Matt Schroeder - Chief Accounting Officer John Standley - Chairman and Chief Executive Officer Kermit Crawford - President and Chief Operating Officer Darren Karst - Chief Financial Officer and Chief Administrative Officer

James Auh - Cowen Robert Jones - Goldman Sachs Elizabeth Anderson - Evercore ISI Carla Casella - JPMorgan George Hill - RBC

Good afternoon. My name is Christina and I will be your conference operator today. At this time, I would like to welcome everyone to the Rite Aid Fiscal 2019 First Quarter Earnings Conference Call. [Operator Instructions] Thank you. Matt Schroeder, Chief Accounting Officer, you may begin.

Thank you, Christina. Good evening, everyone. We welcome you to our first quarter earnings conference call. On the call with me tonight are John Stanley, our Chairman and Chief Executive Officer; Kermit Crawford, our President and Chief Operating Officer; and Darren Karst, our Chief Financial and Chief Administrative Officer. On today’s call, John and Kermit will provide an update on the business. Darren will provide an update on our first quarter results and then we will take questions. As we mentioned in our release, we are providing slides related to the material we will be discussing today. These slides are provided on our website, www.riteaid.com under the Investor Relations Information tab. We will not be referring to them in our remarks, but hope you’ll find them helpful, as they summarize some of the key points made on 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 to certain risks and uncertainties that can cause actual results to differ. These risks and uncertainties are described in our press release in item 1A of our most recent annual report on Form 10-K and other documents that we filed or furnish to the Securities and Exchange Commission. Also, we’ll be using certain non-GAAP measures in our release. The definition of the non-GAAP measure along with the reconciliations to the related GAAP measure, are described in our press release. Also included in our slides are the non-GAAP financial measures of adjusted EBITDA gross profit and adjusted EBITDA SG&A and the reconciliations of these measures to their specific GAAP measure. With these remarks, I’d now like to turn it over to John.

Thanks Matt, and thanks to everyone for joining us on the call today. Our first quarter results show continued progress in our Retail Pharmacy segment, while we continue to make operating investments in our Pharmacy Services segment to support growth. During the quarter as we focused on taking great care of our customers and executing our standalone strategy, we also continued pursuing a tremendous opportunity to transform our business by combining with Albertsons to create a truly differentiated leader in food, health and wellness. This combination will enhance our scale and density to better compete in existing markets, give us access to new markets, significantly improve our omni-channel capabilities and create the opportunity to achieve substantial cost synergies and revenue growth, all of which will strengthen our financial profile and position us to deliver compelling long-term value for customers and shareholders. We'll talk more about these compelling opportunities in just a few moments. Before we do, let's take some time to discuss our results for the first quarter. Overall our net loss from continuing operations was $41.7 million, compared to $36 million in last year's first quarter. Our adjusted net loss from continuing operations of $0.01 per share was consistent with our performance in the prior year period. Adjusted EBITDA from continuing operations for the quarter was $147.3 million, compared to last year's pro forma adjusted EBITDA of $160 million. For the purposes of comparing our results to the prior year, last year’s pro forma number includes fee income that would have been earned, if all stores sold to WBA had then supported under the TSA for that period. Adjusted EBITDA for our Retail Pharmacy Segment increased by $2.1 million, compared to pro forma adjusted EBITDA for last year. The improvement was driven by strong pharmacy gross margin and effective expense management. This is the second consecutive quarter that we’ve delivered adjusted EBITDA growth in our Retail Pharmacy Segment. In our Pharmacy Services Segment, adjusted EBITDA decreased $14.7 million, which was driven primarily by investments we made for growth in EnvisionRxOptions. In terms of the selling season for EnvisionRxOptions, we continue to have a strong pipeline of prospects and have gained some additional lives in our commercial book of business. Medicare Part D enrollment remained strong and I’m pleased to announce that we did submit a bid to re-enter the California Medicare Part D market in calendar 2019. During the quarter, we sold the last group of stores to WBA. The proceeds from the asset sale to WBA have enabled us to reduce our debt by approximately $4 billion. Our debt net of outstanding cash is currently at around $3 billion. And as a result, our leverage ratio has substantially improved to 4.8 times using LTM adjusted EBITDA, compared to our pre-asset sale ratio. Overall, we’re pleased with the progress we’re making as we implement our new strategy. In a consolidating and evolving marketplace, we’re working hard to defend and improve our competitive position. At the same time, after carefully reviewing our strategic options, we believe we have a unique opportunity to further accelerate these efforts and significantly enhance our competitive position through the combination with Albertsons. By transforming our business from a strong regional pharmacy player to a top five food and drug retailer, we will be even better positioned to deliver significant value. On a combined basis, the company will serve over 40 million customers every week with approximately 4,300 counters nationwide. We will have increased local market scale with highly recognizable brands to better compete in markets where scale matters. We will have a stronger presence in key existing markets with the number one or two positions in 66% of combined metropolitan areas and we will have a best-in-class omni-channel platform of strong loyalty program and a portfolio of innovative and healthy own brand products, all of which will allow pharmacy and grocery customers to shop where, when and how they want. We expect to realize $375 million in runway cost synergies with $3.6 billion in incremental revenue opportunities. We will also have a strong and diversified cash flow that will allow us to reinvest in our business and delever faster than Rite Aid can on a standalone basis. All these factors will enhance our ability to compete in the face of increasing competition, drug reimbursement rate pressure and consolidation in our industry. With that, I'd like to turn it over to our President and COO, Kermit Crawford for an update on key initiatives and some of the areas we're most excited about in terms of potential combination with Albertsons. Kermit?

Thank you, John and thanks everyone for joining us today. In the first quarter, we continued making important progress as we implement various components of our strategy to set the stage for future growth and to deliver a higher level of personal care in the communities we serve. Although our same-store sales results were impacted by an earlier Easter, as well as a slow start for the allergy and summer categories, front-end sales trends returned to a more normal level in May. We continued having success with many of our most critical initiatives. A great example is the successful re-launch of our award winning customer loyalty program, wellness+ rewards, which was supported by a comprehensive marketing campaign during the first quarter. Customers are responding very positively to this enhanced program, which is a simplified with an easier three step sign-up in the introduction of bonus cash, which has replaced 20 points. During the first quarter, transactions, earning and redeeming bonus cash more than doubled compared to 20 points for the same period last year. Our best customers continue to be more engaged and [card][ph] transactions accounted for more than 75% of our first quarter front-end sales. This is helping us to further build our CRM database and create opportunities for increased personalization in our direct marketing initiatives. Also, we are continuing our evolution from print advertising to digital marketing, highlighted by 15% reduction in print circulation compared to last year's first quarter, as we invested more to leverage the potential of our digital channel. Additionally, our mobile app unique user base continues to grow with the number of prescription refills requested through the app increasing by 32%, compared to last year's first quarter. Our omni-channel customers are also realizing the enhancements that we have made to our e-commerce business, our wellness+ reward members enjoy all the same card benefits online and have access to an expanded assortment. To improve our customer experience we have transitioned our e-commerce fulfillment from a third-party provider to our own distribution network which has improved our fulfillment lead time, lowered cost and allowed us to increase our online offering by 25%. Our Rite Aid own brand offering continues to be a major point of emphasis to help drive frontend revenue and margin. Year-to-date we've introduced 160 redesigned or new items with additional items in various stages of rollout or development. Most new items are in health, beauty and personal care with emphasis on our Daylogic personal care and Rite Aid Pharmacy OTC brands. We continue to see significant opportunity to increase our own brand penetration and deliver value through a combination with Albertsons, utilizing their own brand expertise in items such as Organics and Open Nature. Our own brand program is one of the initiatives that supports efforts to create tailored offerings that is specific to each local market. Another example of this hyper local approach is our new peered leadership structure which we implemented at the beginning of the fiscal year to better support Rite Aid’s new retail footprint. This process involves redrawing our district and region boundaries, reducing the number of stores in each area and empowering our leaders to lead both the frontend and pharmacy. After more than 90 days we are very pleased with the feedback we've received thus far. Our new structure not only reduces SG&A but also gives our leaders the ability to better support their teams and customers through more frequent store visits. We continue to see positive results from our innovative wellness store formats, which features expanded health and wellness offering along with additional convenience such as drive through pharmacy. With the 49 remodels we completed during the quarter, we now have nearly 1,700 wellness stores, which represent more than two-thirds of our entire store network. These stores continue to outperform the rest of the chain in terms of front-end same-store sales and script count. Providing an excellent customer experience continues to be our top priority and for the sixth consecutive quarter, we have improved our overall customer satisfaction compared to the prior year. In fact, overall customer satisfaction reached an all-time high in the first quarter of this year. In the area of pharmacy, reimbursement rate pressure remains a constant challenge, but we continue to see rates stabilize for a second consecutive quarter. Pharmacy gross margin increased compared to prior year despite a slight underperformance in generic purchasing due to a more stable reimbursement rate environment. As we have stated before, identifying the best long-term option for effectively managing our drug purchasing cost continues to be a top priority. In terms of script growth initiatives, we invested $30 million in file buys during the quarter and we've allocated $60 million for the year. File buys are a tremendous opportunity to build our script volume and we will continue focusing on making the most of these strategic investments. As a reminder, we will fully cycle significant planned exclusion by the end of the second quarter and therefore, expect same-store prescription count to be stronger in the back-half of the fiscal year, which should also help improve front-end sales. We're also continuing our efforts to engage with payer partners and thanks to these efforts, we plan to increase our participation in Medicare Part D preferred networks in 2019. Developing these strategic partnerships with payers will continue to be a critical priority. We also remain focused on our goal of being the trusted advisor for our pharmacy customers to better meet their changing healthcare needs. For us this process starts with operational efficiency in the pharmacy to free up time for our pharmacists to provide a higher level of personal care. In previous calls, we've mentioned how capabilities like Onetrip Refills, automated courtesy refills, and text messaging alerts are helping us become more efficient while also freeing up time for our pharmacist to provide additional services such as medication therapy management, administering and immunization, and improving medication adherence. As a result of these efforts, we saw medication therapy management grow equivalent to 24,000 incremental prescriptions in the first quarter. We have also seen a significant increase in the percent of 90-day prescriptions billed for patients with chronic condition. After a very strong flu season, we turned our team’s focus to non-flu immunizations supported by an increased marketing effort. Through these efforts, non-flu immunizations more than doubled compared to last year's first quarter. Specifically, we saw a strong growth in shingles immunizations due to the availability of the new shingles vaccine. The CDC recommends that healthy adults 50 years and older get two doses of this vaccine separated by two to six months to prevent shingles and the complications of this disease. And finally Rite Aid and Health Dialog have teamed up to create a dedicated meditation support team which conducts outreach to non-compliant patients in an effort to improve medication adherence. We're excited as the early results from this integrated effort have been very positive. The ability to further average, Rite Aid pharmacy expertise in our unique healthcare businesses in a merger with Albertsons makes this opportunity even more attractive, due to greater scale and increased presence in key markets, especially on the West Coast. On our fiscal 2018 fourth quarter call, we discussed our significant progress with Medicare Part D enrollment for our PBM EnvisionRxOptions. As of May, we have enrolled over 540,000 Medicare Part D lives. We anticipate steady month-over-month growth will continue through the remainder of the year and that we will meet our goal of 600,000 enrolled lives for calendar 2018. Likewise, Envision’s specialty revenue continues to grow in the first quarter. Specialty pharmacy continues to be an important opportunity in our go-forward strategy and we are seeing strong growth in this key area of our business. Commercial and third-party health plans, they all continue to perform well as we’re in the middle of the sales season with over 256,000 new lives already won. We’ve also secured several significant client renewals thus far in the selling season in our tracking force retention rate in excess of 95%. Remaining client renewals are expected to be solidified in the next two to three months. Beyond Envision, both right - RediClinic and Health Dialogs continued to be key assets that give us a unique opportunity to deliver a higher level of care and support. With RediClinic, we continue continued to explore opportunities for joint ventures with healthcare systems in the communities we serve. As we’ve mentioned on previous calls, we see tremendous potential for RediClinic through a combination with Alderson, as RediClinic is a proven performer in a grocery store setting. We mentioned earlier how we're taking critical steps to further leverage Health Dialog in driving better health outcomes for Rite Aid patients. We continue to see great potential in utilizing the analytical capabilities of Health Dialog to deliver value in performance driven networks, which would be critical heading forward. Before I turn it over to Darren, I also wanted to mention how we continue to be highly focused on working with our communities and other organizations to help address the epidemic of drug abuse and misuse that is plaguing our country. Through the company and the Rite Aid foundation's efforts, we have taken several key steps to implement a comprehensive strategy to help address this issue especially, when it comes to opioid abuse. Among other steps, Rite Aid has made the lock-phone available at all of our more than 2,500 pharmacies. We also became the first drugstore chain to offer free DisposeRx packets to our patients, which gives them a safe way to dispose of leftover or unwanted prescriptions at home. We’ve also partnered with law enforcement to install nearly 300 safe medication disposal units in the communities we serve. Earlier this month, we’ve launched our first in-store medication disposal unit, and we plan to install 100 additional units over the next year. The Rite Aid foundation has also joined forces with school district and a leading technology innovator to bring online prescription drug abuse prevention programs to high school students in several are the key communities we serve. We know that we cannot solve this issue on our own but we also know that as a leading pharmacy chain, we can take on a leadership role in helping to address this epidemic. We look forward to continuing these efforts by working closely with our neighbors, elected officials and other organizations. Thank you for your time. Now, we’ll turn it over to Darren Karst for more information on our financial results. Darren?

Thanks, Kermit and thanks everyone for joining us today. I will walk through our first quarter financial results as well as recap our progress on the use of proceeds and bond redemptions related to the WBA asset sales. As we discussed on our last call as of March 27, we had completed the sale and transfer of all 1,932 stores to WBA and received cash proceeds totaling nearly $4.2 billion. This amount does not include about $220 million that will be received after we sell three distribution centers to WBA sometime after September 1, 2018. The proceeds received to-date have been used first to pay off all of our $970 million of term loans. We also completed two excess proceeds offers as required under our bond indentures of $900 million and $700 million, which resulted in an aggregate repayment of approximately $55 million under our 9.25% notes due 2020, our 6.75% notes due 2021, and our 6.80% notes due 2023. Thus, offers freed up cash proceeds to allow us to call the remaining principal on our 9.25% notes, which we redeemed on April 12 and the remaining principal on our 6.75% notes which we redeemed on June 25. We've also permanently reduced our revolving credit commitments from $3.7 billion to $2.7 billion to reflect our reduced borrowing requirements. The receipt of proceeds and pay down of debt in this quarter gave us a debt balance net of cash of about $3 billion as a quarter end and a leverage ratio of approximately 4.8 times trailing EBITDA. Our liquidity as of today which reflects the recent borrowings we made under our revolver to redeem our 6.75% notes is strong at 1.5 billion. I’ll now turn to our review of our first quarter results. Net income for the total company was $214.4 million or $0.20 per share versus a net loss of $75.3 million or $0.07 loss per share in last year's first quarter. During the quarter we recorded a gain of $269 million on the sale of 281 of the divested stores sold to WBA. Note that our quarterly operating results reflect the stores that remain as part of continuing operations. Revenues for the quarter were $5.4 billion which was a decrease of $48 million from the prior year quarter or 0.9%. Net loss from continuing operations was $41.7 million versus a net loss of $36 million in the prior year. The increase in net loss was due primarily to higher interest expense, lease termination and impairment charges and transaction costs partially offset by an increase in adjusted EBITDA. Adjusted net loss in the current quarter was $11.5 million or $0.01 loss per share versus adjusted net loss of $9.2 million or $0.01 loss per share in the prior year quarter. Adjusted EBITDA was $147.3 million in the current quarter compared to $136 million in the prior year quarter. Actual fiscal 2018 quarterly results from continuing operations do not include $24 million a piece that would have been earned if all 1,932 stores sold to WBA were being supported under the TSA for the entire prior year period. When considering these fees, pro forma adjusted EBITDA would have been $160 million in the prior year quarter. Adjusted EBITDA in our Retail Pharmacy segment increased by $26.1 million versus our prior year actual results or $2.1 million when compared to the prior year TSA pro forma adjusted EBITDA. In our Pharmacy Services segment, adjusted EBITDA declined by $14.7 million. Retail Pharmacy segment revenue for the quarter was $3.9 billion which was $75 million or 1.9% lower than last year's first quarter due to the impact of store closures and a decline in same-store sales. Same-store sales decreased 0.7% in the quarter. Financing store sales decreased by 1.8% due to soft seasonal sales that were impacted by the timing of an earlier Easter and a slow start for our allergy and summer categories. Pharmacy same-store sales decreased by 1.1% with same-store script count down 1.5% on a 300-day adjusted basis, which was caused primarily by being excluded from certain pharmacy networks where we were able to participate in the prior year. We expect the cycle most of the impact of the pharmacy network exclusions in August at this year. Total Retail Pharmacy segment gross profit dollars in the quarter were $12.5 million higher than last year’s first quarter, and gross margin was 83 basis points higher as a percent of revenues. Adjusted EBITDA gross profit was favorable to last year’s first quarter by $12.3 million and 83 basis points better, as a percent of revenues. The improvement in gross margin was primarily due to more stable reimbursement rates and year-over-year improvements in drug costs. Retail Pharmacy segment SG&A expenses for the quarter were lower by $17.7 million compared to last year’s first quarter while SG&A rate as a percent of revenues increased by 7 basis points. Adjusted EBITDA SG&A was $13.8 million better than the prior year, but 12 basis points worse as a percent of revenues. Our SG&A reflects the inclusion of TSA fee income from WBA in the current quarter, offset somewhat by increases in litigation charges and other operating expenses. The increase in SG&A rate was a result of negative expense leverage from reduced sales. Retail pharmacy segment adjusted EBITDA in the quarter was a $113.5 million, or 2.9% of revenues which was $26.1 million higher than last year's first quarter adjusted EBITDA of $87.4 million. After adjusting the prior year EBITDA for the pro forma inclusion of TSA fees from WBA, retail pharmacy segment EBITDA improved by $2.1 million. Our pharmacy services segment had revenues of $1.5 billion which was an increase of $29.5 million or 2% primarily due to an increase in our Medicare Part D membership. As we said on our last earnings call, we had a very successful 2018 Medicare Part D bid and continued to see strong enrollments this year. We are now covering over 540,000 lives and expect to grow covered lives throughout the remainder of the year as we add enrollments throughout the course of calendar 2018. We've also had a good start in the commercial selling season with over 250,000 lives won. Adjusted EBITDA for the pharmacy services segment of $33.9 million was $14.7 million lower than last year's first quarter, adjusted EBITDA of $48.6 million. Last year's adjusted EBITDA was a particularly strong quarter and so in part, the current year variance reflects this difficult year-over-year comparison. The operating results for the quarter were impacted by margin compression in our commercial business and other operating investments as we invest for current year and future growth. These investments are consistent with our strategy for Envision. Our cash flow statement for the quarter shows the net use of cash from operating activities of $16.3 million which primarily reflects timing differences in working capital including a build in the current year CMS receivable in our Pharmacy Services segment which was not funded by reinsurance as it was in the prior year. We expect the absence of reinsurance this year to continue to be a drag on working capital in fiscal 2019. Net cash used in investing activities for the quarter was $49.1 million versus $33.1 million last year. During the first quarter, we remodeled 49 stores and spent $13.7 million on file buys. At the end of the quarter, we operated 1,694 wellness stores within our continuing operations, which is almost 67% of the store base. We continue to be pleased with the performance of our wellness stores. For the first quarter, frontend same-store sales in our wellness stores that have been remodeled in the past 24 months were approximately 109 basis points higher than our non-wellness stores and script growth in these stores was 249 basis points higher. Turning to our outlook. We are confirming our fiscal 2019 guidance today. Our guidance reflects our expectations for continued reimbursement rate pressure albeit the reimbursement environment is expected to be more stable than in fiscal 2018. We also expect generic purchasing benefits consistent with our historical experience and the continued anticipated benefits of our wellness remodel program and other initiatives to grow sales and drive operational efficiencies. Key items that are expected to drive same-store sales include the cycling of planned exclusions in the second-half of the year, clinical initiatives and script file buys. As a result, we continue to expect the second half of the year to be somewhat stronger than the first half. Additionally, our guidance does not give effect to our pending merger with Albertsons. That completes my portion of the presentation. And I’ll now turn it back over to John to wrap up our call. John?

Thanks Darren. Before we begin taking questions, I'd like to thank our Rite Aid team for all of their great work during the quarter. We've been really aggressive in implementing the various components of our strategy and our team has done an outstanding job of executing these efforts. We've implemented a new field structure to support our new retail footprint and we successfully transitioned our loyalty program to wellness+ rewards. We’re completing file buys and additional wellness store remodels and we're supporting stores we sold to WBA through the TSA as we also pursue a tremendous opportunity to combine with Albertsons. And as we do all of this, our associates are working hard to support each other and deliver a great experience to our customers. Our team has really stepped up to help us make most of the – make the most of the opportunities we have and we greatly appreciate their efforts. That concludes our prepared remarks for the call. We will now open the phone lines for your questions. Operator?

[Operator Instructions] Your first question comes from Charles Rhyee from Cowen. Your line is open.

James on for Charles. Just you noted that Rite Aid is engaged in conversations with plan sponsors regarding participation in additional Part D preferred networks in calendar 2019. Can you just elaborate more on how those conversations have gone? The combination of Rite Aid and Albertsons being well received by plan sponsors and have you assumed any benefit from better drug purchasing costs in any of the bids if any bids have been placed?

You want to start with that or do you want me to start with that?

I can start with. So, first let me just say, as we - as we're working with the different payers, our conversations have been as a standalone Rite Aid. So, we haven't actually had conversations around a combination at this point. So, I would tell you that today we are - we’ve basically signed up for all open Medicare Part D networks. We continue to work on preferred networks as we say, it is one of our priorities to get into the right preferred networks this year. So, we've been very prudent about that. But we are consistently having those conversations. As far as the purchasing, as you know, we have a - we have an option [indiscernible] through May 2019 but our current contract with McKesson goes until March 2019. And so we're just beginning the process to look at what is the best alternative for us to get the best possible generic purchasing pricing that we can get.

So, I guess what I would just add on to that. So, Kermit and the team are really out there working hard to find opportunities for 2019. But just based on the timing and the way things played out that's going to be a challenge. We may find some things here, our biggest opportunity is probably in 2020. And so where I think the conversations for 2019 and hopefully we'll find a couple of things if we can. But it's also really setting the table for we want to go in 2020 I think in those conversations.

Also has EnvisionRx’s position in the market changed due to the vertical deals of two of its larger peers, do you think any - these transactions have had an impact on Envision selling season?

I don’t think so. We do have as we mentioned a robust pipeline out there. None of those kind of vertical transactions are done at this point in time. So, the implications of those maybe further down the line in terms of how they play out. And all contracts don’t renew every year. So, I think, whatever this does will play out overtime. In terms of its position in the marketplace, I think, it is differentiated and that we have a transparent model on a commercial business as a key part of the model that we have there. I also think we will be fully functioning, fully capable PBM that is unaffiliated with a payer or with an insurance company. After all, the dust settles here, which I think also will put us in a unique position in the marketplace, once those vertical integrations happened.

And last one for me. The exclusion from certain pharmacy networks result in a drag this quarter again, should we see like the same level of drag in 2Q with an anniversary and how much of a lift should we expect in the back half?

Well, what we’ve said is that at the end of the second quarter we will cycle those plans that we have been excluded from. And so, we do anticipate the back half of our business to be better. I think you’ll actually see us positive in the second half of our fiscal year.

But I don’t think we’ve been specific in terms of quantifying what that means.

Yes, within the guidance range we established for comp sales. And I do think if you look at the trend, it’s gradual but you do see a negative impact is lessening a little bit overt ime each quarter.

Your next question comes from Robert Jones from Goldman Sachs. Your line is open.

Thanks for the questions. So, just following up on the same-store script commentary, sounds like there'll be some improvement in the back half as you lap some of these exclusions from the Part D networks, and you guys talked on the call about the impact into some of these networks next year. Is there anything you can share with us as far as the level of same-store growth you might expect once you actually are back in participating in some of these Part D networks that you are excluded from?

Well, I think there's kind of two things. One is, we're going to cycle. So, that's good, in terms of timing and when we can get back into these things I think that's still up in the air a little bit, on a couple of these networks like the one we're going to cycle in the back half. We currently are not in that network for 2019 either, we’ll have cycle the negative impact, it will be out of our run rate, but we're not regaining access to that network, at least so far for 2019. So, what I do think is that script count, our hope is that script count can return to kind of the levels it was at before we got tangled up in some of this plan loss, so between file buys, great service to customers, wellness+ and using that way to attract customers, the things that we're doing that Kermit talked about from medication therapy mandate all those are levers for us to grow script count if we can just even keep plan access kind of steady, we think we have a good opportunity to kind of grow script count here and then if we can gain some additional plan access through some preferreds or other things that it might really accelerate our growth. That's the way I kind of think about it.

And then if I could just ask two quick ones on Envision, one tactical, one more strategic. I guess first, you mentioned continuing to see pressure in the commercial book, so I am just curious maybe what, what’s behind that. And then the more strategic question you know if I look at the proxy that was out this week, it certainly seems like there has been some interest in the market and then in Envision, so I am just curious if you would - if you’re willing to share how you’re just thinking about the PBM asset, particularly in light of a potential future combination with Albertsons, you know, kind of where does Envision fit in?

So, starting, I think, on the commercial side, I think where we’re on the commercial side and we are feeling some pressure there on the margin side of the business. So based on, I think, the way we underwrote calendar 2018, we’re feeling a little bit of pressure from that. In terms of the commercial business, it is having a pretty good selling season. We go off to a strong start as I think both Darren and Kermit mentioned, we’re kind of in the middle of the selling season, now we need to see how things kind of shake out. That should, we hope, bode well for 2019 on the commercial side of the business. Medicare Part D is just I think really performed well for us versus our expectations and we’re really excited that, hopefully, depending on how we do on the bid, we’ll just have to see, get back into California here for 2019 which should also add some growth into Envision and growth obviously helps quite a bit in terms of trajectory of the earnings of the company. In terms of the strategic value of it, it is really a key part of our business as we get it returned to normal after sort of working our way through the merger overhang from WBA, we expect it to be the fastest growing part of our business. And even today, it’s fastest growing part of units, modest growth is still, outpacing the retail business. And so we think it’s a very strategic asset to us and we think it’s something that we have that will help drive lives to our stores on a stand-alone basis and when we look at the combined company, we think it’s also a key asset, a key strategic asset that can put lives into our bigger pharmacy network that we’ll have. And I think our bigger pharmacy network that we have will help Envision be more competitive in the marketplace. So, they really kind of feed off of each other and you can see how it - is a cornerstone of the strategy going forward.

Your next question comes from Ross Muken from Evercore ISI. Your line is open.

This is Elizabeth Anderson in for Ross. I just had a question on the TSA fees. Is it right to think that the EBITDA, SG&A of $13.8 million only plays in the P&L with the TSA fees flow through or am I misunderstanding that?

They do run through the SG&A line, yes.

So that’s the only…

As an income line.

And can you also comment on the generic price improvement sort of the sustainability of how you look at the throughout maybe fiscal 2019 and on into 2020, obviously, you have the reset with McKesson but sort of – just sort of in the interim period?

I mean there’s always kind of ups and downs in the generic purchasing world. So, there is some modest continued pipeline in new generics, which means that we’ll have drugs losing exclusivity as we go into 2019 like we do in 2018, those should provide cost savings. There are some instances in the marketplace where drug cost can backup, so if manufacturers realign our portfolio or discontinue certain items, sometimes that kind of cause cost backup a little bit. I don’t know if we have a solid view yet on 2019 per se to kind of guide you on right now. But our expectation certainly for the current year is that we will you know continue to see savings kind of in-line with what we see in the last couple of years in terms of our generic purchasing.

And then lastly, in terms of you mentioned your earlier conversations with health plans you’re running the RediClinic, can you talk a little bit more about what they found to be sort of most and least attractive in terms of your offering or what they’re most excited about in terms of working with you, guys?

Well, I think, you know we just one thing is that’s a low cost solution. You know, to bring someone into one of our clinics you know for healthcare is a great answer for them. It also allows them to you know further extend their network in the communities we serve, but I’m…

And extends our brand. So it’s another place to have their brand out there.

I would just add to you John, Darren is that this is about making sure that they keep people out of emergency rooms, out of urgent care into a lower cost retail setting. So, they’re looking to manage their costs, we have great locations, right very convenient retail locations, a much lower cost setting, I think that’s part of thing that attracts in addition to extending their brand and having more location for their members to be in locations for their members you know to go to.

Our next question comes from Carla Casella from JPMorgan. Your line is open.

I have a couple of cash flow debt type questions. First of all you mentioned you call the rest of the 21 bonds after quarter end and that your availability was a $1.5 billion at that point, so did you draw the full $800 million on the revolver to purchase that if you say, where the revolver stood after pro forma?

We did use the revolver to make that redemption. I don’t think we did say what the revolver was, but if you kind of do the math...

Yes, that liquidity of $1.5 billion is net of - is basically, after we paid off the 6.75%.

Okay, great. So that’s in second quarter.

Yes, revolving basis $2.7 billion, so you can kind do the more, so you can kind of do the math in there.

And then, working capital was a little - was more of a use than we had expected and I’m wondering if there’s anything that were timing issues in the working capital, in your accounts receivable or payables. Any timing issues or if it’s just adjusting for the new mix of business.

Some of it was timing, but I had highlighted also the build of the CMS receivable which isn’t really anything new. The way that works is, that builds over time and then, repaid that receivable the following year from CMS. We've historically used some reinsurance products for a portion of that. So some of that is funded through those reinsurance products and we do not have reinsurance in place this year. So the build is just a little bit larger that’s all. The net.

And then, one question on the Pharmacy Services business. The gross margin, we’re talking a bit lower than last year and I’m wondering, does that normalize in August when you start normalizing or is there some seasonality or timing to that as well, or we had a new run rate?

Well, I think that for this year based on the underwriting that we’ve done for the year, my guess is where we're sitting right now is the gross margin is going to be a little tight for this year versus next year. We did in our guidance I think reflects some thinking on that.

We have time for one more question. Your last question comes from George Hill from ABC. Your line is open.

Wishful thinking on ABC's part. That's RBC, guys. That might be a forward-looking statement. But what I'm going to ask about is, Kermit, your comments on the downward pressure on reimbursement kind of having stabilized and I guess, I wanted to ask, do any of your payer contracts run through your fiscal year? Or are we just thinking about calendar '18? And should we interpret your comments to talk about that there might be reimbursement stabilization beyond the calendar '18 just because your fiscal '19 runs in the beginning of calendar '19? I'm just trying to think about how you guys are telegraphing the pricing pressure.

Well, contract will term at different points of the year. So, this, a number of our contracts will go through calendar 2018, but others will extend into beyond calendar 2018 and to 2019. What I will tell you is that we're key to where we are in getting these rates stabilized over the last couple of quarters. We do anticipate some rate pressure as we continue to try to drive volume. So, we're managing our rates as we look at all of our various contracts.

And then maybe just one last follow-up is, I guess, with the success that you're seeing in Med D at Envision, I guess, can you remind us what subsegments in Med D where you guys are having success because you're picking up lives at a pretty good clip. Are you guys having more success, I guess, on the chooser space? Are you guys having success in the employer space? Just any comments would be helpful.

Primarily it’s user space, that’s our growth area.

Okay. We want to thank everybody for joining us this evening and look forward to catching up with you soon.

Thanks everybody.

Thank you.

This concludes today's conference call. You may now disconnect.