Rite Aid — Merger or Acquisition (June 2018)
47 slides from Rite Aid's merger presentation, Jun 5, 2018
Slide 1: National Food & HBC Credit Industry Group
NATIONAL FOOD & HBC CREDIT INDUSTRY GROUP TOGETHER o ~~ WILL June 5, 2018
Slide 2: Important Notice Regarding Forward-Looking Statements
Important Notice Regarding Forward - Looking Statements : This communication contains certain “forward - looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 , both as amended by the Private Securities Litigation Reform Act of 1995 . Statements
Slide 3: Additional Information and Where to Find It
Additional Information and Where to Find It In connection with the proposed merger involving Rite Aid and Albertsons, Rite Aid and Albertsons have prepared and Albertsons has filed with the SEC on April 6 , 2018 a registration statement on Form S - 4 , as amended by Amendment No . 1 to the registrat
Slide 4: Cautionary Note Regarding Pro Forma Information
CAUTIONARY NOTE REGARDING PRO FORMA INFORMATION : The following presentation provides certain pro forma information regarding the impact of Rite Aid’s proposed sale of stores and assets to WBA on Rite Aid’s results of operations and capital structure . The pro forma information is for illustrative p
Slide 5: Non-GAAP Financial Measures
Non - GAAP Financial Measures The following presentation includes non - GAAP financial measures, Adjusted EBITDA . Pro Forma Adjusted EBITDA, Adjusted EBITDA Gross Profit, Adjusted EBITDA SG&A, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share . Rite Aid defines Adjusted EB
Slide 6: The New Rite Aid
The New Rite Aid TOGETHER ¢ WEWILL
Slide 7: New Rite Aid Profile
New Rite Aid Profile Key Metrics 2,550 Stores in 19 States as of March 3, 2018 Full - Service Pharmacy Benefit Management Company (EnvisionRx) with approximately 4 million lives under management Fills over 215 million scripts per year in retail pharmacy (1) Approximately $16.0 billion in Retail Phar
Slide 8: Strong Presence in Key States
Represents our position in CBSA’s where we have a presence, based on store count. Stores 1 st 2 nd 3 rd California 570 35% 32% 18% Pennsylvania 529 66% 21% 10% Michigan 269 72% 3% 14% Ohio 214 59% 18% 3% New York 321 30% 10% 25% Washington 139 37% 42% 16% Oregon 73 55% 15% 15% Position in CBSA’s Str
Slide 9: Improved Leverage
Improved Leverage ($ in millions) Net Debt 6,908$ 2,921$ Adjusted EBITDA 944$ 647$ Leverage Ratio 7.3 4.6 Actual as of Sept. 1, 2017 Actual as of March 3, 2018 9
Slide 10: Strategic Priorities
Strategic Priorities • Redefine & enhance our customer & patient experience • Engage with payor partners to create a sustainable business model • Evaluate our pharmacy purchasing options to ensure we have competitive drug cost • Streamline our operations • Grow our pharmacy benefits manager, Envisio
Slide 11: Redefine & Enhance Customer & Patient Experience
Redefine & Enhance Customer & Patient Experience • Immunizations • Wellness Stores • Wellness+ Loyalty Program • Localized Product Assortment • Private Brand • Omni - Channel 11
Slide 12: Immunization Trends
Immunization Trends 12 1,915 1,881 1,898 2,195 340 441 462 507 2,255 2,322 2,360 2,702 FY2015 FY2016 FY 2017 FY 2018 Flu shots All Other (in thousands)
Slide 13: Wellness Store Renovations
Wellness Store Renovations • Comp results for Wellness stores continue to exceed the chain average (1) • Front - end sales growth outperformance of 173 bps in Q4 Fiscal 2018 • Script count growth outperformance of 259 bps in Q4 of Fiscal 2018 • Remodeled Stores Since 2012 (2) : (1) Calculation compa
Slide 14: Wellness+ Loyalty Program
Wellness+ Loyalty Program $27.74 $35.61 $46.42 Bronze Silver Gold Members 77% Non - Members 23% Members 52% Non - Members 48% (1) Based on results for LTM ended April 30, 2018 (2) Active member defined as a customer who shopped a store two or more times in six months 14 Wellness+ Average Customer Ba
Slide 15: Localized Product Assortment
Localized Product Assortment • Being relevant and local will be a key differentiator for the new Rite Aid • Appropriate ethnic assortment to match core demographic • Consumables, beauty, and seasonal • Product assortment that resonates with local community • Consumables and apparel • Expanded DME in
Slide 16: Rite Aid Private Brands
Rite Aid Private Brands • Six key brands with over 4000 items throughout the store and sales over $1B • A strategic point of difference for Rite Aid, offering many exclusive items and great value (price/quality) for our customers • Commitment to quality with all products tested through UL to meet or
Slide 17: Omni-Channel
Omni - Channel • Wellness+ loyalty program has enabled us to personalize communications, enhancing reach, frequency, and relevancy • Over 13M active members • Personalized offers and content in email and direct mail • Mobile app usage continues to grow • Recent enhancements have led to 4.7/5.0 ratin
Slide 18: Pharmacy Business Stabilization
Pharmacy Business Stabilization • Productive engagement with our payor partners • Rates have stabilized quarter over quarter • Better predictability on reimbursements and access for the coming year 18
Slide 19: Optimize Pharmacy Purchasing
Optimize Pharmacy Purchasing • WBAD generic purchasing option • Available to us now • Option expires May 2019 • Requires brands to be sourced thru ABC • Benefit identified in clean room process • RFP process to achieve lowest possible drug cost prior to exercising option • WBAD option, possible bids
Slide 20: Streamline Our Business
Streamline Our Business • Reduce near term operating costs • Store and field labor efficiency • Advertising: reduce circular costs • Indirect procurement • Estimated long - term reduction of $96 million of administrative costs • Process reengineering at corporate office • Reduction of workload due t
Slide 21: EnvisionRx Options
EnvisionRx Options 21 Diverse Client Base Employers Managed Care Consultants / Brokers Medicare Part D Consumers Workers Comp Other PBMs Hospital Systems ERxO Value Proposition - Operational Flexibility - Transparent Performance - On - Going Insights - Quality Assured - Bottom Line Impact Today, a f
Slide 22: Medicare Part D Update
Medicare Part D Update 286 191 238 77 180 347 21 31 26 384 402 611 2016 2017 2018 Low Income Subsidy (LIS) Members Non-LIS Members (Choosers) Group Members (EGWP) 22 (in thousands) Lives covered by EnvisionRx (1) (1) Represents estimated enrollment at the end of calendar 2018
Slide 23: WBA Asset Sale Update
WBA Asset Sale Update • As of March 27, 2018, all 1,932 stores and related assets have been transferred to WBA with $4.157 billion in proceeds received to date which is being used to reduce debt • Transfer of the three distribution centers and related inventory is expected to begin after September 1
Slide 24: 4th Quarter Fiscal 2018 Financial Results
4'h Quarter Fiscal 2018 Financial Results TOGETHER WEWILL
Slide 25: Q4 Fiscal 2018 Summary
Revenue 5,394.3$ 5,903.4$ Adjusted Net (Loss)/Income (10.3)$ 19.8$ Adjusted Net (Loss)/Income per Diluted Share (0.01)$ 0.02$ Adjusted EBITDA 157.4$ 2.92% 167.6$ 2.84% Pro Forma Adjusted EBITDA 173.2$ 180.8$ 13 Weeks Ended March 3, 2018 14 Weeks Ended March 4, 2017 Q4 - Fiscal 2018 Summary 25 ($ in
Slide 26: Q4 Fiscal 2018 Summary
Revenue 5,394.3$ 5,903.4$ Adjusted EBITDA Gross Profit 1,227.3$ 22.75% 1,321.8$ 22.31% Adjusted EBITDA SG&A 1,069.9$ 19.83% 1,154.2$ 19.55% Adjusted EBITDA 157.4$ 2.92% 167.6$ 2.84% Adjustment for additional week - (10.8) Adjustment to reflect a full TSA fee 15.8 24.0 Pro Forma Adjusted EBITDA 173.2
Slide 27: Q4 Fiscal 2018 Summary
Q4 - Fiscal 2018 Summary • Retail Pharmacy Segment revenue decreased $447.8 million or 10.1%. Excluding $312.2 million of revenues related to the extra week in Fiscal 2017, Retail Pharmacy Segment revenue decreased 3.3% due to a 1.8% decrease in comparable script growth and a 0.6% decrease in same s
Slide 28: Improved Leverage & Maturity Profile
$700 $2,000 $295 $128 $1,800 $0 $1,000 $2,000 $3,000 $4,000 $5,000 2017 2018 2019 2020 2021 2022 2023 . . . . . . 2027 2028 Improved Leverage & Maturity Profile 28 Note: Maturities reflect calendar year. Amounts reflect face value and are not net of unamortized debt issuance costs. *Assumes a $2.5 b
Slide 29: Rite Aid FY 2019 Guidance
($ in millions) Low High Average Net Loss ($95) ($40) ($68) Adjustments: Interest Expense 210 210 210 Income Tax Benefit (15) (10) (13) D&A 380 380 380 LIFO Charge 35 35 35 Loss on Debt Retirements 15 15 15 Store Closing & Impairment Charges 40 40 40 Other 45 45 45 Adjusted EBITDA $615 $675 $645 Rit
Slide 30: Creating a Leader in Food, Health & Wellness
Creating a Leader in Food , Health & Wellness 30
Slide 31: Our Companies
Our Companies 2,550 stores in 19 states 215 million scripts per year (2) Full service PBM (EnvisionRxOptions) with ~22 million lives covered across all business $16bn in Retail Pharmacy and $6bn in EnvisionRx sales, respectively Wellness+ loyalty program ( 13 million members) 8.5 million
Slide 32: The Transaction Transforms Rite Aid
The Transaction Transforms R ite Aid 32 Increased Geographic Presence… …New Levers for Growth… …Solidifies Financial Strength 1 2 3 The #3 drug store player with 2,550 counters (1) … …to the differentiated leader in Food, Health & Wellness Creates compelling value for our customers and our sharehold
Slide 33: Key Transaction Terms
Key Transaction T erms 33 Consideration Closing Considerations For every 10 Rite Aid shares, Rite Aid shareholders will have the right to elect to receive either 1 share of Albertsons plus $1.832 in cash or 1.079 shares of Albertsons If all Rite Aid shareholders elect to receive shares plus cash
Slide 34: Combination Highlights
Combination Highlights 34 $83bn revenue (1) 4,868 stores and 4,327 pharmacies 40+ million customers per week and 317 million prescriptions filled per year Leading positions in 66% of the top MSAs (2) 70% of pharmacy locations in the West are #1 or #2 (3) Complementary offerings and conve
Slide 35: Combined Geographic Footprint and Market Rankings
#2 Eastern #1 #3 #3 #2 #2 #1 #3 #1 #3 #2 #2 #1 #3 Southern #2 Denver #2 #1 Intermountain #1 #1 #1 Seattle #1 Portland #1 Nor Cal #1 So Cal #2 Southwest #1 #3 #2 # # Total pharmacy count (2) Grocery regional rank (3) Rite Aid location Albertsons location #1 Jewel Osco Acme Shaw’s United Note: Rite Ai
Slide 36: Focusing on our Relationship with our Most Valuable Customers
Focusing on our Relationship with our Most Valuable Customers 36 (1) Based on Albertsons customer data for FY’17 Q3. (2) Does not include Front End or EnvisionRx sales. Albertsons Rx Customers Spend Significantly More Than Non - Rx Customers (1) 4,327 Pharmacies $ 15bn Annual Combined Pharmacy Sales
Slide 37: Increase Lives through Broader Geographic Coverage
Increase Lives through Broader Geographic Coverage & Strong Local Pharmacy Networks 37 Every additional 100,000 lives drives $200m in incremental combined grocery and drug revenue per year (3) Combined pharmacy network increases choice, convenience and access to the ~50 million lives in West Coast m
Slide 38: Opportunity to Deliver Significant Cost Synergies
Opportunity to Deliver Significant Cost Synergies 38 Leverage combined scale to increase vendor funding and COGS reduction Branded Savings & Merchandising $90m Expected Cost Synergies: $375 million EBITDA Contribution Albertsons general merchandise and health and beauty care penetration increase
Slide 39: Combination Creates Opportunities to Drive Traffic & Growth
Leverage Front End capabilities and pharmacy expertise to enhance customer offering Broaden health and wellness value proposition and create a best-in - class, omni-channel retail experience Approach payors and PBMs to create preferred network leveraging numerous convenient locations across multiple
Slide 40: Pro Forma Financial Snapshot
Pro Forma Financial Snapshot 40 ($ billions) + Expected Synergies Store count 2,550 2,318 4,868 Revenues (1) $ 22.0 $ 61.0 $ 83.0 +$3.6bn Revenue opportunities Adj. EBITDA (1) % margin $ 0.6 3.0% $ 2.7 4.4% $ 3.4 4.1% $ 3.7 (2) 4.5% Net Debt/ EBITDA (3) 4.2x 4.3x 4.1x (4) 3.8x (4) Note: Store counts
Slide 41: TOGETHER ¢
TOGETHER ¢ ss WEWILL
Slide 42: Appendix
APPENDIX TOGETHER ¢ WEWILL
Slide 43: FY 2019 Guidance
FY 2019 Guidance 43 ($ in thousands, except per share amounts) Low High Total revenues 21,700,000$ 22,100,000$ Same store sales 0.00% 1.00% Gross capital expenditures 250,000$ 250,000$ Reconciliation of net loss to adjusted EBITDA: Net loss (95,000)$ (40,000)$ Adjustments: Interest expense 210,000 2
Slide 44: FY 2019 Guidance (cont.)
FY 2019 Guidance (cont.) 44 ($ in thousands, except per share amounts) Low High Net loss $ (95,000) $ (40,000) Add back - Income tax benefit (15,000) (10,000) Loss before income taxes (110,000) (50,000) Adjustments: Amortization of EnvisionRx intangible assets 85,000 85,000 LIFO charge 35,000 35,000
Slide 45: Q4 Fiscal 2018 Reconciliation of Net Loss to Adjusted EBITDA
Q4 - Fiscal 2018 Reconciliation of Net Loss to Adjusted EBITDA 45 ($ in thousands) 13 Weeks Ended March 3, 2018 14 Weeks Ended March 4, 2017 Net Loss - Continuing Operations (483,673)$ (25,054)$ Adjustments: Interest expense 50,603 53,391 Income tax expense 216,719 48,262 Depreciation and amortizati
Slide 46: Q4 Fiscal 2018 Reconciliation of Net Loss to Adjusted Net Income
Q4 - Fiscal 2018 Reconciliation of Net Loss to Adjusted Net Income 46 ($ in thousands, except per share amounts) 13 Weeks Ended March 3, 2018 14 Weeks Ended March 4, 2017 Net Loss $ (483,673) $ (25,054) Add back - Income tax expense 216,719 48,262 (Loss)/Income before income taxes (266,954)$ 23,208$
Slide 47: TOGETHER ¢
TOGETHER ¢ ss WEWILL