Overview
We are a healthcare company with a retail footprint, providing our customers and
communities with a high level of care and service through various programs we
offer through our two reportable business segments, our Retail Pharmacy segment
and our Pharmacy Services segment. We accomplish our goal of delivering
comprehensive care to our customers through our retail drugstores and our PBM,
Elixir. We also offer fully integrated mail-order and specialty pharmacy
services through Elixir Pharmacy. Additionally, through Elixir Insurance ("EI"),
Elixir also serves seniors enrolled in Medicare Part D. When combined with our
retail platform, this comprehensive suite of services allows us to provide value
and choice to customers, patients and payors and allows us to compete in today's
evolving healthcare marketplace.
Retail Pharmacy Segment
Our Retail Pharmacy segment sells brand and generic prescription drugs and
provides various other pharmacy services, as well as an assortment of front-end
products including health and beauty aids, personal care products, seasonal
merchandise, and a large private brand product line. Our Retail Pharmacy segment
generates the majority of its revenue through the sale of prescription drugs and
front-end products at our over 2,400 retail pharmacy locations across 17 states.
We replenish our retail stores through a combination of direct store delivery of
pharmaceutical products facilitated through our pharmaceutical Purchasing and
Delivery Agreement with McKesson, and the majority of our front-end products
through our network of distribution centers.
Pharmacy Services Segment
Our Pharmacy Services segment provides a fully integrated suite of PBM offerings
including technology solutions, mail delivery services, specialty pharmacy,
network and rebate administration, claims adjudication and pharmacy discount
programs. Elixir also provides prescription discount programs and Medicare Part
D insurance offerings for individuals and groups. Elixir provides services to
various clients across its different lines of business, including major health
plans, commercial employers, labor groups and state and local governments,
representing approximately 3.2 million covered lives, including approximately
0.8 million covered lives through our Medicare Part D insurance offerings.
Elixir continues to focus its efforts and offerings to its target market of
small to mid-market employers, labor unions and regional health plans, including
provider-led health plans and government sponsored Medicaid and Medicare plans.
Restructuring
Beginning in Fiscal 2019, we initiated a series of restructuring plans designed
to reorganize our executive management team, reduce managerial layers, and
consolidate roles. In March 2020, we announced the details of our RxEvolution
strategy, which includes building tools to work with regional health plans to
improve patient health outcomes, rationalizing SKU's in our front-end offering
to free up working capital and update our merchandise assortment, assessing our
pricing and promotional strategy, rebranding our retail pharmacy and pharmacy
services business, launching our Store of the Future format and further reducing
SG&A and headcount, including integrating certain back office functions in the
Pharmacy Services segment both within the segment and across Rite Aid. Other
strategic initiatives include the expansion of our digital business, replacing
and updating the Company's financial systems to improve efficiency, and movement
to a common client platform at Elixir.
These and future restructuring activities are expected to provide future growth
and expense efficiency benefits. There can be no assurance that our current and
future restructuring charges will achieve the cost savings and remerchandising
benefits in the amounts or time anticipated.
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Asset Sale to WBA
On September 18, 2017, we entered into the Amended and Restated Asset Purchase
Agreement with Walgreens Boots Alliance, Inc. ("WBA") and Walgreen Co., an
Illinois corporation and 100% owned subsidiary of WBA ("Buyer"), in which the
Buyer purchased from Rite Aid 1,932 stores, three distribution centers, related
inventory and other specified assets and liabilities for a total purchase price
of $4,375,000, on a cash-free, debt-free basis.
During the first quarter of fiscal 2021, we completed the sale of the final
distribution center and related assets to WBA for proceeds of $94,289. The
impact of the sale of the distribution center and related assets resulted in a
pre-tax gain of $12,690, which was included in the results of operations and
cash flows of discontinued operations during the thirteen week period ended May
30, 2020. The transfer of the final distribution center and related assets
constitutes the final closing under the Amended and Restated Asset Purchase
Agreement.
In connection with the asset sale, we agreed to provide transition services to
Buyer. Under the terms of the Transition Services Agreement ("TSA"), we provided
various services on behalf of WBA, including but not limited to the purchase and
distribution of inventory and virtually all selling, general and administrative
activities. In connection with these services, we purchased the related
inventory and incurred cash payments for the selling, general and administrative
activities, which, we billed on a cash neutral basis to WBA in accordance with
terms as outlined in the TSA. Total billings for these items during the thirteen
and thirty-nine week periods ended November 28, 2020 were $0 million and $35.2
million, respectively. We recorded WBA TSA fees of $0 million and $1.5 million
during the thirteen and thirty-nine week periods ended November 28, 2020,
respectively, which are reflected as a reduction to selling, general and
administrative expenses. On October 17, 2020, we and WBA mutually agreed to
terminate the services under the TSA.
Based on its magnitude and because we exited certain markets, the Sale
represented a significant strategic shift that had a material effect on our
operations and financial results. Accordingly, we have applied discontinued
operations treatment for the Sale as required by GAAP.
Overview of Financial Results from Continuing Operations
Our net loss from continuing operations for the thirteen week period ended
November 27, 2021 was $36.1 million or $0.67 per basic and diluted share
compared to net income of $4.3 million or $0.08 per basic and diluted share for
the thirteen week period ended November 28, 2020. Our net loss from continuing
operations for the thirty-nine week period ended November 27, 2021 was $149.4
million or $2.77 per basic and diluted share compared to a net loss of $81.6
million or $1.52 per basic and diluted share for the thirty-nine week period
ended November 28, 2020.
The increase in net loss for the thirteen week period ended November 27, 2021
was due primarily to higher facility exit and impairment charges, a LIFO charge
in the current quarter compared to a LIFO credit in the prior year third quarter
and a lower gain on sale of assets. These items were partially offset by an
increase in Adjusted EBITDA, lower restructuring-related costs and lower
depreciation and amortization expense.
The increase in net loss for the thirty-nine week period ended November 27, 2021
was due primarily to higher litigation settlements, increased facility exit and
impairment charges, a LIFO charge in the current year compared to a LIFO credit
in the prior year, and a lower gain on sale of assets. These items were
partially offset by an increase in Adjusted EBITDA, lower restructuring-related
costs and lower depreciation and amortization expense. Additionally, the prior
year first quarter includes intangible asset impairment charges associated with
the rebranding of Elixir.
Our Adjusted EBITDA from continuing operations for the thirteen and thirty-nine
week period ended November 27, 2021 was $154.8 million or 2.5% of revenues and
$399.8 million or 2.2% of revenues, respectively, compared to $137.4 million or
2.3% of revenues and $396.4 million or 2.2% of revenues, respectively, for the
thirteen and thirty-nine week period ended November 28, 2020.
The increase in Adjusted EBITDA for the thirteen week period ended November 27,
2021, was due to an increase in the Retail Pharmacy segment, partially offset by
a decrease in the Pharmacy Services segment. Adjusted
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EBITDA increased $37.4 million in the Retail Pharmacy segment driven by an
increase in gross profit, partially offset by an increase in SG&A expenses.
Adjusted EBITDA in the Pharmacy Services segment decreased $20.0 million driven
by the decline in revenues, a reduction in rebates and an increase in the
medical loss ratio at EI.
The increase in Adjusted EBITDA for the thirty-nine week period ended November
27, 2021 was due to an increase in the Retail Pharmacy segment, partially offset
by a decrease in the Pharmacy Services segment. Adjusted EBITDA increased $16.3
million in the Retail Pharmacy segment due primarily to an increase in gross
profit, partially offset by an increase in SG&A expenses. Adjusted EBITDA in the
Pharmacy Services segment decreased $12.9 million driven by a decline in
revenues, a reduction in rebates and an increase in the medical loss ratio at
EI. Please see the sections entitled "Segment Analysis" and "Adjusted EBITDA,
Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and
Other Non-GAAP Measures" below for additional details.
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