Rite Aid's (RAD) CEO John Standley on Q3 2018 Results - Earnings Call Transcript

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About: Rite Aid Corporation (RAD)
by: SA Transcripts

Rite Aid Corporation (NYSE:RAD) Q3 2018 Results Earnings Conference Call January 3, 2018 5:00 PM ET

Executives

Matt Schroeder - Group VP, Strategy, IR and Treasurer

John Standley - Chairman and CEO

Kermit Crawford - President and COO

Darren Karst - SVP, CFO and CAO

Frank Sheehy - CEO, EnvisionRxOptions

Analysts

John Heinbockel - Guggenheim Securities

George Hill - RBC Capital Markets

Glen Santangelo - Deutsche Bank

Lisa Gill - J.P. Morgan

Robert Jones - Goldman Sachs

Charles Rhyee - Cowen & Company

William Reuter - Bank of America Merrill Lynch

Carla Casella - J.P. Morgan

Joe Stauff - Susquehanna Financial Group

Karru Martinson - Jefferies

Operator

Good day ladies and gentlemen and welcome to today's webcast. My name is Sayeed and I'll be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded. You may click on the files option on the lower left hand corner of your screen to download today's presentation. If you experience any difficulty, please refresh your browser.

We'll have a question-and-answer session at the end of the presentation via the phone line. [Operator Instructions]

It is now my pleasure to turn today's program over to Mr. Matt Schroeder. Sir, the floor is yours.

Matt Schroeder

Thank you, Sayeed and good evening everyone. We welcome you to our Third Quarter Earnings Conference Call. On the call with me today are John Standley, our Chairman and Chief Executive Officer; Kermit Crawford, our President and Chief Operating Officer; Frank Sheehy, Chief Executive Officer of EnvisionRxOptions; and Darren Karst, our Chief Financial and Chief Administrative Officer.

On today's call, John and Kermit will provide an update on the business, Darren will provide an update on the Walgreens asset sale and on our third quarter results, and then we will take questions.

As we mentioned in our release, we are providing slides related to the material we will be discussing today. These slides are provided on our website, www.riteaid.com under the Investor Relations information tab. We will not be referring to them in our remarks, but hope you find them helpful as they summarize some of the key points made on the call.

Before we start, I'd like to remind you that today's conference call includes certain forward-looking statements. These forward-looking statements are presented in the context of certain risks and uncertainties that can cause actual results to differ. These risks and uncertainties are described in our press release, in Item 1A of our most recent Annual Report on Form 10-K and in other documents that we file or furnish to the Securities and Exchange Commission.

Also, we'll be using a non-GAAP measure in our release. The definition of the non-GAAP measure along with a reconciliation to the related GAAP measure are described in our press release. Also included in our slides are the non-GAAP financial measures of adjusted EBITDA gross profit and adjusted EBITDA SG&A and the reconciliations of these measures to their respective GAAP measure.

With these remarks, I'd now like to turn it over to John.

John Standley

Thanks Matt and thanks to everyone for joining us on the call this evening. The third quarter was a busy time for our team as we prepared for and began the transfer of stores and related assets to Walgreens Boots Alliance. Today, we have transferred 357 stores and have received approximately $715 million in proceeds, which we have used to pay down debt.

I'd like to thank the entire Rite Aid team for their hard work and dedication in making this significant milestone a reality for our company and our shareholders. We expect to continue transferring ownership of the stores in phases over the coming months with the goal of completing the process in spring of 2018.

As we continue transferring ownership of stores to WBA, we will also continue to focus on our most significant business building opportunities heading forward. In just a few moments, Kermit will spend some time discussing our strategic priorities and providing an update on our key initiatives.

In terms of our third quarter results, our pro forma adjusted EBITDA from continuing operations of $153 million, which includes $24 million in fees that would have been received if all of the divested stores were being managed under the TSA agreement as of the beginning of the period, was in line with our expectations. Darren will provide some more details regarding our third quarter financial results as well as the tax benefits preservation plan that we announced this afternoon.

As I indicated in last quarter's call, a critical priority for us has been to build our management team for the future to ensure that we have the right leaders in place. To that end, on October 5th, Kermit Crawford officially joined our team as President and Chief Operating Officer of Rite Aid Corporation. In just a few months, Kermit's knowledge, passion and commitment to innovation are having a positive impact on our team as we work together to deliver against our strategic priorities.

So, at this time, I'd like to introduce Kermit to provide more details about our strategic priorities moving forward and an update on our key initiatives. Kermit?

Kermit Crawford

Thank you, John and thanks to everyone for joining us today. Let me start by saying that I'm very pleased to be a part of the leadership team here at Rite Aid. As I complete my first 90 days, I'm spending a lot of time getting to know our associates and gaining a better understanding of our organizational strength and opportunities.

I'm pleased to say that one of our biggest strength is that we have a disciplined, hardworking, and passionate team that is highly dedicated to serving our customers and building a new Rite Aid for the future.

As we begin to build this new Rite Aid, it's important for all of us to understand what Rite Aid will look like after we transfer ownership of the stores to WBA. The new Rite Aid will have 2,569 stores that are located primarily in eight key states and will be served by six distribution centers.

Our organization will continue to operate three health and wellness businesses with EnvisionRxOptions, Health Dialog and RediClinic. When combining all of these assets, we will be a $22 billion a year company that builds more than 180 million prescriptions annually and manages more than four million lives through our PBM.

These assets become more important when you consider how the transaction with WBA will benefit our organization. The new Rite Aid will be financially stronger with lower debt and more financial flexibility to invest in strategic initiatives that drive our business.

We will have a more profitable store network with a higher percentage of wellness stores. We'll also have a strong store count presence in our eight key states of California, Pennsylvania, Michigan, Ohio, New York, New Jersey, Washington, and Oregon, which gives us the opportunity to improve market share in these states.

And finally, we have an attractive option to help manage our pharmacy purchasing costs through a generic purchasing option with WBA that is included in our asset purchase agreement.

Going forward, we're highly focused on leveraging these strengths to build a strategy that fully capitalizes on our biggest opportunity. It starts with staying true to our mission to improve the health and wellness of our communities.

With this mission in mind, we have a strong foundation from which to build a winning strategy, specifically as it relates to our talent, our retail clinical programs and our wellness store format.

In terms of our talent, as John said, we are building our management team for the future. We are carefully assembling this team to include a strong mix of experienced and proven leaders, along with new roles for top emerging talent promoted from within our organization who know our company and customers well.

This mix of knowledge, experience, and fresh ideas will be important because together with our field and store teams, we will be laser focused on assessing the needs of our customers to build the strategy that allows us to compete and win in our core markets. Our talented and dedicated Rite Aid team gives us the momentum we need to tackle this important opportunity.

We also have tremendous momentum in our retail clinical programs. We've had a successful flu season to-date with our certified immunizing pharmacists administering 3.1 million flu shots by the end of the third quarter compared to 2.9 million by the end of last year's third quarter.

In terms of the big picture, this highly successful program has demonstrated that we can execute companywide on delivering low cost, high quality health and wellness services beyond filling prescriptions, which gives us a strong foundation for building additional clinical service offerings going forward.

And finally, our wellness store format continues to drive innovation through enhanced layout and design, a stronger emphasis on health and wellness products and services, and enhancements that make key categories much easier to shop. These stores continued to outperform the rest of the chain and going forward, wellness stores will account for nearly two-thirds of our overall retail footprint.

We will continue to enhance our product selection, traffic flow, and services based upon learnings and a better understanding of our local customer needs. We're excited to be in a position to further leverage this popular store format in delivering an even better customer experience.

In terms of everything I've mentioned to this point, the makeup of our new organization, the benefits of the WBA transaction, the ability and potential of our team, and our portfolio of successful initiatives, I believe we have a strong foundation from which to build the new Rite Aid and are well on our way to identifying the steps we must take to create a winning strategy in each market that enhances our customer experience and builds a winning value proposition for our payers and key stakeholders.

It all starts in the pharmacy and creating a sustainable business model for Rite Aid. We started engaging with our payer partners to stabilize reimbursement rates, and I'm pleased to report that we're making good progress. Our contracts with most payers are in place, and we have better predictability on reimbursement rate and access for the coming year.

Beyond these efforts, our goal is to work with payer partners in figuring out ways to grow share in our key markets. As we work more closely with larger payers groups to increase in share in our existing networks, we'll also work on gaining access to new networks, including preferred Part D networks.

At the same time, we're also having conversations around pharmacy purchasing costs. As I referenced earlier, through the asset purchase agreement, we have the opportunity to purchase generic drugs that are sourced through an affiliate of WBA at a cost substantially equivalent to Walgreens for a period of 10 years.

This represents an attractive option as we continue our efforts to offset reimbursement pressure. Simply put, we need to effectively manage our pharmacy purchasing costs, and this will be a critical priority heading forward.

Another opportunity for pharmacy is to further expand our clinical service offerings. While we have strong momentum with flu immunization, we have a significant opportunity to further increase adult non-flu immunizations that protect against conditions like shingles, pneumonia, and whooping cough.

We're also highly focused on working with patients to improve medication adherence. This is especially important as we participate in additional performance and Medicare Part D networks as increased medication adherence improves their CMS star ratings.

We also need to further explore how we can strengthen our offering in specialty pharmacy, which is forecast to account for more than 40% of the total U.S. drug spend by 2021.

When you consider the specialty platform already in place through Envision, along with the health coaching, disease state counseling, and analytics capabilities of Health Dialog, we have an asset in place to build a more integrated specialty offering to help patients manage these high cost therapies.

And finally, as you know, file buys represent a tremendous script volume building opportunity for our business. We completed 10.6 million in file buys transactions in our remaining markets during the third quarter, and we'll continue to strategically assess core markets to make the best possible use of these investment dollars to grow our business.

In looking at our front-of-store business, the key for us will be to deploy a more targeted front-end merchandising strategy with tailored offerings that are specific to each local market.

A great example is Michigan, which will be an important state for the new Rite Aid. In Michigan, we need -- the needs of customers in the Upper Peninsula are different from the needs of customers in Detroit. Another good example is the difference between customers in Northern and Southern California. To compete and win, we must ensure that our product mix is relevant in each of the communities we serve.

Another critical area of focus will be to optimize efficiency in our assortment and continue enhancing our Rite Aid private brand portfolio to offer our customers more choices along with greater quality and a better value. We'll also be highly focused on further developing our omnichannel experience.

Our best customers are heavily engaged with our app and website for everything from prescription refills, product information, and home delivery based on their specific needs. In addition, our promotions and special offers, which were heavily relevant on mass vehicles in the past are now more personalized based on the investments we have made to better understand our customers. We'll continue to strengthen our omnichannel experience so that we can further leverage enhanced customer data to drive our business.

In addition to our retail business, we also have three health and wellness businesses that provide us with a significant set of healthcare capabilities. We acquired each of these businesses with a specific vision in mind and believe that this fleet of assets with an integrated strategy can further strengthen our overall enterprise while being a significant part or differentiation for our health and wellness platform.

We originally acquired Envision for its broad suite of PBM and pharmacy-related products and services that, when combined with Rite Aid's retail platform, provide customers and patients with a seamless health and wellness offering.

Heading forward, Envision will serve as a growth engine for the entire enterprise. During last quarter's earning call, we reported Envision was on track to grow Medicare Part D enrollment by more than 100,000 lives. We have achieved that projection as our total Med D enrollment for the 2018 plan year has surpassed 500,000 lives.

We expect to continue to grow this high value customer base by another 100,000 lives given the trend that 10,000 baby boomers are turning 65 each day. It's worth noting that Rite Aid is a preferred provider in Envision's Med D plan with copays that save money for members and has a potential to drive additional traffic into our stores.

We acquired Health Dialog for its industry-leading analytics and shared decision-making tools. Health Dialog can help us to better serve the health and wellness needs of our communities by facilitating a partnership with our customers to improve medication adherence and better compliance to drug therapies.

This, in turn, improves our overall performance and quality scores measured by PBMs and health plans and will make us more valuable in the preferred networks of these providers.

With strong predictive modeling, Health Dialog can also serve as the analytical engine to differentiate Envision's offerings and help retail pharmacists better understand and care for patients, especially those with diabetes, high cholesterol, and hypertension.

Our third unique health and wellness business is RediClinic, which we acquired for its ability to provide high quality, convenient and affordable healthcare. RediClinic continues to be an attractive asset that can deliver low cost care in a retail setting while giving us the opportunity to form partnerships with health systems and health plans to drive additional traffic to our stores.

As we continue refining our strategy, these are the areas that represent our biggest strengths as well as our most significant opportunities. To execute this strategy, we must commit to growing as leaders and driving functional excellence throughout all levels of our organization.

It's also critical for us to recognize that while we have a lot of work to do to achieve our full potential, we also have a tremendous team and a robust suite of assets from which to rebuild our momentum and create a new Rite Aid that truly resonates in our key markets.

I believe in our team and I'm excited to continue our work together in aligning our efforts around a common vision. I am confident that we will succeed in building the new Rite Aid and look forward to providing you with updates on our progress.

Thank you for your time. Now, I will turn it over to Darren Karst for more information on our financial results. Darren?

Darren Karst

Thanks Kermit and good afternoon everyone. On this call, I will review our progress on the WBA asset sale and discuss the updated pro forma results that are included in our supplemental investor slides. I will also walk through our third quarter financial results, cash flow and liquidity, and provide some commentary on the tax benefits preservation plan that we announced this afternoon.

In November, we completed the sale of 97 stores to WBA under the amended and restated asset purchase agreement. Because the majority of the closing conditions have been satisfied and the subsequent sale of Rite Aid stores and related assets remain subject only to minimal customary closing conditions associated with the specific stores being transferred, we have classified the assets and liabilities of the 1,932 stores and three distribution centers to be sold to WBA as held for sale and the corresponding operating results and cash flows of those stores as discontinued operations in accordance with GAAP.

We will continue to receive proceeds from the asset sale over the next several months as WBA takes possession of the stores. We expect the transition of stores to be completed sometime during the first quarter of fiscal 2019.

The proceeds will be used to pay off approximately $200 million of net liabilities related to the divested assets, which is primarily trade payables and accrued liabilities, restructuring costs and transaction fees of approximately $65 million net of tax, and income tax payments of approximately $85 million.

So, when we are completed with the transaction, our net proceeds will be just over $4 billion, which is consistent with our original expectation. That amount does include about $220 million of proceeds for the three distribution centers that will be sold to WBA sometime after the transfer of the stores. As of today, we have transferred a total of 357 stores and have received $715 million in asset sale proceeds.

Please keep in mind that some of these numbers are estimates and could move around a little, but you can see, we will have significant net proceeds to allow us to delever the balance sheet and give us the flexibility to strategically invest in our business.

As Kermit said, when this transaction is complete, the new Rite Aid will be a stronger and more profitable enterprise with a 2,569-store network located in key states on both the West Coast and in the East.

We will also be able to continue to leverage our other key health and wellness assets, including EnvisionRx, RediClinic, and Health Dialog. This gives us a business model that is more diversified with less exposure to pharmacy reimbursement rates because a higher percentage of our operating income will come from our PBM business.

As you can see in the supplemental slides that we filed this afternoon, we've also updated our pro forma financial information for the WBA asset sale and to reflect our results for the last 12 months ended December 2nd, 2017.

Pro forma adjusted EBITDA for this LTM period would have been $632 million and our pro forma leverage ratio would have been 4.6 times. Please be mindful that we are not providing guidance at this time and these pro forma numbers should not be construed as guidance.

I'll now turn to a review of our third quarter results, which reflect the stores that remain as part of continuing operations. Revenue for the third quarter was $5.4 billion, which was a decrease of $316 million or 5.6% from the prior year third quarter.

Net loss was $18.2 million or $0.02 per share versus net income of $23.6 million or $0.02 per share in last year's third quarter. Adjusted net income for the current quarter was $1.6 million or zero cents per share versus adjusted net income of $26.8 million or $0.03 per share in the prior year's third quarter.

Adjusted EBITDA was $129.2 million in the current quarter compared to $191.3 million in the prior year's quarter. The decrease in adjusted net income and adjusted EBITDA is due in part to continuing pressures on Retail Pharmacy gross profit, which is consistent with the trends we have seen in the past several quarters.

We also had a couple of items during the quarter that impacted the year-over-year comparisons. One, we had lower net favorable legal settlements of approximately $15 million as compared to the prior year. And two, we had about $10 million more of bonus expense this year as compared to the prior year because we did not meet our minimum threshold for paying a bonus in the prior year.

I also want to highlight that our continuing operations are being fully burdened by our corporate administration costs with no allocation to our discontinued operations due to the accounting rules associated with discontinued operations. This is without regard to the fact that we will receive payments from WBA under our Transition Services Agreement to cover a portion of our corporate administration costs.

Under the TSA, we would receive up to a total of approximately $96 million on an annual basis if all 1,932 stores were operating under the TSA for a full year. On a quarterly basis, that would amount to approximately $24 million.

Retail Pharmacy Segment revenue for the quarter was $4 billion, which was $123 million or 3% lower than last year's third quarter. The decrease was due to lower pharmacy and front end sales.

Overall, same-store sales decreased 2.5% in the quarter. Front end same-store sales decreased by 0.5%, while pharmacy same-store sales decreased by 3.5%, which included a negative impact of approximately 198 basis points from new generic introductions.

Pharmacy same-store script count was down 2.4% on a 30-day adjusted basis, which was caused in part by being excluded from certain pharmacy networks where we were able to participate last year.

Retail Pharmacy Segment adjusted EBITDA in the quarter was $88.9 million or 2.3% of revenues, which was $50 million lower than last year's third quarter adjusted EBITDA of $138.9 million.

The reduction in Retail Pharmacy Segment EBITDA was driven by reduced gross profit largely due to a decline in reimbursement rates, which we were unable to offset with generic purchasing efficiencies as well as lower script counts.

We also faced those headwinds related to the net favorable legal settlements and bonus expense that I just mentioned earlier. These items were partially offset by an overall improvement in SG&A expense.

Total Retail Pharmacy Segment gross profit dollars in the quarter were $53.9 million lower than last year's third quarter or 49 basis points lower as a percent of revenues. Adjusted EBITDA gross profit was unfavorable to last year's third quarter by $53.5 million or 49 basis points as a percent of revenues.

As I said earlier, our reduced gross profit dollars and rate were primarily driven by pharmacy reimbursement rate declines and lower prescription counts. While we continue to expect reimbursement rate headwinds, we are encouraged by our discussions with our payer partners as we head into next year.

Front end gross profit dollars were flat to the prior year due to the decline in front end sales, while front end gross margin rate improved by 31 basis points. Retail Pharmacy Segment SG&A expenses for the quarter were lower by $8.6 million compared to last year's third quarter, while SG&A rate as a percent of sales increased by 62 basis points. Adjusted EBITDA SG&A dollars were lower by $3.5 million, but 68 basis points higher as a percent of revenues compared to last year's third quarter.

We continued our trend from prior quarters of controlling operating costs, but these initiatives were not enough to maintain our operating expense leverage given the decline in our sales.

But I would highlight that the lower net favorable legal settlements and increased bonus expense I mentioned earlier do have the effect of offsetting the impact of our cost initiatives since those items all generally roll up into SG&A.

Adjusted EBITDA for the Pharmacy Services Segment of $40.3 million was $12.1 million lower than last year's third quarter adjusted EBITDA of $52.4 million. The decrease is due to a reduction in revenue and an increase in SG&A expenses.

The Pharmacy Services Segment had revenues of $1.4 billion, which was a decline of $201 million or 12.2%, primarily due to our strategic decision to reduce our participation within the low income subsidy market in certain Medicare Part D regions in calendar 2017 and to focus instead on increasing our mix of chooser members, which we expect to be more -- a more profitable book of business.

While our Med D business at Envision has historically been heavily weighted towards the low income subsidy member, we expect our strategic shift to a higher mix of chooser membership will result in a more balanced and profitable book of business in the long run.

In the short run, this strategic shift is resulting in investment of higher operating costs as we build increased chooser membership, but we think this is the right long-term move for our Med D business.

Based on our 2018 bid result and the results of the annual enrollment period for the 2018 plan year, we will increase Medicare Part D membership by more than 100,000 lives compared to last year and will cover over 500,000 lives as of January 2018. We expect to grow this base of covered lives by another 100,000 members over the course of calendar year 2018.

So, despite the effect the uncertainty related to the WBA transaction has had on our Envision business over the past 12 to 24 months, we are very pleased with the success of our 2018 bid. We expect the removal of that transaction overhang, and our improved leverage profile will provide us with opportunities to invest in our PBM to grow additional lives as we go forward.

Our cash flow statement for the quarter shows a net source of cash from operating activities of $129 million as compared to $219 million in last year's third quarter. The difference is primarily related to reduced operating income and working capital timing changes. Net cash used in investing activities for the quarter was $70 million versus $65 million last year.

During the quarter, we remodeled 20 stores, relocated nine stores, expanded one store and opened one store. At the end of the quarter, we had completed and grand reopened 1,610 wellness stores within our continuing operations, which is over 60% of the store base.

For the third quarter, front end same-store sales in our wellness stores that have been remodeled in the past 24 months were approximately 176 basis points higher than our non-wellness stores, and script growth in these stores was 246 basis points higher.

During the quarter, we received proceeds of $241 million for the sale of our first 97 stores to WBA. These proceeds are shown as a source of cash from investing activities from discontinued operations in the statement of cash flows. The related reduction in our revolver borrowings is shown as a use of cash from financing activities from discontinued operations.

Now, let's discuss liquidity. At the end of the third quarter, we had approximately $1.7 billion of liquidity. We had $1.9 billion in borrowings under our $3.7 billion revolving credit facility and $59 million of letters of credit.

Total debt net of cash was $6.7 billion. This included the pay down of debt related to the $241 million of asset sale proceeds we received during the third quarter for the sale of the first 97 stores. We expect our leverage to substantially improve upon the ultimate completion of the WBA asset sale.

As I mentioned on our second quarter call, we are still working through our specific plans regarding our go-forward debt capital structure, but at a minimum, we do expect to refinance our revolving credit facility to both extend the maturity and to right-size the facility given our smaller store base. We are still evaluating the remainder of our debt capital structure, which includes the impact of the application of asset sale proceeds, but that analysis is not yet finalized.

As I discussed on the last call, we do not currently plan to provide guidance for the remainder of fiscal 2018. We expect to resume providing guidance for fiscal 2019 when we release our year end fiscal 2018 results.

Today, we also announced the adoption of a tax benefits preservation plan. The rationale for the plan is to protect our sizable NOL loss carryforward of $2.7 billion from limitation that could occur if we were to have an ownership change as defined under Section 382 of the Internal Revenue Code.

Under the plan, Rite Aid is issuing one right for each share of common stock outstanding as of the close of business on January 16th, 2018. These rights will become exercisable only in event a person or group becomes a 5% shareholder after planned adoption or if an existing 5% shareholder increases its ownership by 1% or more.

These rights, upon exercise, will entitle existing shareholders other than the person or group that caused the rights to be exercisable, to purchase shares of common stock at a significant discount, resulting in substantial economic dilution of the person or group that caused the rights to become exercisable.

The plan effectively discourages an ownership change as defined in the Internal Revenue Code and therefore, is designed to preserve the value of our NOL. This plan and related rights expires on January 3rd, 2019, unless our shareholders agree to extend the plan. The Board also has the ability to terminate the plan at any time if it determines the plan is no longer necessary for the protection of the NOL.

That completes my portion of the presentation and I would now like to turn it back to John. John?

John Standley

Thanks Darren. Before we begin taking questions, I want to thank our entire Rite Aid team for all they've done during the quarter; from helping us reach an important milestone in the transfer process to focusing on our TSA and supporting our go-forward strategic priorities. These efforts are complex and also require hard work. Our team has done an outstanding job of supporting our business while also working together to deliver a great experience to customers and patients in the communities we serve.

That concludes our prepared remarks for this evening. We'll now open up the phone lines for your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]

Your first question comes from John Heinbockel with Guggenheim. Your line is open.

John Heinbockel

Two questions. The $632 million of pro forma EBITDA, I know you have a $50 million cost reduction effort. Is that included in the $632 million or not?

Darren Karst

It really is not. The $632 million is an LTM number. So, I mean, I guess, there's a little bit of potential in there, but for the most part, it's not in there.

John Heinbockel

Okay. And then secondly, when you think about sort of stabilizing the retail EBITDA piece. Talk about getting comp scripts back into positive territory because it would strike me that, that's going to go hand in hand -- get that back into positive territory, it'll stabilize, and if not, it probably won't. File buy contribution maybe could be another 100 basis points. But when do you think that the plans to get the comp scripts positive, that going to take another year or so we? And what drives that?

John Standley

Well, I think the single biggest factor impacting script count right now is really network loss and we will cycle the majority of the network loss that we've incurred by the end of the second quarter of next year.

So, I think that's the biggest sort of headwind we're in. We've also got a little bit of a negative impact just from the decline in opioids that are being filled in our stores, which I think is probably somewhat due to our own internal processes and somewhat probably due to broader trends.

But in the meantime, we do have a number of things that we're working on, file buys is an obvious one, but Kermit and the team -- Kermit, you can talk about it -- have really been out kind of beating the bushes here, building -- rebuilding relationships and reengaging and I think laying some groundwork here for the future that could be helpful. So...

Kermit Crawford

Yes. John, I would add that our reimbursement rate has stabilized on a quarter-over-quarter basis as we've gone out and had conversations with payers. We feel very good about our ability to predict our business going forward. We now have 74% of our book of business with a GER. So, those reimbursement conversations have been somewhat positive and we're looking for future network participation.

John Heinbockel

Okay. Thank you.

John Standley

Thanks John.

Operator

Your next question comes from George Hill with RBC. Your line is open.

George Hill

Hey good morning guys and thanks for taking the questions.

John Standley

It feels like morning. I'm with you. It does feel like morning. I'm right there with you.

George Hill

Is that what I said, morning? Yes, that's--.

John Standley

Yes, it has been.

George Hill

I guess, as we think about the -- you guys talked about the overhead that you guys are still burdened with as it relates to the stores that are going to be divested. Can you quantify how much overhead you're carrying and how much can go away? Or should we just think of that as matched up against the $96 million as part of the TSA?

And I guess, what I'm trying to think about, is there a future arbitrage here where you're reflecting the $96 million versus the TSA, but there's more expenses that could potentially go away?

Darren Karst

Yes, I mean, I think our view is that, over the next year or two years, our objective is to take out cost out of our corporate G&A that is probably roughly equivalent to the $96 million or $100 million. The quicker we can do that, I guess, does create an arbitrage and that would be probably something we'd seek to do. But I mean that's probably my best answer to that.

George Hill

Okay. And are we -- I guess, are we any -- do we have any color yet on the costing differences potentially or what the opportunity could be between the pricing that could be offered through the agreement with Walgreens versus what you guys are currently sourcing with McKesson?

John Standley

Yes, we -- I don't think we've given that number. We do believe there's a benefit there, and we did some work. I think we talked about it before back at the time that we negotiated the agreement. So, we believe there's some value there, but we have not yet put that in the marketplace. And I think until we get a little bit closer to exercising or evaluating the exercise of the WBAD option and have a more current view probably on the number, we won't -- we probably won't give that number until we get that next look at it.

George Hill

No, that's helpful. And I guess, just my last question would be is if we're thinking about modeling the Pharmacy Services business, it sounds like you guys are expecting pretty aggressive growth in Med D kind of over the next 12 months. Am I thinking about the numbers roughly where it is exiting the year or this year with about 400,000 lives that you should exit calendar 2018 with closer to 600,000? And are you guys expecting more those to be choosers or low income subsidy lives?

John Standley

Frank, do you want to talk about that a little bit?

Frank Sheehy

Yes, I think those numbers are right. We expect to exit 2018 at about 600,000 with a much higher percentage of the chooser market. Historically, Envision was in the low income subsidy market, but we pivoted. And we are now going to see probably about 70% or more of those numbers will be choosers going forward.

George Hill

Okay. Good deal. That's helpful. Thanks guys.

John Standley

Thank you.

Operator

Your next question comes from Glen Santangelo with Deutsche Bank. Your line is open.

Glen Santangelo

Yes, thanks. Just a couple of quick questions. First on the Retail Pharmacy side of the business. I mean, the EBITDA, according to my calculations on a same-store basis, was down about 6% to 7%. And you obviously site reimbursement challenges, but it kind of sounds like you sort of have your arms around that issue now and it seems to be stabilizing.

Could you just maybe comment on what those pharmacy network negotiations would have looked like for this year versus last year? And do you feel comfortable that the margins in the business are going to start to stabilize at this point?

John Standley

Well, I think a couple of things. I mean, if you just look at our results quarter-to-quarter-to-quarter from -- over the last three quarters, obviously, the business is much more stable than it has been. And when we think about the reimbursement rates, clearly, we were in a position during the period of time in -- under which we were operating under the WBA merger agreement, where PBM's view towards us was we were a network that was going to go away. So, I think that really made those discussions during that period of time very difficult.

Now, where there's clarity that we're going to continue forward and what our store network looks like, I think that's really, quite honestly, made the conversations a lot better than they were during the prior period of time. So, just in general, I think there are much more positive discussions today about things that we can do to work together and to build our business.

And then bringing Kermit in here, who has substantial relationships across the industry, has also had, I think, a positive impact on those relations. So, I think we feel much better about where we are today and where we're going in that part of the business. Obviously, we can't give you any guarantee over the long term about how reimbursements rates are going to behave but clearly, much more stable today, Kermit, you would say--

Kermit Crawford

Yes, I would definitely agree with that, John. We're -- there's certainly reimbursement pressure year-over-year and the script decline also has something to do with that. But the clarity that Rite Aid has that we will continue to operate going forward as an independent company has been significant and it's given us the ability to have these longer term business discussions with our PBM partners.

And we also think our ability to manage this pharmacy cost more effectively will significantly help us. One thing I'd like to add is that we're under no commitment to switch from McKesson and will ultimately align with a purchasing partner that we think will offer us the best overall economics.

Glen Santangelo

So, maybe I'll just ask two follow-up questions and then I'll jump off. When do you think you can realize those generic purchasing benefits? How soon until you can start to realize that?

And then secondly for Darren, on the balance sheet, I think you said pro forma leverage, you were expecting about $4.6 million and I know that's not meant in any way to be guidance, but could you just give us some broad strokes as to how much debt the company will have versus what the interest expense will look like at that point in the cash flow, so we can get a better sense for, at least from your perspective, how much you'll have to reinvest back in the business?

John Standley

So, I'll take the first part of that question with Kermit's help. But our McKesson agreement obligates us to purchase from them through the end of March of 2019. So, if -- as Kermit said, we're going to go wherever makes the most sense for us from an economic perspective and so if something works out with McKesson sooner, then we'll get to those savings sooner.

There's also some features of our current agreement that may allow us to exit that contract sooner, but we'd have to work through that with McKesson and see if that's doable. In which case, we might be able to move the savings up into an earlier period of time. I'd say the best case scenario is we get out, we get to those savings in 12 months and the outside case is March of 2019. I kind of put a range around it at this point.

Darren Karst

And then on the balance sheet questions, where our leverage will be on a pro forma basis is approximately $3 billion as we cycle through all of the asset sales, keeping in mind that a couple hundred million dollars of that will be delayed. That's the portion associated with the distribution centers.

In terms of the interest expense, pro forma interest expense, it will depend a little on where we end up from a capital structure perspective, but I think the way we're looking at it is it's somewhere around $200 million of pro forma interest expense for the company going forward.

Glen Santangelo

All right. Thanks very much.

John Standley

You're very welcome. Thank you.

Operator

Your next question comes from Lisa Gill with J.P. Morgan. Your line is open.

Lisa Gill

Thanks very much. One of the comments from you today was around your wellness stores and the profitability for them versus other stores at around 60% of your stores on a pro forma basis, John, what's your goal going forward? And would we expect that you'll get the same kind of leverage that you've seen thus far? Or is it that you've done all the stores that can be converted to wellness and therefore, you're not going to say the same incremental opportunity?

John Standley

I think we still have -- we saw some good opportunities in the continuing operation store base to continue to invest in additional wellness stores. We've got some relocations. We've got some relocations that we'll get done as well over the next few years, where we have some opportunities there. And I think we have the opportunity to go back to some of the earlier wellness stores and add additional concepts to those stores that the wellness concept has evolved significantly over time.

So, I think some of the earlier wellness stores will have an opportunity to get back to those as well. So, I think we have lots of opportunity to make some good returns on investments in the existing store base and some exciting opportunities probably over time. I think we'll have to be a little bit creative but to probably think about even dancing up in the markets that we're in as we go forward [Indiscernible].

Lisa Gill

And so as we think about some of those -- yes. But just think about some of the comments that you gave, right? So, as we think about that incremental opportunity, clearly, we know about reimbursement pressure. We heard Kermit talk about stabilization there. But it appears to me that this could be an incremental opportunity if you have X number of stores that you have the opportunity to continue to convert. Is there any metric that you can give us or a way to think about that as we think about the future profitability?

John Standley

I don't think I'm ready to toss that out tonight, Lisa, but we're obviously looking at our store base very carefully given what the new capitalization of the company will look like. And I think the best I can say is we think there's plenty of exciting opportunity that will keep us busy for the next couple of years with remodels and other activity.

Lisa Gill

Great. And then my second question would be for Frank on the PBM side. Frank, I know last quarter, we talked about where you were in the selling season for 2018, and clearly, you talked about Medicare Part D today, but we're about to embark on 2019. Can you maybe just give us some initial thoughts on, one; do you have anything unusual that's up for bid on your side? And two, how you're viewing the market today as far as opportunities go?

Frank Sheehy

Sure Lisa. Thanks for the question. I think, first, fortunately, we don't have any jumbo major accounts up for bid as we go into 2019, so we really have secured those larger accounts for the renewal. And I -- then as we go forward into the selling season, for really 2019 and mid-year 2018, we're pretty excited.

I think the market is very much looking for alternatives right now to the jumbo PBMs and I think we provide a great alternative because we provide a comprehensive suite of services, but we also make them available on an a-la-carte basis.

And I think health plans, in particular, are very interested in leveraging some of those services on an a-la-carte basis and I think if you look at the market and some of the movement recently, that validates that.

We're also at an all-time high right now on the number of RFPs in-house at this time of year for 2018 start date. So, we have a lot of business mid-market, and we think that's going to portray well as we go towards 1/1/19. Already seeing a lot of RFPs for managed care plans that we're seeing. So, we're very bullish.

And I guess, the last thing I'd mention is, to Kermit's point earlier, I think there's real opportunity of leveraging some of Rite Aid's other assets to provide, again, that comprehensive service in a way that we haven't in the past and I think the market will find that very attractive.

Lisa Gill

And are you talking about maybe value-based rates or some comprehensive bundling of an offering? How do I think about what your offering would look like?

Frank Sheehy

Yes. I think those would definitely be on the table. We do have value-based rates that we're making available to clients now in certain therapeutic categories. We also have risk sharing arrangements that we've gone into, and we've also gone into arrangements, historically have been called reference-based pricing arrangements. So, we provide a flexible -- a wide variety of offerings and we continue to offering traditional offering as well as Envision's historical pass-through PBM offering.

Lisa Gill

Okay, great. Thank you.

John Standley

Thank you, Lisa.

Operator

And our next question comes from Robert Jones from Goldman Sachs.

Robert Jones

Great. Thanks for the questions. Just wanted to go back and ask on reimbursement rates and how those actually work mechanically in 2018 as your store base is changing real-time. Have you had those discussions with PBMs on how the rates would look relative to where the store base -- the store count is at any given point in time?

And then I guess, ultimately, it does sound like you guys are talking a little bit more about stability on reimbursement rates. But how should we ultimately think about the rates associated with the smaller footprint in the future relative to the rates you were negotiating with a 4,500 store base?

John Standley

Yes. I guess a few things there. The last -- maybe the last part first. Our belief is, when we entered into this transaction with Walgreens, that the 4,500 versus the 2,569 really weren't going to be significantly different in terms of negotiating reimbursement rates.

Having stores kind of flung out across 30 or 31 different states versus a more concentrated footprint, I think, is really where we're sort of headed. And I think focusing on certain markets and really being competitive in those markets and performing in those markets is actually probably more important than where we were at.

So, I think from a negotiating perspective, we're in as good a place now as we were before. I think our risk in making the company smaller was really on our ability to buy effectively. And again, we have a contract with McKesson, which stays place. It's not impacted by the transaction, so our cost doesn't go up. And we gained access to the WBAD option, which, we believe, will actually lower our cost over time. So, I think we mitigated that risk.

So, when we kind of look at what we did here, we think it makes a lot of sense that it doesn't give us exposure from a reimbursement perspective. And Kermit and the team have been out in the marketplace, having current conversations. And PBMs do understand what the new footprint is, and I do not think that is negatively impacting those discussions, right?

Kermit Crawford

John is exactly correct. The more concentrated footprint versus the spread out over 31 days, we're actually able to negotiate, I would say, with a lot of confidence and compassion.

Robert Jones

Got it. That's helpful. And then, I guess, Frank, just one quick one on Envision. EBITDA on the quarter of $40 million was a drop-off from the run rate or the rough run rate we had been experiencing from Envision. I guess, what drove the decline? And as we think about modeling that business forward, was there anything abnormal in this quarter? Or is that more of the kind of base quarterly run rate we should think about on EBITDA for Envision?

Frank Sheehy

Yes. That's a good question. There were a few things. I think one of the main factors was our choice to drop out of certain regions in Med D as we pivoted our strategy. We also had an SG&A buildup as we prepared to go to market and bring on all these additional choosers. So in some ways, that's occurred, and we're seeing that. We also saw some commercial losses. That was about one-third of the two-thirds of revenue. Most of it, again, was driven by Medicare D.

And then last year in the quarter, we experienced the benefit due to a volume-based incentive that we earned last year that we didn't earn this year. So those were all factors that played into the year-over-year difference.

Darren Karst

Yes. I think that -- Bob, the only -- this is Darren. The only thing I would add is last year's quarter was a particularly difficult quarter to comp against. So, I mean the delta, I think, this quarter was greater to some extent just because it was a pretty strong quarter than the third quarter last year.

Robert Jones

Makes sense guys. Thanks Darren.

Operator

And our next question comes from Charles Rhyee from Cowen.

Charles Rhyee

Yes, thanks for taking the questions. I just wanted to follow-up. When you kind of look at -- to reenter the Med D market and some of the preferred networks, is it right to think that the timing of that we would have to wait for the 2019 plan year given timing of when bids were for 2018?

And then secondly, you talked about these -- the new relationship with the payer contracts. Can you talk about why payers would look at a tighter network -- a tighter concentration of stores as more favorable to them versus when, arguably, you still had a lot of same-stores, but also you were then in more states? What are the differences? What are the advantages that, that can bring to a payer when you're looking at a new contract? Thanks.

John Standley

Yes. I think the point really is that a lot of markets that we divested, our store market share, our concentration wasn't that relevant to the marketplace. We weren't important from a contracting perspective. You could leave us out of a network in those markets. It wouldn't have made a difference.

Whereas, I think, the store base in the markets that we stayed in is a much more relevant network of stores that provides very good coverage and access in the markets that we're in and makes us, I think, very interesting from a contracting perspective.

So, that's really kind of how we're sort of thinking about it. So, as you've stated, we had these stores before, so our point is really we don't think we're any worse off than we were from a contracting perspective because a lot of what we divested we were number three or number four market share, just wasn't as relevant. There were some exceptions to that, but that was the case in many instances.

Charles Rhyee

Okay. And then in terms of the timing of entering the Part D again, that would be a 2019 event?

John Standley

Yes. I mean, I think the big thing for us is we're driving as many lives as we can into Envision here through what we've been working on, what Frank's been doing over at Envision, and we are in the preferred network for EnvisionRx. So, that's what we can do here in the near-term. And then you're right. It's really going to be 2019 before we have access to any discussions again on preferred networks.

Charles Rhyee

Thanks. And then my last question will be, in these other discussions that you're having with payers, is there any sort of timing in terms of when these discussions like need to be signed. In terms of like when most of these kind of terms are up, is it sort of mid-year, end of year for 2019?

Just give us a sense of like when we -- when should we sort of see this headwind on the reimbursement side maybe at least stabilize or reverse. Is it again -- is that something we could see here in fiscal 2019? Or is it again -- or is it something we might have to wait a little bit further? Thanks.

John Standley

So, generally, we have contracts that are sort of all different lengths that renew at all different times and the only exception to that is really Med D. That's more annual as you -- as we talked about a moment to go. So, we have contracts renewing sort of different times all year long, and some contracts are one year, two years, three years, kind of different lengths. So, there's usually some action going on all the time, I think, in the contracting space.

But I think Kermit's been working on the contracts and has provided you some insight, I think, Kermit, about kind of how you think next year's shaping up, which is more stable I guess, like still reimbursement rate pressure, but...

Kermit Crawford

Yes, exactly. Yes. You continue to see reimbursement pressure. We are stabilizing our reimbursement, especially on a quarter-to-quarter basis. And as John said, we have contracts that end at all different times during the year, so this is just a constant negotiating battle on a day-to-day basis.

Charles Rhyee

Great. Thanks a lot. Appreciate it.

John Standley

You're welcome.

Operator

And our next question comes from William Reuter from Bank of America.

William Reuter

Good evening guys. I just want to make sure I understand the rate adjusted EBITDA to compare here. So, if we include the $24 million to the 3Q 2017 number, that takes us to $154 million. Is it an apples-to-apples basis to compare that to $191 million? Or do we need to add back fees that would have been earned from Walgreens to that as well?

Matt Schroeder

You need to add back -- you add it back to the $191 million.

Darren Karst

Yes.

William Reuter

Okay. So, the $154 million would compare to like a $215 million number or something like that, okay.

Matt Schroeder

That's right.

William Reuter

Okay. And then just one other question for me. There have been lots of reports this year about wage inflation that we're seeing across many of your core states. Can you -- have you talked a little bit about calendar year 2018, from a dollar perspective, what you guys expect to see from inflation there?

John Standley

Yes. We haven't -- obviously, we haven't guided on 2018 yet, so we'll talk about that as we put guidance out. Today, the vast majority of our employees are already above minimum wage levels. However, it could force some compression in our rates over time. So, as we come out with guidance for next year, we'll talk about it little bit. It's probably not the biggest item we'll be talking about when we do guidance, but there's probably some minimal impact from that or some impact.

William Reuter

I understand. You guys touched upon most of the big items already. All right, cool. That's all from me. Thank you.

John Standley

You're welcome.

Operator

Our next question comes from Carla Casella from J.P. Morgan.

Carla Casella

Hi. Just a question for you on your pro forma interest expense that you calculated. Are you using the same calculation you used last time where you said you assume the 27 bonds or 28s and the 23 bonds are -- remain outstanding?

Darren Karst

Yes, that is the assumption still. Doesn't necessarily mean that's -- what the final result will be, but that's the assumption.

Carla Casella

Right, okay. Right. Great. And then has -- the Walgreen -- the network for -- that you're building is Walgreens' generic network. Have you decided on what percentage of your business you would use that for? Or would you use it for all of it and the total amount of the potential savings?

John Standley

We haven't. So, when you say generic network, really talking about the generic purchasing?

Carla Casella

Yes.

John Standley

Yes. Okay, yes. So yes, we would likely buy the vast majority or all of our generics from one entity versus trying to break up into pieces. I don't think that would make sense for us. And so what the -- we have the option to move to WBAD really after we complete selling about half--

Darren Karst

50% of the stores.

John Standley

50% of the stores. So, sometime in the spring, we'll get over that hurdle. But we really can't move until we resolve our situation with McKesson because we're obligated right now to purchase generics from McKesson. So, that was really the timing I talked about earlier. Depending on how things kind of work out with McKesson, it could be as late as March of 2019 before we get there, or if we can work out some other arrangement with McKesson, it could be sooner.

Carla Casella

Okay. And -- I'm sorry, did I cut you off?

John Standley

No, no. Go ahead. I'm sorry.

Carla Casella

And for the store sales, you still expect those by April. And you mentioned the DCs after. Did you say how long after?

John Standley

We said spring. Whatever that means, we're going with spring.

Darren Karst

On the DCs.

John Standley

On the store sales.

Matt Schroeder

On store sales, yes.

John Standley

On the DCs, I don't -- have we--

Darren Karst

On the DCs, we have not said. Those would be purchased -- under the agreement; WBA can purchase those anytime during the TSA period. So, we don't know precisely when that will occur, but it would be some time, I suspect, over the next year or two.

Carla Casella

Okay. And the TSA period is 18 months after the close? Or do you us just a bit on that?

Darren Karst

It's a two-year TSA, and it does have the ability to be extended for two additional six-month periods after that at their option.

Carla Casella

Okay. But I guess, my question is was it two years from the announced date. Is it two years from when the store closures are completed?

John Standley

Its two years from the date of the asset purchase agreement. So, it starts in [Indiscernible].

Carla Casella

Perfect. And then one last one on -- do you -- is there a way that you know the number of your customers that are Aetna customers?

John Standley

That's a number I don't think we're going to give out tonight.

Carla Casella

Okay. I'm not [Indiscernible]. I tried.

John Standley

Yes, no problem.

Carla Casella

Okay. Thank you.

John Standley

Thank you.

Operator

Our next question comes from Joe Stauff from Susquehanna.

Joe Stauff

Good evening. Thank you. Just a couple quick ones. On the $50 million cost reduction program that you guys talked about on this call, at least earlier and historically, what -- did you guys ever give maybe an estimated timing of how long that might take you to achieve? Is it a year, is it two years?

Matt Schroeder

Yes. Joe, I think what we said was we would expect to get that $50 million of savings next year.

John Standley

Right. So, again, we were working to get it in place by the end of this fiscal year.

Matt Schroeder

Right.

Darren Karst

But it would really be a fiscal 2019 -- it would be fiscal 2019 activity.

John Standley

That's right.

Joe Stauff

Got you. And then, Darren, I think you had mentioned the NOLs that you had with respect to the rights plan that you announced. It's $2.7 billion. Is that federal? Or does that include state as well? How much is the federal piece of that?

Darren Karst

That is the federal NOL.

Joe Stauff

Okay, got you. That's it. Thank you very much.

John Standley

You're welcome. I think we have time for one more question.

Operator

Our final question for tonight will be from Karru Martinson from Jeffries.

Karru Martinson

Good evening. Just given the modest seasonality of the business, are we amiss if we took the $153 million and kind of multiplied it by four and look at a run rate here of $612 million? I mean, I'm trying to get by and kind of get to what you guys view as a normalized sustainable EBITDA level here for the business.

John Standley

Yes. So, we -- we're not giving fourth quarter guidance. I appreciate the question. I think we've tried to cut this thing a few different ways for you. We've obviously tried to kind of show you what we think the run rate or pro forma EBITDA was for the quarter with the $153 million. We've got a pro forma based on kind of an LTM pull apart of this thing. That gets you to a number that's -- what is it?

Matt Schroeder

$632 million, LTM pro forma.

John Standley

$632 million, that's an LTM number obviously. The question really then gets back towards the fourth quarter, which I think you're trying to get at, but we're not going to go there tonight. But I think that's a couple of the ways we've tried to put the information out there. So...

Karru Martinson

Okay. But reimbursement rates, as you noted, have stabilized quarter-over-quarter. There's nothing outside. You mentioned you were up against a tough comp in the fourth -- in the third quarter. I mean there's nothing that you would call about the fourth quarter that was different or one-time, would you?

Matt Schroeder

Yes. I think without having really fourth quarter commentary out there last year, Karru, that's probably a hard question for us to answer honestly. We didn't have a fourth quarter call last year, where we talked about anything. So, I don't know if we can get in that kind of detail.

Karru Martinson

Okay. And just in terms of the debt pay down, the $715 million in total, all of that has been on the ABL. I kind of want to get a sense what you're thinking on that given that you have more expensive parts of your capital structure creating below par. And then kind of any updated thoughts on an excess proceeds offer and how you guys are approaching that?

Darren Karst

Yes. I don't think -- I mean, we are certainly taking a pretty hard look at this and we're talking to a lot of folks to help us think about it. So, I don't think we want to be all that specific. There is an order in which these proceeds would go. So it does go to the revolver first and the term loans. And then there's an asset -- asset sale offer procedure with regard to the other securities.

So, we're mindful of the fact that right now we're paying off the least costly debt. But we're going to be getting significantly more proceeds in here in the next month or two, so we will address that at the appropriate time.

Karru Martinson

Okay. And just as a housekeeping, I mean, when do you need to make an excess proceeds offer? Then the reason why I asked is if the DCs can be purchased at any time during the TSA, so that roughly $220 million, do you have to get that last amount in before that gets triggered or can you declare an excess proceeds at any point in that lifetime?

Matt Schroeder

We can declare it at any time. The rules under the indentures crew is that we have to start an excess proceeds offer 365 days after the asset sale.

Darren Karst

After receipt of proceeds.

Matt Schroeder

After receipt of proceeds from the asset sale. So, -- but we certainly aren't required to wait that long.

Karru Martinson

Okay. Thank you very much for the clarification. Appreciate it guys.

John Standley

You're welcome.

Matt Schroeder

Thank you.

John Standley

Thanks everyone for joining us this evening. We appreciate it. We have a lot going on. We've gotten a lot done during the quarter, made a ton of progress here on a number of fronts and we look forward to visiting again here after the fourth quarter's done. So, thank you.

Operator

This does conclude today's call. You may now disconnect. Thank you very much.