Rite Aid Corporation (RAD) Earnings Call Transcript & Summary

Welcome to the Annual Meeting of Stockholders of Rite Aid Corporation. Before I turn the meeting over, I will read an important statement regarding legal matters. Please note that today's discussion may contain forward-looking statements concerning Rite Aid and its future business conditions. These forward-looking statements are made in the context of certain risks and uncertainties that can cause actual results to differ. Rite Aid's actual results could differ materially from those anticipated in such forward-looking statements depending on the factors described in Item 1A of Rite Aid's most recent annual report on Form 10-K and in other documents filed with or furnished to the SEC. In addition, during the meeting, Rite Aid may discuss some financial measures that were not prepared in accordance with the U.S. generally accepted accounting principles. You can find the reconciliation of those measures to the most directly comparable U.S. GAAP financial measures in Appendix A to our proxy statement, our most recent annual report on Form 10-K and our first earnings release. I'll now turn the meeting over to Bruce Bodaken, Chairman of the Board of Directors of Rite Aid Corporation. Your line is now open. Please go ahead.

Good morning, and welcome to the Annual Meeting of Stockholders of Rite Aid Corporation. I am Bruce Bodaken, Chairman of the Board. Today's meeting is being held in a virtual-only format due to public health concerns related to COVID-19 and to support the health and well-being of our stockholders and other meeting participants. We hope that you and your families remain safe and healthy. In the event we encounter any technical difficulties that prevent us from continuing the meeting, we ask that you please stand by and allow us time to provide an update regarding the meeting. Joining me today via audio connection are the other members of the Rite Aid Board of Directors standing for reelection, and I would like to introduce them at this time, Heyward Donigan, our Chief Executive Officer; Elizabeth ‘Busy’ Burr; Robert Knowling, Jr.; Kevin Lofton; Louis Miramontes; Arun Nayar; and Katherine Kate Quinn. The order of business for the meeting will be as follows. First, we will cover introductory and procedural matters. Second, Heyward Donigan will provide an overview of Rite Aid's business. Next, we will complete the formal portion of the meeting. Following the formal business of the meeting, Heyward and I will answer questions relating to the company and our business. The meeting will please come to order. [ Paul Gilbert ], who is serving as Interim General Counsel to the company, also joins us via audio connection and will act as Secretary of the meeting. Paul, would you report on the stockholders' list?

Thank you, Bruce. I have the list of stockholders of the company at the close of business on May 11, 2020, who are entitled to vote at this meeting. This list has been available during the usual hours of business for examination by stockholders.

Will the Secretary report on the presence of a quorum?

I have examined the list of stockholders entitled to vote at this meeting. The number of shares outstanding as of the record date, May 11, 2020, and entitled to vote was 54,703,393 shares of common stock, each of which has 1 vote. The number of shares represented at this meeting is at least 46,168,476 shares of common stock, and therefore, a quorum is present. In addition, I have in my possession, copies of the notice of annual meeting, the definitive proxy statement and the proxy card, together with the affidavit of mailing. The minutes of this meeting will reflect that the notice of annual meeting, the definitive proxy statement and the proxy card or a notice of internet availability of proxy materials were first mailed on May 26, 2020, to all stockholders entitled to vote at this meeting as evidenced by the affidavit of mailing provided by Broadridge Financial Solutions, the company's transfer agent. A copy of these materials will be made a permanent part of the company's corporate records.

On the basis of the report of the Secretary, I declare that a quorum is in attendance. The proxies are ordered to be filed with the secretary of the meeting. Gary Wozniak of Broadridge has been appointed as inspector of election and has sworn to the inspector's oath. I direct the secretary to file that oath within the minutes of the meeting. Also joining us today via audio connection is William Park of Deloitte & Touche LLP, the independent registered public accounting firm that audits Rite Aid's financial statement. Mr. Park is available to respond to appropriate questions from stockholders. It is now my pleasure, my distinct pleasure, to introduce Heyward Donigan, our Chief Executive Officer, to provide an overview of our business and strategic initiatives. As you know, Heyward joined Rite Aid as its Chief Executive Officer on August 12, 2019. Since then, Heyward has, among many other things, defined and launched with the Board's support, a new strategic direction for Rite Aid. With that, let me introduce Heyward.

Thanks, Bruce, and thank you all for joining us today. I'm really excited to be sharing an update, unfortunately, virtually, again, due to the COVID regime but happy to be reporting regarding our business and the progress of our plan. The takeaway for today is our future is bright. We do have the right team. It is a largely new team, although we do have some long-standing Rite Aid folks on our senior leadership team who are new to role. I'm very excited because I do think we have the right plan going forward. We're executing at a high degree despite COVID. We have good momentum. And as you'll see today, our RxEvolution plan is taking hold and showing results. So it's a whole new day at Rite Aid. Given today's annual meeting, I can't help but think back over the last year, I started on August 12. So I'm coming up on a year in the role, just 5 weeks from today and what a year it's been: a year of significant turnaround efforts; the launch of a new strategy for the company; and of course, a year of staying open and helping our associates and our customers in the fight against COVID; and in staying open and helping our customers and associates in the important fight for racial justice. I'm proud of the plan we've developed. I'm proud of our team's execution, and I'm really proud of the heart and passion our associates have shown in taking care of our communities. Before I dig into our progress with a specific focus on our RxEvolution plan, I believe it's important to start today's meeting with a few headlines on what our teams have done in the last year to turn this company around and to begin growing again. We built our new leadership team with top talent and continue to bring in diverse talent from across the country. Over the last year, we grew revenue across both pharmacy and retail segments, delivering strong EBITDA. In our retail pharmacies, we're increasing same-store sales in both the pharmacy and the front end, while generating strong script count growth pre-COVID-19. We'll soon be renamed Elixir. We drove strong revenue growth by increasing our Medicare Part D membership and grew adjusted EBITDA through improvements in managing our pharmacy network and better controlling our cost; reduced expenses at Rite Aid Corporate by another $55 million on an annual run rate basis. We extended $600 million of our 2023 bond maturities out to 2025 and are looking to extend at least another $600 million out to 2026. We reduced our debt and improved our leverage ratio by more than a full turn, and we implemented lean to improve productivity, lower working capital tied to inventory and to enable higher inventory turns. And that is just the start. All of this is very important, but it won't be enough to get our company thriving. And that's where our vision for reintroducing Rite Aid in the communities we serve takes us to the next level. We are committed to redefining our industry by launching a bold RxEvolution, a pharmacy-first strategy now embedded and well known within our organization and also with many of you. This strategy focuses on becoming the dominant, mid-market Pharmacy Services business, unlocking the full education and experience of our pharmacists and finally, revitalizing our retail and our digital experience. I'll spend most of my time today speaking on the plan we unveiled and our really strong execution of our plan to date. First, I think we all need to reflect on the most unprecedented of situations and the absolutely essential role we've played during COVID-19. We hosted our Analyst Day on March 16, and interestingly, that date goes down in the history of Rite Aid for not only being the day we introduced our new plan and our future to the world, it's also the day we literally sent our corporate and call center associates to work from homes. At that point, we had already moved swiftly and decisively to take care of our associates in the field, in our mail order facilities and in our distribution centers so that they could continue to take care of our customers. So we implemented Hero Pay, Hero Bonus, pandemic pay, administrative leave, enhanced cleaning and sanitation procedures, installed plexiglass at checkouts and instituting myriads of other efforts to keep our associates healthy, so we could keep our stores open, same hours and fully staffed, keep our call centers open and operating, keep our mail order facilities and distribution centers functioning. And like many other companies in our situation, we worked around the clock, all hands on deck, for months, to secure our new policies, our in-stock and our personal protective gear for our associates. And our stores were in the original hot spot. So we were really over-indexed on COVID. We're in New York, we're dominant in Pennsylvania, we're in New Jersey and Washington State and California. Our communities and neighborhoods were being impacted, and it was really our duty and our mission to help our communities. In partnering with the U.S. Department of Health and Human Services, we rapidly and successfully launched 97 COVID test sites at Rite Aid stores. And as of late June, our pharmacists have administered over 200,000 COVID tests. And now we're in the process of significantly expanding this testing capability across more geographies and in many of our neighborhoods. Our Rite Aid pharmacists continue to prove that they're fully prepared and capable of expanding their roles in ways that help our customers, our communities and our key health care stakeholders. And beyond testing, our associates led the way by swiftly developing and implementing new procedures to keep our stores safe and sanitary, collaborating across the organization and with our supply chain to stay in-stock, maintaining our normal store hours wherever possible and managing our increasing e-commerce demand that peaked at over 10x historic levels. And what we have learned is clean stores, sell more. This work and strong execution positively impacted our results, which I'll speak to in a minute. As I close on the reflection of the year, I'd like to highlight the resolve of the Rite Aid associates and the communities we serve. We have really been tested by the challenges of COVID as well as the events surrounding a crucial dialogue about diversity and racial justice. The events surrounding the death of George Floyd has sparked important conversations within our organization about how we can do better and the actions we can take to be a part of the solution in our communities. And I couldn't be more proud of how our Rite Aid team has responded to these challenges. They didn't want any of these looted stores or burned down stores to be closed. It was just amazing. I'm amazed by the human spirit of our associates. Because of them, I like to think of us as The Little Engine That Could, and this is the little engine that will. Through it all, we proved that we could execute at the highest level and signaled the decisiveness and nimbleness of this company will continue to emerge as a competitive advantage for Rite Aid. We are prepared to come out of COVID and any other challenge for that matter in a really strong way as a better company. And I know that we can continue fulfilling our important role in health care and elevate it going forward to be an agent for positive change in our community. So now I'd like to transition to our RxEvolution plan and the progress and success we've achieved to date. As the COVID-19 crisis has unfolded, it's magnified the importance of our go-forward plan. Our strategy isn't just validated; it's actually proven to be essential. Even amid COVID, our team has been executing our RxEvolution plan flawlessly. We did not hit pause. We did not hit stop. We actually accelerated. Just let me share a couple of headlines from the first quarter. Revenue increased more than 12% with strong growth in both segments. Pharmacy same-store sales increased by 2.2% despite the temporary but significant headwinds of the drop-off in acute prescription. We all know that this was due to the widespread closures of doctors' offices, outpatient facilities and hospital elective surgery deferrals. That has definitely impacted our acute prescription volumes. Front-end sales, excluding cigarettes and tobacco, however, grew 16% and front-end market share increased by 270 basis points. So we took share. And on top of the growth mentioned earlier, EnvisionRxOptions' adjusted EBITDA grew $18 million. And that is just the start. But what this tells me is that our plan is for now directionally accurate and that we're building momentum. We're now ready for the next quarter to bring a whole new Rite Aid to life. Let's talk a bit about how we're going to do that. Starting with our Pharmacy Services Segment, as I've said before, EnvisionRxOptions, soon to be renamed Elixir, is one of our most important assets and we're bullish on its growth potential. The PBM total addressable market is $400 billion and growing almost 10% annually, and we have an opportunity to gain share in this market by being the only mid-market independent PBM that is owned by a pharmacy and has a pharmacy network. This is a differentiator for our clients. We also have an opportunity with Medicare Part D business, not so much on membership growth going forward. But rather, more importantly, how it supports our bigger enterprise, makes us more competitive and how it drives enterprise EBITDA growth. As a whole and over the long term, we estimate that we can increase Rite Aid’s share of Elixir commercial prescriptions from 13% to 30%, which would grow our scripts by $3 million and our pharmacy margin by $40 million. Given all of this, we are investing in the expansion of Elixir, particularly in its services, solutions, its technology and its clinical offering to drive financial value for all shareholders and all customers. This will provide us with the scale to deliver enhanced customer experience and heightened consumer engagement. When we presented our plan in March, we shared that we had much work to do. That included the fact the EnvisionRxOptions had largely operated as a separate entity from Rite Aid. And as such, we needed to both integrate our Rite Aid and our Elixir teams, but also the EnvisionRxOptions assets hadn't been integrated. So they needed to be integrated and will need to be integrated as well, so that we can offer a cohesive set of solutions with the Elixir brand. In less than 4 months, we've made significant progress. We've just completed the recruiting and hiring of our entirely new leadership team at Elixir. We now have the right combination of experienced Elixir leaders with extensive organizational knowledge and leaders who are bringing a fresh perspective along with strong pharmacy services market experience. Integration within Elixir and between Elixir and Rite Aid is moving forward as planned. The second core pillar of our RxEvolution plan is focused on elevating the role of the pharmacist. If we learned anything from the last few months, it's the importance of our pharmacists in the front line of defense in America's health care delivery system. And thus, the importance of pharmacists providing care at the top of their license. Pharmacists are among the most trusted and accessible health care professionals; 90% of consumers trust their pharmacists. Additionally, consumers, on average, engage with pharmacists 25 to 30 times a year, and we believe there's a significant opportunity to leverage these everyday interactions to activate and engage consumers in their own health, support health plans and health care providers as true partners, as the last-mile connector between the health care system and the consumer. Rite Aid pharmacists and our pharmacy offerings are at the heart of our consumer experience, and we're making real changes that will drive both tangible health outcomes and deep loyalty as consumers recognize their pharmacists as more than just a dispenser of medication that is a valuable and accessible extension of their care team. We're evolving Rite Aid to become a destination for whole-being health, where traditional medicine meets alternative remedies to support our customers' mind, body and spirit. And who is it that cares most about whole-being health? Well, it's our new target customer, women between the ages of 25 and 49. These women have a hard time thriving because they're so busy taking care of their children, their parents, their pets and sometimes their spouses. Our job is to help these women and their families thrive, and thriving customers are loyal customers, that's for sure. I actually like to call it buy 1 get 5 free because these customers drive and influence the purchasing habits for all of those they care for, their children, their parents, their pets and sometimes their spouses. We're not going to pick up this caregivers' business -- not only going to pick up the caregiver business, we're also going to take care of their family's needs, starting with their children’s and parent's medications, their over-the-counter needs, vaccinations of course, flu more important than ever, flu shots, flu testing and strep testing and now, of course, coronavirus solutions. As a matter of fact, we've taken a recent action to realize immediate operational synergies and eliminate unnecessary expenses on top of all of this. And our rebranding is also well underway. We have a plan to complete this initiative prior to the end of 2020. We are not missing a beat. And we've made big strides with investments in our improved, integrated technology infrastructure and a best-in-class digital experience that is differentiated, engaging and streamlined for our customers. These initiatives enhance our value proposition to target markets as we move into the 2022 selling season. As we shared on our recent earnings call, revenue was up $411 million or 26% over the prior year, particularly driven by an increase in the Medicare Part D membership. And adjusted EBITDA grew $18 million from increased gross profit related to improvements in the pharmacy network management, while growth in Medicare Part D membership is exciting and we're turning our focus to strengthening our enterprise EBITDA within this Medicare Part D space. Finally, Elixir's PBM business continues to see a strong client retention of approximately 95% for the 2022 selling season. These results and the strong execution is on top of the efforts to rebuild this organization as well as managing the COVID-19 crisis. Specific to COVID-19, we're seeing a moderate downturn in membership as employees are rightsizing their workforces as script volume is down somewhat due to the deferral of doctors' office visits and elective surgical procedures. Although these trends have not had a material impact on our business, moving forward, we will continue to keep a close eye on the trends. To summarize our work in the Pharmacy Services Segment, our position as a strong independent mid-market PBM is resonating as an essential option in the marketplace for regional health plans, health systems, self-insured employers and unions. We are bullish on the future of Elixir. With regard to the pharmacy progress and successes. While the COVID-19 crisis put our pharmacy business in unchartered territory, we nonetheless executed as flawlessly as can be expected in our RxEvolution plan with only external barriers, i.e., permitting, for example, [indiscernible] count. We were able to grow same-store prescription count by 40 basis points and this came despite a nearly 15% reduction in acute prescription. While it's simply too early to tell if these trends will hold with the uncertainty surrounding COVID-19, we're beginning to see some positive trends as parts of the country where we had significant market share continue to reopen. A key area of success was the growth of our prescription delivery business, which we expanded to all stores during the quarter as we began providing free home delivery for eligible prescriptions. As a result, prescription deliveries increased 86% in quarter 1 compared to our baseline, and we look forward to continuing to leverage the service to meet the needs of our customers. Finally, I want to spend a minute on immunizations. Our immunization rates dropped for the quarter as the CDC issued guidance to defer adult immunizations, just really to minimize their risk of exposure because these would be older people coming into the stores in general. The CDC has, however, recently updated its guidance to resume immunizations and really encourage immunizations. And they have a schedule put forth by its advisory committee on immunization practices, and we have directed our field leadership and store teams to resume vaccinating with robust protocols to safety. And you can imagine that this could be the year of all years for immunizations because of the acute awareness of protecting ourselves from the COVID and the flu. So as we look forward, we've ordered 40% more flu immunization shots than even the prior year, and we've significantly advanced our opportunity to help the family caregiver that I spoke about earlier with their family's overall immunity. Given the uncertainty of COVID-19 and potential second wave aligning with the flu season, there will be no bigger topic this fall than the potential strain on the health care system and the importance of getting a flu shot. Beyond the flu, our pharmacists are prepared to consult with customers on ancillary vaccinations and products like vitamins and supplements. This holistic approach blends traditional and alternative therapies to keep communities as healthy as possible and ensure that we're meeting the evolving needs of our customers. As we head into the summer and fall, there will be another opportunity to show the value of our pharmacists and what they can bring to the health care system and to help our customers get healthy and not just get healthy, get thriving. So our final strategic pillar is around revitalizing our retail and digital experience, and this is what our customers will see and hear as they visit Rite Aid, either in-store or through the digital experiences. And we're very excited about the progress we've made. Our focus is to help family caregivers who are seeking not only personal health and wellness solutions, but also solutions for their children, aging parents and pets. In order to be a whole-being health destination that elevates the mind, the body and the spirit, we need a cohesive curated retail experience with merchandise that is delightful, reflective of trends, safe and updated seasonally. So we've eliminated unproductive merchandise that does not resonate with our customers or turn enough to even warrant placement on our shelf. We're expanding and shifting to a better-for-you product assortment with an emphasis on products that promote health and wellness are better for the environment and create a point of differentiation and purpose in a way that we have not had in the past. Our merchandising refresh shows the product assortment that is relevant with a broad multigenerational customer base, especially our target growth market. These include clean and holistic skin care, healthy beverages, low in sugar, healthy snack alternatives, fresh refrigerated products, vitamins and supplements, including CBD, aromatherapy, natural back brands, holistic sleep remedies and natural stress reducers, which we could all use in these times. And this merchandise is being rolled out this fall, so watch for it starting now and into late fall. In line with this strategy, we're building out our assortment of private label own brand. Our brands are significantly higher-margin opportunity for us. Today's consumers are buying more on specific product attributes and less on overall brand. We see a significant opportunity now to drive margin with our own brand products and key attribute -- attributes, sorry, such as natural, organic, clean, cruelty free, fair trade and chemical free. Also, we know digital and omnichannel engagement is really table stakes, and it's key not only to provide an outstanding experience, both virtual and physical, but if you're trying to attract your target growth audience of 25- to 49-year-olds, you’d better be really darn good at digital and omnichannel engagement. We've made significant progress in integrating our in-store experience with our online channels to digitize our entire customer experience end-to-end. But incremental changes are not what we're interested in, it's what's necessary now and of course, this is a turnaround. We have much, much work to do. But we are driving step changes in our business with our digital solutions that will position us in the future as a leader centered on exceptional experience. And all of this is going to occur with a new brand identity. In March, we shared our new logo, which reflects the relaunch of Rite Aid as a fresh reinvigorated brand focused on whole-being health. It signals the fusion between alternative remedies and traditional medicine. This identity complements our merchandising overhaul and physical and digital refresh initiatives. As yet, we're right on our time line for the brand relaunch this September, thanks to the exceptional relentless work of our teams. This brand relaunch is far more than a new logo. It's truly a transformation deep to our core. It's about a whole new Rite Aid that supports the holistic health needs of our customers, and it's about helping them not just get healthy, but get thriving. We're also on track with our Store of the Future pilot program, which I believe will be a fundamental and truly transforming of the Rite Aid brand experience. The Store of the Future will be completely remodeled with a fresh, updated and inviting look and feel and feature curated health and wellness brands, products and services to meet our customers' personal pet -- family and pet caregiver needs. Our pharmacists will no longer -- we talk a lot about the merchandise, but our pharmacists, in the Store of the Future, will no longer be walled off. They won't be behind a really tall counter where you can't even see them. They won't be underutilized in doing the mechanics of filling scripts. Instead, they're going to be front and center of the pharmacy, and they're going to be repositioned as chief whole health-being advocates. Our customers will have unprecedented on-demand access to pharmacists who will be setting a new standard for the industry. We're confident our consumer will view our Store of the Future as a destination. It's a place they're going to want to go, a place that makes them feel really good about themselves and ultimately, a place that helps them thrive. And I really encourage you all to watch out for our Store of the Future coming this fall, starting with 9 pilots across the country and another 65 remodels in Virginia Beach; Chesapeake, Virginia; and Boise, Idaho in early 2021. Now that's a lot I've just outlined specific to the retail and digital experience, and our teams are on track to deliver in all of these areas and that's a truly incredible accomplishment. When you think about all the challenges we faced in the last few months, it speaks really to our ability to execute, which is already paying dividends. I mentioned earlier some of our earlier successes, front-end same-store sales increasing by 16%, when excluding tobacco items, and market share increase of 270 basis points. This share was delivered across all major business segments and across all of our markets. This is really encouraging, given that we're in the still early stages of our remerchandising initiatives and haven't even launched our new brand yet and all of this in the middle of a pandemic. In terms of other results, own brand penetration increased to 19.5%, an increase of 119 basis points. As we continue efforts to launch additional own brand items that support, again, whole-being health, we're also seeing really strong progress in our offering of own brand items through the Amazon Marketplace, which we feel is a testament to the quality of these products. And with merchandising on track and making an impact, we're also having momentum on delivering an elevated omnichannel experience, which includes our e-commerce and digital channels as key components. And as our teams have noted in prior calls, we've already begun taking important steps to strengthen e-commerce just before COVID-19 hit as part of our RxEvolution strategy, thankfully. We have, of course, rapidly accelerated these efforts in direct response to the unprecedented demand spike we've experienced during COVID. And in a matter of 3 weeks, our team worked tirelessly to increase our fulfillment capacity by 700%. It was all hands on deck. We have and we will invest in the infrastructure and talent required to be a leader in e-commerce. In addition to e-commerce, we provided a new convenient outlet for customers this quarter by launching a new national partnership with Instacart. This allows customers to conveniently order from the safety of their home and receive essential health care and grocery items directly from our stores to them. In partnership with Instacart, we are seeing really good early signs of success. In addition to same-store basis revenue growth, we saw overall increases in average order value up 87%, and units per transaction up 43% from last year. We also recently completed the successful expansion of pay-and-go at all stores. Pay-and-go significantly expedites prescription pickup, both in-store and at drive-through, and we've been receiving excellent feedback from our customers and our pharmacists. And in response to COVID-19 and the spike in demand for telehealth, we accelerated the launch of Rite Aid Virtual Care. And looking ahead, we're making progress in rolling out a new Buy Online, Pick Up in Store offering. Perhaps one of the most exciting milestones to date is the evolution of our brand identity. The first wave of store exterior refreshes are actively underway, with more than 30 store exterior changes completed to date, just within the last few weeks. Over the next several months, our communities will begin to notice our stores being updated with our new brands as facades are cleaned and painted, newly branded with more modern electronic pylons, where local zoning permits, and drive-throughs freshened and rebranded as well. We plan to do almost all of these store exteriors by the end of the year. This work is an outward signal of the exciting changes to come as we build up our official -- or build up to our official brand launch this fall. So I just want to show you because I think this is really fun and really brings to life what's going on in these local markets where the stores are getting refreshed and rebranded, I want to show a video of the store changes. So take a look. [Presentation]

In closing, what I'd like to leave with you today is this. Our RxEvolution has really taken hold, and I am so encouraged by the results today. And listen, it's been tough and COVID hasn't made it any easier, but I remain bullish about our future. And frankly, I'm having a great time with the team. Because of the extraordinary job our teams have done in delivering operational excellence, we remain on schedule with our execution of our bold, new RxEvolution strategy, and we're committed to redefining our industry. As I mentioned earlier, the 3 pillars, becoming the dominant mid-market PBM, unlocking the value of our pharmacists and revitalizing our retail and digital experiences, now more than ever, we know how essential pharmacies are in the communities we serve and the important role pharmacists have in providing care at the top of their license. We're focused on elevating the role of our pharmacists, bringing up their time to provide highest levels of consumer engagement, the best ever seen in health care, and all of this being supported by our new merchandising and an exciting new brand and becoming a destination for whole-being health, where traditional medicine meets alternative remedies to support our customers' mind, body and spirit. And from a financial perspective, we have strong liquidity. We're expecting to generate free cash flow this year and continue taking critical steps to address our debt maturity as we continue doubling down in areas where we have momentum, shifting resources to invest in key growth opportunities while reducing corporate expenses and realizing synergies through integration activity at Elixir. A whole new Rite Aid is coming to life, and we're excited about our vision for the future, the important progress we're making. And last, but certainly not least, I'm amazed by the engagement, the passion and the spirit of our more than 50,000 associates who've come to work every day to serve our customers and clients and demonstrate the crucial role that pharmacy plays on the front lines of health care. We're on a path to get thriving. I'm excited, and as shareholders, I hope you are, too. And thank you so much for joining us virtually today.

Thank you, Heyward. Last year, I told you that we would recruit a strong operational and strategic leader. And I think as you've heard today, not only is Heyward an excellent communicator, but she has a vision for the future of Rite Aid that's exciting, and she brings an energy to it. She has the kind of values and skills that are going to be critical in the future of Rite Aid, and we couldn't be more pleased that Heyward has joined the team. Would the Secretary please take a moment to report on the formalities and review the procedures that will be followed during today's meeting?

Yes. Thank you, Bruce. We have 5 items of business on the agenda to be voted on today, detailed information concerning 4 of these items is contained in our proxy statement. The fifth item of business is a stockholder proposal which the stockholder did not seek to have included in our proxy statement. After the presentation of all of the agenda items, we will address questions and comments on the 5 proposals. [Operator Instructions] As shown on the meeting agenda, we will address general questions and comments about the company later in the proceedings. During the question-and-comment period, Bruce and Heyward will answer relevant and appropriate questions submitted during the meeting in accordance with the meeting procedures as time permits. Questions may be grouped by topic, and related or substantially similar questions may be combined and answered as one. In the event that time does not permit us to respond to all relevant questions, answers to those questions not addressed during the meeting will be published within a reasonable time after the meeting on our website at riteaid.com under the heading Investor Relations. We also ask that you please refer to the meeting procedures posted on the virtual meeting platform. Remember that the company will not address questions or comments that contain derogatory references or are repetitive, irrelevant to the business of the meeting or the company, disrespectful or otherwise in bad taste. If appropriate, questions may be referred to other members of the company's management team for a response. Please note, audio or video recording of the meeting by anyone other than the company is prohibited. Following the closing of the polls, we will conclude the formal portion of the meeting, and time will be allotted for responses to general questions and comments.

Thank you, [ Paul ]. It is now 9:45 a.m., and I declare the polls open. The first proposal is the election of directors to serve on the Board of Directors until the next annual meeting. As described in the proxy statement, there are 8 nominees for the Board of Directors. The Board of Directors has recommended a vote in favor of each of these nominees. The second proposal is the ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending February 27, 2021. The Board of Directors has recommended a vote in favor of this proposal. The third proposal is to approve, on an advisory basis, the compensation of our named executive officers as presented in the proxy statement. The Board of Directors has recommended a vote in favor of this proposal. The fourth proposal is to approve adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan. The Board of Directors has recommended a vote in favor of this proposal. Finally, as disclosed in the proxy statement, Steven Krol informed the company that he plans to present a proposal at this meeting relating to nonemployee director compensation. Mr. Krol did not seek to have this proposal included in the proxy statement. In addition, I have been advised by the proxy holders that they would vote all shares of stock over which they have discretionary authority against Mr. Krol's proposal. As provided in the meeting procedures, a copy of which is available on the virtual meeting platform and as previously conveyed to Mr. Krol, each stockholder proponent or a qualified representative thereof, will have 2 minutes to present their proposal. Operator, please open the line for Mr. Krol to present his proposal. Mr. Krol, go ahead.

Good morning, fellow shareholders. As with the other proposals, if you have a question on this proposal, you're free to ask it from the directors at the conclusion of my remarks. Will Mr. Bodaken please read the full proposal to the shareholders that was intentionally left out of the proxy statement, so that the shareholders are able to have a democratic election to know what it is they're voting on? The only brief summary is on Page 82, and I would also add that it's not that I did not seek to have the proposal included in the proxy statement, I was unable to because I had a clawback proposal that was essentially implemented. You're only allowed one in the proxy statement, so essentially, you're being asked to vote on something that you have 90% of the information not included in the proxy statement. Does Mr. Bodaken want to read the full proposal?

Mr. Krol, your time is running, would you please address your proposal?

You got two minutes.

The answer to that was no. Let me first introduce myself to the shareholders. I've been a Rite Aid shareholder for 20 years and did unannounced nationwide store visits and put out numerous fires of gross mismanagement of our stores until 2015. Beginning in 2015, I have put up 4 previous proposals in a row which forced the Board, and I do mean forced, to assist in protecting our assets. In 2015, proxy access was implemented. In '18, separation of Chairman and CEO, which led to the removal of Mr. Standley. In 2019, on special meetings at a 10% threshold, that was implemented before the vote at 20%. And recently, the 10% amount was put in 2 months ago. This year, clawback was put in before the vote, which strengthened our right to get reimbursement from nonperforming executives who receive various bonuses. A full disclosure in July 2018, I filed suit in Delaware Court to stop the Albertsons merger. The proxy advisers agreed with me and recommended a vote against that merger. Our direct...

Mr. Krol, you have reached the established time limit for remarks on a proposal. The company will allow you additional time, but you must conclude your remarks within 30 seconds.

A little bit more time to do the job that the Board did not do in providing directors with proper information to their shareholders.

Mr. Krol, your time is running.

Indeed, when shareholders are suffering the most in huge drops in our stock price due to poor decision-making of our Board, the directors took action through the cover of consultants who get paid by the shareholders after all to say yes to the consultant recommendations on director pay. Even the original $90,000 number, which was instituted in 2010, meant that no matter what the Board did in their decisions, they would always get $90,000 worth of stock instead of what was in effect then 20,000 shares.

Mr. Krol, you have gone well over the time limit set forth in the meeting procedures as extended once by the company. The company will allow you an additional 30 seconds to conclude your remarks but will mute your line at the end of this final 30 seconds.

So the proposal is asking that we follow what CVS does with their directors. Their directors get paid 3/4 of their pay in stock. Because if directors are on our Board for the right reason and they want to make money and they believe in this company, they will be paid 3/4 in stock and not in cash, which also saves money for the company. The -- and if they don't believe they can do well for stockholders, then they should resign from the Board. So therefore, I'm asking that cash be substituted for 3/4 in Rite Aid stock, which if you believe in this company, that Ms. Donigan can do a good job, and I happen to believe in Ms. Donigan, you will change the method in which we pay our directors. I would also add that Bed Bath & Beyond, which is part of our peer group, has instituted a 30% pay cut in their direct...

Mr. Krol, you have gone well over the time limit set forth in the meeting procedures as extended twice. Time limits have been imposed out of respect to all participating today and so that we may conduct the meeting in an orderly manner. We must now mute your line.

Thank you, Mr. Krol. Would the Secretary please explain the voting procedures?

[Operator Instructions] The polls will close shortly after addressing questions relating to the proposals. Following the closing of the polls, we will conclude the formal business of the meeting and address general questions and comments relating to the meeting. With respect to voting, if you have already voted and are satisfied with your vote, you do not need to vote again or take any further action. Submission of an electronic ballot will revoke all prior proxies. If you have not voted or wish to change your vote, please submit your vote on the virtual meeting platform. In addition, to vote on the stockholder proposal presented by Mr. Krol, please type 4 against or abstain into the field titled other business on the virtual meeting platform and click Submit. Please do not submit comments or questions into the other business field as they will not be addressed.

Thank you, [ Paul ]. With that, we will turn to the questions of the company's stockholders regarding the proposals. At this time, I recognize Byron Purcell, Rite Aid's Vice President of Investor Relations and Treasurer, who will relay your questions to us. Byron, please ask the first question.

Thank you, Mr. Chairman. Insiders have not bought shares for years. When can we expect to see insider purchases?

The current directors are accruing a fair bit of Rite Aid stock each year. And at this point, I know myself and others have substantial shares in the company, we believe in the company, and we will continue to hold substantial shares in the company going forward. So we are aligned with stockholders.

Why put in an equity plan when shares have suffered heavy losses?

One of the issues that Heyward faced when she came to the company was motivating and incenting a high level, best-of-class team. As a result of that, the Compensation Committee agreed to increase the number of shares so that we would have adequate shares to give equity grants to our executives and to other members of the staff. The Omnibus equity proposal is indeed allowing us to expand the number of shares that we can provide to these executives who have traditionally had very low levels of stock. And so in regards to, again, wanting them to have alignment with shareholders, we are asking for approval of this proposal to ensure that we have the number of shares necessary to continue to retain and attract the best-of-class team.

Why is the company's Chairman of the Board someone that was on the Board during the company's merger activity?

I'm sorry, could you repeat the question?

Why is the company's Chairman of the Board someone that was on the Board during the company's merger activity?

As a member of the Board, I was asked to serve as Chairman and I agreed to do so. And I continue to believe that I am doing a good job, not only for the company but for our shareholders.

The Board lacks age diversity. Is there plans for younger Board members?

We continue to attract members of the Board of both having diversity relative to ethnic diversity, and of course, to having a number of women on our Board, stronger than most corporations, I would say. In fact, we've been awarded -- we've received awards as a result of having the number of women that we do have on our Board. We will continue to look for and attract the best directors that we believe will serve the company and the shareholders effectively. Some of them may be younger, but we are in the process of talking to potential Board members as we speak.

Why does a smaller, leaner Rite Aid have 9 Board seats?

Nine Board seats is very consistent with a company the size of Rite Aid.

Why is management getting bonuses when there are shareholders that are not satisfied with their returns?

The bonus plans have been put in, in previous periods to incent management to work on behalf of the company and therefore, the shareholders. Indeed, the stock price has moved up. And I believe during Heyward's tenure, she and the team have done an excellent job of moving Rite Aid forward. On that basis and on the basis of those plans, incentives were paid.

Mr. Chairman, that was our last question on the proposals. I now turn the meeting back to you.

Thank you. And now I declare the polls closed at 9:59 a.m. The Secretary will now present the preliminary results on votes cast through Broadridge. Final vote results will be presented in a Form 8-K filed with the SEC.