Ladies and gentlemen, thank you for standing by. Welcome to the CVS Health third quarter 2017 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. As a reminder, this conference is being recorded today, Monday, November 6, 2017. I would now like to turn the conference over to Mike McGuire, Senior Vice President of Investor Relations. Please go ahead, sir. Michael P. McGuire: Thank you, Nelson. 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. During the Q&A, please keep in mind that it is our policy to not comment on rumors or speculation in the marketplace. Also, in order to provide more people with a chance to ask their questions, please limit yourself to no more than one question with a quick follow-up. Please note that we have posted a slide presentation on our website that summarizes the information in our prepared remarks, as well as some additional facts and figures regarding our operating performance and guidance. Our Form 10-Q will be filed this afternoon and that too will be available on our website. I do have one quick reminder. Our annual Analyst Day is scheduled for Tuesday, December 12 in New York City. During it, 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 as well as our 2018 guidance. For those unable to attend, the meeting will be webcast. 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 one year. Now, I'll turn this over to Larry Merlo. Larry J. Merlo: Okay. Thanks, Mike. Good morning, everyone, and thanks for joining us today. Starting with our third quarter results, total company revenues increased 3.5%, at the midpoint of our guidance range. We delivered adjusted earnings per share of $1.50, at the high-end of our guidance, despite the impact from the devastating hurricanes that swept through Texas, Louisiana, Florida and Puerto Rico. And I'll have more on that in just a few minutes. On an adjusted basis, operating profit was down 13.1%, within expectations, reflecting performance in the PBM business that was in line with expectations, along with performance in the Retail/Long-Term Care segment that was below expectations due to the hurricanes. We generated approximately $2.4 billion of free cash during the quarter and $7 billion year to date. Now, given our year-to-date 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 $5.87 to $5.91, reflecting year-over-year growth of 0.5% to 1.25%, and that compares to our previous range of $5.83 to $5.93. And Dave will discuss the details of both our results and guidance in more detail in his remarks. Now, before turning to the business update, I want to provide some color on the hurricanes, not only in regard to the financial impact to our business, but also in regard to the recovery efforts. The considerable damage these storms left in their paths cannot be understated, and our stores and colleagues were not immune to this destruction. In total, about 925 of our stores were closed for some period of time, and today, 11 remain closed. And we estimate that the financial impact is approximately $55 million, which are costs primarily to cover insurance deductibles. Now, as a vital part of these communities, we played roles both in advance of the storms and afterwards to aid recovery efforts. Our proprietary messaging platform enabled rapid and urgent communications to patients who were in the hurricanes' paths, and this helped ensure delivery of specialty and other medications for patients in transition between their homes and safe shelter locations. Additionally, more than $10 million in cash, products and supplies has been raised and donated to support the impacted communities, and we are incredibly grateful to our colleagues who, while dealing with their own personal challenges, made extraordinary efforts in helping and aiding our customers. The rebuilding process for many of these communities will take a long time, and we'll continue to do our part in providing support. Now, turning to the business update, and I'll start with PBM. As you're all aware, we signed a five-year agreement with Anthem to provide services to support their new PBM, IngenioRx, beginning in January 2020. As part of the agreement, we'll manage certain services for IngenioRx, including claims processing and prescription fulfillment through our mail order and specialty pharmacies. These services will be private labeled to IngenioRx in order to ensure a seamless experience for Anthem members. And through this relationship, Anthem will have the ability to grow their business and enhance their value proposition, as we help them improve their financial performance, execute operationally and optimize IngenioRx's control of critical PBM functions. Additionally, Anthem is very focused on improving patient health outcomes and will be relying on our expertise in patient messaging and engagement at the point-of-sale through our multiple patient touch points to support IngenioRx in this goal. So, we're very excited about this new relationship, and we look forward to starting the implementation and to working with Anthem to provide services to help ensure coordinated holistic care for their members. Combined with our continuing success in winning new business, we believe that this contract is further validation of the important role that CVS Health's integrated and innovative pharmacy care model plays in today's healthcare system. Now, as for the 2018 selling season, we've continued to make good progress. With another $600 million in new wins, we currently have gross wins of approximately $6 billion and net new business of $2.3 billion. As I said last quarter, 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 more than 90% of our client renewals for 2018, and that's roughly in line with where we were at this point last year, and our retention rate stands at about 97%. Additionally, we recently announced the new 30,000-store performance-based pharmacy network that will be anchored by CVS Pharmacy and Walgreens, along with up to 10,000 community-based independently-owned pharmacies. The network is designed not only to deliver unit cost savings, but also to improve clinical outcomes that will help lower overall healthcare costs for clients and their members. This network is an innovative solution that utilizes a value-based management approach in order to achieve improved outcomes through adherence for five high-impact, highly-utilized drug classes. It also helps to provide cost savings through formulary compliance. So, we're excited to make this available to our clients for implementation beginning in March of next year, and we look forward to improving overall health and wellness, while lowering cost for patients and payers. Turning to our specialty business, revenue growth in the quarter was 10.6%, and the slowdown in revenue growth compared to prior years is being driven by several factors. First, we are seeing lower levels of inflation on specialty drugs, consistent with the marketplace. Second, we're seeing an increase in generic dispensing within specialty, which as you know is a drag on the top line, but a benefit to margin. And lastly, the mix of drugs within our book is shifting towards lower-priced therapies as well as fewer hep C scripts. And despite these top line pressures, overall growth in specialty pharmacy remains strong and our specialty business continues to expand and gain share. Before turning to Retail, let me touch briefly on SilverScript, our Med D PDP. As we reported last quarter, SilverScript qualified in 32 of the 34 regions, which enables us to retain all of the auto-assignees we currently serve, and importantly, receive new auto-assignees in all 32 regions. The 2018 annual enrollment period is currently underway, and for enrollees, we have worked to reduce premiums for the majority of SilverScript plans across the country, providing plan beneficiaries continued access to a $0-deductible for drugs on all tiers. I'm also pleased to note that, for the third consecutive year, SilverScript achieved a 4-star performance rating from CMS for 2018, surpassing industry standards in delivering value, clinical outcomes and customer service. And of the Med D lives under Caremark management, 83% achieved a 4 or a 5-star rating, which speaks to the outstanding value we deliver for our health plan clients. Now, moving on to third quarter results in the Retail/Long-Term Care segment, total same-store sales decreased 3.2%, slightly better than expectations, with pharmacy same-store sales down 3.4%. Pharmacy sales comps were negatively impacted by approximately 435 basis points due to recent generic introductions. Same-store prescription volumes increased 0.3% on a 30-day equivalent basis, slightly ahead of expectations, and the decisions to restrict CVS Pharmacy from participating in the TRICARE and fully-insured prime networks continued to negatively impact pharmacy sales and script comps. The network changes had about a 420 basis point negative impact on volumes. And when adjusting for the network changes, same-store prescription volumes would have been up 4.5% in the quarter, again, on a 30-day equivalent basis. 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 our partnerships with Optum, Cigna and Express Scripts have seen some uptake from clients and the pipeline of additional opportunities in the coming years remains promising. Additionally, CVS Pharmacy will be preferred in several more Med D networks for the 2018 plan year, and these include the SilverScript Choice plan as well as the preferred networks for Aetna/First Health and WellCare. And we believe that being preferred in these networks will help us to further drive prescription volume in the growing Med D market. Now, turning to the front store, comps decreased 2.8%, sequentially in line with Q2 comps after adjusting for the Easter shift, and as it's been the case this year, the decline in front store comps reflects a number of factors, including our decision to rationalize our promotional strategies by 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 basket. Our personalization and promotional strategies have been successfully contributing to growth in front store profitability, as has our growth in store brands. Our store brands represented 23.2% of front store sales in the quarter, and that's up about 25 basis points from a year ago, and it remains an area of strength and opportunity. As a result of all of these factors, front store gross margin once again improved in the quarter versus last year, despite the decline in front store comps. Now, before I turn it over to Dave, I would like to say a word about a critical crisis in American healthcare, and that's the alarming and heartbreaking opioid epidemic. As you know, in September, we announced an expansion of our enterprise-wide initiatives to fight the epidemic, leveraging the national presence of CVS Pharmacy with the capabilities of CVS Caremark. With this expansion, we are further strengthening our commitment to help providers and patients balance the need for these powerful medications with the risk of abuse and misuse. Over the past few years, we've been focused on prevention, collection and partnership, and as a result, we've collected and safely disposed of more than 100 metric tons of unwanted medications. We've also worked with 43 states to expand access without a prescription to the opioid overdose-reversal drug, naloxone, to help save lives and give people a chance to get the help they need for recovery. And through our Pharmacists Teach program that connects CVS pharmacists with schools in their local communities, we have educated nearly 300,000 students on the dangers of prescription drug abuse. However, there's more that needs to be done. And as a leading provider of pharmacy care, we believe it is time to institute limits on the quantity of opioids dispensed to patients who are receiving an opioid for the first time in the treatment of acute injuries and to ensure that the prescription fits the medical condition. So utilizing our retail pharmacies and our PBM services, we will work with physicians, patients, plan sponsors, and other stakeholders to limit the supply of opioids dispensed for certain acute prescriptions to seven days while continuing to ensure patients with critical needs have access to appropriate care. And with that, let me turn it over to Dave for the financial review. David M. Denton: Thank you, Larry, and good morning, everyone. First, as I typically do, I'd like to begin by highlighting how our disciplined approach to capital allocation continues to enhance shareholder value. I'll follow that discussion with a detailed review of our third quarter results, and then discuss our expectations for the remainder of 2017. As it relates to our capital allocation program, let's begin with our dividend payout. We paid $511 million in dividends in the third quarter and $1.5 billion year to date. Our dividend payout ratio stands at approximately 39.6% over the trailing four quarters, which includes the impact of the non-GAAP items in both years. Excluding these non-GAAP items, we remain well on our way to our target of 35% by the end of 2018. During the third quarter, we've repurchased approximately 5 million shares for $400 million. Year to date, we've repurchased approximately 55 million shares for approximately $4.4 billion or $78.68 per share. For the full year, our guidance includes the completion of $5 billion of share repurchases, reflecting an increase of approximately 11% versus last year. So again, between dividends and share repurchases, we've returned nearly $6 billion to our shareholders in the first nine months of 2017, and we expect to return more than $7 billion for the full year once the repurchases are complete. As Larry mentioned, we have generated nearly $7 billion of free cash in the first nine months of the year. The strong year-to-date performance is abnormally high due to the build-up of a payable for CMS associated with the current Medicare Part D plan year as well as the timing of receipts. In Q4, we are expecting negative free cash flow for the first time in a long time, as we plan to settle the CMS payable associated with the 2016 plan year that was built up last year. Given this, we are maintaining our prior guidance for the full year and continue to expect to produce free cash of between $6 billion and $6.4 billion in 2017. Now turning to the income statement, we delivered adjusted earnings per share of $1.50 per share, at the high end of our guidance range. These results are on a comparable basis, and the reconciliation of GAAP to adjusted earnings per share can be found in the press release as well as in the Investor Relations portion of our website. As Larry noted, the PBM segment delivered profit within our expectations while the Retail/Long-Term Care segment's profit declined more than expected, primarily driven by the effects of the recent hurricanes. Excluding the impact of the hurricanes, Retail/Long-Term Care's profit was within our expectations. Our effective tax rate beat our forecast, allowing us to deliver adjusted earnings per share at the high end of our guidance. GAAP diluted EPS was $1.26 per share, above our expectations, with the negative impact of the hurricanes offset by the lower than expected loss on the settlement of the defined benefit pension plan as well as the better tax rate. Let me quickly walk down the P&L to provide some additional color. On a consolidated basis, revenues in the third quarter increased 3.5% to $46.2 billion. In the PBM segment, revenues increased 8.1% to $32.9 billion. PBM growth in the quarter was 40 basis points below the low end of the guidance range. This was primarily driven by lower than expected volumes. The year-over-year growth was driven largely by increases in the pharmacy network claims, brand inflation, and growth in specialty pharmacy. Partially offsetting this growth was an approximate 100 basis point increase in our generic dispensing rate versus the same quarter of LY to 87%. In our Retail/Long-Term Care business, revenues decreased 2.7% in the quarter to $19.6 billion, beating our expectations. This was driven primarily by stronger than expected pharmacy same-store sales and script growth, despite the network changes we've been discussing. Retail/Long-Term Care's generic dispensing rate increased approximately 140 basis points to 87.2%. Turning to gross margin, operating expenses, operating profit, and the tax rate, the numbers that I'll cite reflect non-GAAP adjustments in both current and prior periods when applicable, which have been reconciled on our website. Keep in mind that our guidance for the third quarter also reflected these adjustments. The consolidated company gross margin was 15.4% in the quarter, a contraction of approximately 135 basis points compared to Q3 of 2016. In addition to each segment's performance, the decline is due in part to a mix shift in our business, as the lower-margin PBM business continues to grow faster than our Retail/Long-Term Care business. Gross profit dollars decreased 4.9% versus the same quarter of last year, primarily due to the loss of scripts in the Retail/Long-Term Care segment from the network changes we have previously discussed, as well as the continued pricing and reimbursement pressures across the enterprise. Within the PBM segment, gross margin declined 90 basis points from Q3 of 2016 to 5%. This was primarily driven by the ongoing timing of profits within Medicare Part D operations, as members worked through their benefits more slowly this year versus last year. This was primarily offset with the improvement in GDR as well as favorable purchasing economics. Gross profit dollars were down 8.4%, also primarily due to the shift in the timing of Medicare Part D profits into the fourth quarter. Gross margin in the Retail/Long-Term Care segment was 29%, down approximately 25 basis points from last year. The decline in gross margin rate was primarily driven by lower reimbursement rates that continued to pressure pharmacy margins. This pressure was partially offset by an increasing generic dispensing rate as well as the increased front store margin that Larry mentioned earlier. Gross profit dollars decreased 3.6% year over year, mainly due to the loss of scripts from the network changes as well as the continued reimbursement pressures. Consolidated operating expenses as a percent of revenues improved approximately 35 basis points to 10% compared to Q3 of 2016, primarily driven by expense leverage from the PBM's growth in revenues during the quarter. We saw a consolidated operating profit decline which was consistent with our expectations. Operating margin for the total enterprise declined by 105 basis points in the quarter to 5.4%. Operating margin at PBM declined approximately 70 basis points to 4.1%, while operating margin in Retail/Long-Term Care declined by approximately 110 basis points to 8% on an adjusted basis. For the quarter, operating profit for the PBM was within expectations, while operating profit for Retail/Long-Term Care was less than expected. The PBM segment posted an operating profit decline of 7.2%, reflecting the shift in Medicare Part D profits to Q4 of this year compared to 2016. If the Medicare PDP business was excluded from all periods, PBM year-over-year growth in Q3 was more in line with the growth that we saw in Q2, as I've mentioned last quarter, and we expect a similar cadence in Q4. The Retail/Long-Term Care segment posted an operating profit decline of 14.3%, which includes the impact of the recent hurricanes. Excluding the hurricane costs, the operating profit decline for Retail/Long-Term Care would have been within our expectations. Now, going below the line in the consolidated income statement, net interest expense in the quarter decreased approximately $8 million from last year to $245 million, due primarily to paying down debt in the fourth quarter of 2016 and a lower average interest rate on the debt that remains outstanding. Our effective tax rate in the quarter was 37.9%, which was better than expected. This was driven in part by the delta between our estimate of the discrete tax benefits we'd see from share-based payment accounting and what we actually experienced during the quarter. As we discussed in prior earnings call, the increased tax rate volatility is caused by changes in both share price and the discretionary actions of employees that can exercise vested options. Our weighted average share count was just over 1 billion shares, in line with our expectations. So with that, let me now turn to our 2017 guidance, and I'll start with our revised guidance for this year. We currently expect to achieve adjusted EPS for 2017 of $5.87 to $5.91, reflecting year-over-year growth of 0.5% to up 1.25%, while narrowing the previous range of $5.83 to $5.93, we've also raised the midpoint by $0.01 per share. This takes into account the third quarter results at the top of expectations despite the impact of the hurricanes as well as favorability in the tax rate for the remainder of this year. GAAP diluted EPS from continuing operations is expected to be in the range of $4.98 to $5.02, and includes the lower than anticipated defined benefit pension plan settlements. You can find a reconciliation of GAAP to adjusted EPS in our press release and on the Investor Relations portion of our website. Now with only a few months left in the year, we are updating our revenue and operating profit guidance to better reflect our current expectations. In the PBM segment, we are lowering the top end of the revenue guidance to a range of 8% to 8.5%, reflecting lower drug price inflation and slightly lower claims growth of 1.77 billion to 1.79 billion claims. In the Retail/Long-Term Care segment, we are narrowing and raising guidance for revenues due to higher script volume expectations. We now expect Retail/Long-Term Care revenues to decline 2.25% to 2.75%, total comps to decline 2.75% to 3.25% and script comps of flat to up 0.25%. These changes result in a narrowing of our consolidated net revenue growth range to 3.25% to 3.75%. Turning to operating profit. We are narrowing the PBM's operating profit guidance range to 6% to 6.5%, to better reflect current volume expectations and changes in the drug mix. We are lowering the Retail/Long-Term Care operating profit guidance range to down 9.5% to 10.25% to reflect the impact of the hurricanes. Taking these changes into account, we'd lower the top end of the consolidated operating profit guidance range and now expect operating profit to decrease 5% to 5.75%. This change in operating profit was offset by the improved outlook on the effective tax rate for the full year 2017, allowing us to take the midpoint of our adjusted EPS range up by $0.01. Before moving to the fourth quarter guidance, let me quickly remind you of the timing factor affecting Q3, Q4 profit cadence. In 2017, we are seeing Medicare Part D members move more slowly through their benefits that we did in 2016. As I said earlier, this negatively affected Q3 profitability in 2017, we expect it to positively affect Q4. So on the fourth quarter, excluding certain non-GAAP items described on our website, we expect adjusted earnings per share to be in the range of $1.88 to $1.92, up 10% to 12.5% from Q4 of 2016. GAAP diluted EPS from continuing operations is expected to be in the range of $1.75 per share to $1.79 per share. You can find the details of guidance in the slides that we posted online before this call, but let me take a moment to point out a few items. For the fourth quarter, we expect enterprise revenues to be up 2.5% to 4.25%, driven primarily by PBM growth. Total same-store sales at retail are expected to be down 1% to 2.75%, and adjusted script comps are expected to increase by 1% to 2%. Additionally, enterprise operating profit is expected to grow by 5.75% to 8%, again, driven primarily by PBM growth and the shift in timing of Medicare Part D profitability. And as Mike said, we'll provide 2018 guidance at our Analyst Day in December. Our results in the third quarter and our expectations for the remainder of this year are evidence of our ability to execute on the plans that we've provided earlier this year. We are committed to returning to healthy earnings growth and continuing to drive shareholder value. The steps we have taken over the past year position us well for the opportunities that lie ahead in the healthcare marketplace. We continue to work diligently towards the long-term targets that we provided at last year's Analyst Day. And with that, I will now turn it back over to Larry Merlo. Larry J. Merlo: Okay. Thanks, Dave, and before we move into the Q&A, I do want to spend a few minutes talking about the evolving consumer expectations and what that may mean in being a convenient and affordable pharmacy destination. We have always been focused on making pharmacy and everyday healthcare better for patients. It has been and continues to be, for us, a point of differentiation. At the same time, we know there's more to be done. In terms of convenience, consumers want their medications on their schedules, and we've built a comprehensive network to serve those patients with a combination of 9,700 retail pharmacies in local communities all across the country and sophisticated mail order facilities, all of this powered by more than 30,000 clinical professionals. Our mail order services provide a convenience that meets the needs of certain patients on maintenance medications. However, some patients prefer to get their medications immediately. And for this group, there's no faster way than by walking into a CVS Pharmacy. Our pharmacists are readily available to provide counseling, answer questions and get a prescription in a patient's hands in 15 minutes. It's also important to remember that one in five prescriptions have some type of clinical intervention that requires pharmacists' involvement. And with that in mind, despite the complexity and variation of regulations across all states, we built streamline connections utilizing both people and technology with insurance companies PBMs and providers to significantly and safely reduce the amount of time consumers have to wait for these issues to be resolved. But there are also those with an immediate need who are unable to make it to a CVS either because of time transportation or mobility issues. And today, we are announcing that starting next year we will bring the pharmacy to our patients' doorsteps, with nationwide next-day delivery from our stores. And in select metro areas, we will even offer same-day delivery. Additionally, we're also announcing that we will offer free same-day delivery for pharmacy and a curated selection of front store products in Manhattan starting on December 4. And with nearly 70% of the U.S. population living within 3 miles of one of our stores, CVS Pharmacy is the most convenient choice for delivery to your doorstep. We also recognize that medication costs are a concern for all patients. And it's important to know that more than 50% of the prescriptions we fill in our stores cost patients $4 or less and 75% of those prescriptions cost patients $10 or less. We use our deep connections with PBMs and insurance providers to help patients maximize their insurance benefit using our clinical expertise to find the lowest cost therapeutically equivalent option on their plans. And we are investing in tools to make it easier for patients to navigate the confusing healthcare market and improve the understanding of their benefit designs. And we apply manufacturer coupons to help further reduce the cost. On average, our patients are realizing $55 in savings on each prescription that is coupon-eligible. In addition, we aggressively source generic alternatives for consumers and use our scale to make care more affordable as we did with Adrenaclick, a lower-cost alternative to EpiPen. We also continue to invest in our digital properties, including our highly rated retail mobile app. It helps patients manage when and how they want to receive their medications, set reminders and manage medications for their families all in one place. And to-date, the CVS Pharmacy app has been downloaded more than 21 million times. At the same time, we currently have 50 million people enrolled in our text message program which enables them to easily refill their prescriptions through their mobile devices and it's as simple as typing yes when prompted. So I think you can see we have a solid foundation that's been built on compelling scale, unsurpassed reach and extensive pharmacy expertise. And we have a plan for how to do even more to make pharmacy an everyday healthcare even better. And we look forward to sharing this in more detail with you at our December 12th Analyst Day. So with that, let's go ahead and open it up for your questions.

Thank you. Our first question comes from the line of Mohan Naidu with Oppenheimer. Please proceed.

Thanks for taking my questions. Larry, can you comment a little bit on what do you think of vertical integration to leverage your physical store location that can possibly influence the plan design in such a way that you can actually use the stores to deliver more care? Thanks. Larry J. Merlo: Yes, Mohan, we have always been very thoughtful in terms of how we can improve access, okay, and at the same time, ensure that the care that we're providing meets our quality standards. And you put those two together, okay, it results in improving outcomes and lowering cost. And I think we've demonstrated capabilities of doing that, whether it's the role it MinuteClinic plays or the role that home infusion plays. And it's something that we continue to evaluate and something that's always on our radar screen for evaluating and deciding what's next.

Just to follow-up on that, around the MinuteClinic, do you have any immediate plans to add more services than what you do right now? Larry J. Merlo: Yeah, Mohan, we have been – I think you've seen over the last couple of years where we have added services. And we have in partnership with some of the health system affiliations that we have. We have begun to triage patients, where we are actively managing patients who have been diagnosed with some type of chronic care condition, in an effort to ensure that they're following their regimens of care, in an effort to keep them healthy.

Thanks, Larry. Larry J. Merlo: Thank you.

Thank you. Our next question comes from the line of George Hill with RBC. Please proceed.

Yeah. Good morning. Thanks guys for taking the question. I'm going to follow-up on Mohan's question, Larry, a little bit, and there's obviously been a lot of talk about vertical integration. Can you talk about what you've seen in your non-pharmacy businesses as it relates to beneficiary steerage where you partner with payers? I'm sure you see the claims information for people who walk into MinuteClinics or who use the home infusion business. I guess, from plans that you are more tightly aligned with, versus plans that you are tightly aligned with. And I guess, there's a lot of us sit here and think about the vertical integration story that plays out in the market. I guess, could you just walk through how you've seen between different partnerships and different segments in the book of business, how much the beneficiary steerage capability kind of enhances the offering? Larry J. Merlo: Look, George, listen, I'll start and I'm sure others will jump in. But when you refer to steerage, we think about the role that plan design plays, okay. And if you look at MinuteClinic as an example, that's an offering that's available to our PBM clients, okay. And there are many examples out there where as you look at overall healthcare costs adjusted for age and health status, you see overall healthcare savings anywhere from 8% to 12% lower. And in some respects, it's a simple as some of the treatment and visits migrating out of the emergency room and into the retail clinics. I think one of the other elements that we focus on is how does site of care become a variable, recognizing that there is a cost delta when you look at where that care is being administered. So if you jump over to infusion, we know that providing that care in the home versus in an ambulatory infusion site or perhaps in an outpatient segment of the hospital, there is a pretty dramatic cost differential there. And so I think we have been able to demonstrate that our local presence, the fact that that can lead to direct engagement with customers and patients and as a result, produce better outcomes at a reduced cost. David M. Denton: Hey, George, it's Dave here. I'd just add to that. If you think about moving members into one of our channels because we now touch many elements of healthcare given all the assets that we have, when those members move in our channel, typically what we have been able to prove quantitatively is we deliver better outcomes in totality to those members. So there's an incentive to do that, number one, just from an outcomes perspective. And then secondly, it's not always about care delivery in the MinuteClinics, it's really about patient engagement. And to the degree that we engage with those patients, we can educate them on where is the best site of care or how best can they engage in the healthcare system at the most cost-effective point of entry. I think those two components really demonstrate our ability to improve outcomes and engage with that member to advance their journey on improving their healthcare. Jonathan C. Roberts: Hey, George, this is Jon. The only other thing I would add is that we see our clients offering an X or a range of plan designs that allow us to move patients into our channel. So one can simply be access to the patient where we explain to them that they don't need to go to the hospital for infusion, but they can actually get it done at home. And so we see a lot of patients not even realizing they can do that, so that becomes an incentive. We see plans creating incentives to move them into one of our channels, which is – Larry talked about that with MinuteClinic and the reduction of copays. And finally, there's the actual narrowing of the networks which we'll see for both Coram and some of our other assets.

That's super-helpful. And I guess for my quick follow-up, either Larry or Dave, I think we're scratching our heads a little bit on what I would call the macro Rx softness. If you guys were trying to pick one driver to attribute to it, is it benefit design, is it copay design, is it payer mix, are you seeing an uptick in abandonment? I'm just intrigued that volumes across the space continue to be pretty soft. Larry J. Merlo: George, we're not seeing anything that would tell us that patients are not taking their prescriptions as prescribed. And I think if you look in the quarter, we've talked a little bit about the hurricanes, and I think that was tremendously disruptive because you see boluses of activity leading up. During the peak periods, you certainly see some unevenness in volume. And I would say that as you look at the seasonal related scripts, people are getting their flu shots, but we're certainly not seeing any incidence of the cold and flu season at this point in time. So that may be contributing a little bit to some of what we're seeing currently.

Okay, I appreciate the color. Thank you. Larry J. Merlo: Thanks.

Thank you. Our next question comes from the line of Charles Rhyee with Cowen and Company. Please proceed.

Hi, this is James on for Charles. Same-store sales this quarter were better than expected despite the hurricane. Can you give us some insight into what drove that performance? David M. Denton: Hey, James, this is Dave. I think what we've continued to do is, I'll say, rationalize our promotional spend across the channel. And I think what's important as you look at same-store sales, it's probably more important to look at the gross profit yield on those. You're seeing our gross profit, certainly in the front, continue to improve on a sequential basis and a year-over-year basis. And naturally the focus that we have. I would say, we were slightly better than expected, but I don't think our performance was out of line any major respects.

Okay, great. And also, it seems like the uptake on the PBM side for Part D is more in 4Q compared to last year. Could you just explain why the shift in timing compared to last year? David M. Denton: So mostly this was driven by the rate of beneficiaries using their Medicare Part D policy. And so they're moving through that benefit this year more slowly than what they moved through last year. And as you know, as the insurance company hits certain reinsurance corridors, the insurance company either earns, I'll say, higher profits during that period or actually can even be in a loss position during the timing. Given that cadence of beneficiary utilization, profits this year are being shifted out of Q3 and into Q4. And so we have very good line of sight to that. Jonathan C. Roberts: And this is Jon. Just to add a couple more specifics, so the initial coverage limit was raised this year by $400, so that means members got to the donut hole a little slower. And then we're seeing less inflation. So I think those two factors is exactly what's causing what Dave explained.

Okay, great. Thank you. David M. Denton: Thank you. Jonathan C. Roberts: You bet.

Thank you. Our next question comes from the line of Lisa Gill with JPMorgan. Please proceed. Lisa C. Gill: Thanks very much and good morning. Larry, I just want to talk about the business model. And listening to what you had to say earlier of being paid for better outcomes, Dave talking about patient engagement, education getting paid around that, how do you get paid? Do you have to own the vertical integration to truly be paid for that, or do you see a shift in the model where you start to take more risk like you do with other risk products, where the dollar amount that you're paid is based on some outcome or your pharmacist is getting paid for that incremental patient engagement, or is it just simply the script versus the MinuteClinic visit? Larry J. Merlo: Lisa, it's Larry. Listen, when you think about our business model, you think about the fact that over several years now, we've assembled a series of assets that create countless touch points with which we can engage with the patient, with the consumer, in an effort not just to improve access to care, but create better outcomes, and in doing so, reduce costs. So from an economics point of view, if we're not providing that fulfillment, then there's not an opportunity to do those other things. So we benefit from that share of going through one of our distribution channels. I think you've heard us begin to talk about the next evolution of that, taking elements of risk, and Jon can touch on the Transform Care programs, which we're in the process of marketing, at least beginning with diabetes and going from there. Jonathan C. Roberts: And I'll use diabetes as an example. It continues to be a trend driver for plan sponsors, and that's both on the pharmacy side and medical side with 30 million people with diabetes. And so our Transform Care Diabetes program delivers on the objectives of lowering drug costs plus lowering overall healthcare cost. And so, we combine a managed formulary with our diabetes network to control cost and guarantee a year-over-year diabetes trend of 10% or less, and that really depends on the clients mix. And then, for patients, we provide clinical support through diabetes coaching, pharmacist counseling, MinuteClinic monitoring, as well as digital solutions like a connected glucometer to help patients better manage their condition. So, that's an example where payers are willing to move those members into our channel. We get value there, and we're delivering unit cost savings on the drug as well as lower overall healthcare cost. Lisa C. Gill: Okay, that's helpful. And then, just as a follow-up, Larry, your comments around CVS Health value proposition sounds like it's really geared towards all of the talk around Amazon and why CVS is well positioned even in the face of potentially Amazon coming into this market. Is there anything that you think you could do better or how do you think about the Amazon's threat as it pertains to CVS? Larry J. Merlo: Lisa, listen, I'll start and maybe I'll ask Helena to jump in as well. But your – in our organization and in our culture, we're never done, okay. So, we're always listening to our customers, and I think being good listeners helps us understand where they have friction points that we need to work to eliminate. So, we think we do a good job, we think we've got a lot of ways in which we can serve the customer, and we're always looking for ways in which we can do that better. Helena B. Foulkes: Yeah. I would agree. I think, Lisa, what we spend a lot of time talking about is serving the customer wherever, whenever and however she wants. And as Larry said earlier, getting a prescription in 15 minutes or less is super convenient, but we wanted to add on to that. And so, that's why you see us announcing what we did today. But we're also doing even more just to make the in-store experience great, adding clinical programs. So, we keep pushing ourselves very hard to solve the customer pain points. Lisa C. Gill: Okay, great. Thanks so much. Larry J. Merlo: Thanks, Lisa.

Thank you. Our next question comes from the line of Robert Jones with Goldman Sachs. Please proceed.

Great. Thanks for the questions. I guess just to follow-up on some of the announcements with the next-day delivery for all products and same-day for some, is there anything you can share as far as what you would expect the potential impact to be from this from a same-store basis and how it might impact the front-end? I know it's early, but just curious if this – you guys see this as potentially a needle-mover on either of those fronts. And then, any costs you would highlight that would be needed to accomplish these accelerated timelines? Helena B. Foulkes: Sure, let me just start by saying that we have had 1,600 stores who've been doing home delivery for a long time. And part of what we did is we've really looked at that experience and said, how do we make it even better there. It's still fairly small there even in those stores, and I would say that's because ultimately, we think the best experience for the consumer is one where she can toggle back and forth and decide, some days she wants to come into the stores, and some days she just can't get out of the house and we need her to do it – we need to get those prescriptions to her. So, whether it's our drive-through locations, it's our Curbside Pickup, we've been actively involved with Instacart, which we're now delivering from 2,800 stores. We're pushing the envelope on basically serving the patient wherever she is. And so, it's too soon to know exactly what the impact will be. But we do know it's this holistic experience that the consumer is looking for, and I think we've got a set of experiences that gives us confidence this is an add-on to her holistic experience. In terms of the cost side of it, we do know that the cost per market can vary, but we've been able to use our scale to negotiate a low-cost competitive option that we think consumers will be willing to pay for, both in same and next-day delivery. And we've been piloting, as I said, different options, so we have a good sense for the elasticity and price. But we'll also be looking at options where maybe there will be free delivery with a purchase of some front store items. So we think it's that holistic review again of wherever, whenever and however she wants.

Got it. And I guess just a quick follow-up. The last two years, you guys used 3Q as an opportunity to give a preliminary outlook for the following year. I think in both cases, it seemed that the Street maybe was a little bit ahead of where that initial guide came out. This year, I'm assuming we'll have to wait till December for guidance. But could you share maybe the major swing factors that we should be thinking about as we look out into 2018 on a year-over-year basis? Larry J. Merlo: Well, Bob, it's Larry. Maybe I'll start and Dave will jump in. And Bob, just for – our goal has always been to provide guidance for the following year in December at our Analyst Day. And as you heard from both Mike and Dave, that's what we'll be doing next month, and you shouldn't read anything into that. In terms of what you would think about as, I'll say, headwinds, tailwinds for 2018, I'll start with some of the tailwinds. A lot of the network arrangements that we've been talking about, that certainly will drive Retail share next year. As you heard this morning, we've had another strong PBM selling season. And the enterprise streamlining initiative that we began earlier this year will be in year two and the savings will outweigh the costs. On the headwinds side, we've talked – we'll continue to see the reimbursement pricing pressures. And I think when you think about what are the offsets to that, obviously, generic introductions play a role in that. And at least at this point in time, we see 2018 contributing, but probably to a lesser extent than what we've seen the last couple of years.

Great, thanks for all that. I appreciate it. Larry J. Merlo: You bet.

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

So, Larry, I wanted to start with – you're obviously doing a lot of partnerships with competitors, maybe people you hadn't partnered with in the past. Maybe talk a little bit what's changed the last year or two, and you're doing it successfully, managing conflicts and then other natural limitations to working with those partners? Larry J. Merlo: Yeah. John, listen, I think that we have – the capabilities that we have created and the guiding principle of partnering with individuals or entities that as they grow, we grow, okay. I think that that has helped to create a real partnership where we can create a win-win scenario with that most important win being the clients and customers that we serve, okay. And so, we have – whether you're talking about health plans or – we've got relationships with more than 70 health plans, and we've talked a lot about how – in the Med D space, how we've created a compelling offering, where SilverScript can be a competitor in the market. But we can also support the Med D products for other health plans and how we've seen in the market that, through that relationship, they're growing faster than the overall market. And I think the opportunities that we continue to see for innovation, I think, gives us the comfort level that even on the Retail side, we can partner with – as you pointed out, with – in a differentiated way from perhaps how we've thought about that in the past. So, I think we're pleased with the capabilities that we're able to offer and the value that that can create in the marketplace.

And then, just as a follow-up, one of those partnerships to a degree, I guess, is this performance-preferred plan with Walgreens. Where do you think that specific plan goes and more offerings like that go, correct? Because I think you probably agree that the two of you are probably the lowest cost providers out there. So, is this a way to get maybe one of the lowest-cost networks in the market? Larry J. Merlo: Well, John, let me start and then I'll flip it over to Jon. You've heard us say for a while now that the market has been focused on network constructs with CVS or Walgreens, pick one, okay?

Yeah, yeah. Larry J. Merlo: And we've been talking about, as healthcare migrates to more value-based care or outcomes, that the market may not be thinking about it in the right way that the networks are not going to be based simply on unit costs. They're going to be based on unit cost and the ability to affect outcomes through clinical performance measures. So, at the end of the day, that's what this network is all about. Jonathan C. Roberts: And John, this is Jon. If you just think about diabetes, and we have all the pharmacies that are serving a client's diabetic members, working on adherence, and if they can lower the A1C by 1%, that actually saves $5,800 over the course of the year. So, the power of being able to lower overall healthcare cost, I think, really has been underappreciated by the market. And so, this network with – that we're calling high performance network with CVS, Walgreens and independents does deliver unit cost savings. But I think even more importantly, it delivers clinical outcomes. And part of the reimbursement to these pharmacies will be based on their ability to deliver clinical outcomes. So, we've selected providers that we believe have the best capability. And as I am out in the market talking to clients, we have not seen as much penetration in narrow networks as we historically have seen, because it was historically unit cost savings. But as we add this clinical component, we're seeing much more interest in moving down this path.

Okay, thank you.

Thank you. Our next question comes from the line of Eric Percher with Nephron Research. Please proceed.

Thank you. So, maybe combining those questions around partnership and profit, it seems very clear that the relationships you've created have come based on clinical outcomes in part and that also we've seen a change in market pricing and there's that ability to deliver lower cost. How should we think about the impact next year? You spoke about reimbursement. Is there a change in the way that you've looked at the returns required in order to enter these contracts and any type of material impact for 2018 or even looking out further? What's the balance between partnership and profit? David M. Denton: Yeah. Hey, Eric, this is Dave. We can't give you a ton of color on that at this point in time. It'll be something we'll discuss at Analyst Day. I will say that our – that conceptually, intellectually how we've thought about this has not changed. Obviously, we underwrite each one of these – I'll say underwrite. We look financially at each one of these relationships and make sure that it's both good for the client, good for the member and good for us, both short-term and long-term. So, I think our approach to this is pretty disciplined.

Thank you.

Thank you. Our next question comes from the line of Alvin Concepcion with Citi. Please proceed.

Great. Thanks for taking my question. Generally, could you – just wondering if you could reach your vision of improving outcomes, creating a holistic experience, driving share to your distribution channels, can you do that with your current business? I know you've been doing more partnerships to improve those. But down the road, is it becoming harder to create a win-win scenario, as there's more encroachment on your PBM business, for example? And with that backdrop, do you view M&A as more of a necessity to accelerate that vision? David M. Denton: Hey, Alvin, this is Dave. I think our business model, as we think about how it stands today and we think about the evolving healthcare marketplace and landscape, I think we're very nicely positioned here. The assets that we've assembled really engage members and lower cost and provides a really robust access point into healthcare. And I think if you look for the next 3, 5, 10 years, those elements are really critical. So, we do like our business model. M&A and continuing to supplement our business model has always been at the core of our business, and we will continue to do that as we look forward.

Great. And you've talked in the past about people migrating into retail out of mail. I'm wondering if you could elaborate more on that. Can you talk about what happens when a network that may have been very restrictive in favoring mail order allows a retail option, how sizable are those very restrictive networks, and what have you seen when people switch over? David M. Denton: Our experience is pretty complete in this area, because if you look at our book of business at Caremark when we've sold-in Maintenance Choice and given members now options to either utilize the mail channel or utilize the retail channel, within six months, we see about half of the volume move out of the mail channel into the retail channel. I think what's unique about our business model, and Helena touched upon this a bit, is we're creating a model here where the consumer doesn't necessarily have to choose consistently they're going to use mail or they're going to use retail. They're going to be able to pivot and choose what's best for them and engage with us what's best for them at that period of time. So I think this is a real differentiator in our business model going forward.

Thank you.

Thank you. Our next question comes from the line of Ricky Goldwasser with Morgan Stanley. Please proceed. Ricky R. Goldwasser: Hi. Can you hear me? Larry J. Merlo: Yes, we can. David M. Denton: Yes, we can hear you. Good morning. Ricky R. Goldwasser: Okay, great. Good morning. We have a new phone system here. So thank you for all the commentary. I want to follow up on the just Amazon question. You talk about the steps you're taking on the Retail side and really bringing pharma to your doorstep. But how should we think about an Amazon potential entry to the drug supply side from a PBM perspective? If you can, just talk about how you think about including Amazon in PBM networks or potentially partnering with them? We get a lot of questions on this topic. Larry J. Merlo: Ricky, it's Larry. When you look – when you think about partnering, you sit here and you ask the question. If somebody's able to do something that perhaps doesn't exist in the marketplace, we're certainly open to understanding and working with them in that regard. I think that you've heard this morning from us and quite frankly from others in terms of some of the – whether you're talking about capabilities or some of the challenges to entry that we're sitting here saying, there's a lot that we're doing today and there's more that can be done. So, you would never close the door on any type of partnership, but you have to look at what those capabilities may bring that aren't being met in the marketplace today. Ricky R. Goldwasser: Okay. And then a follow-up on what you're seeing for the 2018-2019 selling season just in terms of opportunities and mix between health plan, commercial, and government. David M. Denton: Hey, Ricky, this is Dave. That's probably something that we'll cover in more depth at Analyst Day. So I'm going to ask you to hold that question until then. We'll go through that in some detail. Ricky R. Goldwasser: Okay, thank you. David M. Denton: Thank you.

Thank you. Our next question comes from the line of Kevin Caliendo with Needham & Company. Please proceed.

Hey, guys. Thanks for taking my question. I know it's preliminary, but have you done any analysis on the initial Republican tax plan and how it might impact CVS in the future? Larry J. Merlo: Kevin, it's Larry. We've talked a lot about tax, and the fact that our effective tax rate is over 39% or around there, that any type of meaningful comprehensive reform should be beneficial to our business. And we've got our folks going through the House version that was released last week. And listen, there will be a lot more to say about that in the coming days and weeks as it goes through Ways and Means and then the Senate weighs in. David M. Denton: Kevin, I just think at the end of the day, given our profile from being a really high taxpayer that most scenarios would have us benefiting at the end of the day.

Understood that CVS is clearly positioned to be one of the beneficiaries. I'm just looking at some of the things that they're talking about in terms of deductions, maybe less so on interest and depreciation and more so on CapEx, is that in any way – looking at that, would you potentially change business practices, or are there ways to work through this that might be even more beneficial versus what the company is doing now? David M. Denton: It's probably too early to tell on that. I will say though that to the degree that we have relief, there's a lot of investments that we think we can make within our business model that can more rapidly expand our business model across the country and deliver better care and higher quality and lower cost. So we would look to take the benefit of that and invest it clearly.

Great. Thanks, guys. David M. Denton: You're welcome. Larry J. Merlo: Nelson, we'll go ahead and take two more questions.

Okay, thank you. Our next question comes from the line of Scott Mushkin with Wolfe Research. Please proceed. Scott A. Mushkin: Hey, guys. A lot's been asked. I have just some odds and ends, so I was going to try to fire them off here a little bit. The partially reserved receivable, the relinquishment of that, Dave, what was that, and is that one-time on the cost side? David M. Denton: Yes, it is one-time. One of our states has a receivable that we've essentially factored, if you think about that one. Scott A. Mushkin: Okay, so that is one-time gain in the third quarter? David M. Denton: It is, it is. Scott A. Mushkin: Okay. And then, I know – this is a combination of questions here. So the clinics, you guys haven't really been adding that many, and I think the growth rate was up 0.7%. So I was wondering if you can give us some thoughts there on what's going on. I know it's a pretty small part of the business, but there's been talk about vertical integration on the call. And then the last one is your comfort level regarding leverage, and then I'll yield. Thanks. David M. Denton: Hey, Scott, it's Dave. A couple things, one is from a clinic perspective, we took a somewhat pause on expanding clinics geographically, only really due to two things. One is we wanted to make sure that we had the EPIC system fully up and running across our enterprise. We've done that. And two, as we purchased the clinics within the Target pharmacies, we want to make sure – the Target locations, we want to make sure that we're fully integrated from that perspective. We'll get back on a growth rate trajectory going forward. There's no doubt about that. And then from a leverage perspective, as you know, at this point in time, our balance sheet and our ratings are very important to us. We've been very focused on that. We've been very committed to managing that. At the moment, we're a bit, I'll say, over-levered in the sense of our target at 2.7 times. We hover around 3 times. Our objective, obviously, is to begin to delever over time, and we'll grow our way out of that over the next several periods. Scott A. Mushkin: Would you ever do a deal that made you subject to a downgrade? David M. Denton: It's actually a really big speculatory question. We would make the right investments in our business model to do what's best for us long term, and we would evaluate it on each transaction point at time. Scott A. Mushkin: And then, say, the size of that one-time charge, and then I'll definitely yield. Thanks, guys. David M. Denton: It's immaterial. Scott A. Mushkin: Perfect. Thank you. David M. Denton: Thank you.

Thank you. Our last question comes from the line of Priya Ohri-Gupta with Barclays. Please proceed. Priya Ohri-Gupta: Great. Thank you so much for squeezing me in. I guess, Dave, just picking up on that last question a little bit, in the past, you've talked about how important the high BBB rating is in the context of your access to the sale-leaseback market as well as the access to commercial paper market. If you were to think just more strategically around the flexibility you have within the BBB spectrum, would there be a willingness to trade off, say, Tier 2 commercial paper access for a short time if they gave you sort of greater access in the long-term debt markets? David M. Denton: We're not focused on that, Priya. We're focused on maintaining our high BBB rating, and that's consistent with our leverage targets that we've established at 2.7 times. So that's not what we're focusing on as of this point. Priya Ohri-Gupta: Okay, and then just a quick follow-up. Can you talk about how you've been funding your sale-leasebacks? It looks like you've been absent from the 144A market for a little bit. Have you been primarily using the private market? David M. Denton: We have – we've been a little low on the sale-leaseback offering at this point in time. Keep in mind that with the Target pharmacy acquisition, we kind of scaled back, if you will, our organic store development program just a tad. So, because of that business decision, the sale-leaseback offering has been relatively anemic. Priya Ohri-Gupta: All right, thank you so much. David M. Denton: You're welcome. Larry J. Merlo: Okay. So, just wrapping up, we appreciate everybody's time bright and early on a Monday morning. And if anyone has any follow-up items, Mike McGuire is available for that as well. So, thanks everyone and we'll see you next month.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.