Rite Aid Corp (RAD) 2010 Q1 法說會逐字稿

Good morning. My name is Christy and I will be your conference operator today. At this time I would like to welcome everyone to Rite Aid's first quarter fiscal 2010 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. I will now turn the call over to Mr. Chris Hall.

Thank you, Christy, and good morning, everyone. We welcome you to our first-quarter conference call. On the call with me are Mary Sammons, our Chairman and CEO; John Standley, our President and Chief Operating Officer; and Frank Vitrano, our Chief Financial and Chief Administrative Officer.

On today's call Mary will give an overview of our first-quarter results and Frank will discuss the key financial highlights. John will then provide some more detail on the quarter as well as talk about the progress we are making on some of our initiatives, and then we will take questions.

As we mentioned in our release, we are providing slides relating to the material we will be discussing today on our website at www.RiteAid.com under the Investor Relations Information tab for conference calls. We will not be referring to them directly in our remarks, but hope you will find them helpful as they summarize some of the key points made on the call.

Before we start I would like to remind you that today's conference call contains certain forward-looking statements. These forward-looking statements are made in the context of certain risks and uncertainty and can cause actual results to differ.

Also, we will be using a non-GAAP financial measure. The definition of the non-GAAP financial measure along with the reconciliations to the related GAAP measure are described in our press release. I would also encourage you to reference our SEC filings for more detail.

With these remarks, I would now like to turn it over to Mary.

Thanks, Chris. Good morning, everyone, and thank you for joining us on our call today. As you can see from our first-quarter results, we continue to improve our performance and build on the positive momentum we achieved in our business over the last few quarters. Adjusted EBITDA increased and improved as a percent of sales over last year and we significantly narrowed our loss compared to the prior first quarter.

The financial position of our company is a lot stronger today, too, with a significant increase in liquidity to more than $900 million at the end of the quarter. Thanks to a substantial increase in cash flow from operations, we were able to pay back debt on our revolver by more than $300 million. This is the first time we have been able to reduce our debt so significantly since the Brooks Eckerd acquisition.

Improving our leverage is a top priority for us now and moving forward. The refinancing of our September 2010 debt maturities that we launched in the first quarter and substantially completed earlier this month also strengthens our financial position. You will remember that one of the major concerns about our company was that we wouldn't be able to refinance this debt before it came due.

We have already replaced a portion of that debt with new facilities that mature in 2015 and 2016. And we have received commitments for $960 million of a proposed new $1 billion senior secured revolving credit facility due September 2012, which will be used to refinance the remainder of the existing revolving credit facility. We expect to close on the new revolver shortly. Frank will give you more details in just a few minutes.

This refinancing gives us more time to improve our results with the initiatives we have planned, as well as those that are in place and have already started to work. We are confident we will also be able to extend the maturities on our accounts receivable refinancing before it matures in September 2010. When that is done we expect to have no significant debt coming due over the next three years.

We know we have a lot of hard work ahead, especially as we continue to face the challenging economic environment, but we are optimistic that the improvements we have seen in the last three quarters is only the beginning as our team continues to focus on unlocking the value of Rite Aid. Our initiatives to grow sales, improve operating efficiency, and take unnecessary costs out of the business are the right ones to deliver solid returns in the future just as they did in this quarter.

We grew both pharmacy same-store sales and prescription counts thanks to our enhanced compliance programs, courtesy refill service, our Living More senior loyalty program, and our free Rx Savings Card which makes prescriptions more affordable and continues to attract new patients to Rite Aid. Enrollment in the card continues to grow dramatically with 2.6 million unique users today compared to 1.7 million only three months ago, and it's just the start of an exciting pharmacy loyalty initiative we expect to launch later this year.

Front end sales should improve as we benefit from the segmentation and assortment initiatives John will update you on, and as the economy begins to recover. All of our merchandise, marketing, and operational initiatives will also help us improve the contribution from the former Brooks Eckerd stores. Although their sales results are still negative, they are already closing the gap on private brand penetration and generic dispensing, and script count trends are getting better every month.

We lowered SG&A costs as a percent of sales compared to last year reducing costs in our stores, distribution centers, and the corporate office. At the same time we reduced operating costs, our customer satisfaction ratings improved. Our associates continue to work hard to make Rite Aid a better place to shop and our ratings coming from the customers we serve show they are succeeding. We kept our shelves stocked and didn't disrupt the shopping experience, even as our team once again did an exceptional job at reducing inventory year-over-year and over the fourth quarter.

I will now turn it over to Frank and then come back after John's remarks to talk a little about one of the hottest topics in our industry and in the country today, healthcare reform. Frank?

Thanks, Mary. Good morning, everyone. We made solid progress on a number of fronts during the first quarter. Although opportunities and challenges lie ahead, we are better positioned for long-term growth with the refinancing well on its way to completion; two, the improved liquidity as a result of working capital initiatives and reduce capital expenditures; three, continued improvement in lowering our operating costs; and four, beginning to implement some of the segmentation work that John will discuss in more detail.

On the call this morning I plan to walk through our first-quarter financial results, provide an update on the capital expenditure program, discuss our liquidity position, review our rent reduction program, as well as talk about the credit financing -- the credit facility refinancing. Finally, I will discuss our updated fiscal 2010 guidance reflecting the interest increase due to the anticipated refinancing.

This morning we reported revenues for the quarter of $6.5 billion compared to $6.6 billion for the first quarter of last year. The decrease in total sales was primarily driven by a reduction in total store count. In the quarter, we closed 86 stores and quarter-over-quarter we had 179 fewer stores. Same-store sales increased 60 basis points reflecting soft front-end sales and strengthening pharmacy script growth. Front-end same-store sales were down 160 basis points and pharmacy sales were up 160 basis points during the quarter.

Pharmacy sales included an approximate 448 basis point negative impact from new generic drugs. Pharmacy scripts increased 220 basis points. Excluding the acquired Brooks Eckerd stores, same-store sales for the 13-week first quarter increased 150 basis points over the prior year with front-end decreasing 140 basis points and pharmacy growing 310 basis points.

At the Brooks Eckerd stores, same-store sales decreased 1.3% during the quarter while front-end decreased 2% and pharmacy decreased 1% in the quarter.

Adjusted EBITDA came in at $249 million or 3.82% of revenues for the first quarter. This compared to last year's first quarter of $241.1 million or 3.65% for a 3.4% reduction. The improvement was driven by lower SG&A dollars partially offset by lower sales and lower FIFO gross margin dollars. SG&A dollars adjusted for non-EBITDA expenses were $39.2 million lower or 30 basis points lower as a percent of sales. This improvement reflects the various cost-saving initiatives which John will talk about including store labor management, field controllable expenses, distribution center, and indirect procurement savings.

Net loss for the quarter was $98.4 million or $0.11 per diluted share compared to last year's first-quarter net loss of $156.6 million or $0.20 per diluted share. The decrease in net loss was driven by no integration costs in the quarter compared to $44.5 million last year and a gain on sale of assets partially offset by higher store closing charges.

Lease termination charge of $67 million relates to 86 stores which were closed during the quarter. As I mentioned on the last call, we expect to close 117 stores in fiscal '10. The exact number of store closings will be predicated on the outcome of the rent reduction initiative.

The LIFO charge of $14.8 million is consistent with the first quarter of last year.

Interest and securitization expense was $123.9 million, which was essentially flat for last year. Lower LIBOR rates under the credit facility were offset by the increase in securitization expense from the second lien term loan facility renewed in February. Later in my remarks I will outline the interest expense impact on the credit facility refinancing.

Net cash -- I am sorry, non-cash interest primarily debt issuance cost amortization and workers' compensation interest accretion was $7.7 million. Gross margin dollars in the quarter were $34 million lower than last year, or 18 basis points.

FIFO gross margin percent is also lower by 18 basis points, which is consistent with the gross margin trend we saw in the fourth quarter. Two-thirds of the decrease in dollars was driven by lower sales with the balance resulting from lower Rx reimbursement rates and Rx billing margins as well as lower promotional funds on the front end due to lower purchases, partially offset by lower distribution center costs and lower front end and Rx shrink.

Product handling and distribution expense as a percent of sales improved due to the operational efficiency improvements and lower fuel costs. John will review the proactive measures implemented by the distribution center team in the quarter to drive these improvements.

Selling, general, and administrative expenses for the quarter were lower by $82.3 million or 92 basis points as a percent of sales as compared to the prior year. SG&A expense not reflected in adjusted EBITDA was lower by $43 million or 62 basis points, primarily driven by no integration costs in the quarter as compared to $44 million last year.

Adjusted EBITDA SG&A dollars, the details of which are included in the first-quarter fiscal '10 earnings supplement information which you can find on our website, excluding the specific items we are lower by $39 million or 30 basis points as a percent of sales. This reduction in dollars reflects the aggressive cost saving initiatives that have been implemented over the past several months.

The SG&A improvements were driven by better labor controls and lower field controllable costs including supply costs, partially offset by higher rent costs as a result of the sale-leaseback transactions that were completed last year. Corporate expenses were also lower due to a reduction in consulting fees.

On a sequential quarter-over-quarter basis, we reduced adjusted EBITDA SG&A from being 92 basis points unfavorable in the second quarter to -- of last year -- to 25 basis points unfavorable in the third quarter of last year to an eight basis point positive expense leverage in the fourth quarter and now 30 basis points in the first quarter. Overall, we are very pleased with the progress made and expect continued improvement in the coming quarters to maintain a positive sales leverage.

As I mentioned in my opening remarks, we made significant improvement in our working capital initiative. Total balance sheet inventory on a FIFO basis was reduced by $139 million over the fourth quarter with $100 million coming from the working capital initiative and the balance a result of store closings. As compared to the first quarter of fiscal '09, FIFO inventory is lower by $405 million.

And as you can see the results on the cash flow statement for the quarter, net cash provided by operating activities was $357.6 million as compared to a use of cash of $105 million in last year's first quarter. Inventory generated cash of $138 million as compared to a use of $51 million last year.

Other assets and liabilities was a source of $141 million caused by a reduction in prepaid rent paid as compared to the year-end -- as compared to year-and as well as accrued interest. You will recall that other assets and liability were a use of $177 million in the fourth quarter caused by the timing of the rent checks and interest payments.

Accounts payable was a source of cash at $53 million in the quarter. Our days payable outstanding in the quarter was 24.1 days. This compares to 23 days in the fourth quarter and 24.9 days in the first quarter of last year. The increase from the fourth quarter to the first quarter reflects the historical trends.

The inventory reduction initiative has influenced our DPO as both purchases and payables were lower as we didn't replace the entire -- all the inventory that was sold. Our vendor partners continue to be very supportive.

Net cash used in investing activities for the quarter was $15.4 million versus $93.8 million last year. This reflects our proactive plan to trim capital expenditures. It also includes proceeds from script files and other assets sales.

During our first quarter we opened 10 new stores, relocated 17 stores, and closed 86 stores. Our cash capital expenditures were $44.3 million which includes $1.7 million spent on completing remodels and $1.9 million to acquire script files.

Now let's discuss liquidity, which is an area that we continue to make significant progress. At the end of the first quarter we have $535 million outstanding under our $1.75 billion senior secured facility paying down $303 million of revolver borrowing from the fourth quarter. We had $188 million of outstanding letters of credit and $520 million drawn on our first and second lien accounts receivable securitization facilities.

At the end of the first quarter, we had $902 million of availability under our credit facility, which was net of $126 million borrowing base deficiency, and yesterday we had availability of $907 million under our facility. Total debt including AR securitization was lower by $349 million from the fourth quarter.

The Company's overall debt leverage including the off balance sheet AR securitization decreased from 6.6 times in the fourth quarter to 6.2 times at the end of the first quarter. Lowering our overall leverage and improving our credit maturity profile is a top priority for the Company and as you will hear in a moment we made good progress over the past several weeks substantially completing a comprehensive plan to refinance our September '10 credit facility maturities.

As we discussed on the last earnings call, we have had -- been exploring various strategies to refinance the September '10 maturities which include a $1.75 billion revolver credit facility, a $145 million tranche one term loan, and a $570 million AR facility. Late last month we decided to pursue a staggered strategy to refinance the revolver credit facility and tranche term loan to take advantage of a window of opportunity created by the strength of the credit markets and our improved operating performance.

As part of the refinancing strategy, on June 5 we received consent from our credit facility lenders to permit the refinancing of $1.895 million in senior lien indebtedness maturing in September of '10 with first lien secured debt. We also received the necessary two-thirds vote to give us the option to bring the AR securitization on balance sheet.

On June 10 we closed and funded a $525 million, net proceeds of which were $504 million, tranche four term loan due June 10 of '15. The term loan was upsized from $400 million due to market demand. The pricing on the loan is LIBOR plus 50 -- plus 650 with a 300 basis point LIBOR floor. It had a 96% OID to yield 10.5%. Proceeds were used to pay down the $145 million tranche one term loan, to pay expenses, and permanently reduce the revolver by $350 million.

On June 12, we closed and funded a $410 million senior secured lien note due June 10 of '16. The note has a 9.75% coupon with an OID of 98.2% to yield 10 1/8%. The proceeds for the note were used to pay expenses and permanently reduce the revolver by another $403 million.

The combination of these two transactions left approximately $1 billion of availability under the credit facility. At the present time, $188 million of letter of credit are outstanding under the facility. It should be noted that we have a borrowing base deficiency of $126 million at current inventory levels. I expect to periodically have borrowing base deficiencies during the year as we experience seasonal inventory swings as well as continue to reduce inventory from the various working capital initiatives.

Obviously, every dollar reduction in inventory provides more cash availability for the Company than what would be available under the borrowing base calculations.

We launched a retail syndication of the new $1 billion revolver facility which will expire on September 30 of '12. The pricing on a new facility is LIBOR plus 450 with a 300 basis point LIBOR floor. We have received $960 million of commitments for the facility and expect to wrap it up shortly. That will conclude the comprehensive refinancing that we have embarked upon.

We will look to refinance the first and second lien AR securitizations later in 2009 or the beginning of '10. We have several options to consider including, one, refinance it with a new conduit, although I think this is probably the least likely execution given the receivables conduit market. Two, we can refinance with a special purpose entity, non-recourse, off balance sheet as a first loan ABL or term loan, and such a refinancing is permitted under our credit facility. Or three, we can refinance with a combination of first and second lien debt on balance sheet.

We are limited to $3.7 billion of first lien debt which would restrict our ability to refinance the entire $570 million of AR with first lien debt. Given the quality of the collateral, we are very confident that the AR facility will be refinanced.

At the close of the new credit facility, we will have $320 million of incremental first lien capacity. Total security capacity on a pro forma basis would be $1.1 billion. However, if you assume a full draw on the revolver and full use of the AR securitization and if you assume full drawing on the letters of credit, we actually would not have any incremental security capacity left.

Now let's turn to fiscal '10 guidance. We have updated our guidance to reflect higher interest expense from the refinancing just discussed. Total interest guidance is now expected to increase $55 million over the previous range. The new guidance for interest and securitization cost is $570 million to $585 million. This translates into a $0.07 increase in EPS loss to a range of $0.33 to $0.59. The net loss is now expected to be in a range of $265 million to $490 million.

We continue to expect total sales to be between $26.3 billion and $26.7 billion and expect adjusted EBITDA to be between $1.025 billion and $1.125 billion for fiscal '10. Same-store sales are expected to improve 50 basis points to 250 basis points and capital expenditures are projected to be $250 million.

We expect to generate $325 million in free cash flow for the year, which is higher than previously disclosed due to higher inventory reduction opportunities and the asset sales completed in the first quarter. As mentioned earlier, the guidance does include a provision to close 117 stores as well as the Atlanta, Georgia, distribution center.

Finally, I would like to discuss the landlord rent reduction initiative. We have contracted with a nationwide real estate firm to assist us in working with the landlords of our worst performing stores to seek rent concessions. These are locations under review for possible closure and we are seeking rent concessions from our landlords to improve the overall profitability and viability of the store. We are in the early stages of our discussion and expect to be able to report on our progress on the next earnings call.

That completes my portion of the presentation. Now I would like to turn it over to John.

Thank you, Frank. Great job by you and the rest of the team on the refinancing. In addition to the great progress on the refinancing, the following were also significant accomplishments in the quarter. Script count in comparable stores grew 2.2% for the quarter. The Rx Savings Card enrollment has now grown to over 2.6 million members. EBITDA for the quarter increased $8.1 million from the prior year to $249.2 million. SG&A declined 92 basis points to 26.2% of sales compared to 27.1% of sales last year. 30 basis points of the 92 basis point decline were EBITDA expenses.

Distribution costs were 1.48% of sales, our third consecutive quarter of improvement versus the prior year. FIFO inventory was $405 million lower this year versus last year and $140 million lower than year-end. Cash flow from operations for the quarter was $358 million and debt including the accounts receivable securitization declined $345 million in the quarter versus year-end. And total availability increased to $902 million at the end of the first quarter.

As Frank mentioned, total comps for the quarter were up 60 basis points. First-quarter front-end same-store sales decreased 1.6% over the prior year with core Rite Aid decreasing 1.4% and the acquired Brooks Eckerd stores declining 2%. Front-end sales were soft in most categories and were impacted by the weak economy and because we didn't repeat several Brooks Eckerd integration ads we ran last year.

Front-end sales may also have been impacted somewhat by the SG&A and working capital initiatives we have implemented over the last three quarters. Front-end sales have softened further in June, especially in our seasonal categories.

Script count grew 2.2% in comparable stores. Pharmacy same-store sales increased 1.6% in the quarter. Core Rite Aid pharmacy sales grew 3.1% and the BE stores declined 1.1% in the quarter. The BE stores continue to show sequential quarter-over-quarter improvement.

Our significant improvement in script count this quarter resulted primarily from the growth of our Rx Savings Card with over 2.6 million customers enrolled at the end of the quarter, the benefit from our grassroots marketing initiative which has driven script count growth in our high-volume front-end, low-volume pharmacy stores, our automated refill reminder program, and the growth in our courtesy refill program with 2.2 million customers enrolled at the end of the quarter. Script count growth has remained strong in June.

As Frank mentioned, FIFO gross margin declined 18 basis points in the quarter driven by a reduction in pharmacy margin that was mostly offset by a reduction in distribution expenses and a slight improvement in front-end margin. The front-end margin increased slightly in the quarter because of solid improvement in shrink and a 1.7% increase in private brand penetration to 14.5% of front-end sales this year versus 12.8% of sales last year, partially offset by lower vendor allowances resulting from our reduced purchases.

Pharmacy margin declined in the quarter due to reduction in reimbursement rates that were at levels similar to last year, but we were unable to fully offset the impact of these reductions with generic product cost reductions and improvement in generic penetration. Generic penetration did increase 268 basis points to 69.9% in the quarter.

The positive trend in distribution expenses continued in the first quarter. The improvement is due to the initiatives we started last year and continue to roll out this year including more efficient transportation routing, bi-weekly deliveries in 1,245 low-volume stores, bi-weekly delivery on certain central pick items across the chain, a reduction in administrative headcount in our distribution facilities, lower fuel costs, and lower product handling costs resulting from a significant reduction in inventory.

Also, the Bohemia Long Island facility was closed in the quarter and the Atlanta facility will close in September. Our significant improvement in SG&A was largely driven by our continued improvement in managing our store labor expense; reductions in store expenses, including supplies and security costs, lower consulting and other professional fees, and lower corporate administrative expenses. Similar to last quarter, the labor improvement came from adherent to our labor standards and use of our labor scheduling tool in both the front-end and the pharmacy.

FIFO inventory was $405 million lower this year versus last year and $140 million lower than year-end. Since we started the inventory reduction initiative last year, we have reduced our SKU count by 3,300 SKUs, or a little more than 10%. We are also focusing on lowering backroom inventory, producing in-store safety stock in certain stores and categories, and displaying smaller amount of promotional inventory in lower volume stores.

In addition to helping us reduce our store and distribution labor, our lower inventory investment contributed to the improvement in our liquidity in the quarter.

I remain very excited about the opportunities we identified on the fourth-quarter call to grow profitable sales in both front-end and pharmacy, reduce our costs, increase our cash flow, and improve our capital structure. And I am very pleased with the progress we made this quarter on implementing these initiatives. As we discussed on the fourth-quarter call, our operating initiatives include savings that are based on the segmentation of our diverse store base as well as initiatives that impact all stores but may include some component of segmentation.

Some of the significant accomplishments in the first quarter on these initiatives are as follows. We completed the rollout of our new field supervision structure, which is designed to meet the different levels of supervision required for different types of stores, and included a realignment of all levels of field supervision above store manager. We implemented a new management structure in 1,750 low-volume stores. We eliminated the salaried assistant store manager position and added an hourly shift supervisor position. We also changed the store manager position to an hourly position from a salaried position. These changes will give us significantly more flexibility with labor scheduling which will allow us to better match our labor spend with the work load in these stores.

We also increased the number of low-volume stores as I mentioned earlier on the biweekly delivery to 1,245 stores from 440 at year-end. We completed the rollout of our new metro store operating model including changes to store labor, ad format, and merchandising in one metro market and expect that we will roll this out to more metro markets once we are comfortable with the results.

We finished developing new labor standards for certain operational tasks at our high-volume stores and we are rolling these out right now. We are also building some additional analytical tools to help us identify and implement our best ball initiative in our higher volume stores. As I mentioned a moment ago, we have made significant progress with SKU optimization with a 10% SKU production since the project started.

We completed the test of our new pricing application in one metro market and we are almost done rolling it out to the remaining metro markets. We have also started to roll it out in our suburban stores and we should be mostly done with the entire rollout by the end of this quarter or early next quarter. Promotional forecasting is moving forward with systems development underway and portions moving into test mode in the next couple of weeks.

Our Rx loyalty program is taking shape and we should be in test middle to late next quarter. We launched our new ad format this week and we will have some additional improvements over the next few weeks as we work the kinks out. The grassroots pharmacy marketing initiative seems to be working and we are seeing good response in the stores we identified as the biggest opportunity because of high front-end sales and low pharmacy sales.

These operating initiatives are gaining traction and are helping our results as evidenced by our strong script count growth, SG&A, and working capital performance in this quarter. Overall, I am pleased with the results for the quarter and the progress we made at improving our financial condition. While we are facing some headwinds, benefits from the initiatives combined with other actions we are taking should help us overcome these issues.

I will now turn the call back to Mary for some closing comments.

Thanks, John. A little bit about healthcare. While healthcare reform appears to be getting closer, it's easy to understand why it may take longer to get final draft of the healthcare reform bills later than originally promised. The Senate proposal is more than 600 pages and the House's version more than 800 pages. Nobody is sure right now if a vote on the final bill will make it to the President's desk by the October deadline.

We, along with others in our industry, have lobbied for the important role community pharmacy can play in providing accessible and affordable healthcare for some time. We agree that providing coverage for the uninsured and helping seniors in the doughnut hole would benefit patients and our business, but we have made it very clear in our discussions with members of Congress that pharmacy needs a fair reimbursement for prescriptions it dispenses, especially Medicaid prescriptions. And we know we have a number of legislators in both parties who support community pharmacy and understand our concerns.

We also focused on expanding the pharmacist's role in fee-for-service medication therapy management, or MTM, which can improve the quality of care and reduce long-term healthcare costs, both goals of healthcare reform. We know that face-to-face counseling by pharmacists can improve compliance. In fact, we have 660 pharmacists already trained in MTM working in state-funded programs for conditions like diabetes and heart disease, and those programs have demonstrated that medication therapy management by the neighborhood pharmacists can save costs.

Since the proposals continue to change, the proposals on reform, it's hard to pin down specifics this early. Even though we don't know the details, we do expect the legislation will impact Rite Aid as a provider of one of the most accessible and affordable forms of healthcare, as I mentioned earlier, the community pharmacy.

So let's move on now to the question time period. Operator, we are now ready to take questions.

(Operator Instructions) John Heinbockel, Goldman Sachs.

A couple of things. John, can you just give us a little bit of a timetable, generic timetable for the three big buckets of EBITDA potential improvement and how those will play out? Because obviously they are going to have different timetables in terms of how quickly they come in or how slowly. But what is the timetable for each and what is going to be the most impactful in 2009, do you think?

Well, I think we are the furthest along on the low-volume stores. We have the largest number of initiatives kind of cooking in that bucket and you can tell by the things that we are getting done here that that is going to be probably the most impactful to this year.

We are making some progress on the high-volume stores, particularly on the labor side with the labor standards and things that we got done here in this quarter. But I think that one is probably going to take the longest to get done. It's actually a little more complex in that the things that you want to address can vary from store to store and so that one is going to take a little bit longer to execute. But I think the low-volume store one will certainly be the most impactful.

On the sales growth initiatives between the front-end and the pharmacy, the pharmacy one is moving the quickest. We have made the most progress there. As I mentioned in my comments, we have seen a good response in the high-volume front-end stores, low-volume pharmacy stores. Those stores' pharmacies are growing stronger than the rest of the chain at the moment and so I think we have got good traction there.

Conversely on the lower-volume front-end stores and the higher-volume pharmacy stores, we are still working our way through that. The Rx loyalty program I think will help us address that but that is coming a little bit later in the year. So we will probably get a little bit less benefit from that bucket this year. I think that is kind of how it plays out.

I mean if you look at the -- pharmacy has held up incredibly well despite rising unemployment and in fact lately a much, much higher generic hit. So you are taking share -- it looks like you are taking share. Where do you think that is coming from? Is that all independents or supermarkets or where do you think it's coming from?

It's probably coming from a little bit of everybody. I am certain that independents are feeling the same pressures we are on the margins side, so that is probably a little bit of it as well. I think also we are much more competitive today in the cash part of the business and so I think we are -- that is where we are probably gaining some share is from folks who had probably higher mix of cash business. We are getting some of that business today.

And where does -- is there a level at which -- front-end can be negative as long as pharmacy is progressing. But is there -- what is the level at which front-end being negative becomes an issue?

I don't know if I have an exact number for you. I mean I think I mentioned June is a little bit softer and probably where it is we don't want to be much more than that. So I think we are kind of at those levels.

I think, John, too, it's another reason why keeping balance and watching the margin on the front-end becomes important too, pushing private brand, the value items because the customer is being a little tougher on what they buy there. I think the things we are doing there show value. As the economy improves and John's initiatives around segmentation and assortment kick in I think you will see an improvement there.

I think the other thing too, John, just real quick on the front-end, similar to what we saw in the holidays, summer is a seasonal time for us. We sell a lot of the summer seasonal and those categories have been soft in June. I think weather has been a part of that, but just in general they are soft.

All right. And then finally just for Frank, the rent reduction initiative, roughly how many stores are you talking about? Do you know? I am sure you know.

It's just under 500 stores is what we are looking at right now.

And you are not -- it's not a case of you need -- with those 500 we need to get reductions or we will close them. Maybe some of them are like that, but are all of them like that?

All of them are not like that, okay? But clearly those are ones that are not profitable, not entirely profitable for us and the ones that are on the list for us to consider to potentially close. So we are not talking about closing 500 stores. But these are stores that if we don't see a change in the overall profitability, their future viability becomes questionable.

Okay, thank you.

Meredith Adler, Barclays Capital.

Thanks for taking my questions. I would like to just talk a little bit about -- well, a number of sort of random issues, but you mentioned that because your purchases were lower you got lower vendor allowances. Vendors remain supportive in terms of credit terms. Do you think that concerns about liquidity would have had an impact on vendor allowances and now that you have done the bank facility you might get more support from vendors?

You know, as we look at it, it's a good question. We certainly dwelled on that quite a bit. I think as we look at our allowance funds as it relates to purchases, that appears to be okay like as a percentage. It really seems to be tied to the fact that we have ramped inventory down. As purchasing returns to normal levels, which it will as we get to the bottom here, then we would expect those monies to stay steady as a percent of purchases and we would be back kind of to more normal levels.

Yes, Meredith, a lot of the arrangements like that with suppliers you have different, say tiers, based on what you purchase. And so, obviously, our inventory reduction initiative is going to cause some fall-off from that, but in the end we will still have a better kind of inventory to be working within and a better program so our overall profitability should improve.

And if you do a SKU reduction program, does it allow you to buy more volume from fewer vendors and does that kind of help their support as well?

I think it ultimately does. I mean, you know, the thing about this kind of a program is I think it gets us focused on buying successful inventory. Sometimes you can buy inventory, you get an allowance, you think you are doing great, then it doesn't sell. You mark it down, you send it backwards, you salvage it, and really you don't -- by the time you add up all the labor and distribution costs and every other thing that happened you are really kind of sorry you did that.

So I think the lesson for us is there was some deadwood in here. We are clearing it our. There is obviously a little pain to do that but we are getting it done. And as we go forward I think we are much more cognizant. Ken is working on a bunch of the analytical tools and processes to help us be smart about what inventory we put in these stores going forward.

Okay. And then there was some mention about those labor scheduling and labor standards at the stores. Just remind us, did you roll out a new labor scheduling system and did you always have some labor standards that were not being adhered to or is that a new effort?

It's both. We did have labor standards and a labor scheduling tool. We have upgraded those tools for the store teams to use and actually probably should have said we have gotten that rolled out in this quarter. So we have that, but just in general I think like anything it's a matter of focus and attention to it. So you can have these tools and if people don't use them you are generally not going to hit your labor numbers.

So Brian Fiala and the store operations team have done a really great job of embracing these tools; measuring adherence and compliance with those tools. You know, it's not so much even just about getting labor out. It's about having labor in the stores when you want it there to meet the needs of your customers. That is really the most important thing. So I think it has been a real benefit to us to use these tools and get focused on them.

The other thing I would add, too, is changing the operating model for the low-volume stores, changing frequency of delivery, changing the promotional inventory has changed the work needs too. And so there is a whole different operating model for those stores and I think that makes a huge difference. It's not something that goes away either over time.

Yes, that has been a big effort and it's going to be an important contributor to the rest of the year is that new operating model in the low-volume stores.

Okay. And then switching gears, the receivables financing, let's say that it does go back on balance sheet. What would that mean for revolver availability? I think your collateral would go up, so what would you say that you would have as total borrowing capacity and what would be peak borrowing under the revolver?

Well, Meredith, the game plan here would be -- is to basically keep the same level of overall availability that we have today, okay? So if we were to bring it on books it would have to be some combination of first lien and second lien.

Right now, based upon the first lien restriction, we would be able to take on about 320 of the 5 -- total 570 as first lien. And then the second piece of that would have to be a second lien facility, okay? And that is sitting here -- that is the second lien facility, correct.

And, Meredith, it's important to understand that how the banks have to treat this doesn't dictate our accounting. So we can leave it structured off balance sheet and still do a number of different things with it.

Okay. And then -- as I said, these are random questions. You did a small file buy, about $2 million worth of file buys in the quarter. Cash flow seems to be good; you are selling some assets. Is there any plan to increase the number of final buys because the terms are so high on those?

The rumor is Frank is going to give me another nickel or two.

Meredith, it's something that we talk about pretty regularly internally. We are still planning on spending about $250 million overall CapEx. We will actually be opening less new stores this year than what we had originally forecasted. There is probably 10 or 12 less new stores so our total capital expenditures for new stores will go down about $10 million. Right now, we are planning on allocating those dollars to remodels, okay? But it's an ongoing discussion internally.

Okay. And then my final question might be for Mary. In September, AMP is supposed to be coming back to life. I think most smart people understand that it's counterproductive for the Medicaid program to put AMP in place, but any sense of how that gets handled? Does Congress actually have to put a new bill in place to make AMP go away?

Well, I think the industry believes that you do need a legislative solution to really make the definition correct. And there is -- there are varying kinds of languages floating around right now in the different bills about how that will shake out. I think, again, until we see a little more clarity around it --.

It was one of those points that we pressed pretty hard when we were in Washington, DC, last week while bills were in markup to really make sure that our view on AMP was clearly understood and what needed to happen there. And I think we have got good understanding of what pharmacy needs and I think you will see some changes there.

That is great. Thank you for taking all my questions.

No problem. Thank you.

Lisa Gill, JPMorgan.

Thanks very much and good morning. Some of your other competitors have talked about pressure with Medicaid. Can you talk about any kind of pressure that you are seeing in the Medicaid market first?

And then, secondly, just going back to Rx growth, can you maybe talk about some of the drivers? Is this that the comps are getting easier as well? I mean, as Zyrtec has now run through comps over the last year, is that part of it?

And then, thirdly, when you think about your membership program, is that primarily the seniors that are falling into the doughnut hole? So if this new pharma plan does go into effect what are your expectations around what will happen with some of those members that are currently falling into the doughnut hole.

Let's see, I guess we will start with the Medicaid, part one Medicaid. In terms of what is going on with Medicaid, I think there are probably four quick things I could touch on. One is we have got an ongoing situation in Delaware that we are working our way through. We have seen some action in both Washington and California, but we have had some successful litigation in both instances that have helped us stave off some changes to reimbursement rate there.

There have been a number of federal upper limit changes that have kind of comes through. There was a little bit of a backlog and I think they kind of caught up and so we have seen a number of those come through over the last few months. That is pretty much the big things I think that are flying around in Medicaid over the last several weeks, I think.

But, you know, states are under a lot of budget pressure and we have been dealing with Medicaid issues, I think, any number of years now. That is why I think the whole issue of healthcare reform becomes so important is to be able to help address some of these issues too.

Do you think, Mary, though, that this could have an impact on margins? If you look at Medicaid, if I understand correctly, Medicaid is 10% or 11% of your total pharmacy sales? So if you have a couple of states that are moving in this direction is the anticipation that other states are also looking to cut Medicaid?

And I think that one of your competitors has been pretty vocal about trying to step out of some of those programs because of the reimbursement cuts. Are you doing the same, or is it just your taking the cut and hoping to work with the state?

No, we want -- when Medicaid cuts come about, we really watch what happens with individual stores because the percentage of Medicaid scripts can vary widely from store to store in a given state or market area. We have taken action in the past relative to stores that have a real issue there.

When you serve a lot of Medicaid patients, they take a lot more time to serve, too, because they are generally patients that have more healthcare issues and whatnot. So the whole reimbursement there becomes part of making it profitable to serve those patients or not serve them. So I think Medicaid reimbursement is an issue and part of the pharmacy reimbursement issues that John mentioned in his remarks too and Frank.

And then my -- I can repeat my other questions. I am sorry, I always talk fast. But the other questions were just around, as we are starting to anniversary things like Zyrtec is that helping at the comp? And then just, secondly, if you want to just talk about your Rx program right now. Is that primarily seniors that are falling into the doughnut hole? And thoughts around the new pharma program that has been proposed.

We look at script count probably even more than sales for pharmacy because if you sell more generics it can negatively impact the sales number. And our script count has been good.

Yes, I'm not sure how an OTC --

And continues to get stronger.

-- or something else would make comps easier.

Initially when Zyrtec would have left the pharmacy area it would have impacted your comp comparison, but you have cycled that in terms of sales. But, again, you have got to look at scripts. If we look at our script growth we actually have picked up script growth in lots of different age groupings because we look at it by demographics.

We have always had a strong senior business, but what we have seen I think with the new initiatives that John has in place that we are seeing more growth in a lot of the different segments and I think that is very healthy for our business. Still growth in the senior segment, but growth coming out of the other segments too.

I guess when OTC switched and took scripts out, right, we don't get them back. So it's not -- it doesn't make the comps any easier for sure, so I don't think that is the case. I think we have gained a lot of traction from a number of places.

One thing is that the BE stores are getting steadily better; that has helped. I think that has happened because we have made a lot of progress from a customer service perspective in those stores. Staffing is good; a lot of training has been done. I have been in a number of those stores, I feel good about how we are working with our customers in those stores. So I expect that those are going to continue to get better. So that is a piece of it.

Then I think we have gotten a lot of traction with a number of these different things that we are doing -- the grassroots marketing initiative, the Rx Savings Card has clearly been a win from a script growth perspective. So we have got the courtesy refill program cooking here and so I think there is a number of different things that are helping us drive the script count today.

We are focused on it. We think it's really important and we are going to keep pounding on it. And I feel pretty good about where we are in June with it, as well.

Yes.

And then just any thoughts on the doughnut hole and pharma planning to fill that? Does that help you?

I think it does.

Sure, I think anything that makes it more affordable for patients helps us in terms of if we are doing a good job out there and serving customers in pharmacy and have good programs over all then we should get our fair share of those patients that maybe are not taking their medicines when they get into that doughnut hole.

And maybe it will take some pressure off reimbursement rates, ultimately, right?

Right. Great, thank you.

John Ransom, Raymond James.

Hi, good morning. Could you talk a little bit about the generic margins? You made some commentary about it, but I wasn't sure that I quite understood what you were saying. And, specifically, is this a temporary issue or is this just a permanent change in landscape with regard to the margins for generics?

Here is what our situation is. I mean every year there is pressure on reimbursement rates, both from Medicaid, managed care, and whatnot. And we have seen that pressure this year just like we have, quite frankly, in every year before this that I have been involved with this thing.

The level of pressure I don't think is dramatically worse. It's probably a little worse than Medicaid. Managed care is pretty steady. We probably did also have some margin impact from the Rx Savings Card because we probably converted some cash customers to that offer. All those things combined put some pressure on reimbursement rates, but it happens every year.

What we normally are able to do each year is we get enough increase in generic penetration, because generic is more profitable than brand drugs from new generics, as well as savings on the cost side on the purchasing side of generics. What is a little bit different right now is we have been a little bit slower versus last year in terms of getting those purchasing savings. And so we made some good progress towards the end of the quarter, but during the quarter they weren't in place.

But we continue to see pharmacy margin pressure in the second quarter, so is it permanent? I don't know, but I think we are going to continue to see some pressure as we work our way across the year. We are working very hard to find some additional purchasing savings if we can; to work with growing script count because the more scripts we grow that will offset some of the shortfall in the rate. We are looking at a couple of other things as well to try an offset some of what we lost in reimbursement rate here this year.

Are you having to source more from the Tevas of the world and less from say India because of the FDA crackdown? Has there been a firming of the acquisition price on your end or is it different than that?

I don't know if it's necessarily -- well, the crackdown from the FDA has impacted supply of certain drugs. There are some more difficult to manufacture generics and have them become single source or maybe have two sources. That has definitely been an impact. There was one biggie that was significant there.

In general there has been some consolidation in generic manufacturing market as well, so that has had a little bit of an impact. So I would say that their generic manufacturers have a little bit more pricing power today than they did a year ago. That is certainly a part of the equation, I think, in terms of how we look at.

Yes, and our buying of generics is really through people like Teva. We don't do -- really go direct to India ourselves. I think there are a lot of safety issues still at work there and we believe that the relationships we have with people like Teva are important for safety concerns for our patients.

Right, and the drug I am referring to it's not so much -- it's not an India sourcing issue. It's actually a US sourcing issue and it was a manufacturer had a plant that was unable to continue to manufacture generic. So those are the kinds of instances that we see out there.

Okay, that is helpful. My other question -- I hope I ask this question in an understandable way. I am struggling with the wording of it. But let's say at time zero pro forma for the acquisition you are kind of running at a $950 million to $1 billion EBITDA number. And you have mentioned $500 million in opportunity over, let's say, three to four years.

What is the -- and I know that is a gross number. That is not necessarily a net number. But in terms of kind of the net EBITDA that you expect to get over the next three years, how much of that is realizable this year versus how much is realizable next year and the next year? Now I know you are not giving specific guidance, but we are just trying to think about the timing of when you layer these things in and a little more granularity.

I don't know if I asked that very well, but I am trying to figure that out.

I think you did and I think indirectly you are asking me for long-term guidance and so I am going to try not to do. But I think what we said is we have, what, about $100 million or so that we are kind of shooting for in EBITDA improvement this year. I don't think it's wildly different than that. Probably the following couple of years, something in that range is probably a reasonable guess. I don't --

So net $100 million for the next couple of years?

I think that is probably -- I don't want to -- I am doing the best I can with that. I am not going to go any further.

You know, being an SEC grad, I like simple answers like that. I can actually understand those answers.

Okay.

It's good. And then my third question is, is there -- as you put yourself in -- I am sorry, the lease -- what are you spending now on lease expense for stores that are not operating? And what will that number be once you get through your 118 stores that you are thinking about closing for this year? How much dead rent expense do you have right now?

Right now it's just under $100 million will be the dead rent expense.

And do you have a goal for this program that you have mentioned today engaging with the real estate firm? Is there a goal that you have there that you can talk about?

We do have an internal goal, but we are not -- at this point, we are really not prepared to kind of talk a little bit more about it. Only because we are really in the beginning stages of having discussions with the landlord, but we will certainly give you guys an update next quarter.

Okay. And then on the interest expense line, I know you have talked about for the year, but what is the annualized interest expense number once you get all of your refinancings done? And then how much of that is non-cash interest expense? Thanks.

Yes, on the pro forma basis, cash interest will be about -- the increase will be about $70 million in cash and total interests, including the non-cash piece, will be about $84 million. Obviously, the delta there is really driven by the OID amortization on the new debt that we put on.

All right. So netting for the accounting change, what kind of interest expense number does that look like? Let's say by the August quarter when you are on a full run rate or maybe even the November quarter, what is kind of a run rate interest expense?

Again, it's kind of within the range of guidance that we gave. The range is, again for the year, is $570 million to $585 million, John.

But that includes -- you had about a quarter of lower interest expense in that number. So if we were to net the -- so take three quarters of the higher and net against the one quarter of the lower. Does that --?

That is probably good math.

Okay. All right, thank you.

Mark Wiltamuth, Morgan Stanley.

Hi, good morning. I know a lot of us have been focused on the Brooks Eckerd comp trends, but clearly there is some operating environment pressures also on those. Could you talk to us about how the profitability has changed for those stores since you have acquired them? I know your private label has improved there and you have made some other changes. Have the margins gotten better?

Well, the margins were significantly impacted by sales declines. So whatever we probably did in terms of the private label -- there was advertising savings and those kinds of things that were specifically related to those store P&Ls. If you looked at those store P&Ls. And then you had the sales pressures.

In the big picture, though, when you sort of look at it there was a significant savings in terms of purchasing of generics. And that probably -- honestly went across all store P&Ls so it didn't go directly into the BE stores. So I guess when you look at it from probably where we started, the BE stores are probably a little soft versus what we bought in total and you kind of put it together.

We have also, though, Mark Tomas seen improvement in generic penetration which helps the overall margin. We have seen reduction in shrink from what their prior trends have been, so they are moving in the right way.

Moving in the right direction, absolutely. And to Mary's point, a bunch of the stuff we are doing like the low-volume stores and other things we think are going to really move these things along from a profitability perspective.

Any guess on when you think the comp will solidly turn positive on those Brooks Eckerd?

I think the front-end is pretty close to what is happening in our core Rite Aid stores. It's following fairly closely with that, so whatever we do in total is probably where the front-end is going to be.

On the pharmacy, it's making nice, steady improvement. I thought we were kind of there and then it soften up a little bit so I am hesitant to say we are there. But I think we are getting very close to the crossover here in the BE pharmacies. And I think if our script count holds up a few more months the way we are running right now I think we are going to be right on top of it.

Okay. And then for Frank, I know you really had to squeeze the debt down to get into this refinancing and congratulations on the refinancing, by the way. Do you think we are going to probably not see much in the way of debt reduction in the next five years because you have cleared off all the maturities or is there in opportunity for some debt reduction over that window?

No, I do think there is an opportunity. As we continue to kind of improve our overall operating performance here, I clearly think there is opportunities for us to be able to further pay down debt. Obviously, that will be somewhat offset by increases in capital expenditures from our current levels. But there is a number of initiatives that we have in place here in order for us to kind of free up cash. There is still some more opportunity for us on the inventory side, certainly on the rent reduction initiative. So there are a couple more places where we can kind of dig around here to kind of get some cash out of here to pay down some debt further.

Those are opportunities, but is that really part of the formal plan right now?

Those are things that we are clearly working on, okay? So whether it's -- it might be an internal plan, but those are things that we are clearly working on.

Okay. Thank you very much.

Bryan Hunt, Wachovia.

Thank you and good morning. I was wondering, Frank, could you talk about how much further you think you can take inventory down and do you believe the cuts are having any impact on the same-store sales trend, especially in June?

You know, right now, as we look at it, we thought there was a total of about a $240 million opportunity for the year. We probably -- we got $100 million of that in the first quarter and as we kind of look at it again there is probably another $40 million above that. So in total we are probably looking at about a $280 million inventory opportunity for us.

And is that mostly tied to the lower volume store initiative, or how are you carving up that opportunity?

It's in a bunch of different places, but the biggest single thing has been SKU reduction so far. There clearly are some changes we made in the lower-volume stores and we are working on some things in some test stores to kind of monkey with the inventory assortment to see what further there might be there.

But there has also been some work on safety stock on certain items. The backroom inventory has been a big focus for us, so there are a number of different areas that we are going to to kind of get at this inventory.

The other thing as just eking out inventory between stores. We are going to have pharmacy inventory between stores making sure that we have the right amount of inventory in each store.

That one there is a big opportunity that we have been kind of working on because you can get a drug in a store, you have a patient for it. For whatever reason that script goes away, you can have excess inventory that is not getting utilized. We have a nearby store that may be filling those kinds of scripts. So there is a real opportunity to efficiently manage the pharmacy inventory between stores, and we think that is a good opportunity as well.

Bryan, to go to your other question in terms of does it have some impact on sales. As John had mentioned, I think it certainly does nibble on it. And we continue to look at ways for us to be able to reduce the inventory, sometimes we go a little too far.

There is one particular category, in the cosmetics area for example, where we readjusted [mid macks]. We really went too far, recognized that there were some holes that came out, and we increased inventory by about $7 million. So it's a little bit of trial and error here. So it probably has some impact, but the long-term benefit is clearly a net positive.

And if you can give us a little bit more color on that example. How fast were you able to realize you were short on cosmetics and go back and adjust your inventory? Was it a month, six weeks?

Like a month, month and a half to straighten the whole thing out.

Okay. And last question, when you recently rolled out your pricing initiative in a major market -- when you look at that pricing tool, did it have a gross impact higher or lower on pricing or could you just talk about what the pricing philosophy is behind that tool?

Yes, and there are a number of philosophies behind it. But in that particular instance we probably were slightly margin ahead. Ultimately, though, besides successfully managing gross margin, we think there is a real opportunity to improve our price image as part of this application as well.

Because we are much more -- rather than applying some sort of margin rates to a whole bunch of items we are really focused on how the consumer perceives pricing and what is important to the consumer in getting those prices right. So it's a combination of price perception and balancing our margin equation.

Have you had that tool in place long enough to see any acceleration or deceleration in sales? Or is it just too early in the process?

I don't think it has had any impact one way or another in the particular markets that we have tested it in. I think it could potentially help sales in other markets where we use it.

Thank you for your time.

You are welcome. Thank you.

Carla Casella, JPMorgan.

Hi. I have to say at first just that the SEC isn't all that bad. Go Vandy, but I do have a question. I don't like anyone bashing my conference.

You have got the Big 10'ers in this room, I think.

I grew up in Big 10 land. But the AR facility, can you tell how much of the outstanding balance was first versus second lien and just remind us when that second lien portion is callable?

Carla, the second lien is callable in August of this year and the second lien component was $225 million.

Okay. And then the dark store rent question that came up before from my fellow SEC fan, the $100 million dark store rent, what is the average age on those leases? And should that actually go up this year as you close more stores or should we start to see that number tick down? The dark store rent.

Actually the dark store rent based upon the closures that we currently have planned is actually going to start to decrease. Right now it's just under $100 million and should decrease probably around $7 million, $8 million, $9 million per year. In terms of the number --

Carla, the rent last year was about $85 million. It will grow to $100 million this year as we close stores and then it has about a 10-year bleed-off.

Okay. And then when you look at the high-volume versus low-volume stores, that was a big number of the increase in the low-volume stores. Is there -- I guess what are the average leases on those low volume stores? And if you could close a low-volume store tomorrow, would you do it or are these all just underperformers or are some of them just a different business model?

I think it's a different business model. I mean, we think there is a lot of opportunities in these lower-volume stores to make some good cash flow and make some good money here. So changes in the operating model, some things that we are doing to help the sales a little bit, merchandising opportunities; we think there are some things to do here in the stores. So it's not our intention to close these lower volume stores, we just think they should run with a different model.

I think we have talked about before the pharmacies in a lot of these stores are actually very, very profitable. Where we are a little sideways is with the front-end so it's really getting that front-end to work in combination with that pharmacy that will make these really good stores.

Okay, great. And then you mentioned in the same-store sales comments that your anniversarying some promotion -- promotional activity in the Brooks Eckerd stores. As we look into June and the summer months, and you were -- last year you were kind of nearing the end of the integration. Do we have some more tough comparisons to big promotions from last year?

I think June has got another tough comparison in it and then it settles down after that.

Yes, we cycle when we will have run those ads.

Okay. Great, thanks a lot.

Thank you very much.

Christy, we have time for one more call -- for one more question.

Emily Shanks, Barclays Capital.

Good morning. Thanks for letting me sweep in. I was hoping you could give me what the full drawn amount on the revolver was at the end of the first quarter, please.

$535 million, Emily.

Okay, great. And then, Frank, the $126 million of deficiency related to the borrowing base that is specific to the -- versus the $1.75 billion existing revolver, correct?

That is correct.

Okay. And then around the existing commitments for the new revolver, do you plan to go up to the $1 billion or does it sound like it's going to just shake out at $960 million?

Yes, we are at the -- we are kind of in -- at the end of the line here in terms of we are still talking to a couple more potential lenders. We went to the retail syndication portion of this, which just takes a little bit longer, but we are making some pretty good progress here in wrapping this thing up. We expect to do that in the not too distant future.

Okay, great. So it could be like a 2Q -- it should be a -- well, like in the next month or two?

Yes, definitely, definitely.

Okay. All right, that is it. Thank you.

Okay, Emily. Thank you.

Thank you very much, everyone.

Thank you all very much.

Thank you for participating in today's conference. You may now disconnect.