Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2018 Earnings Release 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, Wednesday, August 8, 2018.

I would now like to turn the conference over to Mr. Mike McGuire, Senior Vice President-Investor Relations. Please go ahead, sir..

Thank you, Jose. Good morning everyone and thanks for joining us. As usual, I'm here this morning with Larry Merlo, President and CEO; and Dave Denton, CFO. Larry and Dave have a number of prepared remarks to share after which Jon Roberts, Chief Operating Officer, will join us to participate in the question and answer session.

During the Q&A 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.

In addition to this call and our press release, 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 was filed this morning before the call and that too is available on our website.

Additionally, during this call 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, and forward-looking statements related to the Aetna acquisition, including the expected consumer benefits, financial projections, synergies and the timing for the completion of the transaction.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what maybe 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-Q (sic) [Form 10-K] (00:02:00) and the cautionary statement disclosures in our quarterly report on 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 a discussion of these non-GAAP measures and the comparable GAAP measures in the associated reconciliation document we posted 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..

Okay. Thanks Mike, and good morning everyone and thanks for joining us today.

We're pleased with the solid performance of our business in the second quarter and our results year to date continue to validate our confidence in the strength of our model and the strong foundation in place as we bring CVS Health and Aetna together to transform the health care experience.

Strong revenue, adjusted earnings per share, gross and operating margins along with cash flow demonstrate our success and driving value. Additionally, our enterprise streamlining efforts are continuing to deliver value through process improvements and technology enhancements and Dave will review our performance in detail.

Now that said, we're clearly disappointed with our performance in the Omnicare business. And despite this disappointment, we continue to believe in the business's long-term prospects.

And Dave will provide an Omnicare update focusing on the factors contributing to its current performance along with our plan to improve results and deliver on our expectations. We continue to believe in our ability to drive growth in this sector by improving our presence in the assisted and independent living areas.

Now let me provide an update on how we are moving forward on the regulatory pathway and integration planning for our proposed Aetna acquisition. On the regulatory front, we continue to make excellent progress.

Our highly experienced legal and government affairs teams are working hard, ensuring that we provide all the additional information requested by state regulators and the Department of Justice. To-date, a substantial number of states have approved and more are expected to approve this summer.

In fact, several additional states have already held or scheduled hearings. You should also keep in mind that as a matter of practice some states prefer to wait for the DOJ decision before finalizing their approval. And as a result, we expect that a number of approvals will occur shortly after receipt of receipt of DOJ approval.

And while I won't provide details on our interactions, I can tell you that we are having productive discussions with regulators. Now some of you may have seen a recent report concerning potential divestitures.

And while I won't comment on the specifics of that report, you should keep in mind that when we announced the transaction last December, we contemplated a range of possibilities in the limited Med D PDP area in which both CVS and Aetna offer plans, and we determined the impact of any divestitures would not be material to the deal model.

And with all of that said, we currently expect the transaction to close late Q3 or the early part of Q4.

Now turning to integration planning, the work streams we have in place are making important progress against their objectives, which include ensuring a smooth transition and achieving the $750 million synergy goal for the second full-year of operation.

At a high level, we are pressure testing our day one readiness, gaining a deeper understanding of each and every value opportunity across all of our customers, and ensuring organizational clarity while retaining high potential talent in critical roles.

Key work streams are diligently gathering information to map out the future patient journeys within our combined company, assessing various interventions for efficacy and the most effective approaches to reducing medical costs.

Our sales and account management teams are evaluating a broad range of possible offerings and developing plans to introduce those effectively in future selling seasons. And we are beginning to link the strengths of both analytics organizations as we develop a holistic view of the patient.

Since our last earnings call we completed a milestone step in our journey to combine our companies when we announced the executive management team, that following the close of the acquisition, will lead the combined company. The talent of both organizations is reflected in the main management team.

And I look forward to working alongside this outstanding group of individuals to transform how health care is delivered in our country. I would also like to thank those individuals who will not be continuing with us. They too have been instrumental to the success of both organizations. And we are extremely grateful for their contributions.

And I especially want to thank Dave Denton for his outstanding leadership and contributions during the two decades he has spent at CVS. He's been a driving force behind the growth we've experienced. And the finance organization that he has assembled is first class. And I know that Dave's next chapter will be met with continued success.

So we'll continue to update you on the progress of our integration activities as we work towards the closing. And there continues to be a genuine excitement among the teams from both companies in fulfilling the vision we share and our commitment to better health.

Now last quarter, I highlighted our approach to chronic kidney disease and our Saving Patients Money program as examples of CVS Health innovating to improve the quality and lower the cost of care for our patients. Those are but two of the many innovations that we either have or will bring to market.

And I want to quickly highlight another, because today we announced that MinuteClinic is offering video visits to its patients through the CVS Pharmacy app.

This new telehealth service that leverages Teladoc's technology platform provides patients with access to care 24 hours a day, a referral to a nearby MinuteClinic or other provider is available, if needed, as is the ability for the provider to submit a prescription to the patient's preferred pharmacy, if warranted.

The MinuteClinic team spent a great deal of time customizing the experience and patients will receive the same high quality evidence based care that they receive at our in-store clinic locations. So we're excited about the solutions we are bringing to market. And with that, let me turn it over to Dave to review the quarter..

higher levels of bad debt and longer collection times on receivables; a faster decline in facility reimbursement rates than we originally forecasted; and lower client retention rates. Additionally, bed census at skilled nursing facilities continued to track lower, resulting in fewer prescriptions across our platform.

And despite a growing opportunity in the assisted living market, our programs to serve these clients have grown more slowly than we originally anticipated. In 2017, we disclosed that our annual goodwill impairment test of our long-term care reporting unit resulted in its fair value exceeding its carrying value only by a narrow margin.

As a result, we've been closely monitoring the performance of the business for potential indicators of impairment. As we began our planning for our 2019 budget in the second quarter, we updated our 2018 forecast as well as our long-term outlook for the business to reflect our expectations of continued deterioration in our financial results.

Given this, we believe that there were indicators of potential impairment. And as a result, it was necessary to perform an interim test of the long-term care business goodwill. The results showed that the fair value was now below its carrying value.

Accordingly, we record a non-cash goodwill impairment charge of $3.9 billion in the quarter, which reduced the goodwill associated with this business to $2.7 billion. This charge is excluded from any non-GAAP earnings measures going forward.

The fair value of the business was determined using a combination of a discounted cash flow method and a market multiple method. Apparently – approximately one-third of the impairment charge is due to rising interest rates and challenged market multiples of our peer group.

The remaining two-thirds of the charge resulted from lower than expected financial performance within the Omnicare business. As I said, we continue to believe in the strategic benefit of being a long-term care pharmacy operator and that we are best positioned to thrive longer term as the most efficient operator in the space.

Let me outline the steps we are taking to put the business performance back on track. First, we have recently installed a new leadership team to manage Omnicare's day-to-day operation. The team is made up of individuals with expertise in the long-term care market, supplemented with operational talent from CVS Pharmacy.

Second, the team is undertaking a broad initiative to enhance service levels with the objective of improving client retention levels. The team has already identified a series of near-term actions that should substantially enhance client retention rates with a target of 95% or better.

Third, with the industry continuing to face financial challenges, being a low cost provider will be even more important. We are embarking upon a systemwide cost improvement effort, utilizing assets within both Omnicare and CVS Pharmacy to dramatically lower the cost-to-fill within the skilled nursing channel.

The team is targeting $100 million to $150 million in cost takeout opportunities over the next several years to enhance process design, the implementation of automated technologies, and better leveraging our local presence at CVS Pharmacy to serve our skilled nursing facility clients.

And finally, the assisted and independent living market remains an attractive long-term care – a long-term opportunity. Our enterprise product development team is rapidly innovating improved solutions to effectively serve this market and to substantially grow our penetration rate from approximately 50% to 70%.

Our initial solutions have produced success in some markets. And we're looking to scale those up across our assisted living book of business. In addition to scaling these solutions, we expect to meet the evolving needs of facility operators, local residents and caregivers enabling us to grow our penetration and win new business.

With our expansive network of local assets, we are best positioned to capture share in this market longer term. Again, we remain optimistic about Omnicare's long-term growth potential and its relevance to our value creation strategy. There is no doubt that as the population ages, there will be an increased need for long-term care services and support.

We must execute on our initiatives, deliver high levels of patient and client service and drive additional efficiencies so that when the market does turn around, we are well-positioned to take advantage and grow.

So, with that, now let me turn to a review of the other aspects of our performance for the quarter and I'll start, as I often do, with our capital allocation program.

With approximately $4.4 billion in free cash generated through the second quarter, we are well on track to achieve our strong cash flow generation expectations of approximately $7 billion for the year.

Due to the proposed Aetna acquisition and the associated debt we issued, we have suspended the share repurchase program and will be keeping our dividend flat until we achieve a leverage ratio of approximately 3 times adjusted debt to EBITDA.

Recall that the combined company's pro forma trailing 12 months leverage ratio is expected to be approximately 4.6 times, post closing of the transaction. We are committed to improving this ratio to 3.5 times within two years after closing, utilizing our strong cash generation capabilities and savings from tax reform.

Turning to the income statement, we generated adjusted earnings per share of $1.69 per share, an increase of 26.8% over last year and $0.05 above the high-end of our guidance range.

These results were on a comparable basis and the reconciliation of GAAP to adjusted EPS can be found in the press release as well as on the Investor Relations portion of our website. GAAP diluted earnings per share from continuing operations was a loss of $2.52 per share, which is a direct result of the goodwill impairment.

A lower effective income tax rate combined with pharmacy share gains within the Retail/Long-Term Care segment drove the increase in adjusted EPS year-over-year. Now versus our expectations, the timing of PBM operating profits, interest and taxes each performed better, driving a $0.05 beat on adjusted earnings per share.

On a consolidated basis, revenues grew 2.2% in the second quarter and were about 25 basis points above the high-end of our expectations.

Gross profit, operating expenses, operating profit, net interest expense and the tax rate reflect non-GAAP adjustments in both current and prior periods where applicable and have been reconciled, again, on our website. Our guidance for the second quarter also reflected these adjustments.

Gross margin for the consolidated company improved approximately 25 basis points over Q2 of 2017 due to segment mix, while total enterprise gross profit dollars increased 3.9%, in line with our expectations. Total operating expense dollars increased 3.5% also in line with our expectations.

As Larry mentioned, our significant progress in our enterprise streamlining efforts through process improvements and technology enhancements continues.

As an example, CVS Pharmacy completed the deployment of its enhanced automated prescription process and these enhancements have saved approximately 40% of the time spent, performing data entry and edits on e-prescriptions.

As a result of our ongoing efforts, we still expect to generate approximately $475 million in gross benefits this year from streamlining. Operating profit for the enterprise was $2.4 billion increasing 4.6% versus LY and nearly 140 basis points above the high-end of expectations for the quarter.

Additionally, operating margin was slightly higher versus a year ago and better than expectations. Going below-the-line on the consolidated income statement, net interest expense in the quarter improved year-over-year and was better than expected and our effective income tax rate significantly improved year-over-year due to tax reform.

Our weighted average share count was in line with our expectations for the quarter. Now turning to the PBM segment, revenues grew 2.8% to $33.2 billion exceeding the high-end of our guidance by approximately 135 basis points. This outperformance was driven by a higher mix of specialty claims, which drove a higher average script price across the book.

Growth in claims volumes and brand inflation drove the year-over-year increase, partially offset by continuing pricing pressures and an increase in our generic dispensing rate.

Additionally, keep in mind that we are administering rebates this year for Aetna's Medicare Part D business as part of our existing PBM contract and that is dampening revenue growth. PBM adjusted claims grew by 6.5% largely driven by our strong net new business performance and the continued adoption of Maintenance Choice.

Our PBM gross margin remained relatively flat compared to Q2 of 2017 while gross profit dollars grew by 2.6%, exceeding our expectations despite implementation costs related to Anthem. The outperformance is due to timing of our client contractual requirements as well as favorable specialty volume.

PBM operating expense dollars increased year-over-year, while operating expenses, as a percent of sales, deteriorated slightly. The year-over-year increase was primarily driven by growth in the business, including acquisitions as well as the reinstatement of the Affordable Care Act health insurance fee this year.

Given the outperformance on gross profit and to a lesser extent lower operating expenses, PBM operating profit contracted 2% and operating margin declined by approximately 15 basis points, both significantly better than we expected.

Recall that last quarter we guided to a decline in PBM profitability arising from the timing of certain client commitments. The timing of those commitments changed, benefiting the second quarter and that – and impacting the business later this year.

Looking at the 2019 selling season, we see fewer RFP opportunities in the market than what we have seen over the past few years. With this in mind, our current gross wins stand at approximately $1.8 billion with net new business of approximately $200 million.

To-date we have completed more than 70% of our client renewals roughly in line with where we were at this time last year. And our current retention rate is slightly higher than the levels that we've seen in recent years. Additionally, recall that earlier this year we extended the FEP retail and mail contracts to the end of 2019.

And today I'm happy to report that recently we were able to extend these contracts through the end of 2020, one year beyond what we had announced earlier this year. Last week we previewed our 2019 formulary strategy continuing to build on the success that we've had since 2012 when we introduced our new approach.

Effective January 1, we plan to remove 23 products from our standard control formulary while adding back four products that have been removed in prior years. We anticipate that the vast majority of our members, in fact, over 98% will be able to stay on their current therapy.

Since 2012 our formulary strategies have helped keep costs in check for our clients despite year-over-year price increases and at the same time they've helped to improve adherence.

Turning to SilverScript, our Medicare Part D PDP, we currently serve 4.8 million captive lives in our individual PDP, 1.3 million captive EGWP lives and another 7.3 million lives through our health plan clients. So in total, Caremark serves 13.4 million Medicare Part D beneficiaries.

Last week, we received the preliminary benchmark results from CMS for 2019, which showed that SilverScript qualified in 32 of 34 regions, remaining under the benchmark in 28 regions and de minimis in four regions.

These strong benchmark results enable us to retain all of the auto-assignees that we currently serve and qualify us to receive new auto-assignees in those 28 regions in which we are under the benchmark. All-in-all the 2019 marketplace looks to be very competitive, but we are very pleased with these results.

We'll know more about the competitive positioning and auto-assignee expectations once CMS releases the landscape file in late September. Within our Retail/Long-Term Care business, revenues increased 5.7% to $20.7 billion in line with expectations. This is primarily driven by very strong script volume growth of 9.3% for the quarter.

This growth was due to the continued adoption of our Patient Care Programs, success from partnering with PBMs and health plans across the industry, and our preferred position in a number of Medicare Part D networks this year.

As demonstrated in our results, our efforts to expand our relationships with other PBMs and health plans has progressed well and we continue to see opportunities moving forward.

In total, our initiatives are driving growth of adjusted scripts dispense and as a result our retail market share has increased by about 180 basis points in the quarter to 25.2%. Same store sales grew 5.9% in line with expectations while adjusted same store prescription growth of 9.5% came in 25 basis points above the high end of our guidance.

Front store same store sales declined 1%, but were negatively impacted by about 90 basis points from the calendar shift of the Easter holiday from Q2 of last year to Q1 of this year. After adjusting for this, front store same store sales were essentially flat to LY.

Gross margin in the Retail/Long-Term Care segment was down approximately 50 basis points to 28.6%. This contraction was driven by continued pressure on reimbursement rates. The decline was partially offset by an increase in GDR as well as improvements in the front store margin rate driven by strong health and beauty sales.

Gross profit dollars grew in line with expectations, mainly due to increased script volume and generic introductions, as well as improvements in purchasing through Red Oak Sourcing. Retail's operating expenses were in line with expectations for the quarter.

The growth in expenses year-over-year were primarily due to investments in the business to drive revenue growth as well as increases in expenses related to script volume. Operating profit dollars grew 7.3% to $1.7 billion within Retail/Long-Term Care, while operating margin increased 10 basis points to 8.2%, both in line with our expectations.

Within the Corporate segment, expenses declined year-over-year and were lower than expected primarily due to the shift in timing of cost related to the enterprise streamlining effort. So we're continuing to drive success against the four-point plan that we introduced last year to return to healthy growth.

We are generating script growth from our expanded relationships with PBM and health plans and we continue to innovate and we are reaping the benefits of our streamlining effort. However, we are obviously disappointed with the performance of long-term care, but we believe we have a solid management structure and a plan for improving that business.

So with that, let me provide an update on our outlook for 2018 before turning it back over to Larry. I'll focus on the highlights here, but you can find additional details in the slide presentation that we posted on the website earlier today.

As we have stated previously, for guidance purposes only, we are assuming that the proposed Aetna transaction closes at the end of 2018. By doing so, we are not including any expectations of results of Aetna's operations in our 2018 estimates.

Also keep in mind that all financing fees, interest, transaction and integration costs related to the deal are excluded from our adjusted figures. For the full-year 2018, we are narrowing and raising the midpoint of our adjusted EPS guidance range to $6.98 to $7.08 per share, representing growth of 18.25% to 20%.

The significant growth in adjusted EPS is largely related to the benefit received from tax reform. We are also narrowing the range for GAAP diluted EPS from continuing operations and adjusting it to reflect a long-term care goodwill impairment charge. So we now expect GAAP diluted EPS to be in the range of $1.40 to $1.50 per share.

And you can find a reconciliation of GAAP to adjusted EPS in our press release and on the Investor Relations portion of our website. With half the year behind us we are updating our revenue and consolidated operating profit guidance. Consolidated revenue growth is now expected to be 1.5% to 2. 5%.

Within the PBM segment, we are narrowing the range to 2.25% to 3.25% given an increase in our expectation of specialty revenues and maintaining our adjusted claims expectation of approximately 1.9 billion claims.

For the Retail/Long-Term Care segment, we now expect revenue growth of 4.75% to 5.5% and same-store sales growth of 5% to 5.75%, due to continued strong performance through the second quarter. Pharmacy same-store scripts are now expected to grow 8.25% to 9.25%, an improvement of 100 basis points over prior expectations.

We continue to see a large benefit from the broader relationships we've established last year with payors as well as our expanded participation as a preferred provider in various Part D networks. Moving to operating profit, we have tightened the full-year 2018 adjusted consolidated operating profit to down 0.75%, to up 0.75%.

For the segments, we continue to expect PBM adjusted operating profit in the low-to-mid-single digits and Retail/Long-Term Care operating profit to be down low-single digits. Going below the line, net interest expense of our existing portfolio debt is expected to be approximately $1 billion, slightly better than our previous estimate.

We continue to expect our effective tax rate to be approximately 27% for 2018. Now let me touch on the earning cadence we expect for the third and fourth quarters. As I discussed on the last earnings call, enterprise operating profit growth is expected to be weighted more to the front half of this year. There are few factors driving this.

First, the $275 million investment of tax savings will be spent predominantly in the back half of the year and the vast majority of that is in the Retail/Long-Term Care segment. Second, the Retail segment has made better progress than expected on its pharmacy initiatives during the first half, while also having a very strong flu season.

Third, the challenges in the Long-Term Care business weigh more heavily on our second half Retail/Long-Term Care growth expectations. And finally, we have the timing shift of the PBM client contractual commitments moving into the back half of this year.

Turning to Q3, we expect adjusted EPS in the third quarter to be in the range of $1.68 to $1.73 per share, reflecting an increase of 12.5% to 15.5% versus Q3 of 2017. Tax reform will continue to be a major contributor to the increase. GAAP diluted EPS is expected to be in the range of $1.29 to $1.34.

Non-GAAP guidance for the third quarter excludes certain items described in the non-GAAP reconciliation posted on our website. Consolidated revenues in Q3 are expected to grow 1% to 2.75%, while consolidated operating profit is expected to decline 2.5% to 5%.

Within the Retail segment, we expect revenue growth in the range of 4.5% to 6% and the change in operating profit to be down mid-single digits. Total same store sales at Retail are expected to be 4.75% to 6.25% and adjusted script comps are expected to be 8.75% to 9.75%.

Despite strong year-over-year growth in volumes for the retail pharmacy, continued reimbursement pressures, the timing of generic launches, the investment of tax reform savings and the long-term care challenges are driving the decline in profits during the third quarter.

In the PBM segment, we expect third quarter revenue growth to be up 1.5% to 3.25% and operating profit growth to be flat to up low-single digits.

Similar to last quarter, the year-over-year increase – the year-over-year results are being affected by investments we are making to support the Anthem implementation as well as the timing of certain client contractual commitments.

We expect that the efforts we are making today to address our challenges and to invest in the advancement of new programs will place our company at the forefront of the evolving health care landscape. And with that, let me now turn it back over to Larry..

Well, thanks, Dave. Before we open up for Q&A, I want to talk briefly about a couple of topics, because in recent discussions with shareholders, there are two broad industry themes that seem to be top of mind. One is government action on drug pricing and rebates and a second, the competitive landscape given the possibility of new entrants.

So let me touch on both. And I'll begin with the conversation around drug pricing. We see the impact rising drug costs have on plan members and patients every day. And we use every innovative tool possible to bring down the cost of drugs.

We do that through highly effective clinical programs, innovative purchasing and formulary design and enhanced data analytics that allow us to provide the right drug to the right patient at the right time at the lowest possible cost.

Now the current debate regarding drug pricing and the role of PBMs centers on rebates and the impact of out of pocket costs on consumers at the pharmacy counter. Drug manufacturers want you to believe that increasing drug prices are a result of them having to pay rebates and that PBMs are retaining these rebates. And this is simply not true.

If list prices were the result of a manufacturer's need to address rebates, then you would expect rebates and list prices to be highly correlated. And to the contrary, our data show that list price is increasing faster for drugs with small rebates than it is for medications with substantial rebates.

And this makes intuitive sense as the products with small rebates are more likely to be in uncompetitive drug classes, where there is less incentive for manufacturers to compete on price. Rebates are maximized only when there are therapeutically equivalent competitor products in a drug class.

And it's that dynamic that allows for formulary placement that drives lower costs. So let me be clear. The idea that rebate retention is correlated with higher drug prices is entirely false.

And while some have speculated that our retained rebates represent as much as $2 billion, the simple fact is that over the last number of years, we have positioned the Caremark model and its broader value proposition to the point where in 2018, we expect retained rebates to be about $300 million, or about 3% of our annual adjusted earnings per share.

Competition among PBMs means more and more rebates are going and will continue to go back to clients. And this is a good thing. It demonstrates that the market techniques used by PBMs do in fact work. And no matter what may happen to the ability to rebate, PBMs will still be needed to drive discounts and cost savings for their clients and members.

And the PBM model will continue to evolve as a result. Today, we underwrite our contracts to an overall level of profitability. And there are many levers available to us depending on the preferences of the client. Nevertheless, the amount of rebates we retain is a relatively small cost for the value we provide through our formulary negotiation.

Tens of billions of dollars of rebates generated, the overwhelming majority of which are passed back to clients and their members. Let's also be clear about what happens with the rebates that are passed to clients. Our clients, employers and insurers use rebates to lower the costs of providing insurance for their employees and members.

And typically this means investing in insurance premiums to keep growth for all members to a minimum. As an alternative, we do offer rebates at the point of sale as an option for all clients.

And in addition to helping members reduce their out-of-pocket costs, this program underscores the true cause of rising drug prices at the pharmacy counter, and that is prices set by manufacturers.

For members in high deductible health plans, the availability of point of sale rebates before their deductible is met can be a key solution to help members stay adherent on their essential medications by making them more affordable. And today, we provide this service for approximately 10 million of our commercial members.

This is what's getting lost in this debate, the fact that we have been able to improve adherence and keep drug cost inflation under control using key PBM techniques. Last year drug price growth for our clients was only 0.2% on a per capita basis, despite AWP inflation of nearly 10%.

And improvements in member adherence actually reduced overall health care costs by some $600 million. And these statistics underscore that we are controlling costs, while promoting better health through greater adherence to medications.

Now as everyone knows, the administration released American Patients First, the President's blueprint to lower drug prices. And we support the administration's goal to lower prices and reduce out-of-pocket costs for consumers.

Several weeks ago, we submitted our response to the blueprint, and I encourage you to use the link in our slides to review our perspective. Because in it we highlight what we, as a company, do to help bring down drug costs and steps the government could consider.

And I will tell you there are many elements in the blueprint that are extremely complementary to current PBM capabilities and in fact would enable us to do more, not less.

And yesterday afternoon's announcement by CMS to allow Medicare Advantage plans to use PBM tools for Part B drugs shows that the administration recognizes that PBMs have a key role to play in lowering drug costs.

And CVS Health is very well situated to help MA and MA-PD plans develop these solutions through our extensive enterprise assets, including our NovoLogix business, which currently helps our clients manage drugs under the medical benefit.

So we have great confidence in the substantial role we will continue to play in driving efficiencies on behalf of our clients. Our PBM techniques for reducing costs are working as demonstrated by drug costs for our clients essentially remaining flat.

We've realized that the most important thing we can do for our clients is ensure people take their medications, because doing so, improves health and it lowers costs. And we're certainly not standing still.

We continue to develop and implement new initiatives to ensure that patients can get the medications they need and ultimately this is the value proposition that the administration needs to consider.

And for a more in-depth discussion regarding our approaches to making drugs more affordable, I encourage you to read our white paper on this topic, which we are releasing this morning on our Payor Solutions website. And you can also find the link on the Earnings section of the IR website.

Now I'd also like to take a moment to share our thoughts on the competitive landscape. We all know health care delivery is changing before our eyes. We're excited to be in the vanguard of that change and not just in light of our transaction with Aetna.

Our distinctive position is the result of several longstanding core competencies that set us apart from others in fundamental and critical ways. First, we deliver quality health care to patients in more ways and in more settings than anyone else.

Online and mail order pharmacy has existed for many years and CVS Health dispenses millions of scripts this way for patients each and every week. But our delivery model goes well beyond that foundation in ways that are very hard to build or replicate.

Whether it's providing in person infusion services at a patient's home, placing a prescription refill through our mobile app to be picked up at any of our 9,800 locations or having your physician send a script electronically to be delivered directly to your doorstep, we offer the diversity of delivery options that patients need.

You see we have the right footprint, we have the specialized supply chain and we have the right group of professionals to deliver care in a range of settings that patients and the health care system require.

Second, with a physical presence in almost every community across the country, we have the unique ability to meet patients where they are and provide the care and services they need either face to face or with the unique set of virtual and physical delivery service capabilities that extends our physical presence in real time to meet their needs.

You see, it's not simply about selling products it's about delivering quality care and driving superior outcomes, both of which require expertise that our clients and members have come to trust. For example, we promote medication adherence.

We close gaps in care through our Pharmacy Advisor program, where we engage face to face with patients who are diagnosed with chronic conditions.

We've integrated our rare disease management with our specialty pharmacy, so we now have nurses who are acting as care managers working closely with our pharmacists, providing real synergy in terms of making sure that people are taking their medications and adopting behaviors that avoid unintended medical events and related costs.

Our MinuteClinics not only help diagnose and treat minor health conditions but also provide chronic care management to keep patients healthier and help reduce wasteful spending. Our PBM business has deep, longstanding relationships in the industry, it helps thousands of payors and plan sponsors design more effective plans to help keep drug trend low.

So only a company with these capabilities can take the next step in care delivery, which is integrating our capabilities and services to further lower costs and improve outcomes. And to effectively compete in the future health care system, and to complement existing physician services, new capabilities will be required.

New ways of identifying and engaging patients to drive beneficial behavior changes will be critical to lowering medical costs for patients and payors and Aetna helps us accomplish this.

Lower cost models of care delivery will be crucial given the margin compression we see and the inevitable shift to value-based care and Aetna also helps us accomplish this. So we welcome competition.

We expect more of it in the years to come and we are confident that we ourselves are key disruptors and pivotal players in helping to define that new landscape. And together, CVS Health and Aetna will help address the challenges our health care system is facing and we'll be able to offer better care and convenience at a lower cost.

And that's why we are excited about CVS Health and why we believe the pending transaction will accelerate our progress towards this goal. So with that let's now go ahead and open it up for your questions..

Thank you. And our first question comes from the line of Lisa Gill of JPMorgan. Please proceed..

Thanks very much. And Larry, thank you for all your comments here towards the end of the call. I just want to better understand where you stand on your conversations with the administration. Clearly, President Trump has met with CEOs from both Pfizer and Merck. I'm wondering if you've had any conversations, number one.

And number two, how do we reconcile everything you said and the way the administration seems to be talking about this? And then in July your response to the RFI and the blueprint said that you return 95% of rebates to commercial clients and members. Today you're saying 97%. And I think historically you talked about returning more than 10%.

Is it just that the commercial market is changing that quickly as far as contracting goes? I just want to understand how to reconcile those numbers..

Yeah, Lisa, I'll start and I know others will jump in here. Thanks for the question. But, Lisa, it is true that as we stated in our prepared remarks that more of the value of negotiated rebates are being passed back to clients.

And keep in mind, we've been saying for a while now that we have different flavors of contracting where we've had clients for a while now that prefer to have 100% of that rebate value passed back. So that is a trend that has continued. And again, as we said, we underwrite our PBM contracts to an overall level of profitability.

So, Lisa, if you triangulate all of the numbers that we threw out there for 2018 that rebate pass-through is closer to 98%, okay, than some of the others that we had historically talked about.

Lisa, your second question around interaction with the administration, we have had productive engagement and discussions with the administration, on the Hill, at the secretary's office.

And I do believe for reasons that we talked about and reasons that you see outlined in the President's blueprint, there is an acknowledgment as to the role that PBMs play. And again I think yesterday afternoon's CMS announcement is just another example of that. So I'm sure those conversations will continue.

And, Lisa, I think that as we talked again in the prepared remarks, this über focus on rebates, what we believe, Lisa, wherever we end up because the administration hasn't finished the story in terms of what their desire is on rebates, but what will not go away is the ability for PBMs to use size, scale, competition, private sector innovation to garner discounts that lower the cost of medications for clients and their members..

And so as we think about that you brought a value-based care a number of times. And then as we've talked to people in D.C., it sounds like the administration wants to move away from this word of rebates.

And this relationship, as you talked about, of the gross to net and this whole idea that the system is paid on rebates, how would you envision a value based program in government? And are you or Jon seeing this in the commercial market that what I've heard from some people is that the commercial market is actually ahead of where Medicare is.

And you can take some current commercial market programs and bring it to the government and bypass this whole idea around rebates, but yet to your point, still be able to have a reasonable amount of profitability for the PBM while saving the government money. So just any thoughts you have around that would be great.

And then just lastly, I want to say Dave, it's been great working with you and if the transaction closes, I really wish you all the best..

Thank you, Lisa..

Well, Lisa, listen, I think there are a number of different pilots or programs around value-based care today. And I think that folks are still testing and learning. I don't – I would sit here and say as we sit here today, I don't know that there is one that has gotten any type of substantial traction in the marketplace.

And we're going to continue to be part of that solution and pilot and see what we can do to push the ball up the court because we do believe that that's where the marketplace ultimately has to go..

And, Lisa, this is Jon. So we have a lot of value-based contracts. I would say they're pretty comparable to the traditional contracts we have in the marketplace and there really hasn't been as much uptake as we would like to see. I do think that the market will move there.

And the thing I like about it is it aligns incentives for the payors, for us and for the pharmaceutical manufacturers.

And I think as Aetna comes onboard and we now own the entire life (00:51:12) combined with our data capabilities, we're going to have the ability to really advance this value-based contracting notion in the commercial space and we'll bring that to CMS and hopefully they'll learn from our results and adopt it over time..

Our next question comes from the line of Ann Hynes of Mizuho Securities. Please proceed..

Hi. Good morning..

Good morning, Ann..

So, I want to thank you for disclosing rebates-only account for 3% of earnings, in fact that it's that low is probably an understatement on what the Street views the impact was. But I'm going to ask some non-rebate questions.

Could we – on the federal employees' contract, congratulations on extending that, because I know it's a big contract for you and the government seems to continue to extend that with you rather than put it out for RFP.

Do you have any color on why that continues to happen?.

Ann, this is Jon. It's just a one year extension and through 2020, we would expect them to go out to RFP at that point. So I think it's pretty typical of what we've seen with them over the years and we've got a great relationship with FEP and we hope to continue to serve them in the years to come..

And Ann, listen, I also think it underscores the high level of service and value that FEP has come to count on us for and we expect that that will continue as we go forward..

Our next question comes from the line of Charles Rhyee of Cowen. Please proceed..

Hey. Thanks for taking the question guys. Hey, Larry, you mentioned that the retention rate here is ahead of where you were in recent years. Obviously, that's – it's good news here despite some concern – I think there's been some concerns that with the Aetna transaction in process, you're going to have some disruption in the business.

Is this a good indicator from your current customers that they're looking at the transaction in a positive light?.

Charles, as I say, it's a great question. And I think it's really a function of two factors. I think one is the point that you just made that I think there's a lot of interest in terms of what we can bring to market with CVS Health and Aetna and how that can benefit some of our existing clients, especially in the health plan space.

And I think the second one is what we've talked about previously, what Dave outlined in his remarks that RFP activity has been lower this year.

And I think with all of the activity in the marketplace, I do think that there are clients that want to see where everything shakes out as they think about longer term commitments that are typically associated with contracting..

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

Hey, good morning, guys. Thanks for the question. And Dave, best wishes in new endeavors. It's been a lot of fun. I guess, Larry, I would start off with the proposed rule last night, or the step edit rules that it looks like we're going to get from Med B to Med D (00:54:38).

I guess can you talk about how you think about the opportunity there? And how is that opportunity enhanced through the Aetna acquisition? And then, I guess I would just ask if you could comment on given that tumultuous regulatory environment, have you seen anything either in proposed rules or in announced rules that either I guess kind of makes you – do you see new opportunities or new challenges as it relates to the transaction? Would just love comments around that.

Thanks..

Yeah, George, on your first question, we see the proposed rule from CMS last night as being a real opportunity for us and probably an even bigger opportunity as CVS and Aetna come together because it picks up a component of the business that largely has been isolated to the medical side of the house, if you will.

And the point that I had made earlier that the NovoLogix capabilities that we have resident today that have proven to be able to bring, I'll call it, the management of that portion of pharmacy flowing through the medical spend to treat that with the same diligence that we do with the traditional pharmacy spend, we think that that is a significant opportunity, obviously first in the Medicare space.

And I think it will be interesting to see if that moves into the commercial sector in terms of the pace with which that would happen. George, your second comment, I guess when you asked that question I think of some of Dr.

Gottlieb's comments coming out of the FDA in terms of his focus in terms of removing what has been a significant backlog for potential drug approvals, especially generics, as well as his focus on getting more biosimilars into the marketplace. And today, we've got four in the marketplace.

We currently have two of those biosimilars in our formulary and are working to add to that list. And you compare that to Europe where you have over 50 biosimilars in the market. So both of those, again, it falls under the heading of giving PBMs more bandwidth with the tools that they have to further reduce drug costs..

Our next question comes from the line of Michael Cherny of Bank of America. Please proceed with your question..

Good morning, and thanks for taking the question. So I want to dive in a little bit more as you think about the changes going on in Washington. You talked about the conversations you're having with various members of HHS.

As you think about some of the other pieces of the blueprint and what gets you most excited for the business model, what are your clients telling you that they essentially hope comes through? Is there any feedback interaction with them on the blueprint on the drug pricing side, where they're saying, we hope there is a encouragement of this.

I know value-based contracting was asked earlier, but anything else where you think that aside from the Part B conversation that there's value that you think can be unlocked as this blueprint gets put into place?.

Mike, this is Jon. Our clients are actually very happy with the benefit that we've been managing for them. So they saw their costs grow on average 1.9% last year. They know they're getting the majority of rebates. They understand that pharma is responsible for raising prices and we're working on their behalf to manage that down.

So I think if anything, they're interested in more transparency as we move forward. And we embrace that and we think that's a great idea. And I think today is the first step as we talk about how much we're retaining in rebates is another step forward in that transparency journey..

And, Mike, it's Larry. I think that clients rely on us to separate, to pore through the detail of all that. Obviously, they want to continue to see more opportunities. To Jon's point, they see what we're doing today. And are there opportunities beyond what we're doing today? Again, some of that goes back to how we bring them solutions.

And listen, as one example, we're encouraging our clients that have high deductible plans to take a portion of those rebate dollars and pass them back to their members at the pharmacy counter, while they're in that deductible phase.

Once they hit the deductible phase, then they fall into the plan design, where their out of pocket costs dramatically go down. So I think in many respects, the responsibility falls to us as we help educate them in terms of ways that we can help them reduce costs but at the same time improve satisfaction among their members..

And, Mike, the only thing I would add to that is as clients talk about their highest priority, it's really around what they're seeing with specialty cost growth. So they would like to see more biosimilars get to the market much faster than what is currently occurring. That's pretty uniform as we're out in the marketplace..

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

Yeah. Hi. Good morning and congrats on good results. So I have two questions here. First of all, Larry, to your point, consumer cost at point of sales is really at the core of the brand price debate.

So how long do you think after closing the transaction, do you expect to be able to offer plan design that will lower consumer cost at the front end? And will really kind of like look at the benefit design from the entire life of the member that Jon referred to earlier? So is this something that we are going to start to see materializing in the 2019 selling season? So that's question one.

Second question is around your script growth. I mean you've done a great job translating the preferred networks that you signed late last year with increased volume and market share. When we think ahead, SilverScript Plus remained an open network.

Are you planning to move to a preferred network following the lead of what you've done with SilverScript Choice? And what other preferred network opportunities you're seeing for next year?.

Hey, Ricky, this is Dave. Maybe I'll take the script growth perspective and Larry will come back to the first piece. Keep in mind that our script growth is really coming in three buckets, and each of those buckets is really supporting our growth in the market.

One of them is our – how we're partnering with payors and health plans across the industry, so that's contributing nicely. And our relationships with Part D providers are a part of that. Secondly, organically, we're just taking share in the marketplace as our service and metrics and performance out in the marketplace have done really well.

And we continue to garner share from all the participants. And then finally, we have a very robust clinical program. Our patient care initiatives are improving adherence for our members, and that's driving script utilization and share gains in the marketplace. So all three of those components are really important.

So we've talked about – your question is really around one, and we'll continue to focus on that. But that's not the only contributor to our growth..

And, Ricky, this is Jon. SilverScript has two plans and both plans have a preferred pharmacy network as part of their designs. So that happened in 2018 for the large SilverScript Part D plan..

And then, Ricky, back to your first question, in terms of new products, plan designs, I think it's probably more realistic that those innovations would find their way into the market for the 2020 selling season.

But give Aetna a lot of credit, because you may recall, I think, it was a few months ago they announced in – specific to your question on point of sale rebates, they had announced that in their fully insured book of business that they were going to be applying point of sale rebates to that segment of their business..

Okay. Our next question comes from the line of Steven Valiquette of Barclays. Please proceed with your question..

Great. Thanks. Good morning, Larry and Dave. I will also echo that the disclosure around the rebates is definitely helpful to clear the air. And the takeaway just seems to be that you're probably not losing much sleep on the notion of rebate elimination, potentially morphing beyond Medicare and into the commercial segment.

That seems to be what some investors are focused on. So I guess just my quick question around that is the rebate footnote suggests that the $300 million excludes SilverScript.

Maybe just to quickly clarify, is the $300 million, is it more heavily weighted to commercial related rebates? I think you said there's some MA-PD in there, but curious on the weighting of that.

And also, is SilverScript being excluded because it's primarily just an intercompany number? Just curious on the thought pattern on not having SilverScript, thanks..

Yeah. So just to be clear, the $300 million retention is for commercial, all of our commercial rebates. All of our Medicare, think about them as 100% pass-through because they support the bid and the premium, so there's no retention on that at all.

So $300 million would be the impact of both Medicare and commercial because there's no retention on Medicare..

And, Steve, to Dave's last point, we talked about our results of the benchmarking process. But, yeah, I think what's interesting to note, obviously you have to preface this by saying it's competition in the private sector.

But you look at what's happening to beneficiary costs and even government costs, okay? And the bid levels have an 11% reduction over the prior year and – both for beneficiary as well as the government. So you may point to competition, but you also have to point to the value of rebates in contributing to those numbers as well..

And our next question comes from the line of Erin Wright of Credit Suisse. Please proceed with your question..

Great. Thanks. Two questions here and a broader question on the PBM. I guess, at this point how would you rank, I guess, outside of rebates – and that was great color that you gave.

But what those core profit drivers are for your PBM business at this point and how that kind of evolves under the new regulatory environment and what you think actually could play out? And then on Omnicare, you mentioned new leadership and other initiatives.

I guess what needs to be done there, or how quickly can you address some of the challenges there? And what is that longer term growth and profit prospects for the Long-Term Care business and how those expectations changed? Thanks.

So maybe – this is Dave. I'll talk a little bit about PBM. Obviously the growth in the PBM has been, over the last several years, we continue to see this over the next future periods, especially continues to be a nice driver into this business.

Obviously the movement as has always been moving from branded drug to generic drug is a big driver of growth in our business model in the PBM, but importantly our business in totality. So we still think there's opportunities as new generics come to the market to improve our performance from a generic perspective.

And then finally, we do believe that the innovative solutions and products that we have in the market that can support essentially a mail order platform with the convenience of a retail outlet i.e. CVS Pharmacy, is a big opportunity for us to continue to enhance and grow earnings over time. So with that, I'll turn it over to Jon..

Yeah. Erin, this is Jon. I'll talk about Omnicare. So Dave talked about our four-point plan and he talked about the new management team that's in place. So I'll focus on where we see a lot of the growth opportunity, which is assisted living and not only growing new beds, we're growing penetration.

So as we have been working to grow this business what we found is that the Omnicare service model was not optimal for assisted living. It was really built to service long-term care. And long-term care is facility focused. As an example, all members for the facility are serviced on a same day except when there is a stat order.

In assisted living model, think about it as being more member-centric. So these residents order their prescriptions very similar to what we see in Retail. So, not all members receive their orders on the same day in that facility, they call them in as they need them. So we needed to change the front-end of our pharmacies to service these members.

And so we're building assisted living centers of excellence and we have three of these in operation and we'll complete the rollout by year-end.

And I talked at our last earnings calls, how we had invested in account management resources to work directly with facility managers and their residence to improve our service and penetration of the facilities.

So early results where we have this model fully in place are positive and we're confident that this service model will enable us to achieve our goals in assisted living..

Okay. Our next question comes from the line of Ralph Giacobbe of Citi. Please proceed with your question..

Thanks. Good morning. Talked a lot this morning about sort of the evolution of the PBM and you talked about value-based care, but then you also mentioned sort of not much uptake.

So with that as the case, one, what would drive that uptake? And then the second piece of that, what's your interest in sort of taking more risk on the PBM side? Could you give us a sense of what percentage of the business you do that on currently? And do you ultimately think that's the biggest change from the current model sort of meeting more trend guarantees and the like? Thanks..

Yeah. Ralph, its Larry. I think it's a great question. And as you look at where we have risk today, obviously the SilverScript is a risk-based product, okay? And we've begun to take – I'll describe it as elements of risk with our Transform Care program which started with diabetes and I think we've now expanded it to three other chronic diseases.

So I do think that we have a growing appetite, okay, to move in that direction. And I believe that the combination of CVS and Aetna can serve as an enabler to doing more of that as we go forward..

Okay. Our next question comes from the line of John Ransom of Raymond James. Please proceed..

Hi. Sorry for the airport noise. But beyond the rebates, could you talk about the process of re-contracting if gross prices on branded drugs change? And I'm thinking about downstream with PBM and upstream with your retail drug stores, how long that would take? On a 1 to 10, how disruptive that might be? Thanks..

Well, John, this is Dave. We've obviously – when the industry has changed in the past, I can go back to when AWP rules changed, we went back and recontracted our entire network to conform to new standards of the industry. I would anticipate that if the market were to change in a dramatic fashion, we would have the same opportunity to do that.

And I think our contractual structures at this point allow us that flexibility..

Hey, John, this is Jon. So if something were to change and Medicare, as an example, those are annual bids so – and we actually recontract every year with pharmas and the retail networks. So we think we could do that within a year.

I think when you think about the commercial market if things were to change, I think it would happen over a much longer period of time and I think we would have plenty of time to pivot to how the market evolves as a result of those changes..

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

Thank you. Thinking about the comments you made on the blueprint and squaring that with $300 million of rebates and I wonder if there was any thought to being more aggressive in your proposals and suggesting that we move towards a system where 100% of rebates must be passed back to the payor, whether it's government or commercial were fairly close.

And I would think that would put the onus on pharma to address price increases and on payors to address, how much of the rebate goes toward may be plan cost versus consumer cost share or rebates.

What are your thoughts on how that might be detrimental or beneficial?.

Well, Eric, listen, I think we have always worked to be as flexible as we can in terms of meeting the diverse needs that exists with our clients. And as we acknowledged earlier, today we've got many contracts with 100% value of the rebates being passed back directly to them.

As you know, Medicare Part D works that way today, okay? And I do believe that one of the challenges that we need to solve for is as you think about the plan designs, okay, especially – we acknowledged earlier those with high deductible plans, okay, that how do we take care of those members, those patients customers who were in the deductible phase, okay, and are incurring costs? Because oftentimes, it's the pharmacy spend within their plan that – that's where the dollars are spent to go and meet their deductible.

And that's why we advocate for at a minimum that let's apply some of those rebates at the point of sale, while people are in their deductible phase. And once they've satisfied that then the balance of those rebates can be applied by plan sponsors to buy down premiums et cetera, et cetera.

So that's where our focus has been along with expanding the definition of HSAs, okay, the use and utilization of preventive drug lists that again can reduce consumer out of pocket costs.

So in response to the blueprint, we've spent a tremendous amount of time on those elements as quite frankly opportunities could be brought to market sooner than later. All right, Jose, we'll take two more questions..

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

Great. Thanks for the questions. I guess just two quick clarification questions.

I know we spent a lot of time on rebates and the trend there, Larry, but I guess just making it a little bit more simple to think about, outside of Part D, if a client choosed a full pass-through rebate contract with you versus one that was maybe more traditional when you were keeping some of that rebate, what is the difference in operating profitability in those two types of arrangements, or are they really kind of a wash? And then just one other clarification on the retention rate.

If I back out the FEP extension, it actually does look like – if my math is right here, it actually looks like the retention might have been a bit lower actually than what you've seen in recent years. So just was – want to make sure I was looking at the math right there.

And if that is the case, any commonalities for why maybe some clients had choose to leave?.

Yeah. Hey, Bob, this is Dave. Retention rate is actually higher this year, year-to-date than it has been in past with and without FEP. So I think that's – there must be something wrong with the math there. Our client retention has been extremely strong. We're very pleased with our progress at this point in time.

And I can't really comment on the profit margin on those clients. Each client obviously is underwritten by – with a target margin rate and we're very focused on maintaining that rate. And we have been successful with clients who have full pass-through and clients who may have an incentive for us to do better in a rebate than a shared savings.

So we've been very successful in both models..

And our last question comes from the line of John Heinbockel of Guggenheim Securities. Please proceed..

So guys two questions. Just do you guys have a sense given the strategic change, right, we're seeing in a lot of these models, how long that will dampen RFP activity? And beyond that, switching, people may put out an RFP but may decide to stick with their existing PBM for a longer time to sort of feel out some of these changes.

What's your sense on that time? And then secondly, specialty grew how much in the quarter? Maybe it was in there, but I didn't see it..

Yeah John, its Larry. I'll take the first one. And John, listen, I don't know that we can sit here and answer that question, today. I think some of it is going to be based on bringing closure to the variety of activities and questions that exists in the marketplace.

And I think that that's probably the key driver to people taking more of a long-term view in terms of understanding how the future marketplace lines up. And then in terms of specialty, our growth in the quarter was....

Just the low- to mid-single digits, in that ZIP code..

And John, keep in mind that that would include the loss of the FEP specialty business..

That's right. Yeah..

Okay and in terms of that number being somewhat depressed from prior years..

Okay. Thank you..

So with that, listen, I know it's been a long call this morning. We appreciate everybody's patience. But obviously there was a lot to talk about and a lot of information to disseminate and as always, Mike McGuire is available for follow-up..

Ladies and gentlemen that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines..