciate it.
Thank you Farooq.
Your next question will come from the line of Jenna Giannelli with Goldman Sachs. Please go ahead.
Hi, there thanks for taking my question.
<unk> called out and emphasize a lot.
<unk> liquidity position I guess can you just can you speak a little bit to just.
No relation.
Any changes in terms that you may have seen.
Yes, sometimes I guess with the rating agencies the speculative default rating update on the back of the exchange I guess has there been any question.
From some of your vendors around that that it needed to be clarified.
The short answer John is no no questions need to be clarified relationship with vendors or good no term changes our vendor partners are very supportive and.
We've actually been Byron 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 of naturally get it they understand it and they are not concerned about it so.
We feel very good about where we are for vendor relationships.
Awesome.
Great to hear.
And then.
The adjusted in an earlier question just on the Pbms side around the confidence in our full year guidance and that being embedded in your expectation of increased lives, but maybe just I mean right now we're still run rating below where the full year EBITDA guidance I guess just in terms of the expected benefits of the cost saving.
And the benefit from the rebate aggregator when we can really expect to see those components is that going to be the primary driver of.
The pickup in EBITDA and the Pbms that in the back half of the year.
I would say, it's a combination of all the above all the above but just to reaffirm that we are sticking with our guidance on the elixir business of $1 $40 million to $150 million in EBITDA, we have the highest level of confidence around that that would represent a range of 24% to 33% EBITDA.
Growth for the year from Elixir.
Combination of our relentless focus on improving our network management, our rebate opportunities selling business and also getting more efficient.
Great. Thanks, so much all 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 is an add back in your adjustments to EBITDA for the full year guidance of $18 3 million for litigation and other contractual settlements.
Have you said, what that's related to and kind of where you stand and any MCM opioid settlement.
So the $18 three new guys related to litigation settlements that we actually had this quarter. There were some there were non opioid long standing other cases that we had settlements for and on the opioid really Carl no change from where we were a few months ago. When we when we reported out.
We've had some success in.
<unk> 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.
The bond tender and also this quarter to see additional Robert Robert do you expect to be able to pay that down over Sir is there a timeframe you targets.
The out of the revolver.
Well by year end, we expected to have generated positive cash flow in our business and be able to pay down debt and I expect that revolver draw to get it at the at the end of the year to be in the same kind of ZIP code as it was at the beginning of the year.
What happened this quarter was all timing.
Right exactly Okay, and then Arnold Sir.
It sounds great that you're getting more lives than youre seeing in that revenue guidance.
Margins, a little bit lower than what we were targeting can you just give any kind of puts and takes to the drivers of that Alex.
Our EBITDA margin.
Yes, I think 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 thats going to have a little bit of a negative impact on your margin right. So that's the kind of push and pull between the raising our revenue guidance and the fact that we kept EBITDA.
Consistent with what our guidance was before that Youre getting a little bit of a trade off in margin rate there.
We said about some of the spread and rebate management initiatives that we have do you expect <unk> margins to get better in the second and third and fourth quarter.
Okay. So it sounds like the underlying business is coming in lower margins.
Higher cost drugs that youre talking about the higher price higher price points.
Okay.
Okay great.
This higher utilization higher Detroit drug cost is going to have basically it's going to have a negative impact on margin on margin rate from a gross profit dollar standpoint, we're still in good shape.
Okay, great. Thank you.
Thank you Carl.
And I will now turn the conference back over to Heyward Donigan for any closing remarks.
Alright, 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 6400 experts pharmacies pharmacists available 24 by seven.
Please and please do take advantage of that opportunity to ask an expert and then we have another 43000 associates caring for the communities and customers we serve.
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.
Yes.
Ladies and gentlemen that does conclude today's meeting. Thank you all for joining you may now disconnect.
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