Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter 2015 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Tuesday, February 9, 2016. I would now like to turn the conference over to Nancy Christal, Senior Vice President, Investor Relations. Please go ahead, ma'am. Nancy R. Christal: Thank you, Suzy. Good morning, everyone, and thanks for joining us today. I'm here this morning with Larry Merlo, President and CEO; and Dave Denton, Executive Vice President and CFO. Jon Roberts, President of CVS/caremark; and Helena Foulkes, President of CVS/pharmacy, are also with us today. And they will participate in the Q&A session following our prepared remarks. During the Q&A, please limit yourself to no more than one question with a quick follow-up, so we can provide more people with a chance to ask their questions. 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 operating performance and guidance. Later this afternoon we'll be filing our Form 10-K and it will also be available on our website at that time. In addition, note that during today's presentation we'll make forward-looking statements within the meaning of the Federal Securities Laws. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our SEC filings including the risk factor section and cautionary statement and disclosures in those filings. During this call, we'll also use some non-GAAP financial measures when talking about our company's performance including free cash flow and adjusted EPS. In accordance with SEC regulations, you can find the reconciliations of these non-GAAP items to comparable GAAP measures on the Investor Relations portion of our website. And as always, today's call is being simulcast on our website and it will be archived there following the call for one year. And now I'll turn this over to Larry Merlo. Larry J. Merlo: Well, thanks, Nancy. Good morning, everyone, and thanks for joining us. Our fourth quarter results wrapped up a terrific 2015, and during the year, we achieved strong performance across our enterprise and completed key acquisitions that will support our strategy for growth in the evolving healthcare market. We grew our core business with the acquisition of Target's pharmacies and clinics and we expanded our reach with the acquisition of Omnicare, the leader in long-term care pharmacy. And we remain very optimistic that these acquisitions will help drive our long-term growth and I'll update you shortly on our integration progress. Now for the full year 2015, we delivered 10% growth in consolidated revenues, 11% growth in consolidated operating profit, and 15% growth in adjusted earnings per share, excluding amortization, any acquisition related items, and the legal charge we mentioned in this morning's release. As expected, growth in the fourth quarter was especially strong with revenues increasing 11% and adjusted earnings per share increasing 26.5% to $1.53, right in line with our guidance. We generated approximately $3.1 billion of free cash during the quarter and $6.5 billion for the full year, above the high end of our guidance, and our continued ability to deliver substantial free cash is enabling us to return significant value to our shareholders. Now for 2016, we are confirming the guidance we provided at Analyst Day back in December. As a reminder, we expect adjusted earnings per share for the full year of $5.73 to $5.88, reflecting year-over-year growth of 11% to 14%. And Dave will review the details for the year and the first quarter in his remarks. So let me turn to the business update and start with our very successful 2016 PBM selling season. Gross client wins for 2016 have increased, and they now stand at $14.8 billion with net new business at $12.7 billion. The increase in net new business of about $1.2 billion from our last update largely reflects incremental growth from our new health plan clients as they closed out their enrollment year. These numbers exclude enrollment results from our SilverScript PDP, and I'll touch on that shortly. And our 2016 retention rate remains at approximately 98%. Now our success is a testament to our unmatched products and services, our strong service and execution along with our competitive pricing. And surveys continue to show that our ability to manage costs is our clients' top priority, and this is followed by a variety of additional factors with each of our client channels having different priorities. Our flexibility and expertise in addressing those varying priorities has certainly been a key to our success. Now with so much new business being transitioned in January, I'm also very pleased to report that we have had an extremely successful welcome season. We effectively added more than 9 million new members, 9 million new members who generated a significant year-over-year increase in January's claims volume, and clients have given us very positive feedback on our diligence and process, and we're pleased with the level of oversight we provided to ensure success. It's also worth noting that in the past two welcome seasons combined, we have successfully added nearly 16 million new Caremark lives. Looking ahead to 2017's selling season is just underway, and we are well positioned competitively for another strong year. Now it's too early to provide a specific update, but our size, scale, service record and unmatched capabilities make us confident that we will continue to be successful in the marketplace. Now as we've been discussing, top of mind for our clients is their rapidly growing specialty costs, and our specialty pharmacy business offers a comprehensive set of programs to help clients effectively manage specialty trend. As a result, we continue to outpace the market and gain share. In the fourth quarter, specialty revenues increased 32% and continued to outpace market growth rates. Our Medicare Part D business has risen to a leadership position. We had a successful 2016 annual enrollment period. Consistent with our expectations we added approximately 0.5 million net lives and began the 2016 plan year with more than 5 million captive PDP lives, and that includes EGWPs. Now when you add in the Med D lives that we manage for our health plan clients, the non-captive lives, our total rises to 11.3 million Med D lives under management, and that's up 41% from the prior year. Furthermore, our enterprise clinical capabilities combined with our strong operational execution enable us to drive Med D Star ratings, not only for our own SilverScript PDP but also for our health plan clients Med D offerings. In fact, SilverScript was the largest PDP to achieve a four-star rating, and 73% of our clients' lives are now enrolled in a high-performing plan for the 2016 year. Now turning to our Retail/Long Term Care Segment, and I'll start with an update on the integrations, Omnicare and Target, which are well underway. In the fourth quarter, Omnicare performed well and in line with our expectations as we began to realize some of the anticipated synergies. As we detailed at Analyst Day, there are multiple opportunities for driving enterprise value from Omnicare in both the near and long term. In the first half of this year, we expect to achieve the benefits of purchasing synergies, and by the end of the year we will phase in technology to support high-quality customer service and leverage best practices across the organization. We are combining operational infrastructures and developing programs to improve work streams and enhance delivery service. And we expect to complete the vast majority of the Omnicare integration activities by year end. Now, opportunities are also being pursued across the continuum of care that will drive long term enterprise value. For example, we are developing an enhanced offering for skilled nursing that's driven by improving coordination during care transitions, which should lead to better outcomes for patients, providers and payers. We are also developing segmented assisted-living offerings to better align with residents' varying needs. And to better target the rapidly growing independent living market, we have a consumer driven effort underway that utilizes existing CVS Pharmacy capabilities, including the on-site delivery of healthcare services. So we expect to generate revenue synergies focused on the transitions of care, market adjacencies and differentiated offerings. And these should begin to be realized in the second half of this year and grow in future periods. And we remain very excited about the opportunities created by this combination along with our enhanced ability to serve seniors across their continuum of care. Now as for the Target pharmacy and clinic acquisition, our highly detailed integration plan is complete. The integration activities are underway, and we have already successfully converted a handful of pilot stores. As a result, the conversions will begin to ramp up throughout this quarter and next, and we expect to complete all store conversions by the end of summer. Now as we complete each store conversion and it's rebranded as CVS Pharmacy, at that point we launch our additional core offerings, core pharmacy offerings, to include Specialty Connect, ExtraCare Pharmacy Rewards, along with our digital tools. And that's in addition to Maintenance Choice that was available upon the transaction close. We'll begin adding marketing elements as geographies convert, all with the goal of converting Target guests who currently don't use the pharmacy. Now moving on to the fourth quarter results in the retail business, pharmacy same-store sales increased 5%. This was negatively impacted by approximately 470 basis points due to recent generic introductions. Pharmacy same-store prescription volumes increased 5% on a 30-day equivalent basis, outperforming overall market growth. And our retail pharmacy market share, again on a 30-day equivalent basis, was 21.8% in Q4, and that's up about 65 basis points versus the same quarter a year ago. For the full year 2015, CVS Pharmacy's Med D share increased 35 basis points versus 2014, and we continue to gain share in this growing market while maintaining a disciplined approach to evaluating participation in preferred Med D networks. And we expect to maintain our market share position in 2016, helped by our preferred positions in a variety of national and regional plans. So overall, our pharmacy business remains quite strong and continues to gain share. Our digital team has been working to create a connected health experience that makes it easier to save time and money and to stay healthy by connecting patients to our unique assets when, where, and how they want. To-date, we've seen 12.7 million downloads of the CVS Pharmacy app, 18 million members enrolled in text messaging, driving adherence, and more than 300 million text messages sent by CVS Pharmacy this past year, enhancing the patient experience. So we continue to focus on driving member adoption of our highly related apps. In the front store business, comps were down slightly, 0.5% in the quarter, and reflected softer customer traffic partially offset by an increase in basket size. However, front store margins increased notably in the quarter, benefiting from efforts to rationalize our promotional strategies along with growth in the higher-margin health and beauty businesses. ExtraCare continues its commitment to reward our loyal customers with savings through weekly ads and personalized offers as well as ExtraBucks Rewards. And in 2015, this generated about $4 billion in savings for our loyal customers. So we continue to see ExtraCare as a source of growth as we leverage customer data to create even more relevant and personalized communications. Our store brand penetration was 22% in the quarter. That was down slightly from the prior year. And for the full year, store brand penetration was 21.3%, and that's up about 75 basis points. In 2015, we gained within the drug channel about 140 basis points of share in overall brand sales and about 60 basis points of share in store brand healthcare. And there remains significant opportunities to expand our share of store brand products by building on core equities in health and beauty and seeking opportunistic growth in other areas where we can link new products to our customers' path to better health. Turning to our store base, we ended the year with about 9,600 retail pharmacies. And for the full year 2015, we opened 130 net new stores, equating to an increase in retail square footage of 2.2%. And when you add in the acquired Target pharmacies, our retail square footage growth for the year comes to 3.1%. In the fourth quarter in addition to the acquired pharmacies, we opened 53 new stores, relocated 19 stores, closed 14 stores, resulting in 39 net new stores. We also continued to grow the number of clinics. MinuteClinic is the largest walk-in clinic operator in the country, and in the fourth quarter, we opened 36 new clinics in addition to the 79 acquired clinics in Target, ending the year with 1,135 clinics across 33 states plus the District of Columbia. Now excluding the Target clinics, MinuteClinic revenues increased 4.4% in the quarter, that's below our usual trend due to the mild cold flu season versus a year ago. However, we achieved our full year 2015 revenue target of about $345 million. And with that, let me turn it over to Dave for the financial review. David M. Denton: Thank you, Larry, and good morning, everyone. This morning I will provide a detailed review of our 2015 fourth quarter results and briefly touch upon our 2016 guidance, which remains unchanged from what we outlined in December at our Analyst Day. First, I'll start with a summary of last year's capital allocation program, which should clearly demonstrate how we're continuing to use our strong free cash flow to return value to our shareholders through both dividends as well as share repurchases. I'm pleased to say that we continue to drive steady improvement in our dividend payout ratio. Recall that back in 2010 that our payout ratio was approximately 14%. We finished 2015 with a payout ratio of 30.1%, more than double 2010's level and 240 basis points higher than 2014 on a comparable basis. We paid approximately $1.6 billion in dividends in 2015 and $391 million in the fourth quarter alone. Our strong earnings outlook this year combined with the 21% increase in the dividend that we announced at our Analyst Day keeps us well on track to achieve our targeted payout ratio of 35% by 2018. Along with the significant increases in our dividend, we have continued to repurchase our shares. For all of 2015, we repurchased approximately 48 million shares for about $5 billion, averaging $101.23 per share. In the fourth quarter alone, we repurchased approximately 10.2 million shares for $1.1 billion. Now if you look back over the past three years, we've repurchased approximately 166 million shares for about $13 billion at an average price of $78.37 per share. For the year 2015, between dividends and share repurchases, we returned a very significant $6.6 billion to our shareholders. Now looking forward, we have nearly $7.7 billion left in repurchase authorizations and we continue to expect to repurchase $4 billion this year. Our expectation is that we'd return more than $5 billion to our shareholders in 2016 through a combination of dividends and share repurchases. We generated $3.1 billion of free cash in the fourth quarter. In all of 2015, we generated approximately $6.5 billion of free cash, which exceeded the high end of our guidance by about $200 million, but was essentially flat year-over-year. The outperformance was driven by client collections. At the same time, we improved our cash cycle by approximately two days, thanks to continued improvements in payables management that were partially offset by growth in receivables. We remain committed to further improvements in working capital as we move forward. For the year, our net capital expenditures were approximately $2 billion. This included $2.4 billion of gross CapEx, offset by about $410 million in sale-leaseback proceeds as well as capital spend associated with the acquisitions. As for the income statement, adjusted earnings per share came in at $1.53 per share, at the midpoint of our guidance, up 26.5% over LY. As you can see in our press release, in 2015, this excludes amortization, the impact of transaction and integration costs related to the Omnicare and Target acquisitions as well as a $90 million legal charge. The charge is related to a legacy lawsuit challenging the 1999 settlement by MedPartners of various security class actions and a related derivative claim. For those of you who may not be familiar, MedPartners was the former parent company to Caremark. So this issue goes back to long time. The growth rate also excludes the loss on early extinguishment of debt that we recorded in 2014. GAAP diluted EPS was $1.34 per share. Results across our operating segments were strong as expected. And with that, let me quickly walk down the P&L. On a consolidated basis, revenues in the fourth quarter increased 11% to $41.1 billion. In the PBM segment, net revenues increased 11.1% to $26.5 billion. This growth was attributable to specialty pharmacy as well as increased volume in pharmacy network claims. Overall, PBM adjusted claims grew 6.4% in the quarter. Partially offsetting sales growth was 165 basis point increase in our generic dispensing rate to 83.7%. In our Retail/Long Term Care business, revenues increased 12.5% in the quarter to $19.9 billion, driven primarily by strong pharmacy same-store sales growth as well as the addition of the Omnicare business. Retail/Long Term Care exceeded our revenue guidance primarily due to the addition of the Target assets, a couple of weeks earlier than planned as well as a lower generic dispensing rate than expected. During the quarter, GDR increased by approximately 155 basis points to 84%. Turning to gross margin, we reported 17.7% for the consolidated company in the quarter, a contraction of approximately 15 basis points compared to Q4 2014, and again, consistent with our expectations. Within the PBM's segment, gross margins improved approximately 45 basis points versus Q4 2014 to 5.6% while gross profit dollars increased 20.5% year-over-year. The increase in gross profit was primarily due to increases in volumes, the improvement in GDR, and favorable rebate and purchasing economics. Partially offsetting these drivers was the impact of client and drug mix as well as continued price compression. The improvement in gross margin rate in the PBM was primarily due to the timing of Medicare Part D profits. Now gross margins in the Retail/Long Term Care Segment was 30.2%, down 125 basis points from LY. The decline was primarily driven by continued pressure on reimbursement rates and to a lesser degree the addition of the Omnicare business, which carried a lower margin than retail. Partially offsetting these were the increases in GDR and a strong front store margin improvement, aided by continued rationalization of our promotional strategies and improved product mix. Gross profit dollars increased 8% throughout the quarter. Turning to operating expenses, operating profit and the tax rate, the numbers that I'm citing exclude acquisition related costs and the legal charge where applicable. Total operating expenses as a percentage of revenues notably improved from Q4 2014 to 10.7%. The PBM segment's SG&A rate improved 10 basis points to 1.3% and SG&A as a percent of sales in the Retail/Long Term Care Segment improved significantly by 190 basis points to 19.4%. This was driven by lower advertising costs due to last year's rebranding campaign following our tobacco exit, lower legal costs, and the addition of the Omnicare business, which carries lower SG&A relative to sales. Within the corporate segment, SG&As were up approximately $10 million to $215 million within our expectations. Operating margin for the total enterprise improved approximately 75 basis points in the quarter to 7%. Operating margin to PBM improved by approximately 55 basis points to 4.3% while operating margin at Retail/Long Term Care Segment improved approximately 65 basis points to 10.7% on our adjusted basis. For the quarter, operating profit growth in each segment was in line with expectations, with the PBM increasing a very solid 26.8% and the Retail/Long Term Care Segment growing 19.8%, again on our adjusted basis. Going below-the-line on the consolidated income statement, net interest expense in the quarter increased approximately $145 million from LY to $276 million, due primarily to the debt associated with the acquisitions that we took on last year. Our effective tax rate in the quarter was 38.9% and our weighted average share count was 1.1 billion shares. For the year, our effective tax rate was 39.1%, just slightly lower than expected. So with that, now let me touch on our 2016 guidance, which again remains essentially unchanged from Analyst Day. You can find the details in the slide presentation that we posted on our website, but I'll focus on the highlights here. In 2016, we continue to expect to deliver adjusted earnings per share which excludes amortization in the range of $5.73 to $5.88, reflecting very healthy year-over-year growth. GAAP diluted EPS from continuing operations is still expected to be in the range of $5.28 to $5.43. Keep in mind that we have not included any estimate of integration costs from Omnicare nor Target in either range. We'll of course report those as we progress throughout the year, but they are excluded from our guidance. We expect consolidated net revenue growth of 17% to 18.5%, reflecting solid growth across the enterprise, and we expect consolidated operating profit margin to decline by 40 basis points to 50 basis points. The first quarter guidance also remains unchanged. We expect consolidated net revenue growth of 17% to 18.5%. And as you may recall, we highlighted several timing factors at Analyst Day that affect the cadence of profits delivery throughout the year. And while 2016 is expected to be a strong year, the cadence of profit growth is expected to be significantly back half weighted. We expect adjusted earnings per share which excludes amortization to be in the range of $1.14 to $1.17 while GAAP diluted EPS from continuing ops is expected to be in the range of $1.03 to $1.06 in the first quarter. Additionally, our free cash flow guidance for the year, which includes acquisition related activities, remains in the range of $5.3 billion to $5.6 billion. In closing, I want to say that I'm very pleased with the company's significant cash flow generation capabilities. I believe these capabilities will continue to play an important role in driving shareholder value over the long term. To that point, 2016 will be another year in which we demonstrate our ongoing commitment to returning value to our shareholders through both share buybacks as well as through the increase in our dividend. And with that, I'll now turn it back over to Larry. Larry J. Merlo: Okay. Thanks, Dave, and let me just reiterate how pleased we are with our strong performance across 2015 along with the continued progress that we're making in leveraging our integrated assets at CVS Health that's bringing innovative channel agnostic solutions to the market. I also want to take a minute to thank and recognize the efforts of our more than 240,000 colleagues that are committed to our purpose and working hard each and every day helping people on their path to better health. So with that, let's go ahead and open it up for your questions.

Thank you. Our first question coming from the line of Lisa Gill with JPMorgan. Please proceed with your question. Lisa C. Gill: Hi. Great. Thanks very much, and good morning. Thank you very much for all the detail. I just wanted to follow up on a couple of things. The first of which is maybe can you talk about the 2016 opportunities for uptake in some of the different programs, whether you talk about specialty on both sides? Larry, you talk about the opportunity at Target to bring people into your specialty program, Maintenance Choice, et cetera. What do you have specifically in the guidance? And then secondly, Jon, can you talk about again as you think about what people are taking on in 2016 whether it's National Preferred Formulary or Specialty or some of the other programs that we see, and as we move throughout the year, what's some of the opportunities are? Larry J. Merlo: Yeah, Lisa, good morning. I'll take the first part and then flip it over to Jon. As you think about, Lisa, the benefits from the acquisitions, we touched on it at a very high level in the prepared remarks. If you look at Omnicare, we've got a number of pilots that have just begun to kick off that would focus on the revenue synergy side of the equation, acknowledging that we see opportunities across the spectrum in skilled nursing, assisted living and the independent living spaces. And I think as we've been talking for quite a while now, those opportunities will really manifest themselves across our retail business. So I think again, it's early in the process, and the benefits that we'll see from that, we don't expect to begin to come online until the second half of the year. And I think, Lisa, it's a similar story with Target. We've got a lot of heavy lifting to do when you think about the store and system conversions, 1,700 of those. At the same time, we've had a lot of practice with that. And as I mentioned in the remarks, the pilot stores have gone extremely well. So we are now in rollout mode, and it'll take the better part of the next six months, seven months to complete those activities. So that's really when you'll begin to see the marketing efforts ramp up. So the benefits that we'll see from beginning to create customer conversion within the Target stores with the Target guests, again, I think that's going to be more of a second-half impact. Lisa C. Gill: And, Larry, is the right way to think about this is that this will be a multiyear growth opportunity from margin as well as rolling out these programs, so it's not just the back half of this year but to layer on to this over a multi-year period? Is that the right way to think about this? Larry J. Merlo: Lisa, that's exactly the right way to look at it, because again, it's going to take time to market and on both, whether we're talking about Target or Omnicare in terms of the opportunities. So it will phase in over time, and you're right, we see it as a multiyear opportunity. Lisa C. Gill: And that's... Jonathan C. Roberts: And then, Lisa, as far as what we're seeing in 2016, as you recall, back in 2014, we saw double-digit pharmacy trend. That was primarily driven by branded inflation, branded price increases, and we're seeing that same dynamic in 2016 as well. So clients have never been more open to adopting plan designs to control these costs. And I'd really think about that it in three primary buckets. First is channel. So the ability to adopt our Maintenance Choice programs which were now up over 23 million members participating in that program and network solutions, preferred network solutions for Medicare as an example, and narrowing the network in commercial and managed Medicaid. So continue to see lots of interest in those plans designs. And also, lots of interest with formulary plan designs, and we offer options from excluding formulary for our template clients. We introduced that back in 2012, all the way to much more aggressive formularies where we essentially take most of the brands off the formularies that really is the most effective tool we have to managing trend because it gets rid of the branded inflation. And then the third primary bucket is really all the solutions we have in specialty from exclusive specialty to site of care to aggressive formulary solutions and specialty. So we do continue to see a lot of interest. We see employers able to make decisions faster in adopting these plan designs. We do see health plan much more interested than they've ever been in these plan designs, but their adoption rate is slower. They may have to sell these plan designs into their downstream clients. And as you recall, as our clients adopt these plan designs and we lower their costs, we generally see more share move into our channels. So it clearly is a win-win. Lisa C. Gill: Is there any way for you or for Dave to actually quantify some of these numbers. You talked about Maintenance Choice being in 23 million members, but can you give us an idea of how many people have adopted this year to go into more of a narrow formulary or any, your narrow specialty or any of those other things? Just so we can get an idea of what the progression has been like and what we should expect it to look like in 2016? David M. Denton: Lisa, we don't disclose that information at this point in time. So unfortunately we can't do that right now. Lisa C. Gill: Okay. I had to try. Thanks, Dave. David M. Denton: You're welcome. Larry J. Merlo: Thanks, Lisa.

Thank you. Our next question coming from the line of Edward Kelly with Credit Suisse. Please proceed with your question. Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker) Yeah, hi. Good morning, guys. Larry J. Merlo: Good morning, Ed. Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker) So I have a question for you on the retail gross margin. Just the headline number itself, the decline was a little bit more I think than what the Street was looking for and obviously the Street number maybe wasn't right. But I guess the question really is how do you think about you mentioned reimbursement rate pressure, how do you think about reimbursement rate pressure look this quarter relative to trend and your expectation? And was the margin this quarter really any different than what you were sort of thinking about going in? Larry J. Merlo: Yeah, Ed, it's Larry. It's a great question. I mean what we saw in the fourth quarter, Ed, was consistent with our expectations and, quite frankly, consistent with what we saw in the third quarter. And as we've been talking about the reimbursement pressure, the way we think you should be looking at this is we're not seeing really any dynamic change in the cadence of reimbursement pressure. As we look forward into 2016, we've got the ebbs and flows in terms of the offsets that exist in terms of how we can leverage against that reimbursement pressure, and we outlined many of those variables at Analyst Day last month. David M. Denton: Yeah, Ed, this is Dave. I'd begin – consistent with what Larry said, is that our gross margin was in line with our expectations, but a couple of things to just note is obviously we added the Omnicare business which carries a little bit lower rate. Secondly, our GDR, as we said, was a little light in retail as brand was a little heavy. So therefore that affected the gross margin but still well within our guidance expectations. Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker) Okay. And just one quick follow-up here for you on the upcoming or current PBM selling season. Can you maybe just talk a little bit about how the opportunity looks from a mix standpoint? So last year, you had a lot of success, right, a lot of it was in the health plan side. How does the mix of the opportunity look like in the current year coming up? Is there potential for more self-insured employer type wins? Any color that you can provide there would be good. Larry J. Merlo: Well, Ed, again, it's early. I mean, as we look at where we stand at this point in time, the RFP activity is probably on par with what we've seen in prior years. If you looked at our renewal business, we've got about $22 billion up for renewal. There is nothing out of the norm in terms of it skews within a segment one way or another. So we kind of view it as just a normal selling season, and I'll flip it over to Jon and see if he has any. Jonathan C. Roberts: Yeah, remember, we had just $14 billion selling season with 80% of it health plans but we still had a very successful selling season with employers and with state government. So if our win rate returns to a more normal selling season, I think the mix that you'll see will be more normal than what we saw this past year. So we're expecting a very active selling season. Obviously, the health plans are out now and we expect the large employers and the state plans to be out over the next several months. Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker) Great. Thanks, guys. Larry J. Merlo: Okay. Thanks, Ed.

Thank you. Our next question coming from the line of Eric Percher with Barclays. Please proceed with your question.

Thank you. Eric Percher and Meredith Adler here from Barclays. So maybe staying with the health plan topic, I guess, my first question would be, are there unique challenges in on-boarding this level of or this magnitude of health plan customers or is the primary challenge getting the margin and getting the adoption that you want to occur over the year? And then also, have there been particular tools or studies on adherence on cost over the last year that you've seen really drives the adoption and wins in the health plan segment? Larry J. Merlo: Yeah, Eric, it's Larry. Maybe I'll start then ask Jon and Dave to jump in. Eric, in following your questions there, in terms of on-boarding, those clients, again, I think the investments that we've made over the last couple of years from a technology and process and organization alignment I think have really paid off the last two welcome seasons. Back to my prepared remarks, you think about the fact, 9 million new members, this past January, 16 million new CVS Caremark lives over the last two years combined with very high levels of service. We are extremely pleased with the work of the organization in terms of on-boarding those clients with no disruptions. So that has been checked the box there. I think if you go back to some of the things we talked about at Analyst Day, I think the challenge different than the employer segment is how we create more alignment with the health plan sales organization to sell in those unique and differentiated products and services, and begin to do some different things there in terms of creating better incentive alignment to allow that to be more of a priority among the many priorities that these health plans have. And I think we're beginning to get some traction around that. Jonathan C. Roberts: And .I think, this is Jon, on the adherence front, I think you just have to look at the Medicare Star plans and what they measure and about half of what they measure for MAPD as an example, was around adherence. And so we've done our own internal studies that say if you have 100,000 seniors, they have about $1.1 billion in overall healthcare costs, and if we could make every one of those members adherent to their medication and we could fill in gaps in therapy that they have then we could reduce the overall medical cost by over $200 million. So CMS gets this. This is why they weight adherence so heavily in their evaluation of plans, and nobody is better positioned than we are with our integrated channels to reach members and talk to them about adherence and improve their adherence, and that's why three out of four of the health plans that are in the Medicare business that we support are either four-star or five-star plans. And we see similar activity in the commercial space as well. Larry J. Merlo: And, Eric, just two other points reinforcing Jon's comments. We just published a study within the last couple of weeks that when you look at Specialty Connect, there is an 11% improvement in adherence for those patients who utilize that service. At the same time, reflecting on Jon's comments, when you think about some of the expectations that have been set for value-based reimbursement or outcomes-based reimbursement, whatever phraseology you want to use, and some of the targets that have been established for 2018 and beyond, I think our differentiated products and services are really in a great sweet spot to be able to deliver on those expectations.

Very good. Thank you. Larry J. Merlo: Thanks, Eric.

Thank you. Our next question coming from the line of George Hill with Deutsche Bank. Please proceed with your question. George R. Hill: Hey. Good morning, and thanks for taking the question. I guess, Larry, if we come back to reimbursement pressure on the retail side, can you talk about the pockets where you're using the most pressure, either from a product perspective or from a payer perspective? We know the Med D books are competitive. We know pressure on generics is competitive. But I guess any kind of incremental color you give there would be helpful. Larry J. Merlo: Well, George, I would say it probably has more to do with the mix shift. Okay? And when you look at – as you look at pharmacy growth, we are seeing higher growth rates in government-sponsored care, Medicare and Medicaid. And as we've said, those segments, while very productive from a utilization and a revenue growth perspective, typically carry lower margin rates. George R. Hill: Okay. That's helpful. And maybe a quick follow-up is, Larry, I'd just love your broader thoughts around the growing negative drug industry rhetoric. It just seems to be getting more aggressive at every angle and targeting every participant in the system, whether it's Med D, you had the formation of the health transformation alliance last week, you have CMS taking another look at Med D it seems. I guess just how do you combat that? And how do you quantify the risks of more dramatic government intervention in the space? Larry J. Merlo: Well, George, listen, it's a great question. And when you think about responding to that, you really think about what clients hire us to do. Okay? And they expect us to work hard on their behalf in terms of how do we provide high levels of service for their members at the lowest possible costs. And we've talked about the variety of ways in which we do that, and we're very pleased with what we've been able to do. Okay? And the tools that we've been able to provide for our clients, again, they've got the option of how aggressive they want to be in terms of utilizing those tools. But we think the results of that will be reflected in our trend report that will be coming out within the next several weeks. Okay. And it's our focus. And I think, George, we've got to be careful that private-sector innovation I think has done a lot with which to satisfy the objective, right drug, right patient at the lowest possible cost. And if you look at Med D as an example, it was 2006. It's almost a decade later now, and when you look at the estimates of what CBO had predicted the cost of that would be 10 years ago, and what it's costing today, it's a fraction of that, which I think is one of the key reasons for that is private-sector innovation and the fact that competition ultimately drives down costs. So I think there's going to be a lot of crosscurrents as we go through an election year, and we'll just continue to work hard to tell our story and bring innovation in an effort to do what clients are hiring us to do. And quite frankly, we believe they are satisfied in what we're doing apropos to the new business that we've won the last couple of years. George R. Hill: Okay. I appreciate the color. Thank you. Larry J. Merlo: Thanks.

Thank you. Our next question coming from the line of John Heinbockel with Guggenheim Securities. Please proceed with your question.

Hey, Larry. A question about the sort of evolution of new customer acquisition. So when you look at on-boarding the 16 million lives here in the last two years, as they go into your system, you think about the first couple of years they are with you, is the growth rate with those customers, those lives, a lot higher than kind of more mature lives, right, because of all the different products you're selling to them, is that the case? And then in a case where you have 16 million lives over two years, if that's true, is that enough? You think of the growth coming from those 16 million lives, is that enough to move the overall enterprise growth rate in a visible way? Or no, just kind of blends into your historical growth rate? Larry J. Merlo: Well, John, it's Larry. I'll start and I know others will jump in here. John, your answer to that in part lies in terms of the client makeup and the client adoption of those differentiated services. So a client who is adopting Maintenance Choice and it's a new client, obviously we're going to see a rapid uptake of share coming into one of our distribution channels because that's the nature of that plan design. I think if you go back and, again, reflecting on some of the things we talked about at Analyst Day, this past year, a big piece of that new growth is in the health plan segment, and as you look at our enterprise share of those health plan clients, it's in the low 20%s. So obviously that creates a big opportunity, and that's something that will occur at a much slower rate than a client who adopts Maintenance Choice. So obviously a lot of opportunity, and opportunity that we'll see cascade over the life of that contract.

So I mean this is not only, I don't know if this is the biggest two-year period of customer acquisition that you've had. I think it may be. It's not only that, but also the makeup and where you are with your programs. This actually is probably a more significant driver or could be than what you've seen historically. Right, because of the mix of the plans and where you are with your programs. David M. Denton: John, this is Dave. I think that's right. I would just caution you a little bit. If you look at the sales win, certainly for, as we cycle into 2016 largely health plan. Health plans, as Jon articulated earlier, it just takes a while for them to sell in their program. So obviously the name of the game here has been let's gain the life and then quite frankly make the life more productive as we move some volume into our channel and save the client money. In health plans, that just takes a little longer. I think the uptake, the ramp of that will just – the slope of that was a little – it's not as steep as, when compared to the employer clients.

And then just quickly on Omnicare. When you think about market share evolution in the various sub segments they're in, so how do you think about that? Is most of the share gain I assume will be organic? Do you think M&A plays a role? And then when you look at share, say relative to your share in the retail business, ultimately down the road I would guess the share in long-term care would be substantially greater than what you have in the retail side or could be? David M. Denton: Yeah, John, it's Dave here. I do think that the market is still pretty fragmented, so I do think there is, I'll say, (50:45) type opportunities within the market space and you'll see us continue to probably do that within the long-term care business. And then I think as you look at the long-term care business, you're going to need to look at it in kind of different client categories. I think from a skilled nursing facility perspective, it's all about growing the number of beds, I think, from a assisted living facility it's really designing products and solutions that capture more of those members within the beds that we have while adding beds as well. But there's more of, I'd say, a product development set that needs to happen there for share capture and share gain. Larry J. Merlo: And, John, I think, the only thing I'd add that goes back to Lisa's question earlier, that there we've spent enough time with the long-term care clients to understand their pain points and their needs, and that's what's driving some of the pilots that we have underway. And I do believe that recognizing that to some degree long-term care is episodic, and you got 2 million patients that are being discharged each year back into the home. And being able to provide differentiated services for the client and the facility operator, okay, and then again, be able to follow those patients across their continuum of care is a significant opportunity to grow share, and again, that will continue to evolve over time over a multiyear period. But I think we're excited by the opportunities that we see there.

Thank you.

Thank you for your question. Our next question coming from the line of David Larsen with Leerink Partners. Please proceed with your question. David M. Larsen: Hi. Can you talk about your expectations for Hep C spend in 2016 and 2017? And as new products come to market from additional manufacturers, how can you help your clients reduce their overall spend while earning incremental profits for yourself? And then what sort of appetite is there from your client base in terms of pushing specialty spend from medical into pharmacy and using restricted networks more aggressively? Thanks. Jonathan C. Roberts: Hey, Dave. This is Jon. So Hep C volume I think has leveled off as we are into 2016, down a little bit from where we were last year. Merck launched their new product, had a list price $54,000, and that is less expensive than the other products on the market like Harvoni. So we'll evaluate these new products and negotiate the best deal for our clients, and we continually evaluate our formulary selections. And we'll do the same as these new products come to market. I think as we look out to 2016 or 2017, we haven't seen a lot of treatment in the Medicaid space. They've had real stringent utilization programs. So I think the question is as these drugs become more affordable, can we begin to see more treatment in that area, and the CMS came out with some guidance actually encouraging the Medicaid providers to do that. So you could potentially see an uptick in treatment if we see that movement from the Medicaid plans. I think as far as specialty, we see clients very interested in doing more to manage specialty under the medical benefit. It's not being well-managed today. So we have a tool if they don't want to move it over to pharmacy benefit, that's NovoLogix. We have over 30 million members that we're managing with that tool today, and it brings all the management that we have on the pharmacy side, but we also have an opportunity to move specialty from the medical side into the pharmacy benefit. Not that you'll ever get the majority of it over there, but there are opportunities to do more. David M. Larsen: Great. Thanks very much.

Thank you. Our next question coming from the line of Mark Wiltamuth with Jefferies. Please proceed with your question.

Hi. Good morning. I wanted to ask about the specialty growth of 32%. Was that inclusive of Omnicare? Or Omnicare about 5% of that number? Just if you could give us the organic growth rate, that might help. And then is there any way you can really characterize how much the Specialty Connect is helping you with customer acquisition? Because I would imagine that's helping keep some of those specialty customers from leaking out to other channels as you capture them on the front. Larry J. Merlo: Yeah, Mark, the 32% growth does include the ACS, the Specialty component from Omnicare. It was a relatively small piece of the growth. I'll ask Jon to comment in terms of the market reaction to Specialty Connect. Jonathan C. Roberts: Specialty Connect really opened up a pain point in specialty that exists in the marketplace today, and that's access. So now a specialty patient can walk into any one of our 9,600 retail pharmacies and get the same high levels of service, because we've integrated them into our backend specialty platform. You get the same high levels of service. We see similar adherence. So it's been favorably received by specialty patients. And how we know that is it acts very similarly to Maintenance Choice. We see half the patients want to pick up their specialty prescription at their local CVS that are using Specialty Connect, and the other half want to mail to their home. So it really opens up the convenience. So for our clients where we are the exclusive specialty provider, it enhances service. It's enhancing revenue from the open market, where we are competing with other specialty pharmacies. So physicians that are much more active in referring patients in the specialty space than in the non-specialty space like the capabilities and the service that we deliver. So we think it's a real competitive advantage in the marketplace.

And any rough volumes you are doing there that are going through the pharmacy itself? I know you said 50%, but what's the volume number coming through there? Jonathan C. Roberts: Well, it was 50% of the members that are coming through Specialty Connect. 50% of them want to pick up their Specialty scripts at CVS Pharmacy. So it's not – just to be clear, it's not 50% of our overall volume.

Okay. Larry J. Merlo: And Mark, the other thing I'd just point out as a reminder, okay, this gets back to our focus on managing the CVS Health Enterprise because from a financial point of view, everything that Jon articulated, whether the point of access is the retail pharmacy, from a financial point of view, it goes through the PBM segment. And we're not worried about – in this example you could say we're penalizing the retail pharmacy. We don't look at it that way because we believe it's a unique and integrated product that is allowing us to capture incremental share in the market, which is good for the CVS Health Enterprise. David M. Denton: Hey, Mark. This is Dave. I just – back to your original question about ACS. If you look in specialty for the full year, growth rate was approximately 34%. If you excluded the specialty that came through, ACS through Omnicare, growth would be above 30%.

Okay. David M. Denton: So fairly small impact from a growth rate perspective. Most of the growth's coming from the core.

Okay. Thank you very much. David M. Denton: Welcome.

Thank you. Our next question coming from the line of Ricky Goldwasser with Morgan Stanley. Please proceed with your question.

Yeah, hi. Good morning. Couple of questions here. First of all, front-end comps are holding really well in December. We're hearing a lot of questions about recession and impact to consumer behavior. Maybe you can share with us what you're seeing kind of like year-to-date into February in the stores from a consumer behavior side? Helena B. Foulkes: Yeah, I would just say overall I'd say things are holding fairly steady. We certainly have seen the consumer – I wouldn't say any change, really, from what we were seeing in the fourth quarter. I think the big thing we've been focused on and continue to focus on is being smart about where we invest our margin dollars, so you can see us continue to downplay our circulars and really focus on ExtraCare, which is allowing us to find those high-value customers and make sure they're coming into our stores.

Okay. And then on the 2016 cadence, obviously, Dave, the year is second half loaded. So can you just remind us what are the drivers that will kick in later in the year, when we're going to see kind of like the accelerated earnings growth? And just to make sure in terms of the cadence, can you maybe kind of like just help us clarify to make sure we get it right on the model, kind of like how we should think about kind of like what percent of earnings is going to be in the first half versus second half? David M. Denton: Yeah, from a cadence perspective, a lot of – I'll point you back to a couple of slides that I put together at Analyst Day back in December, but it really relates back to, one is the acceleration of growth from a Medicare Part D perspective, and as that growth occurs those profits are back half weighted, so that clearly tilts the cadence delivery, profit delivery, to the back half versus the first half. Secondly, we have several initiatives underway, both as we look at the acquisitions but more importantly as we look at different efforts that we have across our business. Many of those initiatives deliver benefit in the back half versus the first half, and probably most importantly is the timing and cadence of break-open generics. Those are largely back half weighted, so you'll see the impact of that flow through in quarters three and four versus Q1 and Q2. So those are the major elements of how to think about that. We have not broken out specifically the percent of front half versus second half.

Okay. Thank you. David M. Denton: You're welcome.

Thank you. Our next question coming from the line of Charles Rhyee with Cowen & Company. Please proceed with your question. Larry J. Merlo: Charles?

Mr. Rhyee, we cannot hear you. Larry J. Merlo: Okay. Why don't we go on to the next one? Maybe Charles will get back in the queue.

Thank you. Our next question coming from the line of Scott Mushkin with Wolfe Research. Please proceed with your question. Scott A. Mushkin: Hey, guys. Thanks for taking my question. So I just wanted to get back into a topic that was earlier on the call, just talk about the healthcare plans and up selling your guys' products and services through them. I guess what are the mechanisms that you can use to get the healthcare plans to – or the incentives you can use to get them to do it? And then also, kind of a corollary, is the pressure on healthcare costs, we talked about the election, does that actually help you? You obviously guys have very good cost-saving tools. And then the final part of that is should we think of any upsells as more impacting 2017, or can that actually help 2016? Larry J. Merlo: Well, Scott, it's Larry. Let me take the last question, and then I'll flip over to Jon, okay, back to the first question. I'm going to go back to a slide that we had at Analyst Day that show that – and I mentioned this in response to an earlier conversation. The health plan business that came online last month, we have 22% share across our distribution channel. When we look at the overall health plan enterprise share, it's right around 28%, okay, for existing health plan clients. So again, there is an awful lot of white space as we've been talking about in terms of opportunities to grow that, acknowledging that that growth is over time. We talk a lot about the fact that when you look at the employer segment, with the stroke of one's signature, the Head of HR, and the Head of Benefits, can make a decision that several thousand employees are governed by. And as we've been talking this morning, it works a lot differently across the health plan space. So with that context, I'll flip it over to Jon. Jonathan C. Roberts: Yeah, so with our health plans, they have their own downstream clients, and their downstream clients are no different than our clients that pharmacy is a bigger part of their healthcare spend than it's ever been and it's the fastest-growing part of their healthcare spend. So they are very interested and motivated to sell our products and services to better manage these costs. What we have been able to do over the last 12 months to 18 months is actually create financial incentives for the health plan sales team to actually create compensation for them as they sell these programs in. So their clients win, they win, and we win. So we think we've got very good alignment with our health plans now, and they are very motivated based on what's happened in the marketplace over the last several years to get these plan designs implemented. Larry J. Merlo: And, Scott, your other question, just does the election have any impact in terms of how clients look at this, I don't think it does. Okay? I mean, I think whether it's a health plan client, an employer client, everyone is focused on – listen, how do I provide the right level of service for my members at the lowest possible cost. So I think what we're seeing play out every night on TV I think is kind of irrelevant to their goals and objectives. Scott A. Mushkin: And a quick follow-up to that, Larry. Do you think the – because you guys do save people money, do you think an economy that maybe has a little trouble could actually help you upsell? And would it come through, I guess, it comes through your pharmacy comps where we'd see some of this. Is that correct? Larry J. Merlo: Yeah. Scott, I think it does, because we've got products and services that I know as our Head of Sales talks about. I could remember years ago when I was out selling the dream of what we might be able to do, and today I'm selling the results of what these products do. So they've been proven to when we think about access, quality and cost, we can sit down and quantify those benefits around each. Scott A. Mushkin: All right. Perfect. Thanks very much. Appreciate the answers.

Thank you. Our next question coming from the line of Steven Valiquette with UBS. Please proceed with your question. Steven J. Valiquette: Thanks. Good morning, Larry and Dave. So just a couple of quick ones for me. First, I think the new AMP based FUL reimbursement is finally going into effect on April 1. Any expected impact on your retail labs? I know Medicaid was just a small part of the mix but also maybe just for Omnicare in particular, given that might be a little bit larger part of their mix, curious to get your thoughts on that. Larry J. Merlo: Yeah, Steve, it's Larry. I mean, when you look at – keep in mind this is now probably 10 years in the making that as you look across the states, about half of the states have already implemented some type of acquisition cost based reimbursement or Managed Medicaid. So they are immune to AMP. And I think it's consistent with what we've been talking about that the objective of AMP, we have been seeing for the last several years in the form of reimbursement pressures. I think as you look at the remaining states, they'll be – it's our understanding that states will have 12 months with which to implement some type of acquisition reimburse – acquisition cost reimbursement model, and along with corresponding changes in dispensing fees. So I think as we sit here today, we think, we believe that the rollout across the rest of the country with this will be immaterial to our results. But again, I think that's going to play out on a state-by-state basis, acknowledging that states that have implemented that have made adjustments in dispensing fees, and so more to come on that. Steven J. Valiquette: Okay. And then the other quick one, I'm not sure if you heard, but there is a large health plan PBM contract to the marketplace that maybe you guys do a market check with one of your peers. My other question on this is just curious if you have any general thoughts you want to share on the situation from the CVS Caremark perspective. Or do you prefer just to leave that alone? I thought I'd just throw it out just in case you wanted to comment on that. Thanks. Larry J. Merlo: Yeah, you know what, Steve? I guess I'd answer that question by saying, nice try. Okay? Steven J. Valiquette: Okay. Okay. Fair enough. Thanks. Larry J. Merlo: All right. We've got – I think we'll go ahead and take two more questions.

Thank you. Our next question coming from the line of Robert Jones with Goldman Sachs. Please proceed with your question. Robert P. Jones: Great. Thanks for squeezing me in. I guess just to go back to the retail gross margin question. If I recall, you guys were calling for a moderate decline in 4Q. And it sounds like the results this quarter were, if I'm hearing you correctly, in line with your expectations. I think we were down about 125 basis points year-over-year. I think if I look out across 2016, this obviously seems to be a metric that obviously can be pretty volatile, move the needle for folks. The guidance for 2016 is down significantly. Not to get too cute (1:10:06) with the words here, but should we take that to mean that you're expecting the core retail gross profit margin to be down more in 2016 than kind of what we saw in 3Q and 4Q of 2015? David M. Denton: Well, this is Dave. We stand by our guidance. We, as we look at the trends going through where we are today, we see nothing that's any different. Again, this continues to be an evolving marketplace driven largely by the mix of our business. Medicare and Medicaid continues to accelerate and grow more rapidly than some other lines of business. Secondly, as we indicated before, is with the large win in the health plan business from a PBM perspective, the adoption of those programs that move share into our channel just take longer. It's longer for those to mature and for that adoption to occur. And so the offsets as we think about 2016 are just not available to us. Robert P. Jones: Okay. And then I guess just a follow-up actually on the last question. I'm not going to ask you specifically to comment on the very public negotiation going on with your large PBM competitor, but what I do think is important is the repercussions it could have on the 2017 selling season. So on that specifically, I'm curious if you guys would have any comments or questions or any early reads on some of the feedback you're getting from the market as far as what clients are asking for as far as pricing, given obviously, I think, this public negotiation has dragged a lot of things so far into the light, and obviously, could drag a lot more things into the light as we progress through the selling season. Jonathan C. Roberts: I mean this is Jon. We made a decision several years ago that health plans were going to be an important growth vehicle for us, particularly when you looked at the growth coming from Medicare and Medicaid. So we work hard to keep our health plans competitive in the marketplace. So we're not really seeing any repercussions or halo to pricing in the marketplace from that event. But I think it continues to be competitive but rational. And I don't expect there to be an impact. Robert P. Jones: Okay. Thanks for the questions. Larry J. Merlo: Okay. Thanks, Bob. Final question?

Thank you. Our final question coming from the line of Mohan Naidu with Oppenheimer. Please proceed with your question.

Thank you very much for squeezing me in. Larry, maybe can we talk about the efforts that you guys are applying around the MinuteClinic? Is there an opportunity to expand beyond the basic services that you guys provide right now? And any leverage that it can use from your health system relationships in there? Larry J. Merlo: Yeah, Mohan, it's a great question. As we've stated previous, this past summer, we completed the rollout of our Epic EHR across all of our clinics. And that does a couple of things for us. One is it does provide an infrastructure that allows us to expand our scope and broaden our scope of practices. And you're beginning to see that now as we're getting into the treatment of some additional conditions. And that does create a tighter interface with the health system affiliations where we can transmit the information around a particular patient in a seamless fashion. So we're beginning to get some traction in terms of triaging patients across the delivery of care.

That's great. Maybe just a quick follow-up. You guys are still targeting about 1,500 clinics by 2017? Larry J. Merlo: Yeah, we've said that we have that target of 1,500 clinics. I think with the acquisitions, we may not hit that number by 2017. Obviously, we're going to be focusing on the Target integration, which includes about 80 clinics this year. So we may be a year or two behind that original target of 2017, but we continue to be comfortable with the rollout. As a matter of fact, as we sit here today about 50% of the U.S. population actually lives within 10 miles of a MinuteClinic.

That's great. Thanks a lot for taking my questions, Larry. Larry J. Merlo: Okay. Thank you, and let me just take a minute to thank everyone for your continued interest in CVS Health and as always, if anyone has any follow-up questions, you can contact Nancy Christal. Thanks, everyone.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines. Have a great day.