Rithm Acquisition Corp. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Busy Burr noted the company was ahead of plan in Q1 despite headwinds, with strong script growth, better recovery rate, and generic drug settlements. Progress on turnaround initiatives like controlling SG&A, growing scripts, and reducing drug costs. Pharmacy adherence initiatives: courtesy refills up 10.3%, pilot to reduce abandoned scripts rolled out. Front-end challenges due to respiratory, supply chain, and shrink; vendor transitions completed for perishable items, owned brands focus with new launches. Elixir Insurance exited individual Part D market, focusing on group market. Core PBM business receiving positive feedback.
• Matt Schroeder discussed adjusted EBITDA, net loss, and impairment charge at Elixir. Details on Retail Pharmacy and Pharmacy Services segments. Cash flow and balance sheet info, including liquidity and leverage ratio.

Segment Performance

• Retail Pharmacy: Revenues increased 3.4% year-over-year. Same store sales rose 8.4%, with pharmacy sales up 13.3% but front-end sales (excluding cigarettes/tobacco) down 4.4%. Same store prescriptions adjusted to 30 days increased 4.7% (7.4% excluding COVID). Pharmacy gross profit benefited from script growth, better recovery rate, and generic drug settlements. Retail SG&A improved by $4.8 million.
• Pharmacy Services (Elixir): Revenues were $1.2 billion, a 30% decrease year-over-year. Adjusted EBITDA was $21.7 million vs. $26.4 million last year. Elixir Insurance exited the individual Medicare Part D market due to higher-than-expected medical loss ratio but remained in the group Medicare Part D market and EGWIP solutions. Core PBM business received positive feedback, focusing on market presence and procurement economics.

Guidance

• Adjusted EBITDA at Elixir expected between $90 million and $100 million. Retail EBITDA guidance remains $240 million to $260 million. Total revenues expected $22.6 billion to $23 billion. Lowered capital expenditure spend guidance to $175 million. Front-end sales expected to improve in subsequent quarters but year-end less than initial plan. Exited individual Medicare Part D market due to factors, leading to changes in guidance.

Risks

• Soft front-end sales in retail pharmacy. Higher than expected medical loss ratio at Elixir Insurance. Supply chain challenges with perishable goods. Shrink as a significant headwind. Regulatory changes affecting Elixir Insurance.

Q: What was the impact of COVID vaccines and tests in the quarter?

A: COVID vaccines were down from ~1.7 million last year to less than 500,000 this year. Antigen kits dispensed were ~$2.5 million, lower than last year's first quarter.

Q: How has the Kroger dispute impacted scripts?

A: Not quantified specifically, but the company is getting fair share of volume; similar to past disputes like Walgreens Express, retained over 50% of scripts.

Q: How much of front-end issues are Rite Aid-specific vs. macro?

A: Company-specific issues like assortment, pricing; industry impact from cautious consumer behavior.

Q: What was the shrink amount in the quarter?

A: ~$9 million headwind year-over-year; new leadership to address, focusing on innovative ideas to tackle shrink.

Q: Can you update on the revolver draw and script count?

A: Revolver draw due to calendar timing issues; script count not available offhand.

Q: Any new effort on store closures?

A: Constantly evaluating store performance, not a wholesale program; focused on ongoing review of store base and performance.

Q: SG&A associated with exiting individual Part D?

A: Costs related to administering the plan, compliance, etc., will be unwound, but no specific number given.

Q: Selling season for Elixir?

A: Encouraged by RFPs and lives, but early in season; update to come year-end.

Q: Vendor transition impact on front-end?

A: Still early to comment on second quarter trends; some pressures seen in June, but very early.