Overview

We are a healthcare company with a retail footprint, providing our customers and communities with a high level of care and service through various programs we offer through our two reportable business segments, our Retail Pharmacy segment and our Pharmacy Services segment. We accomplish our goal of delivering comprehensive care to our customers through our retail drugstores and our PBM, Elixir. We also offer fully integrated mail-order and specialty pharmacy services through Elixir Pharmacy. Additionally, through Elixir Insurance ("EI"), Elixir also serves seniors enrolled in Medicare Part D. When combined with our retail platform, this comprehensive suite of services allows us to provide value and choice to customers, patients and payors and allows us to compete in today's evolving healthcare marketplace.





Retail Pharmacy Segment

Our Retail Pharmacy segment sells brand and generic prescription drugs and provides various other pharmacy services, as well as an assortment of front-end products including health and beauty aids, personal care products, seasonal merchandise, and a large private brand product line. Our Retail Pharmacy segment generates the majority of its revenue through the sale of prescription drugs and front-end products at our over 2,400 retail pharmacy locations across 17 states. We replenish our retail stores through a combination of direct store delivery of pharmaceutical products facilitated through our pharmaceutical Purchasing and Delivery Agreement with McKesson, and the majority of our front-end products through our network of distribution centers.





Pharmacy Services Segment

Our Pharmacy Services segment provides a fully integrated suite of PBM offerings including technology solutions, mail delivery services, specialty pharmacy, network and rebate administration, claims adjudication and pharmacy discount programs. Elixir also provides prescription discount programs and Medicare Part D insurance offerings for individuals and groups. Elixir provides services to various clients across its different lines of business, including major health plans, commercial employers, labor groups and state and local governments, representing approximately 3.2 million covered lives, including approximately 0.8 million covered lives through our Medicare Part D insurance offerings. Elixir continues to focus its efforts and offerings to its target market of small to mid-market employers, labor unions and regional health plans, including provider-led health plans and government sponsored Medicaid and Medicare plans.

Restructuring

Beginning in Fiscal 2019, we initiated a series of restructuring plans designed to reorganize our executive management team, reduce managerial layers, and consolidate roles. In March 2020, we announced the details of our RxEvolution strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU's in our front-end offering to free up working capital and update our merchandise assortment, assessing our pricing and promotional strategy, rebranding our retail pharmacy and pharmacy services business, launching our Store of the Future format and further reducing SG&A and headcount, including integrating certain back office functions in the Pharmacy Services segment both within the segment and across Rite Aid. Other strategic initiatives include the expansion of our digital business, replacing and updating the Company's financial systems to improve efficiency, and movement to a common client platform at Elixir.

These and future restructuring activities are expected to provide future growth and expense efficiency benefits. There can be no assurance that our current and future restructuring charges will achieve the cost savings and remerchandising benefits in the amounts or time anticipated.





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Asset Sale to WBA

On September 18, 2017, we entered into the Amended and Restated Asset Purchase Agreement with Walgreens Boots Alliance, Inc. ("WBA") and Walgreen Co., an Illinois corporation and 100% owned subsidiary of WBA ("Buyer"), in which the Buyer purchased from Rite Aid 1,932 stores, three distribution centers, related inventory and other specified assets and liabilities for a total purchase price of $4,375,000, on a cash-free, debt-free basis.

During the first quarter of fiscal 2021, we completed the sale of the final distribution center and related assets to WBA for proceeds of $94,289. The impact of the sale of the distribution center and related assets resulted in a pre-tax gain of $12,690, which was included in the results of operations and cash flows of discontinued operations during the thirteen week period ended May 30, 2020. The transfer of the final distribution center and related assets constitutes the final closing under the Amended and Restated Asset Purchase Agreement.

In connection with the asset sale, we agreed to provide transition services to Buyer. Under the terms of the Transition Services Agreement ("TSA"), we provided various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, we purchased the related inventory and incurred cash payments for the selling, general and administrative activities, which, we billed on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and thirty-nine week periods ended November 28, 2020 were $0 million and $35.2 million, respectively. We recorded WBA TSA fees of $0 million and $1.5 million during the thirteen and thirty-nine week periods ended November 28, 2020, respectively, which are reflected as a reduction to selling, general and administrative expenses. On October 17, 2020, we and WBA mutually agreed to terminate the services under the TSA.

Based on its magnitude and because we exited certain markets, the Sale represented a significant strategic shift that had a material effect on our operations and financial results. Accordingly, we have applied discontinued operations treatment for the Sale as required by GAAP.

Overview of Financial Results from Continuing Operations

Our net loss from continuing operations for the thirteen week period ended November 27, 2021 was $36.1 million or $0.67 per basic and diluted share compared to net income of $4.3 million or $0.08 per basic and diluted share for the thirteen week period ended November 28, 2020. Our net loss from continuing operations for the thirty-nine week period ended November 27, 2021 was $149.4 million or $2.77 per basic and diluted share compared to a net loss of $81.6 million or $1.52 per basic and diluted share for the thirty-nine week period ended November 28, 2020.

The increase in net loss for the thirteen week period ended November 27, 2021 was due primarily to higher facility exit and impairment charges, a LIFO charge in the current quarter compared to a LIFO credit in the prior year third quarter and a lower gain on sale of assets. These items were partially offset by an increase in Adjusted EBITDA, lower restructuring-related costs and lower depreciation and amortization expense.

The increase in net loss for the thirty-nine week period ended November 27, 2021 was due primarily to higher litigation settlements, increased facility exit and impairment charges, a LIFO charge in the current year compared to a LIFO credit in the prior year, and a lower gain on sale of assets. These items were partially offset by an increase in Adjusted EBITDA, lower restructuring-related costs and lower depreciation and amortization expense. Additionally, the prior year first quarter includes intangible asset impairment charges associated with the rebranding of Elixir.

Our Adjusted EBITDA from continuing operations for the thirteen and thirty-nine week period ended November 27, 2021 was $154.8 million or 2.5% of revenues and $399.8 million or 2.2% of revenues, respectively, compared to $137.4 million or 2.3% of revenues and $396.4 million or 2.2% of revenues, respectively, for the thirteen and thirty-nine week period ended November 28, 2020.

The increase in Adjusted EBITDA for the thirteen week period ended November 27, 2021, was due to an increase in the Retail Pharmacy segment, partially offset by a decrease in the Pharmacy Services segment. Adjusted


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EBITDA increased $37.4 million in the Retail Pharmacy segment driven by an increase in gross profit, partially offset by an increase in SG&A expenses. Adjusted EBITDA in the Pharmacy Services segment decreased $20.0 million driven by the decline in revenues, a reduction in rebates and an increase in the medical loss ratio at EI.

The increase in Adjusted EBITDA for the thirty-nine week period ended November 27, 2021 was due to an increase in the Retail Pharmacy segment, partially offset by a decrease in the Pharmacy Services segment. Adjusted EBITDA increased $16.3 million in the Retail Pharmacy segment due primarily to an increase in gross profit, partially offset by an increase in SG&A expenses. Adjusted EBITDA in the Pharmacy Services segment decreased $12.9 million driven by a decline in revenues, a reduction in rebates and an increase in the medical loss ratio at EI. Please see the sections entitled "Segment Analysis" and "Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures" below for additional details.

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