CVS Health Corp (CVS) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2017 CVS Health Earnings Call.

(Operator Instructions) As a reminder, this conference is being recorded today, Tuesday, August 8, 2017.

I would now like to turn the conference over to Mr. Mike McGuire, Senior Vice President, Investor Relations.

Please go ahead, sir.

Thank you, Lila.

Good morning, everyone, and thanks for joining us.

I'm here this morning with Larry Merlo, President and CEO; and Dave Denton, Executive Vice President and CFO; Jon Roberts, Chief Operating Officer; and Helena Foulkes, President of CVS Pharmacy, are also with us today and will participate in the question-and-answer session following our prepared remarks.

(Operator Instructions) Please note that we posted a slide presentation on our website before this call.

It summarizes the information in our prepared remarks as well as some additional facts and figures regarding our operation performance and guidance.

We also filed our Form 10-Q, and that, too, is available on our website.

I have one announcement this morning.

Our Annual Analyst Day has been scheduled for Tuesday, December 12 in New York City.

You'll have the opportunity to hear from several members of our senior management team who will provide a comprehensive update of our strategies for driving long-term growth.

We plan to send invitations via email with more specific details at the end of the summer but please save the date.

Again, that's Tuesday, December 12.

Additionally, during this presentation, we will make certain forward-looking statements that reflect our current views related to our future financial performance, future events and industry and market conditions.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what may be indicated in the forward-looking statements.

We strongly encourage you to review the information in the reports we file with the SEC regarding these specific risks and uncertainties, in particular, those that are described in the Risk Factors section of our most recently filed Annual Report on Form 10-K and the cautionary statement disclosures in our Form 10-Q.

You should also review the section entitled forward-looking statements in our earnings press release.

During this call, we will use non-GAAP financial measures when talking about our company's performance.

In accordance with SEC regulations, you can find the reconciliations of these non-GAAP measures to comparable GAAP measures on the Investor Relations portion of our website.

And as always, today's call is being webcast on our website, and it will be archived there following the call for 1 year.

Now I'll turn this over to Larry Merlo.

Well, thanks, Mike.

Good morning, everyone, and thanks for joining us to hear more about our second quarter results.

Our total company revenues increased 4.5%, comfortably within our guidance range.

We delivered adjusted earnings per share of $1.33, which is $0.01 better than last year and at the high end of our guidance.

On an adjusted basis, operating profit was down 7%, within expectations, and this reflects performance in the retail business that was in line with expectations, along with performance in the PBM that was ahead of our expectations.

We generated approximately $1.6 billion of free cash during the quarter and more than $4.6 billion year-to-date.

And while we're pleased to report results within our expectations, we won't be satisfied until the total enterprise returns to healthy levels of earnings growth.

Now back in November, we outlined our 4-point plan to return to healthy growth, and that plan included leveraging our enterprise capabilities and CVS Pharmacy's compelling value proposition to partner more broadly with other PBMs and health plans; focusing on driving growth through new PBM product introductions that capitalize on the benefits inherent in our unique integrated model; continuing to be a low-cost provider; and continuing to be very thoughtful with respect to using our strong cash-generation capabilities to return value to our shareholders.

And as we go through today's call, you'll hear about the progress we've made against this plan.

Now given our solid first half performance and our expectations for the remainder of the year, we are narrowing our full year adjusted EPS guidance range and raising the midpoint.

We currently expect to achieve adjusted earnings per share for 2017 of $5.83 to $5.93, reflecting a year-over-year change of down 0.25% to up 1.5%.

And that compares to our previous range of $5.77 to $5.93.

And Dave will discuss the details of both our results and guidance in more detail in his remarks.

Now turning to the business update, and I'll start with the 2018 PBM selling season.

Now despite the magnitude of bidding opportunities being flat to down versus the prior year, we've had good success across all segments, and in particular, in the government space.

We currently have gross wins in the '18 selling season of approximately $5.4 billion, and net new business of about $1.8 billion.

These new business numbers include the previously announced loss of the FEP specialty contract but do not include any impact from our individual Med D PDP, which I'll touch on shortly.

To-date, we've completed about 70% of our client renewals for '18, and that's roughly in line with where we were at this point last year and our retention rate currently sits at 97%.

Additionally, I reminded you on our last call that our agreements to provide both retail and mail order Pharmacy Services to FEP's more than 5.4 million members runs through 2018.

And today, I'm happy to report that we extended those agreements for another year and we'll continue to provide retail and mail service for FEP members through 2019.

Now the selling season isn't complete, but our integrated products and services continue to resonate strongly with clients and prospective clients alike, and we continue to maintain our pricing discipline in the marketplace.

Now last week, we announced our 2018 formulary strategy, building on our formulary management success of the past 6 years.

And effective January 1, we plan to remove 17 products from our Standard Control Formulary across 10 drug classes while adding back 17 products that had been removed in previous years.

And we remove drugs only when clinically appropriate, lower cost alternatives are available and our targeted approach ensures minimum member disruption.

For '18, we estimate that 99.76% of members will be able to stay on their current therapy.

And of course, our proactive member and prescriber communication strategy helps members transition to clinically appropriate medications, which minimizes disruption.

Let me also note that we're in the process of finalizing changes for the autoimmune and hepatitis C categories, which will be communicated in mid-September.

The autoimmune class is a trend driver for commercial clients, due primarily to utilization and price and new entrants are expected in the hep C class soon.

So there will be more to say on that next month.

Now since introducing our industry-leading formulary management approach 6 years ago, through 2018 we expect to deliver $13.4 billion in cumulative savings for our PBM clients through the inclusion of lower cost brands and encouraging the transition to generics.

And I would note that over that same time period, we have seen our generic dispensing rate rise by more than 10 percentage points.

And you can find an overview of our strategy, along with our '18 formulary details in our latest insights commentary, which is available through the Investor Relations portion of our website.

Now in addition to our formulary management strategies, we also introduced our new Transform Value program, which is designed to offer incremental benefit based on specific outcomes in key trend categories.

Outcomes-based management aligns reimbursement for a drug to achievement of a predefined outcome.

For example, in obesity, the manufacturer would be required to provide additional value if members do not achieve a minimum level of weight reduction within the initial assessment period.

So this program will launch with Transform Value programs in the oncology, obesity and respiratory categories.

And these join our Transform Diabetes Care program, which was introduced earlier this year.

And this program targets support for actions that can help influence majors such as A1C levels, improving outcomes and reducing costs.

Now turning to SilverScript, our Med D PDP, we currently have 4.5 million captive lives in our individual PDP, 1 million captive EGWP lives, and we serve another 6.9 million lives through our health plan clients.

So in total, Caremark currently serves 12.4 million Med D beneficiaries.

Last week, we received the preliminary benchmark results from CMS for 2018, and we're pleased to report that SilverScript is below the benchmark in 32 of the 34 regions.

These strong benchmark results enable us to retain all of the auto-assignees we currently serve, and importantly, qualify us to receive new auto-assignees in all 32 regions, which is an improvement over prior years as none of the regions are in de minimis status.

So we're very pleased with these results.

Before turning to retail, let me touch briefly on Specialty.

As you know, the industry continues to see a year-over-year decline in hepatitis C script volume due to lower new patient starts, along with fewer days of therapy.

And overall, the rate of Specialty revenue growth across the industry has slowed.

However, CVS Specialty's growth continues to outpace the market, seeing strong growth in the open market while securing significant wins in the standalone specialty market.

And in the second quarter, Specialty revenues increased a solid 11.5%.

Now moving on to Q2 results in the Retail/Long-Term Care business.

Total same-store sales decreased 2.6%, slightly better than expectations with pharmacy same-store sales down 2.8%.

Our Pharmacy sales comps were negatively impacted by approximately 410 basis points due to recent generic introductions.

Same-store prescription volumes were flat, that's on a 30-day equivalent basis and as expected the decisions to restrict CVS from participating in the TRICARE network and many fully insured prime networks negatively impacted pharmacy sales and script comps.

The network changes had about a 460 basis point negative impact on volumes, and that's consistent with the impact that we saw in Q1.

In adjusting for those network changes, same-store prescription volumes would have been up 4.6% in the quarter on a 30-day equivalent basis, a sequential improvement from Q1 after accounting for the absence of leap day this year.

Now as we look to return to healthy growth, we continue to be very focused on partnering with all payers to drive volumes and capture share, and these conversations have already yielded excellent results.

Our partnership with Optum to provide a 90-day retail solution to their ASO clients and members launched last month.

We've already seen some uptake from clients and the pipeline of additional opportunity in the coming years is promising.

Additionally, in June, we announced a collaboration called Cigna Health Works that aligned Cigna-administered health benefits with CVS Pharmacy and MinuteClinic.

It leverages the CVS footprint, including the use of a CVS 90-day network in addition to HealthTag messaging, the ExtraCare health card and discounts at MinuteClinic for select, preventive and acute care.

And we see a strong pipeline of opportunity in this program.

And lastly, we will be the anchor for a retail network option for Express Scripts diabetes care value program, a performance-based program focused on meeting certain medication adherence thresholds.

And we continue to talk with other PBMs and health plans, offering a menu of services to partner more broadly, leveraging CVS Pharmacy's compelling value proposition, along with our enterprise capabilities, which also include infusion and long-term care.

Now before moving to the front store, let me touch on our Long-term Care business.

As you know, there was a bit of news in this space last week with PharMerica agreeing to be acquired by KKR and Walgreens.

And in a lot of ways, their agreement is a confirmation of both the growth potential for Long-Term Care and post-acute services as well as the additional value their retail pharmacy can bring to this market.

Omnicare remains the leader in the market and this potential acquisition does nothing to change that.

We've invested the time and capital over the past 2 years to get the right technology and processes in place in order to differentiate our offering to make it more compelling for our clients as well as the residents at these facilities.

Now it's been a slower process than we expected due to technology enhancements that need to be built, along with certain dynamics in the skilled nursing space.

However, we remain optimistic in this market and our ability to grow beyond the care business.

Turning to the front store.

Comps decreased 2.1%, including a positive impact of 75 basis points related to the shift of Easter into the second quarter.

In addition, the decline in front store comps reflects a number of factors, including our decision to rationalize our promotional strategies, scaling back on mass promotions and reducing our circular page count.

Softer customer traffic was partially offset by the continued increase in the average front store customer ticket.

And when adjusting for the Easter shift as well as the leap day impact in Q1, front store comps improved sequentially from Q1 to Q2.

Now our personalization and promotional strategies have been successfully contributing to growth in front store profitability.

Front store gross margin, once again, improved nicely in the quarter versus last year as did front store gross profit dollars despite the decline in front store comps.

We remain focused on growing our beauty, health care and personal care businesses and continue to enhance our digital presence to increase engagement with our health and beauty shoppers.

We have integrated digital manufacturer coupons into our app, providing customers a new and easy way to save money in our stores.

We also implemented new technology that is making our digital communications even more relevant by automating the selection of products, offers and messages, leveraging advanced analytics in ExtraCare.

Store brands also remain an area of both strength and opportunity and our store brands represented 22.6% of front-store sales in the quarter, that's up about 80 basis points from a year ago.

And we've been growing and gaining penetration in health care, beauty, personal care and edibles by focusing on providing high-quality value alternatives and through innovation that improves the customer's experience.

Before turning to the financials, let me touch briefly on MinuteClinic, which posted revenue growth in the quarter of 8%.

Since its inception, MinuteClinic providers have now conducted 37 million patient visits.

Recently, MinuteClinic joined the Alere eScreen Occupational Health Network, and through this new collaboration, employees of businesses that utilize Alere can visit MinuteClinic for a number of services commonly required such as biometric screenings, vaccinations, Department of Transportation physicals and drug testing.

And we look forward to helping improve the accessibility of these workplace testing services.

And with that, let me turn it over to Dave for the financial review.

Thank you, Larry.

And good morning, everyone.

Today, I'll provide a detailed review of our second quarter results followed by an update on our guidance.

I'll start first with a summary of how we continue to enhance shareholder value through our capital allocation program.

During the second quarter, we paid $512 million in dividends.

Our 12-month trailing dividend payout ratio currently stands at 36.6%.

Let me remind you, again, that this ratio is artificially high as it includes some expenses that are more temporary in nature as described in our non-GAAP reconciliations on our website.

On a comparable basis, we remain well on track to achieve our targeted payout ratio of 35% by the end of 2018.

In addition, we have continued to repurchase shares.

As we discussed on the first quarter earnings call, in April, we completed the previously announced accelerated share repurchase programs.

We've received approximately 10 million shares at the close of those programs.

We repurchased an additional 4.3 million shares during the quarter, bringing the total repurchased in the second quarter to 14.3 million shares.

Year-to-date, we repurchased 50.4 million shares or approximately $4 billion, or $78.67 per share.

So between dividends and share repurchases, we've returned approximately $852 million to shareholders during the quarter and nearly $5 billion year-to-date.

We continue to expect to return more than $7 billion to our shareholders in 2017 through both a combination of dividends and share repurchases.

As Larry mentioned, we generated approximately $1.6 billion of free cash in the second quarter, and we have produced more than $4.6 billion year-to-date.

Free cash flow in the quarter benefited from the timing of PBM cash receipts and payable due in part for the early receipt of a Medicare Part D payment that shifted into Q2 due to the timing of month end.

For the full year, we continue to expect to produce free cash flow of between $6 billion and $6.4 billion.

Now turning to the income statement.

We delivered adjusted earnings per share of $1.33 per share, at the high end of our guidance range and up 0.8% over LY, or $0.01.

These results were on a comparable basis and the reconciliation of GAAP to adjusted earnings per share can be found in the press release as well as on the Investor Relations portion of our website.

As Larry noted, the Retail/Long-Term Care segment delivered results within our expectations, while the PBM segment posted growth -- profit growth above the higher end of our expectations, primarily driven by timing factors related to purchasing economics.

GAAP diluted EPS was $1.07 per share.

This is $0.08 below the low end of our guidance range, primarily due to the goodwill impairment charge associated with our RxCrossroads business that was recorded during the quarter.

You may recall that we bought RxCrossroads a couple of years ago as part of the Omnicare acquisition.

It administers programs that provide patients with assistance in obtaining high-cost drugs, working directly with manufacturers to do this.

And there's not -- and this has not been a material contributor to our results.

Additionally, it also acts as a third-party logistics provider for plasma cold-chain management services.

It's a really small piece of our business, and we've continued to work to ensure that the patient assistance programs are completely aligned with our focus on driving down cost for our clients.

However, that work has resulted in us walking away from some business that was potentially inconsistent with our enterprise goals.

So we've made the decision to pursue strategic alternatives for the RxCrossroads business.

In connection with this decision, in the second quarter, we performed an interim goodwill impairment test that resulted in the fair value of RxCrossroads being lower than a net book value.

As a result, we recorded $135 million in noncash goodwill impairment charge within the operating expenses for the Retail/Long-Term Care segment.

You can find further details on this in our Form 10-Q.

So with that, let me provide more detail on our quarterly results as I quickly walk down the P&L.

On a consolidated basis, revenues in the second quarter increased 4.5% to $45.7 billion.

In the PBM segment, net revenues increased 9.5% to $32.3 billion, within our expectations.

This growth is largely due to the increased volume of pharmacy network claims resulting from the successful selling season we had last year as well as a brand inflation and solid specialty pharmacy growth.

This was partially offset by 130 basis point increase in our generic dispensing rate to 87.2%.

Overall, PBM adjusted claims grew 9.5% in the quarter.

In our Retail/Long-Term Care business, revenues were approximately $19.6 billion in the quarter, decreasing 2.2% year-over-year, slightly better than our expectations.

This was -- this decline was driven by continued reimbursement pressure, which was magnified by flat script comps caused by the network changes we've been discussing.

During the quarter, GDR increased by approximately 150 basis points to 87.6%.

We also saw a decline in front store revenues due to softer customer traffic and our promotional decisions, which was partially offset by an increase in basket size.

As Larry mentioned, front store same-store sales comps decreased 2.1% and were positively affected by approximately 75 basis points from the shift of the Easter holiday into the second quarter of this year.

Turning to gross margin, operating expenses, operating profit and the tax rates.

The numbers that I'll cite reflect non-GAAP adjustments and both the current and prior periods were applicable, which we have reconciled on our website.

Keep in mind that our guidance for the second quarter reflected these items.

The consolidated company's gross margin was 15.2% in the quarter, a contraction of approximately 85 basis points compared to Q2 of '16.

This contraction was mainly driven by a mix shift as the lower-margin PBM business is growing faster than the Retail/Long-Term Care segment.

Gross profit dollars for the company decreased 1.2% versus the same quarter of last year, primarily due to a loss of scripts in the Retail segment.

Within the PBM, gross margin contracted by approximately 10 basis points versus Q2 of '16 to 4.5%.

The decline in gross margin was primarily due to continued price compression and changes in the mix of business, partially offset by favorable generic dispensing.

However, gross profit dollars in the PBM increased 7.4% year-over-year, driven by strong claims growth and favorable purchasing economics as well as improvements in GDR.

Of course, partially offsetting these drivers was continued price compression.

In our Retail/Long-Term Care segment, gross margin declined approximately 20 basis points to 29%.

The decline in gross margin rate was primarily driven by lower reimbursement rates that continue to pressure pharmacy margins.

Partially offsetting those pressures were an increase in generic dispensing rate as well as increased front store margin that Larry spoke about earlier.

Gross profit dollars decreased 2.8% year-over-year in the retail segment, mainly due to the loss of scripts from the network changes as well as continued reimbursement pressures.

Consolidated operating expense as a percent of revenues improved approximately 25 basis points to 10.2% compared to Q2 of '16.

The PBM segment SG&A rate improved about 10 basis points to 1%, benefiting mainly from additional sales leverage related to volume increases.

SG&A as a percent of sales in Retail/Long-Term Care segment worsened by about 80 basis points to 21.1% as we delevered due to loss of prescriptions related to the restricted networks.

Additionally, a portion of the increase in operating expense dollars year-over-year relates to investments we are making in process improvements and technology enhancements as part of our enterprise streamlining initiative.

During the quarter, we continue to work on new tools and processes designed to improve labor productivity across our enterprise pharmacy operations, among many other projects.

Recall that we expect cost to outweigh savings this year, but that savings should ramp up as we move throughout the year.

Within the Corporate segment, expenses were up approximately $20 million to $240 million due to an increase in benefit costs and the investments in strategic initiatives.

Consistent with our expectations, operating margin for the total enterprise decreased approximately 60 basis points in the quarter to 5%.

Operating margin in the PBM remained relatively flat at 3.5%, while operating margin at retail declined approximately 95 basis points to 8% on our adjusted basis.

For the quarter, operating profit growth in the segments and at the enterprise level was in line with or better than expectations.

The PBM exceeded our expectations with operating profit growth of 9.1%, operating profit in the Retail/Long-Term Care segment declined 12.7% in line with our expectations and the consolidated operating profit declined 7%, also in line with our expectations.

Going below the line on the consolidated income statement.

Net interest expense in the quarter decreased approximately $33 million from LY to $247 million, due primarily to paying down debt in the fourth quarter of '16 and a lower average interest rate on the debt that remains outstanding.

Our effective tax rate in the quarter was 38.4%, which was higher than expected.

This was driven by a delta between our estimates of a discrete tax benefit we've seen from adopting the new share-based accounting standards and what we've actually experienced during the quarter.

As previously discussed at Analyst Day and in prior earnings call, the amended accounting guidance seems likely to result in an increased tax rate volatility because of changes in both share price and behavior of employees that can exercise vested options.

This required change in accounting treatment will continue to impact the tax rate going forward, which will fluctuate based on those factors.

Our weighted-average share count was just over 1 billion shares, reflecting the receipt of shares from the ASR that was completed in April and some additional repurchases made throughout the quarter.

So with that, now let me update you on our guidance.

I'll focus on the highlights here, but you can find additional details of our guidance in the slide presentation that we posted on our website earlier this morning.

As Larry said, we are narrowing and raising the midpoint of our 2017 adjusted earnings per share guidance range to $5.83 to $5.93 from a range of $5.77 to $5.93, reflecting a year-over-year change of down 0.25% to up 1.5%.

This raised the midpoint by $0.03, reflecting our performance to-date as well as our expectations for the second half.

With respect to GAAP diluted EPS, in addition to narrowing the range, we're revising our full year guidance to also reflect a few additional items.

One, obviously, is the goodwill impairment charge of $135 million pretax related to RxCrossroads, which I discussed earlier.

The others totaled $25 million pretax and mainly relate to the additional costs associated with the loss on the defined-benefit pension plan settlement expected in the third quarter.

So with that, we now expect the GAAP diluted EPS to be in the range of $4.92 to $5.02 a share.

You can find a reconciliation of GAAP to adjusted EPS in our press release and on the Investor Relations portion of our website.

With half the year now behind us, we are updating our revenue and operating profit guidance.

In the PBM segment, we're narrowing revenue guidance -- to a range of 8% to 9%, leaving the midpoint unchanged.

We are also increasing our estimate of adjusted claims to a range of 1.78 billion to 1.8 billion claims.

This takes into account the solid performance the PBM has delivered thus far and reflects our confidence in our adjusted claims volume for the remainder of the year.

In the Retail/Long-Term Care segment.

We are narrowing and revising guidance for revenue.

This mainly reflects continued reimbursement pressure and expected softness in script volume.

We now expect Retail/Long-Term Care revenue to decline 2.75% to 3.5% and total comps to decline 3.5% to 4.25% and script comps of down 0.75% to up 0.25%.

As a result of all these changes, we narrowed our consolidated net revenue growth to 3% to 4%.

Now turning to operating profit.

We are narrowing the PBM's operating profit guidance range by lowering the top end 150 basis points to account for slightly slower growth in Specialty than planned, mainly due to the slowdown in hep C. This results in a new operating profit growth range of 5.75% to 7.25%.

We are narrowing and lowering the guidance range for the Retail/Long-Term Care segment to reflect slightly lower volumes.

So we now expect Retail/Long-Term Care operating profit to decline 8.75% to 10%.

We narrowed the consolidated operating profit range by 75 basis points to reflect the changes in PBM and the retail segments as well as increased investments relating to our streamlining effort that will help us achieve our long-term goals.

We now expect operating profit to decrease 4.25% to 5.75%.

This reduction in the high end of the operating profit guidance range is mostly offset by an improved outlook in our effective tax rate and a lower weighted-average share count for the full year of '17, thus, enabling us to maintain the top end of our previous adjusted earnings per share guidance.

Now let me touch upon the earnings pattern for the third and the fourth quarters.

Starting back at Analyst Day, we highlighted several timing factors that would impact our cadence of earnings for this year.

One of those drivers was the timing of profitability in our Medicare Part D business.

As we've seen in years past, the timing of Medicare Part D profits in the third quarter remains difficult to forecast since this is the time period where the risk-sharing corridor is usually least effective at providing risk-sharing protection.

Thus changes in any current estimates such as utilization significantly impacts the timing of profits between the third and the fourth quarters.

This forecasting challenge is compounded by the growth in this part of our business.

We've made our best estimates and included those estimates in our guidance.

This year, we expect the time of the Med D profitability to shift to the fourth quarter.

This is in contrast to 2016 when we experienced members moving to the risk corridor more quickly, which led to higher profitability in the third quarter.

This year-over-year swing in timing of profitability is not impacting the outlook for the year.

It is simply a shift of earnings from the third to the fourth quarter.

We use our best estimates to provide Q3 guidance, but the cadence between Q3 and Q4 does have the potential to change because it is based on how members move through their benefits.

In addition to the timing of Med D profitability, we continue to expect a benefit from our enterprise streamlining initiatives to be greater in the back half of the year than may have been year-to-date.

Turning specifically to the third quarter, which includes certain non-GAAP items described in the slides.

We expect adjusted earnings per share to be in the range of $1.47 to $1.50 per share, reflecting the decrease of 8% to 10.5% versus Q3 of '16.

GAAP diluted EPS is expected to be in a range of $1.20 to $1.23 in the third quarter, which includes an estimated $220 million loss on the settlement of a defined benefit pension plan discussed previously at our 2016 Analyst Day.

Within the Retail/Long-Term Care segment, we expect revenues to decrease 3.25% to 5% versus this third quarter of last year, driven in large part by the network changes discussed previously.

Adjusted script comps are expected to be down 0.75% to up 0.25% and total same-store sales are expected to decrease 4% to 5.75%.

In the PBM business, we expect third quarter revenue growth of 8.5% to 9.75%, driven by continued strong growth in volumes and specialty pharmacy.

Consolidated net revenues are expected to grow 2.75% to 4.25%.

We expect consolidated operating profit to decline 11% to 13.5% in the third quarter.

Retail/Long-Term Care operating profit is expected to decrease 11% to 13.5%.

Additionally, we expect PBM operating profit to decrease 5.5% to 7.5%, but you do need to be mindful of the shift in Medicare Part D profits as I just outlined.

If the Medicare Part D PDP were excluded from all periods, PBM year-over-year growth in Q3 and Q4 would be more in line with the growth that we saw in Q2 of this year.

In closing, we remain very confident in our full year forecast and our ability to return to sustainable healthy earnings growth over the longer term.

And we continue to demonstrate our ability to generate substantial free cash flow.

We remain committed to using the cash to drive returns for our shareholders through value-enhancing investments, dividends and share repurchases.

And so with that, let me turn it back over to Larry Merlo.

Well, thanks, Dave.

And before moving it to the Q&A, I did want to share our approach and actions in dealing with the rhetoric around the drug pricing debate.

We have been, and continue to be, a very active voice in Washington with regard to health care issues.

In fact, at the beginning of this Congress, we outlined a series of proactive proposals to lower drug costs.

And these proposals focus on increasing competition in the drug market, strengthening the ability to use our drug management tools and easing out-of-pocket costs for consumers.

And we have seen action on a number of fronts.

Foremost, the new FDA commissioner has embraced proposals to prioritize the review of generic drug applications, launching a drug competition action plan.

And as part of this plan, the agency has published a list of more than 260 off-patent branded drugs without approved generics in order to encourage the development of ANDAs in markets without competition.

Additionally, the FDA now will expedite the review of generic drug applications until there are 3 approved generics for a given product, recognizing that patients do see significant price reductions when there are multiple generics available.

And we're already seeing results as May and June of this year have seen the most generic drug approvals since the FDA began telling its monthly approvals.

We're also engaged with the administration at all levels and our discussions have increased the understanding of the value of the PBM, are highlighting the significant savings being generated in Medicare Part D and are providing solutions for consumers to better afford the drugs they purchase at our pharmacy counters.

And there's still more that can be done.

We're piloting the use of technology to provide drug pricing information to both the patient and the prescriber at the point of prescription.

This dramatically changes the conversation with policymakers, several of whom have expressed great interest in these capabilities.

And ultimately, we believe continuing to demonstrate the role that CVS Health plays in making more health care more affordable, more accessible and more effective will be the winning strategy.

So with that, let's go ahead and open it up for your questions.

(Operator Instructions) And our first question comes from the line of Scott Mushkin with Wolfe Research.

I had one shorter-term question regarding the guidance and then one longer-term question.

So the guidance is, to summarize, it looks like the operating profit for the enterprise is coming down a little bit, that's specialty and maybe some more investments in retail.

So bridge me to kind of the -- and then bridge me to the better performances.

Is this tax rate and the share buybacks, that's how you get to kind of move up in the range?

That's correct, that's correct.

There's a little bit of softness due to volume in retail and a little bit of softness due to Specialty kind of at the operating profit line and some investments that we're making to drive the long term.

But all of that is being offset, or mainly offset through both tax rate and our performance from a share repurchase program.

Okay, perfect.

And then, this is a broader question, I'm sure it is going to come up in the call so I might as well ask it.

But it's going to cover Amazon.

Amazon has been rumored to be entering or may enter, I know it came up in Express Scripts call.

How do you guys view that, especially on the retail side of the business?

And what would prevent them from taking share if they decided to enter?

Well, Scott, listen, it's Larry.

And I think as you've heard many talk about, there are many barriers to entry when you're looking at pharmacy.

And I think most people are thinking about pharmacy as another distribution point, but pharmacy is also about the clinical outcomes that are provided.

And in an environment where there's a migration to more value-based care, those clinical capabilities are going to continue to grow in importance.

It's highly regulated, so the barriers to entry are high.

And you know the role that, today, more than 90% of prescriptions that are -- are covered by some type of third-party insurance, so there's an awful lot of work that exist between pharmacists working with payers and physicians to provide that care.

And we know the role that pharmacists play in the community, that we've seen mail order pharmacy decline, to some degree, over the last couple of years and patients put a lot of value in the trust and the relationship that they have with their community, with their retail pharmacists.

So I don't think there's anything that is in the near-term world that changes those dynamics.

I think as you flip over and think about the front store, that -- listen, there are many more online retailers today than what we had 5 years ago.

And the CVS Pharmacy model is built on convenience when you think about 9,700 points of access and the fact that you've got almost 80% of the U.S. population that lives within a few miles of CVS.

And over the last couple of years, we've been working hard to define what omnichannel means for us and what it means for those customers and have been investing in our digital tools and capabilities to provide more of an omnichannel experience.

So listen, there's no question that Amazon is a competitor in the marketplace.

They've done a great job, and you don't take anything that they're doing for granted.

But at the same time, I think that we have a lot of capabilities and a value proposition that can compete effectively in the market.

Our next question comes from the line of Lisa Gill with JPMorgan.

Larry, you touched out the relationships with Cigna, Optum, Express Scripts.

Can you maybe give us any updated thoughts around the number of prescriptions you think this could drive over time?

And then secondly, any update on the Medicare Part D network relationships?

Any thoughts around participating in preferred networks as we think about 2018?

Yes, Lisa, the relationships that -- the things that we talked about in the prepared remarks, I think that those products are out being sold in the marketplace as we speak.

It will not -- we don't expect it to have any material impact in 2017, and we hope to see it begin to ramp up in 2018 and beyond because we think that there is a robust pipeline.

At the same time, I think we've learned from our experience between Caremark and our health plan clients, the challenges that exist in terms of selling those products in the marketplace.

So it will take some time.

In terms of Med D, I think you've seen some announcements that this is work in progress, we'll have more to say on this at the end of the year.

But CVS Pharmacy will be preferred in Aetna's Medicare Part D network beginning in 2018.

So I think that there's progress being made, and -- as we continue to evaluate those opportunities.

And then my follow up, this would be on the generic comments that you made.

Obviously, more generics coming to the market are generally viewed as a positive as we think about the PBM and drug retail.

Is there a certain point where the pricing is so low that you can't capture the same amount of margin opportunity?

Or is lower pricing and competition around generic procurement always a positive for your book of business?

Well, Lisa, I would say at this point and the foreseeable future, we view it as a positive for our business.

And it would be interesting if we can ever find a point where that hypothesis that you mentioned would -- we've got a long way to go before we get to that point.

Maybe that's the right way to say it.

Our next question comes from the line of John Heinbockel with Guggenheim Securities.

So Larry, on the Transform Value program, I know it's early, but what learnings have you had from the diabetes portion of this as you look at rolling out the next three, maybe enhance those three?

And then when you think about using this to get closer to your health plan and other PBM partners, have you been able to -- is there a way to dimensionalize that possible impact?

Or -- you know it's positive, but it's very difficult this early to figure out what that might mean for share?

Yes, John.

I'll start, and then I think Jon will want to jump in here.

John, the learnings that we've got from the transformed diabetes care, I would say it's largely come from the pilot program.

And I think what we found is that -- keep in mind that there's 2 parts to this program.

There's the client part in terms of which we're telling them that we can control their costs in a differentiated way, recognizing that diabetes has been a contributor to trend over the last couple of years.

And for the patient, we're working with them in terms of providing more effective care and a better health outcome by monitoring their blood glucose in real-time and avoiding unnecessary visits to the physician or to the emergency room.

So the pilot program demonstrated for us that we can improve the patient outcome and reduce costs for the client.

That's what we're out there selling right now.

And there has been a high level of interest.

But again, those programs are being sold in the marketplace, so we'll have more to say on that later this year, early next year in terms of the traction that it's getting.

And John, this is Jon.

We've been talking for many years about the value of adherence in lowering overall health care costs.

And I think this diabetes program, which is our clients' top priority when they look at their population and what's driving their overall health care costs.

So it really is positioning us as a partner to not only provide Pharmacy Services, but to also help manage the overall health care costs for those clients.

And so the response has been very positive.

People are interested in solutions.

There's been solutions in the marketplace, but they are point solutions, so they can now come to us and get a comprehensive program, and we can talk about, not only their pharmacy cost, but their medical cost.

And we expect to roll Transform Care programs out for 4 additional disease states over the next 24 months, and that will be asthma, hypertension, hypercholesterolemia and depression.

And we tell our clients that these members have to be in one of our channels to get the value of these programs.

So I do think there are share shifts -- there will be share shifts that come as clients adopt these programs and we demonstrate our ability to lower overall health care costs.

And then maybe as a follow-up for Larry.

If you think about the reimbursement pressure you and everybody else is seeing and what that has to be doing to those with subscale business models, I mean, what happens to that -- what happens to share over time?

And do you think, by definition, does there have to be some moderation in reimbursement pressure, either as a means to not prevent some of these other channels from leading the market or maybe we get there because share consolidates too much?

What's the prognosis there?

Well, John, I think the question that we've talked about probably every year for the last several is that I wouldn't describe reimbursement pressure as increasing from its historic levels.

I think the dynamic that we see at least this year is the offsets associated with that reimbursement pressure are more challenging than what may have existed in prior years.

And you would expect there's going to be ebbs and flows to that.

Whether it's the contribution that new generics can make to the market or other dynamics underway.

You've heard us talk, John, about the migration to -- and we're talking about value-based networks, okay?

I do think that dynamic will change the construct of networks because now, pharmacy networks will not be simply defined by location and price, they'll be defined by clinical capabilities and outcomes.

And I think that will create a different dynamic than what exists today in terms of who can participate and who can't when you look at clinical capabilities.

Our next question comes from the line of Ricky Goldwasser with Morgan Stanley.

Larry, in your prepared remarks about a selling season, you talked about some wins in the government segment.

So can you just help us think about how the mix of the new business, what's the profitability associated with it and how should we think about that compared to last year?

Ricky, this is Dave.

As typical in the PBM space, profitably within a new client is pretty thin in the first years, and I would say that as we look forward to profitability in these contracts next year versus this year, I'd say they're more or less on a comparable basis, consistent with year-over-year.

I do think one of our challenges and that we work hard on is once we onboard a client, is making sure that we work to improve their performance, drive value for them and drive value for us whether that's shifting in generics, whether that's improving clinical outcomes, whether it's moving into some value arrangements.

And that's the program that we constantly run, and that is something that our organization and our teams are consistently focused on.

And Ricky, this is Jon.

The only other thing I would add is about half of our wins are in the government space and they probably perform more like health plans because they're limited in the programs they can adopt.

So I would probably think of it along those lines.

Okay, that's very helpful.

And the other half, is it commercial?

The other half, Ricky, think of it as being split between health plan and employer.

Okay.

And then just a question around capital deployment, the one you provided us the long-term guidance growth of 10%.

It included capital deployment.

So 2 questions there.

One, how do you think about capital deployment?

I know Pfizer last week said that they're holding back on M&A until they have more clarity around tax reform.

Is that something that you're kind of thinking about as well?

And my second question is, when we think -- it might be a little bit early for that, but when we think about -- how should we think about 2018 within the context of that long term 10%?

Yes, Ricky, it's probably a little too early to talk specifically about 2018.

As you know, we're targeting a 10% adjusted earnings per share growth over time.

We said that some years we'll be better than that, some years we'll be like to that.

We're obviously, working hard to get ourselves back to a growth platform here.

From a tax reform perspective, we are encouraged by the progress and the discussions that are occurring around tax reform.

We are not waiting on tax reform to make investments in our business.

I think at a nearly 40% tax rate all in from both federal and state, we're more likely than not to be a beneficiary of tax reform.

So therefore, it will enhance our performance over time.

So we're not going to wait for that to come through legislatively, we're going to work towards making investments in our business that make the most sense long term.

And any thoughts about areas of M&A in this scale that you would be considering?

Ricky, we've -- probably not much comment there.

We, obviously, continue to look at the health care space pretty holistically.

I think our platform from a pharmacy care management perspective is pretty robust.

I do think there are still areas that we can continue to invest on that platform and continue to add value to both our shareholders and to the clients and members that we serve, but I can't probably give you any more specifics at this point.

Our next question comes from the line of Michael Cherny with UBS.

Thinking about the updated guidance and particularly, on the retail side and the script growth, can you maybe give a sense -- especially since you talked about the lighter script growth being some of the driver for the reduced EBIT guidance.

Are the numbers you had expected at the end of year, or late last year when you first gave guidance relative to the initial $40 million or so scripts tracking in line with what you had expected?

Yes, I think materially, they're fairly consistent with what we expected so no big changes there, I think.

As you've seen, our script delivery for the first half of the year within the Retail/Long-Term Care segment has been pretty consistent with expectations.

We are seeing a little softness from a market perspective, so our go-forward guidance reflects that.

I would also say that just from a long-term care perspective, we're seeing bed census lower, so that, obviously, has some effect on script delivery in that portion of our business.

And mostly, Mike, within the skilled nursing space.

That's helpful.

And then just one quick follow up on Part D. As you think about the evolution of the competitive dynamics in the market and SilverScript, obviously, has been a leader for a while.

Have you seen any changes in parallel to what's happening with regard to the repel and replace debate that are impacting Part D and your view of Part D and the competitive dynamics around Part D to the positive or negative?

Mike, I don't think we've seen much change from that perspective.

This continues to be an area where we've excelled in Part D. Our set of services and products are priced very competitively.

We've been able to drive a lot of value and we've continued to grow share and membership in this space over the last several years.

And I think it's important to note that we're not only growing share within our PDP business, at the same time, the capabilities that we deliver from a PBM perspective are allowing our health plan partners and clients to grow share within their base.

So we're participating in both aspects of that business.

Mike, if anything, I think the dialogue is probably the reverse that, are there things that exist within the Medicare space that should be applied to Medicaid, okay?

And you think about the fact that there is still a large percentage of Medicaid fee-for-service that there are opportunities to reduce costs across the country in many state Medicaid programs by migrating some of the tools that exist in other spaces.

The next question comes from the line of Robert Jones with Goldman Sachs.

Dave, you covered a lot of the changes to the outlook.

But I wanted to just go back and ask specifically on the retail pharmacy gross margin.

It went down in the quarter after showing some improvement last quarter, and you guys, obviously, maintained modest improvement for the year.

So just curious if you could talk a little bit about what changed in 2Q versus 1Q.

And then how are you thinking about the improvement or the implied improvement in the retail gross margin in the back half?

Yes.

I think this is largely back tied to the timing of break-open generics as we think about the back half of this year.

So you would think a little bit about that driving that performance.

Also, when you get to the fourth quarter, you start overlapping the restricted network changes as it relates to TRICARE.

So that overlap helps, at least from a growth perspective, maybe not the rate, but it certainly helps from a growth perspective.

Okay, great.

I guess, just one quick follow up on the selling season.

Obviously, good news on the FEP retail and mail extension.

Curious about the thought process behind the one year extension.

If I think back, I believe, these contracts were typically longer in duration when they were renewed or reassigned.

So just wondering if there was any more background on the extension around FEP.

Yes, Bob, this is Jon.

They had two 1-year options to extend the contract.

They had exercised one and this is the exercising of that second 1-year option.

And Bob, FEP.

FEP continues to be extremely satisfied with the levels of service that we're providing for their members.

The next question comes from the line of Ann Hynes with Mizuho Securities.

Can we talk about Omnicare a little bit more?

Because if I'm hearing you correctly, I think maybe the softness in guidance for retail is more related to Omnicare than anything else.

Is that, I guess, correct?

And maybe just a little bit more detail on what's happening and how you can fix it?

Ann, this is Dave.

I think the softness from a volume perspective, a little bit of both, both long-term care and we're just seeing softness in retail more broadly.

And by the way, that's just kind of a tweak.

That's not a major trend break so we're just kind of tweaking that guidance expectation around the edges here.

I do think what you see in the skilled nursing facility space, you're seeing length of stay and just bed census come down a little bit in the marketplace.

And as that has occurred, that affects Omnicare disproportionately greater because it has a fairly sizable share in that space.

I will say as we think about new beds and as we think about marketing and offering new services to new clients and new operators, I think our products are resonating in the marketplace.

I feel like we're nicely positioned here.

We have a little industry headwinds as we've cycled in the back half of this year in that business as it relates to volumes.

And Ann, the only other thing that I would add is that we have talked about some of the technology investments and enhancements that we needed to make in that business.

And those are -- have largely been complete.

So now it's a question of executing those new capabilities and in addition to what Dave mentioned, there are opportunities to improve the productivity and efficiency in that business as well.

Okay, great.

And then just to focus on the ramp to Q3 to Q4.

I think there is some concern historically because it's much bigger, but I'm assuming you're pretty confident on the Medicaid Part D side.

That's it's more a timing issue than anything.

And I think you also have mentioned there's a second reason why, just maybe some more cost savings.

Can you tell us how much of the ramp has to do with cost savings, first the Medicare Part D risk quarters?

Yes, this is largely a Medicare Part D PDP topic.

There is a little bit of investments we're making in the quarter from a cost perspective, driving initiatives, but this is largely Medicare Part D. Now I'll just a reiterate a little bit what I said before.

If it took Medicare Part D or PDP, and you excluded it from all periods, this year and last year, our PBM year-over-year growth in Q3 and Q4 will be very much in line with the growth that we saw in Q2.

And Ann, the other point in terms of kind of getting comfortable with that, keep in mind that Part D has been growing at a pretty significant rate and represents a bigger portion of the PBM business than it would have last year or the year prior.

Yes.

And one last topic there.

Just also, as I said earlier to Bob's comment, I believe, or question, is when we get to the fourth quarter, we begin to wrap the impact of the TRICARE decision to restrict the network.

And that took effect December of last year, but we started feeling the effects of that a little earlier in December.

Our next question comes from the line of Steven Valiquette with Bank of America Merrill Lynch.

So just curious with Walgreens and Rite Aid now proposing a scaled-down asset purchase instead of a full merger.

Just curious whether or not that's changed the tone of any narrow network contracts you may be negotiating right now.

I guess, specifically, does their lack of a full-scale merger maybe put CVS in a better light now on a relative basis when negotiating these narrow network deals, when you're trying to be the anchor chain?

No.

Steve, it's Larry.

I don't think that anything has changed with that as a variable, okay?

I think that as we talked a fair amount about in our prepared remarks, I think the dialogue around network configuration is about capabilities.

And I don't think there's anything associated with Walgreens, Rite Aid that changes that dynamic.

Thanks for the confirmation on the Aetna Medicare Part D network that we talked about several months ago as well.

We look forward to more color in that in the future as well.

And our next question comes from the line of David Larsen with Leerink Partners.

Can you provide a little bit more color around your narrow network deals with CIGNA, Express and Optum?

Like roughly, any sense for how many lives are included in each of those deals?

And when will those volumes start to impact retail, or have they already?

They certainly have not impacted at this point in time our retail performance.

Keep in mind -- what we have done, this is just one, I'll say, product offering or service offering that we provide to PBMs in the marketplace.

The option to sell in services related to CVS Pharmacy, and as they sell them in, we begin to get share.

And part that could be up narrow network, part of it could be a clinical offering, part of it could be communications with their members.

And so we expect that over time, the success of how they sell those lives into their book of business and then overtime, we will gain share.

Our experience with health plans is that share -- it takes time for share to come through.

We're optimistic about what we see in the marketplace, but we will have to watch carefully and help those members transition into our channel over time.

So I don't -- I'm not prepared at this point in time to give you a definitive number.

I do think as we look forward for the next several periods, we do think there's an opportunity to grow share into our channel.

Okay.

And then just quickly with the exclusions list that were recently published.

It seems like you had 12 that were added, 12 that were taken off, so like net zero incremental exclusions.

It's very different from last year where I think you had a lot more exclusions.

Can you talk about that?

Any reason for what appears to be like a less sort of, I guess, aggressive sort of approach to your exclusions list for '18?

Yes, this is Jon.

We're not any less aggressive than we've ever been.

And quite candidly, we've been able to demonstrate that we can move share away from products.

So these pharma companies are coming back to the table trying to get back into our formulary and bringing value that then makes sense for us to add those drugs back in, in those therapeutic classes.

And we've been very conservative about adding drugs back, but we felt like this was the year and there was enough value for our clients to make moves that you saw with our new formulary announcement.

Okay.

Just real quick, any thoughts on your Aetna relationship?

How it's progressing?

I'm sorry, what about Aetna?

Just the relationship there.

Yes, listen, our relationship continues to be very good.

We talked about where we're going with Med D on the CVS Pharmacy side.

Next year, we'll be taking on a portion of Aetna's rebating.

As we alluded to earlier, we continue to partner very closely with their sales organization and in selling in our unique integrated product, whether it's Maintenance Choice or some of the other products you heard us talk about earlier today.

So I think our 2 organizations are working extremely well together in a cohesive and complementary fashion.

Our next question comes from the line of Charles Rhyee with Cowen and Company.

I wanted to ask about RxCrossroads.

You took the impairment charge, but is it fair to think you plan to retain the business itself?

And I guess, specifically the question is, within RxCrossroads, their hub services offering, how important is that to have still connected to the Specialty Pharmacy business?

Yes, Dave.

We're, obviously, exploring all options with that business.

I don't think the hub connectivity to our Specialty business is important to us, so that could be disconnected easily.

So we're not focused on that at this point in time.

Okay.

And then when you talk about the timing on Medicare Part D moving more to the fourth quarter, does that have any -- does that imply anything in terms of the growth rate in the Med D business this year versus last year?

So if you move through the doughnut hole earlier, was there faster growth last year in the first half versus this year?

Is that just the timing when you saw the growth?

It has nothing to do with growth.

It really has to do with how the members utilize the benefit and when they hit those risk corridors, at what stage.

So it's not really affecting the year and our performance in the business, it's really simply a shift between Q3 to Q4 from a profitability deliveries perspective.

Okay, and then 1 last clarification around -- sorry, go ahead.

Sorry, go ahead.

I just had one more clarification around -- on the FEP contract, you extended it for a year.

Are there anymore additional extended periods embedded within the contract?

Or does it go to RFP at some point then in 2018 -- sorry, in 2019 for 2020?

Yes, this is Jon.

The contract runs through 2019 and we expect it to go out to RFP at that point.

There's no more extensions left.

Our last question comes from the line of Ross Muken with Evercore ISI.

So maybe just thinking about, Larry, the comment you made in the press release that you sort of won't be satisfied until the organization is kind of back healthy or earnings is good.

Help us sort of tick and tie kind of how the year has played out so far, particularly on the operating income line with some of the tweaks that are relative to kind of the long-term plan you talked about that the Analyst Day.

It seems like a few pieces out of your control like volumes, are maybe a bit lighter.

But then on the positive side, you've got some of these network changes rolling off and you've also got the streamlined piece kicking in, and it seems like that's the some interesting relationships to the number of managed care.

So help us think through conceptually kind of in your mind how the business has progressed and sort of your confidence level in kind of getting back to those healthy growth rates that, obviously, the business was sort of used to more historically.

Ross, this is Dave.

I'll start a little bit maybe with some color around this year.

And I think if you look at our performance year-to-date, we've largely delivered on the expectations that we set forth at the beginning of this year.

I think the organization continues to focus on driving as much growth as possible.

We know this is a rebuilding year, but we've largely been able, through the first half of the year, deliver on our top line and our bottom line.

I think as we look forward, we made some slight tweaks as we've seen the industry soften a little bit from a volume perspective.

But literally, tweaks around that.

I think the good thing, too, is despite the fact that we've -- because of those tweaks, we've had a little softness in the operating profit delivery in the back half of the year.

Our strong cash flow has allowed us to continue to deliver, from an adjusted earnings per share, a range that hasn't really moved.

In fact, actually increased $0.03 midpoint to midpoint.

So I think we feel very good about what we've done.

We have a lot work ahead of us.

We're focused on that.

So with that, maybe I'll turn it to Larry.

Yes.

And Ross, I think as Dave outlined, the focus in terms of delivering in '17, we're also working in terms of how do we plan and prepare for the future.

And I think, we feel very good about the quality of the work that's been done in terms of the new relationships on the CVS Pharmacy and related business side.

And equally important, the innovation that is coming to market through the PBM, the Transform Care program and some of the things that we talked about, that Jon alluded to in his comments as well.

And the work that is being done in terms of allowing us to be an even more efficient and productive provider on the streamlining.

That work is on target and is moving in the right trajectory.

So we feel very good about the work that's being done that prepares us for the future.

And I guess, just as a quick follow-up.

So how will you grade, Larry, kind of your response to some of the challenges last year in terms of how you've addressed them so far and your sort of confidence level in, again, getting this business back on to the trajectory that's normal?

Do you think you've, in most of the sort of pivots you've made, done enough essentially to feel like you've got the business back now to where you've actually got some positive momentum it seems like for share this year, withstanding some of the market noise?

Well, Ross, listen, there is no question that there is a high sense of urgency in the organization in terms of delivering on the things that both Dave and I alluded to.

So I feel very good in terms of how the organization has responded, okay, and has rallied to the charge, okay, to work with speed and focus.

So I don't -- I'm very proud of the work of our CVS health colleagues and I don't think we could ask any more of them in terms of the effort and the work that they're doing.

Listen, we know this was a long call.

We had a lot of information to talk about, and we certainly appreciate everyone's interest and attention.

And if there's any follow-up, don't hesitate to call Mike McGuire.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation, and we ask that you please disconnect your line.