Ladies and gentlemen, thank you for standing by and welcome to the Rite Aid Corporation Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instruction]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Trent Kruse, Senior Vice President of Investor Relations and Treasury. Please go ahead.

Alright. Thank you, Carol, and good morning, everyone. We welcome you to our fiscal 2021 third quarter earnings conference call. On the call with me this morning are Heyward Donigan, Dan Robson, Jim Peters and Matt Schroeder. As we mentioned in our release, we are providing slides related to the material we will be addressing today. These slides are provided on our website, www.riteaid.com, under the Investor Relations information tab. While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the company's results and to be used as a reference document following the call. Before we start, I'd like to remind you that today's conference call includes certain forward-looking statements. These forward-looking statements are presented in the context of certain risks and uncertainties that can cause actual results to differ. These risks and uncertainties are described in our press release in Item 1A of our most recent annual report on Form 10-K and in other documents that we file or furnish to the SEC. Also, we will be using certain non-GAAP measures in our release and in the accompanying slides. The definition of the non-GAAP measures, along with the reconciliation to the related GAAP measure are described in our press release and slides. And with that, let me turn the call over to Heyward. Heyward?

Hey. Thanks, Trent, and good morning, everyone. We're really pleased with the results for the quarter. We continue to grow our business and achieve major milestones in our transformation through the RxEvolution strategy, all the while demonstrating the essential role we play in our communities during this unprecedented global pandemic. In Q3, we drove a 12% increase in total revenue. Growth was strong at Elixir, which saw a revenue increase of 29% in Medicare Part D memberships. In our Retail Pharmacy segment, we delivered another quarter of comp increases and continued growing market share in both the front end and pharmacy. We also delivered a 28% increase in flu shots from prior year's third quarter. This growth occurred even as we faced the expected headwinds from a soft cough, cold and flu season since no one is out and about, and continued pressure on acute script volumes. Our teams continue to work tirelessly, as you can imagine, to serve our customers during this drawn out pandemic. And I remain very proud of how together we're navigating this crisis; and at the same time, delivering growth in our key areas of our business. I'm also proud that our teams are not only simultaneously executing on our quarterly goals, but also on the strategic plan to revolutionize our industry, and elevate our role as an indispensable healthcare provider. At our Analyst Day in March, we told you that we would be a demonstrably different company within the next year. In just nine short months, we have delivered meaningfully on that promise, making substantial changes to position our company for profitable growth. We redefine the role, customer expectations, and even the daily workflows of our pharmacists. We've rebranded our pharmacy services segment, Elixir, to signal the move to crafted RX solutions for our target customers. We're launching the first phase of our exciting new member portal for Elixir customers on January 1st. And we're well on our way with the integration of the two legacy PBM solutions and upgrading our specialty medication solutions for our customers. We also successfully introduced our new Rite Aid brand to showcase our focus on delivering the perfect fusion of traditional medicines and alternative remedies. Every day, we're introducing new products to our stores that are on trend and reinforce our commitment to whole health. We changed out or replaced thousands of products over the last nine months. And adjusted our merchandising presentation standards in the stores to showcase these new products and provide customer education on their ingredient benefits. We're actively refreshing the exteriors of all of our Rite Aid stores, and have completed more than 700 to date and expect to complete all stores next year. In the third quarter, we opened our first three Stores of the Future, which completely reimagine the drugstore experience and position our pharmacists for an even higher level of customer engagement. Jim will talk more about these stores but we're encouraged by the early results. We're also lasering-in on strategic markets and doubling down in markets where we want to strengthen our position, as exemplified by the acquisition of Bartell in Seattle, which we identified as a key market for Rite Aid. With these key initiatives well underway, we're becoming increasingly focused on elevating our already expanding role in healthcare. And as I've said before, we're a healthcare company. And going forward, we're going to be demonstrating this in new ways. In addition to their clinical training, our enhanced pharmacist training and certification has been expanded to now include holistic care, and our pharmacists are now actively engaging customers in key topics for their whole health, like sleep, anxiety, stress and immunity, which are highly relevant especially during a pandemic, and also to our new growth target customer. This engagement with our customers is already paying dividends, as we saw a lift in add-on sales in these important health categories. In addition, the COVID crisis is a great example of how we're providing additional healthcare services in the communities we serve. Through our partnership with the U.S. Department of Health and Human Services, we have conducted more than 1 million COVID tests with quick turnaround times averaging less than two days for results. These are PCR tests, the most reliable and there is no charge for our customers. Although there are many details still to be worked out, we're partnering with the CDC to help administer COVID vaccines once they're made available for the second phase of the rollout, which is the general population. We expect to play a significant role in providing vaccines to the public in those communities we serve. Providing COVID vaccines could be the most important public health initiative of our lifetime. We're looking forward to this opportunity to help our communities in such a meaningful way that also showcases our essential role in healthcare. Let me now talk about Elixir. I recently took part in multiple executive briefings with national pharmacy benefit consulting firms. They in many ways validated our go forward strategy. As we bring together and leverage Elixir, Health Dialog and our network of retail pharmacies, we're able to craft and deliver differentiated solutions for employers and health plans at both lower costs and improved health outcomes. Speaking of Health Dialog, we have an untapped asset here with strong capabilities in population health management and data analytics to support the Rite Aid and Elixir strategy. We look forward to sharing more on our vision for Health Dialog at a later date. So as a team, we're accelerating the key initiatives that will drive our transformation through the RxEvolution strategy, which focuses on establishing Elixir as a clearly differentiated market leader in managing pharmacy spend and total cost of care for health plan and employer clients as well as omnichannel member engagement to drive better health outcome. And in retail, we're unlocking the value of our pharmacists and revitalizing our retail and digital experiences and will continue working together to deliver the operational excellence needed to achieve strong results as we generate free cash flow, reduce our debt and improve our leverage ratio. While important work lies ahead of us, I'm inspired by the significant progress we're making as a team and optimistic that we will achieve our goals through the RxEvolution. And so, I'll turn it over to Dan for an update on Elixir. Dan?

Thanks, Heyward. I'd like to provide an update on the meaningful progress we're making on our core objectives. Operational integration and modernization within our Pharmacy Services segment is going well. And we will continue to make progress as we move into next year. Clinically, we are focused on consolidating our formulary offerings for our current employer clients and driving members to the most clinically effective and low cost options. This is a big undertaking, and will provide enhanced value for both Elixir and our clients moving forward. In addition to improving the economics of managing overall client drug spend, we continue to drive towards intentional member-focused clinical interventions. To this end, we've recently reorganized and integrated our clinical solutions team within our sister company Health Dialog. There are numerous benefits for Elixir, our clients and our members to a tighter alignment with Health Dialog. By combining more focused drug spend management from Elixir with an analytically driven omnichannel member engagement via Health Dialog, we see substantial opportunity to engage consumers in ways not before seen in the PBM space. We also have big plans in calendar year 2021 for our specialty pharmacy. Managing specialty is particularly important to our clients as it drives significant spend. By offering a new approach using our own specialty pharmacy and other best-in-class specialty pharmacies, we will deliver even more value for our clients and members through a solution that provides optionality, while also focusing on the fastest growing area of drug spend. As Heyward mentioned, we recently wrapped up a productive series of briefings with large pharmacy benefit consulting firms. During these briefings, we shared our vision for Elixir and had useful conversations as to how we might exceed expectations for our target customers. Numerous things came to light throughout these briefings. For example, we received very positive response to our near-term strategy, particularly our soon to launch member portal, which offers a distinct and improved user experience and our realignment with our client services team to better support and advise our health plan and employer clients. And we validated our longer term vision for innovation, including our plans for a far more robust clinical solutions portfolio, and our commitment to analytics, and a more structured data-driven consultation. We also learned pharmacy benefit consultants want to build stronger relationships with Elixir. They want Elixir to succeed, and they want us to be a competitive force in the marketplace. As we come out of COVID, we expect a solid business development pipeline with many regional health plan and employer opportunities. Elixir will deliver a competitively priced offering that both meets client and member needs. And the more that we leverage all the assets and synergies offered by Rite Aid and Health Dialog, the more competitive Elixir will be. We absolutely believe we are well positioned heading into the 2022 selling season and we are highly focused on capitalizing on the opportunity to win new business with midsized employers, as well as regional health plans. With that, I'll now turn it over to Jim for some additional comments on our overall strategic progress in the Retail Pharmacy segment. Jim?

Thanks, Dan. In the third quarter, our teams once again delivered, growing our business and increasing share while also taking critical steps to advance our strategy and redefine our role in the broader healthcare ecosystem. As you know, a key pillar of the RxEvolution strategy is to unlock the value of our pharmacists, and position them as the ultimate last-mile connectors to the healthcare delivery system. We continue to move the needle in this area with encouraging early results, as we look to aggressively accelerate these efforts heading forward. Our pharmacists engage more deeply with customers around key focus areas of immunity, sleep, stress, and anxiety and educated customers on a broad suite of holistic products. Early results from these efforts are positive. We posted strong growth in these areas, and we've only just begun to focus on delivering the perfect fusion of traditional medicines and alternative remedies. Heading into Q4, our pharmacists are trained and prepared to expand to other targeted areas of engagement, around healthy eating, cardiovascular health, aromatherapy, and homeopathy. Our neighborhood pharmacists continue to establish themselves as the most trusted and accessible clinical touchpoints in their communities. They are embracing opportunities to further expand the scope of services they can provide, as evidenced by COVID testing, and shortly, administration of the COVID vaccine. As our strategy begins to take hold, our teams continue to drive growth in prescriptions, with Q3 same-store prescription count increasing 3.1%, when adjusted for 30-day equivalents. This growth came despite ongoing headwinds in acute prescription fills, which had started trending upward before added pressure from the soft cough, cold and flu season and the recent uptick in COVID cases, which as you know, put pressure on acute scripts. A key driver of our results has been our team’s focus on emphasizing with customers the importance of getting a flu shot this year, as the COVID-19 pandemic continues. As a result, flu shots are trending well above last year, as we begin Q4. Ancillary immunizations are also continuing their rebound since being reinstated by the CDC following the early days of COVID and were up 28% in the third quarter. The net result of these efforts led to us increasing our pharmacy market share in our operating area as measured by IQVIA. On the front end, we continue to revitalize our front end to deliver a fresh, holistic and relevant experience for our new target growth consumer. We achieved a key milestone in November, as we officially launched our new brand media campaign, which allowed consumers to see Rite Aid's new commitment to delivering whole health. Post-campaign quantitative research has shown our new brand messaging is resonating strongly with consumers. Our fleet of stores is increasingly reflective of our bold new brand. As Heyward mentioned earlier, more than 700 stores have been refreshed with updated exteriors, signage and pylons, featuring our new branding with hundreds more slated for completion by the end of the fiscal year. Through our remerchandising initiative, about 75% of our categories have been reset to our new elevated merchandising standards, which support whole health and reflect on-trend product. We've added more than 2,400 items that meet these new brand standards and the categories we've enhanced and expanded to our whole health focus, in particular vitamins, first aid, CBD, are seeing strong growth. And we took significant steps forward by launching our first three Stores of the Future located in Etters, Pennsylvania; Littleton, New Hampshire; and Moscow, Pennsylvania. These stores are the ultimate physical embodiment of our new brand with a fresh and inviting look and feel, curated assortment of health and wellness products, and beauty ambassadors to educate consumers on the latest trends and offer personalized guidance on beauty products. Pharmacists are front and center and not walled off from their customers for unprecedented on-demand access. And we have our first deployment of virtual care rooms that connect our customers via telehealth to physicians, behavioral health counselors, sleep specialists, and a wide spectrum of other clinicians. To make sure customers don't fall through the cracks between physician visits, we're providing an easy frictionless way to refer them back to their care teams and care systems when our pharmacists see trouble. Customer feedback to our pilot stores has been outstanding, and we are pleased with the early initial results, both in terms of sales and margin performance. We plan to roll out our next wave of pilot stores in Q4. More broadly, we will continue to upgrade our entire fleet using an analytical approach that guides the type of investment, the level of investment and the timing of investment on a market-by-market and store-by-store basis. As you know, industry-wide, we are experiencing a very soft cough, cold and flu season due to ongoing social distancing and mask requirements. In terms of the quarterly results, this soft cough, cold and flu season impacted our front-end comps. On the other hand, we did see an increase in stock-up behavior related to COVID-19 toward the end of the quarter, as well as growth in vitamins, first aid, household chemicals, and bath, which have all been influenced by COVID dynamics. While we have seen some uptake in stock-up, the dynamic is more muted than what we saw in the early part of the pandemic. And thanks, of course, to the extraordinary efforts of our team, we, once again, grew front end market share as measured by IRI; and for the third consecutive quarter, grew that market share in both dollars and units. Beyond the walls of our brick and mortar stores, we continue to push forward with initiatives to enhance the digital experience in ways never before offered or seen at Rite Aid. In Q3, we saw strong sales growth across our digital channels with digital revenue up 225% compared to the prior year period. This reflects sales not only from our elevated and redesigned website and mobile app, which now reflect our new branding and deliver an enhanced user experience, but also our growing partnerships with Amazon for own brand sales and Instacart for home delivery. With Instacart, we added alcohol delivery in eight states and topical CBD delivery in 14. Customers are responding positively to these additions and we look forward to continuing to expand on these programs. These efforts are critical as we continue to enhance our capabilities to deliver a unified experience that leverages our retail stores and digital channels to meet our customer, whenever, wherever, and however she needs us. As we approach the holidays, I'd like to thank our associates. They have embodied and embraced the hustle, purpose, and nimbleness that have become the defining trademarks of the new Rite Aid. And while we have a ways to go before we can claim victory, these factors have been critical drivers of our strong execution and performance over the past several quarters and this bodes well as Rite Aid continues to emerge as a bright turnaround story in a very unusual calendar 2020. Together, we are taking critical first steps in growing with existing customers, attracting new consumers and setting the stage for a seismic shift in how neighborhood pharmacy served their local communities and the broader healthcare system. I look forward to delivering a strong finish to the fiscal year and continuing to drive progress on our key strategic initiatives. With that, I'll now turn it over to Matt for some comments on our Q3 financial performance. Matt?

Thanks, Jim, and good morning, everyone. Revenues for the quarter were up $655 million, or 12% from the prior year third quarter to $6.12 billion. We generated revenue growth in both our Pharmacy Services and Retail Pharmacy segments. Net income for the quarter was $4.3 million, or $0.08 per diluted share, compared to net income of $52.3 million or $0.98 per diluted share in last year's third quarter. The difference is primarily due to a $55.7 million gain on debt retirements that we recorded in the prior year's third quarter. Adjusted net income was $21.6 million or $0.40 per diluted share, compared to adjusted net income of $29.1 million or $0.54 per diluted share in the prior year quarter. The decrease in our adjusted net income was due to lower adjusted EBITDA and increased lease termination and impairment charges, partially offset by lower interest expense and an increase in gain on sale of assets. The net improvement in gain on sale of assets was driven by a $33 million gain resulting from the sale leaseback of our Perryman, Maryland Distribution Center, partially offset by a loss of $19.2 million recognized in connection with the sale of a portion of our calendar year 2020 CMS receivable. Adjusted EBITDA was $137.4 million in the current quarter, compared to $158.1 million in the prior quarter. Now, I'll discuss the key drivers of operating results in our business segments. Retail Pharmacy segment revenue for the quarter was $4.1 billion, which was $200 million higher than last year's third quarter, driven by an increase in same-store sales of 4.3%. Pharmacy same-store sales increased by 6.1%, with same-store prescription count up 3.1% due to a 4.4% increase in maintenance prescriptions, offset by a reduction in acute prescriptions of 1.9%. Flu immunizations increased by 28% over the prior year quarter, which offset a 19% decline in acute scripts related to cough, cold and flu. We will continue to focus on driving script growth through our broad immunization initiatives and medication adherence interventions, as well as continuing to pursue prescription file buys and working to gain further access to new networks in our markets. Front end same-store sales were up 30 basis points after excluding cigarette and tobacco sales. We continue to see good results in immunity, paper and household care products. But our front end sales were negatively impacted by a decline in sales of cough, cold and flu products and in sales of Halloween Candy due to the impact of social distancing requirements on that holiday. Retail Pharmacy segment gross profit dollars increased $8.9 million over the prior year third quarter. Adjusted EBITDA gross profit was favorable to last year's third quarter by $7 million, but 115 basis points worse than prior year as a percent of revenues. These results were driven by incremental gross profit resulting from the increased sales volume, partially offset by pharmacy reimbursement rate pressure and the impact of reductions in over-the-counter front end product sales on our front end margins. Retail Pharmacy segment SG&A expense for the quarter was $22.8 million higher but 75 basis points lower as a percentage of revenues to last year's third quarter. Our adjusted EBITDA SG&A was $27 million higher but 53 basis points lower than last year's third quarter given the revenue growth. We incurred $16.5 million in incremental costs associated with COVID, which included pandemic pay, incremental cleaning costs, and increases in pharmacy delivery expense. We also recorded $7.9 million of transition services income from Walgreens in the prior year quarter that did not recur, as services under that agreement have been completed. After adjusting for these items, adjusted EBITDA SG&A would have been $2.6 million higher than prior year, but 113 basis points favorable as a percent of sales, as we have used the cost reduction initiatives that we launched earlier this year to help us leverage our revenue improvements. As announced earlier this year, we continue to expect to achieve an incremental $40 million in cost savings in fiscal 2021 across both Retail Pharmacy and Pharmacy Services segments through reductions to payroll, advertising, rent, travel and call center expenses. I'll now shift to our Pharmacy Services segment, Elixir. Elixir saw revenue increases of $471 million or 29%, $2.1 billion due to an increase in revenues from Medicare Part D membership growth. Adjusted EBITDA was $48.8 million or 2.3% of revenues for the third quarter compared to last year's third quarter adjusted EBITDA of $49.5 million or 3.1% of revenues. The reduction in adjusted EBITDA is due to increases in drug costs and SG&A expense related to our Medicare Part D business, partially offset by reductions in payroll and in drug spend in other parts of Elixir. For calendar year 2021, we are restructuring the Elixir insurance business to focus on more profitable Medicare Part D members, which we expect to result in a reduction in the number of Medicare Part D members but improve the profitability of this business in fiscal 2022. I'll now turn to our cash flows and balance sheet. Our cash flow statement for the quarter shows a source of cash from operating activities of $223 million. We generated positive cash flow from the sale of a portion of our calendar 2020 CMS receivable. This was partially offset by a build in the remainder of the CMS receivable, a build in retail inventory levels in advance of the holiday season and changes and other operating assets and liabilities. We have sold the CMS receivable generated from January 1, 2020 through September 30, 2020 and received proceeds of $413 million on that sale. We recognized the loss in the sale of $19.2 million, which is our cost of funding and financing fees. We expect to sell the portion of the CMS receivable that builds between October 1 and December 31 of 2020, prior to the end of fiscal 2021. In addition, we completed the sale leaseback of our Perryman, Maryland Distribution Center, as well as a few additional store sale leaseback transactions that generated total proceeds of $80.6 million. We continue to explore additional sale leaseback options on own distribution centers and stores, where we see attractive cost of funds to generate cash to pay down debt. Our debt balance was approximately $3.2 billion at the end of our third quarter and our adjusted leverage ratio at the end of the quarter was 5.97 times adjusted EBITDA. We expect our leverage ratio to improve by the end of the year due to the sale the remainder of our CMS receivable and declines in retail inventory levels from the current pre-holiday builds. During the quarter, we repaid over $300 million on our revolver, and our quarter end liquidity was $1.6 billion, which gives us ample flexibility and runway to execute our strategic initiatives. Now, let's turn to our fiscal 2021 guidance, which we narrowed this morning. Key guidance assumptions are our expectations to benefit from our initiatives to drive retail sales growth, a benefit in increased Medicare Part D membership at Elixir through the end of December, continued improvement in pharmacy network management at Elixir and good expense control. We expect these benefits to be offset by continued reimbursement rate pressure, the impact of a less severe cough, cold and flu season on over-the-counter products and related prescriptions and additional retail operating expenses caused by the recent increase in COVID-19 -- in COVID cases in many of our markets. We expect total revenues to be between $23.9 billion and $24.2 billion and same-store sales increases in a range of 3.5% to 4.5%. We expect net loss to be between $114 million and $89 million. Adjusted EBITDA is expected to be between $490 million and $520 million and we expect adjusted net income per share to be between $0.45 and $0.85 per share. Our fiscal 2021 capital expenditures are estimated to be $325 million, which includes our previously announced acquisition of Bartell Drugs. And we expect to generate between $50 million and $100 million in free cash flow. And finally, we expect our year end leverage ratio to be approximately 5.3 times adjusted EBITDA. This completes our prepared remarks. Please open the phone lines for questions.

[Operator Instructions]. Your first question this morning comes from Lisa Gill from JPMorgan. Please go ahead.

Good morning. Thank you and thanks for all the detail. So let me just start first with your role in the COVID-19 vaccine. I think Heyward I heard you say that you're expected to be part of the second rollout which will start hopefully in February. But I just really want to understand a couple of things. I know we have and others have written about this. But one, how many vaccines do you think that you can do? Two, how do we think about the profitability. Should it be kind of similar to the flu shot? And then thirdly, did you have to hire any incremental pharmacy techs or other personnel in anticipation of this vaccine?

Hey, Lisa. Thanks for the question. Although, we're not a player in the very first phase due to not being a national chain and the fact that we do not have existing partners with long-term care facilities. So, we are among others and a major player in the phase 2 part of this through our partnership with CDC. As you said, hopefully, in February, actually we are going to potentially be working with one or two states earlier than that to help them out, as they're rolling out their 1b phase to people 65 and over who are in vulnerable demographics or communities. And we're really more than likely to play our role as we've been working on this for quite some time. We've learned a lot about how to prepare, how to adapt quickly. We've been through this with flu before in the early days, and then, we were sort of an early adopter on the COVID testing side, and have been a big part of that solution. Of course we also had a long history of administering vaccines in our pharmacies. We will hire any additional resources we need to make this successful. We're talking about hire -- more hired pharmacists. We're talking about interns. We have also freed-up and will continue to free-up the significant amount of capacity for our pharmacists and our techs through our LEAN initiatives that we've been working on for over a year. Our pharmacists will be paid an administrative fee to cover the cost of dispensing, and we're still working through the economics that expect a net EBITDA benefit from administering the vaccines, and really pleased with the potential value this will create for Rite Aid. And we anticipate, there's going to be a COVID vaccine forever probably, because, if not this mutation, possibly more mutation. So we look at this as both a short-term opportunity to help the country, but a longer-term opportunity for Rite Aid. And Matt, you can just comment on the numbers if you would?

Sure. Thanks, Heyward. As Heyward said, we certainly expect this to be profitable for us. I think we're still working through the final quantification, the economics, which we would provide at a later date probably when we’ll guidance for fiscal '22. I think kind of looking at flu immunization volume and flu gross profit per script is not a bad proxy to use for modeling at this point. But we're still obviously working through the final numbers.

Matt, can you give us the total number of flu vaccines that you did for 2020, just to give us kind of a baseline?

Yes. I don't think we've thrown that number out there, probably the least just I want to be a little careful, but I think we're expecting something in the range of 3.5 million. I guess I just put it out there publicly, but anyway, yes, that's the number.

Okay, great. And then if I can just ask a quick question to Dan on the PBM side. Dan, I just want -- you had the first PBM opportunity that we've had since Rutledge versus PCMA. I'm just curious, your overall thoughts as to how this could potentially change things from a PBM contracting perspective and your actual thoughts on what this does, specifically with the relationships around spread? And I know you have a number of different models on your PBM, but any thoughts you could give us there would be helpful.

Yes. We've been watching this case with interest and the result is not surprising. I believe Heyward you would like to take a stab at this. Then when you take a stab, I'll take over after you.

This is an interesting -- and I'll hand it back to you to answer the question about spread Dan, but this is one, it's nice to have a dual portfolio of a retail pharmacy and the PBM, because, any -- if there's any pricing floors that are established as a result of this rule, similarly to what might be going on in Arkansas, that actually is a benefit for the retail pharmacy side of the business. Also, we're very familiar. I mean I come from the health plan business, as many of the members of our teams do. We're very familiar with state regulation and have dealt with state-by-state regulation my whole career. And we will adapt as required to work in that environment. Specifically though Dan, you can answer the question about spreads.

Yes, absolutely. So currently, Lisa, over 30 states have some iteration of a MAC law, not completely dissimilar to the law in question in the Rutledge case. And we believe that we set our prices at Elixir to MAC prices in an equitable manner in a way that correlates to wholesale prices available in the market and which fairly reimburse pharmacies while also incentivizing them to continuously and effectively managing their acquisition of prescription drugs. We have standard processes, Lisa, in place to address pharmacy MAC appeals. And we'll review these processes for pharmacy -- pharmacies in Arkansas in light of the Rutledge decision.

Your next question comes from Robert Jones from Goldman Sachs. Please go ahead.

I guess, maybe, just to look at the implied 4Q guide, I know you guys pointed out some of the cross-currents there, but it looks like it's expected to be down 20% year-over-year. Just wanted to get a little bit of a better sense of what's driving that? And then you mentioned on the COVID vaccine that you do anticipate playing a role in the second rollout of this, which would be in February, which would be captured somewhat at least in your 4Q -- in your fiscal 4Q. Is there anything factored in there? And beyond that, again, just to push a little bit more, any order of magnitude, Matt? I know you mentioned that you expect it to be profitable. But there's some wide-ranging expectations out there around the vaccine. Just curious if you could give us any guardrails around expectations around the vaccine?

Matt, you take that.

Sure. So thanks, Bob. I'll go through Q4 first. I think as you think about Q4 compared to last year's fourth quarter and the guidance we gave, there's really three -- a couple of factors that weigh on the quarter. One is the soft cough, cold and flu season. Last year's fourth quarter, we actually benefited from a pretty robust cough, cold and flu season. We're seeing exactly the opposite this year, as we talked about in the third quarter results. And I think we expect those trends to continue into Q4. And the other thing is, that's going to weigh on the quarter performance compared to last year is, I think there's some great light at the end of the tunnel with the vaccine, but we see a pretty rough quarter from the standpoint of the COVID conditions in the markets that we're in and the related expense that we're going to have to incur to take care of our associates and our stores. I think those two things are really the main things that drag the numbers down from what we saw last year. As far as the vaccine quantification, besides giving out kind of the proxy to the flu shots, in the last question, there's really not more we can talk about at this point, Bob. There's just too many moving parts. So I certainly understand the need to want to get more there, but we've -- there's just too many unknowns to really give a good guardrail there. I think the other question you asked is, is there any vaccine benefit in our on Q4 guidance? And the answer is no.

And I guess just maybe to ask a follow-up on Lisa's question around the Rutledge ruling from the Supreme Court. Again, some widely varying views on what this could mean. I mean, can you maybe just share a little bit more on both sides of the house? How much does this change the landscape if, in fact, a similar law is uptaken by more states nationally? How does that affect the PBM's ability to make profit? And then, Heyward, you commented on the retail side, which I think is interesting. But does this shift the tides at all as far as the ever-present reimbursement rate pressure? Does this help combat that to some degree?

Well, I think it's very early. So we've been watching this case with interest, of course. And there's really two areas that we think of about this. It's just PBM is being regulated on a state-by-state basis by the states as health plans are. And then the second area is this whole area of MAC law. And as Dan said, over 30 states already have some iteration of that. We believe that we set our MAC prices in an equitable manner, in a way that correlates to the wholesale prices available in the market. And we have historically had two sides of our business, one that has spread and one that doesn't. And so we're probably as prepared to deal with ever which way this goes as anybody because of that. And also, if there were some pressure to limit how much you can push down pharmacy pricing, that would obviously benefit us. So I see it as sort of net neutral in terms of our competitive positioning with the PBMs because everybody is going to be dealing with this. And yes, you could argue that maybe there will be some longer-term potential on the issue on the spreads. But we don't see that because we're dealing with this already. And we don't see -- we're not anticipating that that's a big problem for us. But I think it's also too early to tell.

Our next question comes from Glen Santangelo from Guggenheim Securities.

Heyward, I just wanted to also follow up on the COVID dynamics a little bit. I think what a lot of investors are trying to assess here is they're trying to pull all the pieces related to COVID apart and try to understand how that maybe impacting your near-term results. As we discussed, there's clearly some underlying benefits from all the testing you're doing, potentially, ultimately, the vaccines. But as Matt laid out, there's a lot of incremental costs as well. And so how do you assess the positives and negatives here in aggregate? And how do you think about that impact and the transient nature of that impact on your business?

Yes. We think about this a lot. A lot of the cost impact was upfront and has tapered off during the course of the year -- until recently, actually now because we're in these hotspots. We've got COVID cases ramping up, and therefore, our cleaning costs are ramping up again. But it does kind of ebb and flow. We also -- we're going to talk about this later, but we just announced another round of Hero Pay. So those are examples of the cost issues with COVID. Then there's the other transitory nature, which I don't know truthfully, whether this is longstanding or whether this is short-term, but it's the pressure on cough and cold and the soft flu season this year. So obviously, we did extremely well on flu shots, and everybody knew the importance of getting flu shots. However, when the doctor's office is on elective surgery shutdown, that really puts a lot of pressure on us from an acute script perspective. And we've seen that dissipate a bit. But the stark reality for the short-term is that no one is getting really sick. I mean people aren't getting cough, cold. They're not getting the flu as much as normally, although we do have some cases. And so they're not buying as many of those over-the-counter products and aren't getting Tamiflu, so -- and aren't even getting some of the regular infections that one would have. Now this is mostly due to schools staying closed and people not being together, which after a vaccine, one would argue that everyone is going to go rushing back out to have parties and go to schools and be together. And the minute that happens, the cough, cold stuff comes back with a vengeance. So that's kind of my current thinking right now. And so then, once you get the vaccine out, you're going to have less stress on the system with regard to the cost of quarantining and Pandemic Pay and all of that. So -- but it is so dynamic right now. I mean, I don't know whether people are going to permanently change their hygiene habits, wear masks all the time and wash their hands continuously. So there's a couple of scenarios that we don't have clear visibility into. And then, of course, you've got the benefit of the testing and the vaccines in the sense out -- overcoming -- maybe not overcoming, but at least offsetting some of these other pressures. So Matt, anything else you want to add?

Yes. I think just maybe to put -- to emphasize some of the things that are kind of the near-term impact. Obviously, we quantified the COVID-related cost this quarter. I expect a similar type of drag in the fourth quarter based upon the things Heyward talked about. And I expect that to continue probably into fiscal '22 to some point until the vaccine really gets kind of a pretty heavy adoption. Exactly when that stops, it's a little hard to tell. But I think it does somewhat -- and those cost increases somewhat into fiscal '22. And then I do think -- Heyward pointed out, I think you got to think about the impact that this has had on our acute scripts over the full year. Our scripts have definitely been softer when they were last year, and it's related to the impact of COVID on deferral of elective procedures, shut down of doctor's office and a soft cough, cold and flu. And so while it's hard to predict exactly what's going to happen next year, you think that comes back at some point. I think the timing and the amount of the comeback is still to be determined.

Yes. Listen, I appreciate all the comments. And clearly, there's a lot of cross-currents here. But my only follow-up would be -- and I know you don't want to give any guidance on fiscal '22 at this point, but when you put all those elements in a mixing bowl, I mean, do you view this as a positive tailwind for fiscal '22? Or you view it more as a headwind?

Yes. Glen, great question and a very fair one, but I think we need to be answering that in the context of giving fiscal '22 guidance as opposed to try to -- it's probably it's hard to answer now without giving '22 guidance. So I think we're just kind of waiting until then.

Your next question comes from George Hill from Deutsche Bank. Please go ahead.

I have two, and I guess the first one is for Matt. Matt, the Q4 EBITDA guidance range is still pretty wide. And I guess, could you talk about or maybe even rank order both the puts and takes as you think about them as you've laid them out? And then maybe a follow-up for Heyward is, just kind of strategically, Heyward, we saw kind of Amazon rollout a larger pharmacy offering during the quarter with a new drug benefit card and stuff like that. I guess, just how are you thinking -- I know that you guys have a relationship with Amazon, but just kind of how are you thinking about them as kind of frenemy or friend versus fellow competitor? Would appreciate that.

Sure. Matt, do you want to start?

Yes, I'll jump into the first one, George. I think we -- I talked about in one of the earlier questions why I think some of the weights are on Q4 from the standpoint of comparison to last year. I think the biggest variability, in my mind, is what happens on the top-line. I think there's just -- with the pressure on cough, cold and flu, with the pressure on acute scripts, some uncertainty about what happens with COVID cases here over the next few months while we wait for a more fulsome rollout of the vaccine, I think there's just a lot of variability about what can happen on the top-line here. And I think that's the thing that probably drives the biggest -- as we look at it internally, what the biggest factor is to kind of the low end and the high end of the guidance range, and really, the reason why we've got a $30 million range on the EBITDA guidance.

Yes. And on the Amazon, we recognize Amazon as a formidable competitor, and they launched PillPack over 2 years ago. And interesting, my first reaction was, "Well, Amazon doing this really validates the continued growth opportunity in the pharmacy space." So that was my first reaction. And then -- so there is a connection between the pharmacist and the customer that's more than a transaction by mail. And our Rite Aid pharmacists are trusted, accessible, in-store, via the phone and other omnichannel types of engagements. Currently, mail order in the industry has plateaued. This is really more about the PillPack opportunity, to an estimated 10% to 15% of prescriptions filled. Amazon's new focus is on the cash market, which is about 5% of the total market, and the discount card market. i.e. the good Rx. And Elixir offers both mail order and its own discount card program, and this will continue to evolve as we evolve our strategy with Elixir. And in the retail space, I mean, we order same-day delivery from all of our stores and two-day delivery and mail order. So we really feel that we have the delivery and engagement capabilities that are beyond what an Amazon can do. And now that we're improving our digital capabilities, we think it's just going to continue to get better and better and more easy and convenient for our customers. But you never take your eye off Amazon.

Yes. And Matt, maybe a quick follow-up, a quick housekeeping question. Did you guys detail the percent of sales in pharmacy that came from the back of the store? I didn't see that in the presentation.

When you say a percent of sales in pharmacy came from the back of the store, you mean just the prescription count increase?

No, the percent of revenue. It's pharmacy versus front store.

I don't know if we've detailed it or not. I think it's -- Trent will give you -- follow-up with you with an exact number, but it's in the same ZIP code, normally, it's like close to 70%.

Your next question comes from Elizabeth Anderson from Evercore. Please go ahead.

I had two questions, specifically around the sort of continuation of impact from some of the more recent care initiatives, including the testing, and some of the telehealth benefits. Are you seeing any early indication that that's changing people's perception about the type of care that can be provided at Rite Aid stores? And then secondly, in terms of the store remodels that you mentioned, I know it's still early in the process but if there's any details you could give us about the relative performance of those stores post the remodels versus the rest of the store base? That would be very helpful.

Yes. Thanks. And I'll let Jim answer both of those questions.

Thanks, Heyward. Thanks, Elizabeth. Yes, the perception continues to evolve, and I think it evolves not simply from a consumer perspective, but also from a health system perspective. So you think about large organizations that represent physician groups and health systems, they're increasingly embracing pharmacy's role in the front lines of healthcare because their own front doors have lines going outside of them during COVID peaks that we're seeing now. So, we've proven that we can be that trusted and accessible touchpoint within the everyday workflow and journey of consumers' life. And that really does -- I think, is becoming a hallmark of the pharmacy industry. And I think Rite Aid is taking a forefront role and continuing to push that boundary. The second question around Store of the Future, we do have three up, as I mentioned earlier. And we're really -- we're thrilled about the early read that we're getting, both from a consumer experience perspective, where we have markedly improved consumer experience scores from those stores, but also from a performance perspective. So very early days. But when we look at year-over-year performance and do our best to tease out through modeling the impact of COVID and give ourselves the most fair look at year-over-year performance, we're doing very well from both a front-end and a pharmacy perspective, from both a sales and a margin perspective. So we're beginning to see the intended effects of not only the physical design, which is really the physical embodiment of our brand, but the whole brand relaunch and merchandising overhaul come to full bear within these early numbers of stores in the future.

Perfect. And just one quick follow-up question. I apologize if I missed it, did you give any updates in terms of the timing of the Bartell close?

Matt, why don't you give them an update?

We did not give an update, Elizabeth. We did not give an update. We still expect the transaction to close by the end of our fiscal year.

Your next question comes from William Reuter from Bank of America. Please go ahead.

In terms of the reduction in acute prescriptions, can you remind us what percentage of your prescriptions are acute? And then trying to think about how much pent-up demand there may be by all of these deferred procedures. I guess, what types of increases do you expect to see once we get through COVID?

Matt, do you want to answer that?

Yes, Bill, the split between maintenance and acute is about 75% maintenance, 25% acute in kind of a broad brush. And then I'm sorry, your second question was? I apologize.

He was asking about the pent-up demand, yes. And I think just -- let me just start and then you can follow-up. I think that this is obviously anyone's best guess because I don't think anyone has a crystal ball on this. I personally think, and there's been several articles about this, that whatever -- that some -- well, first of all, some of the demand wasn’t -- isn't pent up. Some of the demand was related to the fact that people just weren't getting sick because they weren't out and about. So that won't come back until people are out and about again. Anything related to like elective surgeries and dental care and stuff like that will certainly come back to normal, I believe, and there will be a pent-up demand actually in Virginia Beach, where I live, which is a Rite Aid market. The doctor's offices are chockful of patients trying to get back to all of the services that they were -- couldn't receive during COVID. I think -- I don't think we know how to quantify that yet because it's still early, and we know that a lot of people just didn't get care and some died from it. But Matt, unless you have a better crystal ball?

I do not, Heyward. I think it's exactly right. Heyward touched on all the factors that could drive demand next year, Bill. But it's too early to try to quantify those.

Okay. And then just one follow-up. After the sale of the DC, do you have an estimate of what the market value of the remaining real estate you have? You mentioned you may continue to pursue additional sale leasebacks in the future?

I -- Bill, I don't have that number off the top of my head. It's something we can look to potentially disclose, but I don't have that number.

Your next question comes from Karru Martinson from Jefferies. Please go ahead.

When we look at the 700 store external remodels, the new Store of the Futures, when do we start kind of communicating the new Rite Aid to the customer and what's the timeframe for getting that growth back in your mind?

Jim, can you handle that?

Sure. Well, we've just begun our formal communication to the customer. We officially launched our new brand on November 8 in a media campaign that was kind of surround sound and had a very strong -- resonated with our consumer base. Remember, the physical remodel is very important because we have a number of stores in our fleet that just need it. But then the reality is that we're in the early phase of all of these next-generation remodels, and we're evaluating in a test-and-learn way, what's working with our remodel and what isn't it, and we're modularizing this remodel. So if you look at our Stores of the Future, they're actually broken down in our own playbook into various modules that we will plug-and-play depending on the specific needs of a particular community. And so this is going to be an evolving process of value engineering and analysis, and early indications are that our testing model, that is not COVID testing, but the way we're testing and learning with these, they're really giving us the right insights to be able to roll out our remodel plan in a way that isn't a one-size-fits-all, but rather very much tailored and personalized to a local community to make sure that we get it right, not only from a consumer perspective, but from a return perspective.

And when you approach those remodels, I mean, I realize that it's early days. But as you, what's kind of the average cost of doing that? And how much of your store fleet do you feel that needs to be refreshed, that needs that a physical remodel?

Matt, can you give your answer on the cost side? And then Jim can answer on the needs side?

Well, I think on the cost side, Karru, it's still too early to give a number. The first three that we did were -- had a great result from the standpoint of how they look and the results we're giving. But until you've honed in on some of the specifics around the design and then scale that design to a multiple amount of stores that you do, you really don't have the right type of read on the cost. So I think more to come from us on the cost and returns of these remodels as we get more of them done and start to scale this.

The only thing I'll add, Matt, is that, again, because we're not taking a copy-and-paste approach where we're developing a prototype and then just pasting it across our fleet, there won't be a single point of cost. There will be an average cost, obviously, across the portfolio. But there won't be a single point of cost because the cost that we deploy in a particular store in one market may be very -- will be very different from the cost of a store that we deploy in another market. So we'll be looking at return, not only from a portfolio standpoint, but again, modulating the investment according to the consumer localized demand.

And just lastly, when we look at the year-end 5.3 times leverage guidance, it implies basically, round numbers here, $2.7 billion of debt -- net debt at the year-end. I mean, is the difference from where we stand today, that CMS receivable remainder, and then the inventory? Or is there another put and take to that? A - Matt Schroeder: Karru, it's Matt. Those are the two biggest differences.

We have time for one final question. It comes from Carla Casella from JPMorgan. Please go ahead.

My question is related to the stores as well as your sale leaseback. You mentioned the sale-leaseback in the quarter and looking at additional opportunities. So how many owned DCs and stores do you have at this point? And are you seeing any changes in rent negotiations? Or are there other reasons that are making these sale leasebacks more attractive now? Is it just the rates in the market? And what kind of opportunity could we see there?

Heyward, can I take this one?

Matt, yes, absolutely.

Yes. So from an owned DC -- good morning, Carla, from an owned DC standpoint, we've got 4 more facilities that are -- 4 or 5 more facilities that are owned. And then from a store standpoint, I think the number is around 125. Not all of them are going to be the right candidates for sale-leaseback. So I think we do need to be selective about which ones we would do over time. We're getting good execution from a cost of fund standpoint on these, and I think a lot of it is market demand. I think, just given the low-rate environment, this is a very attractive form of investment for folks, and we're taking advantage of that environment.

Okay. Great. And then on the reimbursement rate pressure you talked about, I know you've answered some questions on it already. But how -- can you attribute -- how much of that is related to the growth in that Medicare Part D? And is that any part of your assumption that you'll add more profitable Medicare Part D customers? Is it at all anything to do with the reimbursement rate on different plans?

It’s really kind of apple-to-apples, Carla, I think, from the standpoint of lease reimbursement rate pressure in the retail business versus the impact of thinking about how we do things differently in the Med D from the Elixir business, which is really where that has an impact.

Are you asking about the Medicare -- the Elixir Medicare Part D business? Or were you asking on the retail pharmacy side.

Well, I guess, I'm trying to understand if the -- and forgive me for not being -- I'm not the expert on the PBM side of the business, but the growth you talked about in Medicare Part D, you did mention that you expect to grow it more profitably going forward. I'm wondering if the pressure we've seen on that Elixir margin year-over-year, is that from just the Medicare Part D growth? Or does that have to do with the reimbursement rate pressure around -- that comes with the Medicare Part D? Reimbursement is different.

Yes. Well, it's -- the Medicare Part D business is a complicated one for us because it provides more benefit to us than just the actual membership and drug costs associated with the membership. So Medicare Part D has been a very significant growth engine for Elixir, however the mix of membership hasn’t been ideal and it has generated a higher CMS receivable than we'd like. And fortunately, we've been able to securitize that. So it hasn't really affected us from a leverage ratio as much as it used to. There -- it also provides -- the growth in the membership provides a benefit in the sense that these are heavy users of our mail order facility. And so we get really good mail order volume from these members. However, the mix of the membership right now is causing a medical loss ratio or the MLR on this business to be higher than we would like. And it's really about the mix of members. And also, the distribution channel is expensive for us. So when we rebid for the January 1, New Year, we specifically focused on changing the benefit plan design, increasing the premiums and leveraging a more efficient distribution channel. And so that has and will result in lower membership, but we believe it will be a more profitable book of business for us going forward while simultaneously yielding continued good results on mail order. Does that get at your question? Carla?

Sorry, that was great. But also, I've just one clarification on the CMS receivable. Did all of the proceeds come-in in fourth quarter? Or was there -- how much was certain? How much was forth? I may have missed that.

Matt?

So Carla, we had about $413 million of proceeds come-in in the third quarter, the quarter just ended, and that was from selling the receivable that had built up between the beginning of the calendar year and September 30th. There will be another tranche of proceeds that come-in in the fourth quarter when we're able to sell basically the last three months of the receivable build.

This concludes the Q&A portion of our call. And I would like to turn it back to Heyward Donigan for final comments.

Thanks, everyone, for your questions. And before we end the call, I do want to once again recognize our associates on the frontlines. As you know, we operate in many of the hotspots that are seeing a significant recent increase in COVID cases, and our associates continue to rise to the challenge. Our frontline associates have been both the faith and the heart of our RxEvolution transformation. And we’ve served our business, our customers and our communities with grace, kindness and compassion under unimaginably challenging circumstances. Because of their tireless efforts, we have truly demonstrated the essential role Rite Aid plays in the communities we serve. On top of their heroic everyday efforts, we've completed well over 1 million COVID tests and are preparing to play a significant role in administering COVID vaccines in the communities we serve. To thank our teams, as I mentioned earlier, we're pleased to announce that our frontline associates will receive a year-end appreciation bonus. Our customers and communities depend on us just as we, in turn, depend on our frontline associates. And we've been able to do a lot of good for a lot of people, and our store, our mail order facility and distribution center associates have really helped drive those efforts. And so we're really grateful to them and for them, and we could not be more proud of their performance. So with that, I want to say happy holidays to everyone. Here is to 2021 like no other, here is to 2021 that I've ever been excited about. And let's just get this vaccine out and have everybody -- everybody get back out and about. So thanks for joining us, and we'll talk again in January when we participate in the Virtual JPMorgan Healthcare Conference.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.