Q4 2023 Rite Aid Corp Earnings Call
Speaker 1: Thank you. Byron Purcell, Vice President, Investor Relations and Treasurer, you may begin your conference.
Speaker 2: Thank you, Robin. Good morning, everyone. We welcome you to our fiscal 2023 fourth quarter earnings call.
Speaker 2: Elizabeth Dizzy-Gir, interim chief executive officer, and Matt Schroeder, executive vice president and chief financial officer, will begin the call with prepared remarks. Chris DuPaul, chief operating officer of Elixir, will also join the call during the question and answer session.
Speaker 2: As we mentioned in our release, we are providing slides related to the materials we will be discussing today. These slides are provided on our website, investors.rae.com.
Speaker 2: While management will not be speaking directly to these slides, these slides are meant to facilitate your review of the company's financial 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.
Speaker 2: These risks and uncertainties are described in our press release in item 1A of our most recent annual report on Form 10-K and other documents we will file or furnish to the FCC.
Speaker 2: 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 in the slides. And with that, let me turn it over to Bizzy.
Speaker 3: Welcome everyone and thank you for joining our Q4 earnings call. I realize that this is the first time that many of you are hearing from me as the Rite Aid interim CEO appointed by the board on January 9th. I'm thankful to the board for choosing me to manage the business during a critical time when urgency and focus is needed.
Speaker 3: and happy to serve until such time as a permanent CEO is hired.
Speaker 3: As a board member for the last three years, this assignment is especially important to me. I'm singularly focused on making progress and ensuring we do not lose any time while conducting our search for a permanent CEO .
Speaker 3: Rite Aid, as you know, is a long-standing, trusted U.S. brand in the retail pharmacy space, as is Elixir in the PBM space. We've been a highly leveraged company for many years, which has limited our ability to invest in the business and keep up with our competitors.
Speaker 3: Before I share more on what we are doing to return our business to growth, I'll briefly cover Q4.
Speaker 3: Q4 adjusted EBITDA of $129 million was above the midpoint of our guidance and better than analyst expectations of $101 million and prior year Q4 of $106 million.
Speaker 3: The main drivers were front-end sales comps, excluding cigarettes and tobacco products, of 2.8%.
Speaker 3: SG&A improvements from cost reduction initiatives and store closures, and script comps of 5.2% or 9.7% excluding COVID, demonstrating share gains over the last five quarters for a total of 50 basis points to 11.2% according to Acubia.
Speaker 3: As pleased as we are about Q4, our focus is on the future and what lies ahead.
Speaker 3: We anticipate many headwinds for fiscal year 24, none of which are a surprise, but we need to plan for them.
Speaker 3: As in the past several years, we expect reimbursement rates to be under pressure, cycling COVID benefits to add to the challenge, and wage inflation and shrink to eat into earnings.
Speaker 3: We've also lost ground in the PBM market from a loss of a large health plan account and the planned shrinking of our MedD business.
Speaker 3: I know that litigation faced by us and many others in the industry is on your mind. We are actively managing those matters and defending ourselves. We have engaged excellent legal counsel and the anticipated cost to defend ourselves is factored into our guidance. But as you all know, litigation is a process that takes time.
Speaker 3: That being said, there are great opportunities for us to be very successful.
Speaker 3: There is a fundamental consumer need for pharmacy services.
Speaker 3: There is a fundamental consumer need for pharmacy services for both individuals and companies.
Speaker 3: At Rite Aid, we serve these needs, two of us are retail and TBM businesses respectively.
Speaker 3: We have a trusted and iconic brand, an attractive retail footprint, and a long history of serving millions of customers built over the years largely through our part of this.
Speaker 3: Specifically, the role of the pharmacist has become an increasingly important, trusted, ubiquitous and efficient option for the delivery of healthcare services to consumers.
Speaker 3: And this is part of our core value proposition.
Speaker 3: We augment this with digital and remote capabilities to support customers and their preferred channels.
Speaker 3: We have a lot of work to do to seize the opportunity given the pressures I mentioned.
Speaker 3: There's a sense of urgency that the board and I have brought to Rite Aid. Simply put, we need to grow the core, prescriptions and retail, and grow the PBM, all while continuing to make the company more efficient.
Speaker 3: We will not be chasing long shots, but rather we are immediately focusing on the core areas of our business.
Speaker 3: with initiatives that have high and near-term ROIs.
Speaker 3: We also need to do this while carefully managing our capital structure.
Speaker 3: On a macro level, last fall, Rite Aid started the implementation of an established turnaround model that has been used at numerous companies to successfully turnaround their business.
Speaker 3: While you have heard the term turnaround used before, this is different.
Speaker 3: We are partnering with a leading consulting firm.
Speaker 3: that has worked with several Fortune 150 companies.
Speaker 3: to execute a highly prescriptive and programmatic model that has a rapid cadence and analytical rigor and currently engages associates from across the writing enterprise. We believe that this model that is geared to drive performance and acceleration across the enterprise
Speaker 3: will enable us to organize effectively and efficiently to capture value and drive growth.
Speaker 3: I am also well aware we need to prove it.
Speaker 3: It begins with leadership, and as you have seen, we are not afraid to make changes and significant ones as needed.
Speaker 3: To execute our turnaround, we have both eliminated some positions of up-level talent and capabilities by adding new positions and bringing in new perspectives. In addition to a new CEO , we've added a new head of marketing, a new head of merchandising, a new head of procurement, a new head of transformation, and a new head of FP&A to bring in new discipline and expertise to our operations and business.
Speaker 3: The turnaround model has given us visibility to the profitability opportunities we believe
Speaker 3: We believe we drive. We can drive over the next three years.
Speaker 3: by focusing on improvements and growth in our core businesses.
Speaker 3: Many of the opportunities are simply catching up to things our peers do better than us today.
Speaker 3: We believe this effort will position the Corvus for growth longer term.
Speaker 3: Here are a few examples of turnaround initiatives in the three core areas of the business. In our pharmacy business, we're continuing to invest in med adherence. For example, we've seen a nearly 150 base point increase in adherence from our courtesy refill program.
Speaker 3: From industry benchmarking, we believe continued investment in this program has the potential to bring significant upside.
Speaker 3: We are scaling a successful Q4 pilot initiative that produced a 60 basis point reduction in abandoned scripts through enhanced message timing and content, as scale, just a 1% improvement could drive the material impact on the adjusted e-bidow.
Speaker 3: In the front end, we're optimizing inventory to improve our in-store experience and increase working capital.
Speaker 3: Initiatives include space productivity efforts and replacing categories that are overspaced with faster-growing categories. We are able to reduce inventory by 40 million in this year's 23 and we will be deploying further inventory control this year.
Speaker 3: We're implementing a store clustering initiative to enable regional assortment and approve our product relative fees based on the success of the regionally focused product assortment of our town.
Speaker 3: We are improving our pricing analytics and capabilities by increasing the number of price zones and creating a variable price zone structure. We have begun to realize growth margin benefits from the initial pricing test.
Speaker 3: In Elixir, we're continuing to focus on client retention through things like improved reporting and pricing competitiveness. We have already secured three of our top five renewals.
Speaker 3: We'll continue our efforts to improve German economics.
Speaker 3: specifically through contributions from plan design administration, formulary, and rebate management services and network performance.
Speaker 3: We're taking steps to optimize our specialty in male pharmacies with expanded access to networks and new limited distribution drugs. We've already gained access to two of the four largest Medicare networks.
Speaker 3: last year, lastly
Speaker 3: We're working on efficiency, productivity, and of course cost reductions across the business.
Speaker 3: Example of the clue.
Speaker 3: rebuilding our indirect buying process and renegotiating vendor contracts, tackling and reducing our lease burden through extensive lease renegotiations.
Speaker 3: Driving down prescription brand inventory by implementing new controls and deploying just the time ordering models.
Speaker 3: This is just a small selection of the initiatives in our turnaround program.
Speaker 3: So what does this mean for financial performance? In fiscal year 24, this means it down or reset your in profitability. We expect to see positive improvements in prescriptions and retail and cost savings, but these could be more than offset by the pressures I mentioned earlier in reimbursement rates, lower COVID benefits, a loss of the elixir lives.
Speaker 3: a shrink wage inflation, and the investments we need to make in the Turnaround Program.
Speaker 3: We estimate the net results to be an adjusted even a dropping by approximately 75 million, which may clip free cash flow to slightly negative for the year.
Speaker 3: However, we have 1.5 billion in liquidity at the end of the fiscal year 23, which we believe is more than enough to get us through fiscal 24.
Speaker 3: And we expect increase in justice to Eda and working capital benefits in 50-year 25-26 to drive an improvement in our liquidity position.
Speaker 3: In the fourth quarter of fiscal year 23.
Speaker 3: We started the first phase of initiatives of our turnaround program.
Speaker 3: These delivered approximately 10 million in adjusted EVA, and our turnaround program is not yet at scale. We have more initiatives in progress.
Speaker 3: The turnaround model anticipates bringing more significant values starting in Q3 and Q4 of the shear.
Speaker 3: We are targeting adjusted even a double digit percentage growth and simply your 25 and 26 as initiatives in the scale.
Speaker 3: Required investments are no longer needed to offset the improvements and we're no longer cycling COVID headwinds.
Speaker 3: We anticipate some slippage on our near-term leverage ratio. We do however believe that by year-end fiscal 26, our leverage ratio will come down into the low five range with improvements in the justice unit up.
Speaker 3: We are also in the process of developing specific plans to address our 25 and 26 bond maturities. More to come as these plans develop. I know it has been challenging for you all as the company has faced the uncertainties of COVID and lackluster financial results.
Speaker 3: We have not until now applied an analytical, programmatic approach to turn the business around.
Speaker 3: What I can make to you is this.
Speaker 3: We have urgency, rigor, a rapid cadence, and an intense focus on those opportunities that we believe will bring us value in the near term.
Speaker 3: There are areas that have presented opportunity, but have not been prioritized previously.
Speaker 3: There are things our competitors do well that we just simply have not implemented until now.
Speaker 3: We appreciate all support from our bond holders, shareholders, analysts, associates, customers, and leaders as we take this incredible brand and bring it back to where it should be.
Speaker 3: With that, I'll turn the call over to Matt with more Q4 and on our outlook.
Speaker 2: Thanks, Bizzy, and good morning, everyone. I'm going to take just a few minutes to review our Fort-Corp results for jumping in the guidance for fiscal 2024.
Speaker 2: Our 4th quarter fiscal 23 is just to debit dot was 128.6 million versus 106.1 million for last year's 4th quarter.
Speaker 2: giving a total of just the Bidad 429.2 million for the fiscal year.
Speaker 2: Both our fourth quarter and full year results benefited from an extra week in fiscal 2023 which contributed approximately $10 million dollars in adjusted EBITDA.
Speaker 2: The company also reported net loss of $241.3 million.
Speaker 2: or $4.39 per share. It just didn't end up lost to $68.2 million or $1.24 lost for share.
Speaker 2: Included in our net loss for the fourth quarter was an impairment charge for good will at a lister of $119 million.
Speaker 2: We perform an impairment assessment as part of our year end closing procedures.
Speaker 2: The calculation performed to determine if an impairment is necessary includes evaluation based upon discounted cash flows as well as an assessment of market value.
Speaker 2: Our projections for the business have not changed since our last assessment.
Speaker 2: but assumptions around external factors such as discount rates and market multiple paths which cause the impairment charge.
Speaker 2: As a reminder, this is a non-cast charge.
Speaker 2: Revenants for the quarter were 6.09 billion bringing our total year revenues to 24.1 billion. Now discuss the key drivers of operating results in our business segments.
Speaker 2: In the retail segments, revenues increase 8.2% over the prior year, driven by the extra wheat and increased and comparable store sales are set by the impact of store closures.
Speaker 2: Same store sales for the fourth quarter increase 8.9% over the prior year period. Consisting of an 11.4% increase in pharmacy sales.
Speaker 2: and a 2.3% increase in front end sales. Front end sales include cigarette and tobacco products, increased 2.8% driven by strong results in our beauty, seasonal and consumable categories.
Speaker 2: The same source's prescriptions adjust the to 30 days increase 5.2% and excluding COVID immunizations and testing increased 9.7%.
Speaker 2: With same-store maintenance prescriptions increasing 8.2%, and other same-store queue prescriptions, increasing over 15%.
Speaker 2: Our script growth comes from Continuity here in Fnishatives.
Speaker 2: Our script growth comes from Continuity Herein's initiatives. Growth within our market access contracts.
Speaker 2: capturing fair share of our scripts from the ESI CROGRA dispute. Right-age front-end margin rate improved due to a reduction in markdowns resulting from our previously discussed change to our loyalty program, as well as improved planning around seasonal, less discounted prices, and proactive price changes related to inflation.
Speaker 2: Pharmacy grows profit decline due to reduction of growth profit from color vaccines and testing.
Speaker 2: This is partially all set by a strong non-COVID script growth and reduced drug purchasing costs driven by a reduction in brand prescription inventory. Adjusted EBITDAI's GNA improved by $75 million on a comparable 13 week basis.
Speaker 2: Driven by, our reduction in work payroll, we continue to good expense control in stores which we began in the beginning of the fiscal year. Reductions and indirect spend, including advertising, repair maintenance, supplies and security, resulting from initiatives to improve our spend control discipline.
Speaker 2: our reduction in work payroll, we continue to good expense control in stores which we began in the beginning of the fiscal year. Reductions and indirect spend including advertising, repair maintenance, supplies and security, resulting from initiatives to improve our spend control discipline and re-vitting processes.
Speaker 2: and also driven by lower occupancy due to store flushers.
Speaker 2: A now shift to our pharmacy services segment, Elixir. Revenues were $1.3 billion for the quarter, a decrease of 20.8% compared to the prior quarter. For the fiscal year, pharmacy service segments revenues were $6.5 billion, a decrease of 10.9% compared to the prior year.
Speaker 2: Revenue decreases we are cycling through our membership losses which are consistent with our expectations.
Speaker 2: In our individual part, the insured business, we continue to adjust our pricing strategy to reflect the underlying risks in each geography.
Speaker 2: The adjusted EBITDA was 27.3 million compared to the fourth quarter compared to last year's fourth quarter of the adjusted EBITDA 3.7 million.
Speaker 2: For the fiscal year, a justy of $141.1 million.
Speaker 2: Compared to prior years of Steve the dot of 113.3 million.
Speaker 2: Gross profits were better due to improved procurement economics, a more favorable mix.
Speaker 2: to hire a margin business.
Speaker 2: The absence of prior year rebate receivable write downs and improvements in the medical loss ratio at a extern insurance. Additionally, a Lixers SGNA improved due to reductions in cost structure to support the lower membership phase.
Speaker 2: An outdoor to our cash flows in the balance sheet.
Speaker 2: Our cash flow statement for the quarter shows operating cash of $266 million due to the sale of the remainder of our calendar 2022 CMS receivable and reductions in inventory levels, offset by timing and other liabilities.
Speaker 2: Cash use and investing activity is 14.2 million for the border.
Speaker 2: We completed a few source sale leaf factory transactions that generated total proceeds of 17.5 million and also generated proceeds of 18.6 million from the sale of prescription files from closed stores.
Speaker 2: Our net debt was approximately $2.8 billion at the end of fiscal year with a leverage ratio of 6.5 times. We ended the fiscal year with approximately $1.5 billion in liquidity, which gives us plenty of flexibility to execute our turnaround. During the quarter.
Speaker 2: We completed a tender offer for $165 million of our 2025 notes.
Speaker 2: Over the past year, we have reduced the amount of our outstanding 2025 notes, which is our nearest term maturity, from 600 million to 320 million.
Speaker 2: We are assessing options to address the remainder of these maturities.
Speaker 2: More to come as we progress throughout the year.
Speaker 2: as we progress throughout the year. Now turning the guidance.
Speaker 2: As Biddy outlined earlier in the fall, we are investing in a proven turnaround model to drive growth and value for our stakeholders.
Speaker 2: Adjust the biddaas expected to be between $340 and $370 million. Adjust the biddaas in the retail pharmacy segment is expected to be between $240 and $260 million while Adjust the biddaas elixir is expected to be between $110 million and $110 million.
Speaker 2: Following your sincere assumptions of preparing our guidance range.
Speaker 2: We expect COVID vaccines and testing demand to decline. With our COVID vaccine administration's decline from about 5.1 million in fiscal 2023 to approximately 3 million in fiscal 2024.
Speaker 2: However, we expect to see continued growth in cost sales and scripts in our core business.
Speaker 2: We expect the script growth initiatives that did the outline early this year to drive a 6% increase in non-COVID-conparable scripts in fiscal 2024. While it's very early in the year, we are seeing this level of increase so far. The benefits from script increases will be partially offset by reimbursement rate pressures. With wage pressures and cost inflation.
Speaker 2: As well as investments that we're making our turnaround niches, we expect our retail SGA to increase during the fiscal year. However, we expect these increases to be partial set by rigorous demand management, rebitting a key indirect vendor services and active negotiations of lease charts.
Speaker 2: Included are guides for a lixer as a cycling of the full impact of the loss of lives over the past two years, which results in a headwind to adjust the bidat.
Speaker 2: With the reduction in lies, we will continue to closely manage our expense levels. We also expect to improve elixir EBITDA margin through determined economics and favorable membership mix.
Speaker 2: Total revenues are expected to be between $21.7 and $22.1 billion.
Speaker 2: The reduction from prior year is due to the impact of store closures and the reduction of lives at a lecture.
Speaker 2: Capital expenditures are expected to be approximately $225 million.
Speaker 2: In addition to regular maintenance, this includes investments to grow our digital business.
Speaker 2: Improve Remember Support Systems and Client Service at a lakesurf, add technology to make our distribution centers more productive, and to aggressively pursue prescription file purchases.
Speaker 2: Cash interest expense is a projected to be approximately 250 million.
Speaker 2: We expect to generate a significant working capital benefit in fiscal 2024. From reductions in prescription brand inventory?
Speaker 2: Skew rationalization and reductions in seasonal merchandise.
Speaker 2: We're also taking steps to move more of our products, the SEM base trading, and to work with various partners to improve terms. As busy said, we expect our free cash flow to be slightly negative, which will leave us a strong liquidity throughout the year.
Speaker 2: We have the ability to reduce spending on capital spenders if need be. The initiatives that are intended to drive significant value in our turnaround process will take time to take traction, keen traction.
Speaker 2: As a result, we expect the generation between 16 and 70% of our Justin Bieber dog in the back after the year.
Speaker 2: As we look to our fiscal 25 and fiscal 26, we expect to grow both the LixxRPM membership and our core retail business and both front-end informancy.
Speaker 2: Although a Justyba Dodd takes a step down at fiscal 24, we believe our programmatic approach is turning around the business.
Speaker 2: Combine with the absence of a COVID-related headwind in 2025 and a reduction in turnaround investments, when they lost to grow a Justibidavid double digits in both fiscal 25 and 26. We expect this growth to lead to reduction in our leverage ratio to somewhere in the low bike times range routine.
Speaker 2: by the end of fiscal 2026. Does complete our prepared remarks? Roth, could you please open the phone lines for questions?
Speaker 1: At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from a line of Elizabeth Anderson from Evercore ISI. Your line is open. Hi guys, thanks so much for the question. I have a couple of housekeeping questions to help understand better the core profitability.
Speaker 4: underlying profitability of the core business and that improvement is currently face.
Speaker 2: Sure, Elizabeth, good morning. So we did about 600, we missed or about 600,000 COVID vaccines in the fourth quarter, about 500,000 flu shots. And on the PCR testing, pretty much nothing. PCR testing demands completely dried up. Engine test.
Speaker 1: We sold about three and a half million of antiton test are in the quarter. Okay, super, super helpful. Any changes to how you think about the profitability of those types of items in the vaccines and once the PHE ends? Yeah, the change is going to, it's not necessarily related to the PHE, Elizabeth, but what we expect to happen.
Speaker 2: here to be a lot more like a flu shot as opposed to getting a dispensing fee you know from the government which is how it's worked the last couple years.
Speaker 4: Okay, that's very helpful. And then I think you sort of talked about it in a high level, but I wanted to just dig in a little bit more into what you and busy were saying about the mid-single digit non-COVID comparable prescription growth. Can you talk about sort of the initiatives and where you think those will come through? Because that's obviously a key part of the thesis. So I just want to make sure we have that down correctly. Yeah, so if you think about kind of the dry.
Speaker 1: We were improving our messaging that we're doing to customers who had to pick up scripts to reduce the band and scripts. And we've increased the amount of limited and preferred networks that were in this year. All of those things we expect to drive, you know, that mid-single-digit script growth. Got it. And one last one for me. Can you talk about the progression of shrink and where you think that goes going forward?
Speaker 3: Yeah, I need to shrink as um
Speaker 3: something that kind of slays our entire industry. It's a challenge for all of us. But I think you know we continue to work on this. We in various areas we work with local law enforcement, but also we're continuing to sort of evaluate new solutions that might be out there that can be effective.
Speaker 3: Yeah, there's an ongoing work. We expect it to be this year roughly what it was last year. Exactly. Got it. Thank you so much.
Speaker 5: Your next question comes from a line of Lisa Gill from JP Morgan. Your line is open. I think very much. Good morning. Matt, I wanted to start my first question around the turnaround initiative. You talked about that it will ramp going into the third and fourth quarter of fiscal 24. And it basically talked about the fact that it was roughly 10 million here in this quarter.
Speaker 5: can you talk about the specific number that you have number one in 2024? And then secondly, I think about that progression, you talked about EBITDA, we back half loaded 60 to 70 percent. How much visibility do you have to that EBITDA in the back half of the year? And how do we think about
Speaker 1: you know, the first part of the year, anything you would call out as we think about the first quarter? Hey, thanks, Lisa. So, first of all, really can't break out, like, turnaround versus a plan. This turnaround process and programmatic approach is the way we're driving our plan initiatives and how we're going to get to our overall plan numbers. So, you know, splitting those out, I think, is really, you know, not for them as productive.
Speaker 2: From the standpoint of the ramp in the numbers during the second half of the year, we are making investments in technology and talent that we need to drive a lot of these initiatives forward in those investments. We're going to happen in the first half of the year, which is going to be some of the weight that happens on.
Speaker 2: on the quarter. And that's really what drives the level of increase in the back after the year. As far as wine is sightly, the way this program works is building up business cases and sequencing.
Speaker 2: the amount of investment, and laying out very specific milestones for literally hundreds of initiatives.
Speaker 1: And what that does is it gives us a much better line of sight and way to track initiative value development that we've ever had processed wise before. So that gives me confidence in a lot more line of sight and kind of into the build of the plan that we've had just systemically in prior years.
Speaker 5: And then that just one other question. I guess maybe a question for you and then a follow up for busy. And that's around your PBM when we think about a lister. So if we think about heading into the calendar 24 selling season, which should be starting right about now, there's a lot of scrutiny right now around the PBM industry. A lot of...
Speaker 5: different legislative initiatives. If I remember correctly, your PBM is primarily a transparent PBM. So my first question is, are you seeing an increased interest in a lack of just given all of the scrutiny around the PBM industry? And then my second question for a bit of the is, as a board member, how do you think about the PBM? And...
Speaker 5: Do you think that the PBM is part of RIDA going forward is important?
Speaker 3: So I'm going to, I'll answer the second question first and then, you know, sort of regarding the changes in the PBM industry, I'll hint at over to Chris Paul since he's here and he can help you answer specifics on the regular throwing environment and what it's doing for lecture. But I think.
Speaker 3: You know, it's a, the list of the very strong mid-market PBN with great assets. We're actively working on growing it, grow the revenue, spend them and continue to work on expanding the margins, we really believe in the future of the business. And there's a lot of untapped synergies that we are working on to have to sort of realize that value between owning...
to retail and to be in businesses. So we are actively working on those business.
And then Lisa, I appreciate the question regarding the level of interest and the PVM business model.
You know, we've been around for over 20 years in the PBM states and we have a legacy of business where the majority of that business is PAPSPR but we also have a significant part of our business that is, that operates on a traditional spread model. And regarding what's happening in Washington and in different debates around the state.
We do think it's extremely important to be able to preserve the choice of which model to operate under four clients. There are benefits to both of those structures. We offer both of those structures and we think it's very important that clients continue the ability to choose whether they want to operate on a.
on a pass-through or on a spread model. We are seeing very good interest in the PBM in the selling season. I mean, it's very early on. And most of the business, particularly in the parts of the market where we compete the most strongly, happens in the middle to the back part of the selling season. But at this point in the year, we are seeing greater interest. And we're getting really good feedback.
from the consulting community and others about the offering that we can bring relative to other players in the space. I think we do have a very strong reputation around being transparent with our clients in terms of how we price.
how we keep our commitments and how we work in partnership with our clients in managing their drug spend. And we're looking forward to the sound season. Thanks for the comments.
Your next question comes from a line of George Hale from Deutsche Bank. Your line is open. Yeah. Good morning, guys. Thanks for taking the question. I guess Matt, I have a couple of questions. Could you talk about what's embedded in the guidance for COVID for fiscal 24? I would imagine given the roll off, the expectations are pretty diminimous, but given the expectation in 23, which is kind of like to know what you guys are expecting to see.
in the fall or winter, as part of an annual immunization update. We also expected, as I said earlier, that the profitability of those COVID vaccines is going to decrease as the industry moves to model where you purchase the vaccine being government funded with a dispensary fee.
on the energy test side. Expecting the energy test to be in the drop off pretty dramatically, given that it's no longer going to be covered as a government benefit in May. We're still seeing strong demand, but some of that I think is people kind of rushing to get those done while still being covered in the latter part of the year. We expect the energy testing demand.
You know, to be relatively mild. Great. And a quick follow up, I guess. Before heading into fiscal 24, you guys had outlaid a cost savings program as related to things like store closures, the loyalty savings program. Um, um,
and cost savings in the PBM business. I was wondering if you just kind of be able to update us on the outlook for those savings initiatives, kind of what was achieved in 23 and kind of what the expectation should be in 24. Yeah, George, we had, I think, an expectation of about 190 million in savings where things really have those programs. And we met and probably slightly exceeded those numbers. Store closures expect a lot less next year. We're looking, we always look at the fleet, but we did about 100.
a drive, a pretty significant cost savings from better management have been direct spend, which is going to be a focus for 24.
Okay, and then the last 1 for me is I know it's early, but the macro reimbursement environment and pharmacy has been challenging. I don't know if you guys have any early thoughts on what the impact of reimbursement changes will be in calendar. 24.
Too early to tell. Yeah, too early to tell. Okay, I'll hop back in the queue. Thanks, guys. Thanks, George.
Our next question comes from a line of William Ruder from Bank of America. Your line is open. Good morning. I just have a couple. The first is, I think you said you realized 17 million of proceeds from the sale of Scripps. Can you talk about what the price for Scripps was that you achieved on those sales?
Thanks Bill, it's Matt. We'll be both on the buy side and the sell side where we're either purchasing scripts from independent pharmacies or when we're selling scripts as a result of closing the store. The average is somewhere usually between $10 and $20 per script, very st dramatically based upon the specific transaction you're doing and the specific demand in the marketplace.
That's that's very helpful. And then the last time we had heard regarding the lives under management of the Lixer, you were expecting about 1.7 million for this calendar year. I don't think I saw an update unless it was in the slides and I missed it. Do you know what that number is right now?
It's in that zip code, probably a little less, more like 1.6 overall. Okay. And then just lastly for me, you reduced inventory by 40 million last year. I think you said you expect more this year. Is there a sense for any – is there any sense of magnitude for the reduction this year?
Yeah, without giving you a precise number, I'd say it should dramatically exceed that 40 million. We're really looking pretty hard at kind of inventory sets in the front end, the ability to do a better job of doing our merchandising on a more regional basis, which enables us to get sharper. With ouratively negotiated
on inventory ordering, we're going to reduce the amount of seasonal inventory we do on the front end. And then on prescription side, we still have a lot of opportunity to reduce the amount of brand prescription inventory that we have in the stores while still providing great service to our customers because we get deliveries, you know, multiple times a week from our, you know, from the customer delivery partner.
Very helpful. Thanks for taking the questions. Thank you.
Your next question comes from a line of Caru Martensen from Jeffries. Your line is open. Good morning. You talked to being over-leathered and that had restricted your business investments in the core. I'm just trying to understand given the 225 of CapEx.
you know, what is the hindrance here and how do you get, you know, out from under this this overlevered state?
Part of the 225 is thinking hard, Karoo, about where we make those investments. We're weighting those investments a lot more this year into technology investments that we believe are going to drive pretty rapid payback from the standpoint of being able to execute things like better script adherence.
you know, sharpening front end, you know, inventory ordering, and better service delivery at Elixir and winning in the marketplace, and less on investments in the physical stores themselves. Keeping the stores obviously, you know, at a base level investment is important, but just from the standpoint of thinking about.
grow even dot at a point where we get that leverage ratio more stable. That's what we really need to do to get ourselves back to a leverage position where we would be more comfortable.
And is the plan still here to attack the front end bonds to ship away at that maturity and take that off the table?
Well, certainly the 25 bonds are the things that were the most focused on crew just given, you know, that they're the earliest ones to mature. You know, I think broader plans, you know, to be talked about as we, you know, kind of sharpen our thinking here over the next few months.
Okay, and just lastly, realize that, as you said, opioid litigation is a, shall we say, a long process, but could you help guide us in terms of, you know, where does that process play out with the states, with the DOJ?
just from a from a big picture of what your expectations are both from a cost and from a timing perspective. I think it's very difficult as you can imagine to predict litigation and you know all we can tell you is that you know what we're facing is very consistent with everybody else in the industry is facing.
We are in the process of vigorously defending ourselves, and we've included all the costs into our guides in S&A. And then we just reached, obviously, we can't comment on a specific matter, to be on what we've got out there, probably.
Thank you very much guys, appreciate it. And we have time for one last question. Your final question comes from a line of Carla Casella from JP Morgan. Your line is open.
Hi, thanks for taking the question. You mentioned 10 million of EBITDA savings from the turnaround. Was that in fourth quarter or was that achieved in first quarter, 24? already.
Yeah, Carl, it's Matt, the 10 million in the fourth quarter. And I would say it's not just saving. Some of it is actually, the initiative is that we did to drive prescription growth. So some of that 10 million is up in our pharmacy, pharmacy growth profit numbers coming from the steps that we did that we undertook to drive increased adherence.
as well as some gerund purchasing benefits and domestic aid saves. And did you say the number that you're expecting for 24? We did not. We did not.
Okay, but should that grow going forward? It's going to grow significantly, Carl. I mean, with Q4, we were literally still building the base plan for Q4 and kind of finishing the process to really, you know, size the overall initiative opportunity. Yeah, I think the way to think about it is Q4 was just sort of testing our ability to execute this model.
and trying a few initiatives to sort of start to put the model in place. And with that effort, that's where the 10 million came from now. We are scaling that turnaround model across the enterprise. And, you know, so I think to match point is that we expect far more than 10 million.
and trying a few initiatives to sort of start to put the model in place. And with that effort, that's where the 10 million came from now. We are scaling that turnaround model across the enterprise. And, you know, so I think to match point is that we expect far more than 10 million. Okay. And then...
You may be reducing, excuse and reducing seasonal Marching. Can you just get this instance for what percentage of your sales in the past year was seasonal And I said, what the impact of that is that it is a lower growth margin, is it a higher volatility segment and how do you think about the scaling back of seasonal? Yes, see, Carla, seasonal is not a material part of our front end sales. But this year is seasonal. I would say we overordered and so what happened was we had to mark that a lot of this merchandise and in some cases, return it to get it cleared out.
in terms of owned assets or real estate? And is there also an impact, a significant impact to your rent expense, or at least based on the sales specs you've done? So the sales specs we did this year will have kind of a minor impact to rent, but not something I would call material headwind.
We still have roughly, I think, 60 to 70 own stores in the portfolio and we are still evaluating the ability to sell and inspect some of them. I would expect some level of sale and inspect proceeds in fiscal 24, but not as much as what we saw in fiscal 23. Thanks a lot.
And I will now turn the call back over to Mr. Matt Schroeder for some final closing remarks. Just want to thank everybody for joining us on the call today. We appreciate the questions and the interest. We also look forward to speaking to many of you on May 9th at the Bank of America Health Care Conference in Las Vegas. Until then, take care and have a good day. This concludes today's conference call. Thank you for your participation. You may now disconnect.
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