Ladies and gentlemen, good morning and welcome to the CVS Health Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Tom Cowhey, Senior Vice President of Capital Markets for CVS Health. Please go ahead..

Daniel Finke, President, Healthcare Benefits; Michelle Peluso, Chief Customer Officer and Retail Co-President; Prem Shah, Chief Pharmacy Officer and Retail Co-President; David Joiner, new President, Pharmacy Services; and Dr. Alan Lotvin, outgoing President Pharmacy Services.

Our earnings and Oak Street acquisition press releases and slide presentations have been posted to our website along with our Form 10-K and our Form 8-K that we filed this morning with the SEC. Today’s call is also being broadcast on our website where it will be archived for 1 year.

During this call, we will make certain forward-looking statements reflecting current views related to our future financial performance, future events, industry and market conditions, including impacts related to the ongoing COVID-19 pandemic as well as the expected consumer benefits of our products and services and our financial projections and the benefits of the pending acquisitions of Signify Health and Oak Street Health and the associated integration plans, expected synergies and revenue opportunities.

All forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results, including with respect to the ongoing COVID-19 pandemic and the pending acquisition and integration of Signify Health.

We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement concerning forward-looking statements and the Risk Factors section in this morning’s earnings press release, Oak Street Health acquisition press release and included in our Form 10-K and the Form 8-K we filed this morning.

During this call, we will use non-GAAP measures when talking about the company’s performance and financial condition and you can find a reconciliation of these non-GAAP measures in this morning’s press release and the reconciliation document posted to the Investor Relations portion of our website. With that, I’d like to turn the call over to Karen.

Karen?.

creating convenient access and additional clinical capacity for Oak Street with preventive care and chronic care services for seniors; enhancing access to our broad nurse practitioner workforce; and providing wraparound services tailored to seniors and those with complex conditions such as medication reconciliation and post-discharge follow-ups.

The potential across CVS Health’s base of assets is powerful. Together, we will transform the experience for consumers across the country. The Oak Street transaction is financially attractive and enhances our ability to accelerate our sustainable long-term growth.

Shawn will provide more details on the financials of the transaction and will discuss the growth and profitability prospects of the Oak Street assets. At the close of the transaction, Mike Pykosz will continue to lead Oak Street within CVS Health. Mike, we are so excited to welcome you and your team to CVS Health at the close of this transaction.

Mike, would you like to say a few words?.

Thank you, Karen and good morning everyone. Our mission at Oak Street Health is to rebuild healthcare as it should be. When we started Oak Street, we set out to address the root causes of high-cost, low-quality care and poor experiences for Medicare patients.

10 years in that journey, as we continue to drive our national expansion and look to impact more patients and communities, we could not have found a partner more aligned to our mission than CVS Health. At Oak Street Health, we operated a network of primary care centers to specialize in care for older adults.

We focus on areas with large concentrations with Medicare-eligible patients with incomes below 300% of the federal poverty line, areas where we can make the biggest impact.

We create our innovative models from the ground up and focus on ensuring our patients receive the right care upfront, improving their experiences and keeping them healthy and out of the hospital.

This proven and naturally scalable model benefit patients, providers, and payers, while improving health outcomes, lowering medical costs and delivering a better patient experience. This focus has generated meaningful results for our patients, including reducing hospital admissions by over 50% and lowering 30-day readmissions by 42%.

By providing coordinated holistic care, we can close care gaps and address social terms of health, delivering 5-star performance. Our track record shows that we have been able to deliver consistent performance across different populations and geographies.

And while our primary focus is Medicare managed at-risk patients, we have also demonstrated our care model can work outside of Med. For example, in 2021, we participated in the Medicare direct contracting program, where we took on full risk on traditional Medicare patients.

Among all the participants in the program, we generated savings that were 2x higher than any other multistage direct contract candidate and we were ranked number one in [indiscernible]. These results show that even amongst the most innovative groups of this new program, our capabilities and results stood out.

By joining CVS Health’s ecosystem, we will accelerate our journey to improve patient outcomes and experiences while continuing to invest in both our innovative care model and invest in what we believe is the best team in healthcare.

The expansive consumer touch points of CVS Health virtually and in the community, including the trusted CVS pharmacists, will broaden and deepen our connections with the patients under our care. At Oak Street, we have talked about the massive market opportunity for companies that can address the huge challenges in healthcare.

CVS Health is in a unique position to deliver market-leading health solutions. The breadth of their offerings and proven ability to scale assets will significantly enhance our ability to tackle these challenges.

We believe this transaction is a great outcome for all of our stakeholders, including our patients, all of our payer partners, our team of Oakees and our shareholders. With that, let me turn it back to Karen..

Thank you, Mike. CVS Health delivered strong financial results in 2022 and we are entering 2023 with tremendous momentum. We continue to make progress on our strategy and will enhance the capabilities of our value-based care platform through the Oak Street Health and Signify Health acquisition. We are excited about the opportunities ahead of us.

I will now turn it over to Shawn for a deeper look into our results, our 2023 outlook and the Oak Street transaction.

Shawn?.

one, accelerating Oak Street patient growth through CVS Health channels; two, improving Oak Street’s economics through integration with our broad portfolio of assets; three, improving the retention of our Aetna MA members through the improved outcomes and experience provided at Oak Street clinics; four, driving greater utilization of CVS Pharmacy and Caremark capabilities; and five, capturing modest savings from external public company and lease costs.

We project that our investment in Oak Street will drive double-digit returns on invested capital over time as clinics mature and synergies are realized. We are committed to exploring additional avenues to further accelerate growth, synergy realization and returns from this transaction while balancing further near-term dilution to our EPS trajectory.

As stated in our press release, this transaction will be funded with available resources and existing financing capacity, and we remain committed to maintaining our current investment-grade rating. The transaction is subject to approval by Oak Street’s shareholders, regulatory approvals and other customary closing conditions.

We expect this transaction to close in 2023. We are now targeting 2024 adjusted EPS of approximately $9, growing to approximately $10 in 2025 with the potential for upside in 2025 based on the successful resolution of our Medicare Star Ratings mitigation efforts.

The 2024 and 2025 adjusted EPS trajectories reflect the impact of the previously disclosed 2024 Medicare Star Ratings headwinds in Centene contract loss, closing of the Oak Street Health transaction in 2023 as well as projected contributions from the Signify Health transaction in 2024 and beyond.

Consistent with past practice, CVS Health expects to exclude integration and transaction costs from its adjusted EPS presentation. With the close of these transactions, we expect that our adjusted debt-to-EBITDA will peak in the mid-3x level in 2024, well within leverage ranges aligned to our current investment grade rating.

Our current projections assume modest discretionary repurchase activity in 2024. This is consistent with our 2021 Investor Day projections, which contemplated 1% to 2% adjusted EPS growth from repurchases in addition to offsetting dilution. As leverage begins to subside in 2025, we will have potential for additional repurchases.

In summary, we are excited to announce the acquisition of Oak Street and to incorporate them into our expanding portfolio of capabilities. Oak Street’s best-in-class clinics will serve as the focal point of high-quality care for seniors across America. The strategic rationale for this combination is sound and the growth opportunity is vast.

Together, CVS Health’s foundational businesses signifies home assessment and provider enablement capabilities and Oak Street’s clinics and care model create the premier multi-payer Medicare value-based care platform.

We could not be more pleased to join with Oak Street as we take the next step in our journey to build a differentiated health services organization and transform how care is delivered. To conclude, we delivered excellent performance in 2022, creating strong momentum as we continue to execute our strategy in 2023.

We are building on our achievements, expanding our portfolio of capabilities and continuing on our path to become the leading health care solution company. With that, we will now open the line for your questions.

Operator?.

Thank you. [Operator Instructions] We will take our first question from Lisa Gill with JPMorgan. Your line is open..

Thanks very much and congratulations on the transaction, and congratulations on the strategy overall. I know every quarter I’ve asked about this strategy around value-based care and what you’re going to do in this area. So I’m happy that you finally have done this. So really just two things I want to better understand.

One, following Oak Street, they did slow the growth of the number of centers they were opening last year due to cash constraints. Shawn, it sounds like you’re laying out that you’re going to keep that strategy the same at roughly 35 centers per year.

One, is there a reason why you wouldn’t reaccelerate that growth when we think about Oak Street? And then secondly, as we think about some of the changes that have come with RADV, the MA rates that have come out, can you maybe just talk about the impact, not just on the MA side but also on the provider side? And did you take that into account when you were thinking about buying a primary care asset?.

Lisa, I’ll turn it to Shawn in a second, but I just wanted to acknowledge your point about we did lay out a variable vision at December 2021 to really expand into health services.

And I really believe this transaction is a clear win for both patients and provides, and as we said in our prepared remarks this really does create the premier multi-payer Medicare value-based platform and I talked lot about value-based care and not just being a contract but being platform where we really drive engagement and connect patients to care.

And this transaction, combined with Signify Health, really does demonstrate that we are executing on our long-term strategy to drive long-term growth for the company. Let me turn it over to Shawn to answer your specific questions..

Hi, Lisa. So on the first one about kind of clinic expansion. To be clear, the numbers we cited today in our model are premised on maintaining a trajectory of 35 to 40 clinics a year expansion.

As I mentioned in my prepared remarks, one of the things that we will be doing over the coming months is exploring alternative avenues of accelerating synergy realization but potentially looking at the growth aspect of that, and in particular, avenues that would help us manage sort of greater clinic growth but also sort of manage kind of inside the dilution framework that we’ve talked about with this transaction.

And we will be looking at those avenues because it’s a very important point because when you look at the long-term returns of this model, that accelerated growth has some real long-term kind of return benefits to doing that.

So again, that will be something that we continue to work on and explore the best way to do that within the framework that we’ve discussed with you today.

On your second question, it was important to us to both understand the positioning on RADV and at least be able to see the MA advance rate notice for ‘24 and frankly, work in conjunction with Oak on what we thought that meant to them.

And we’ve had the ability to do that, and obviously, as you all know, much of that still leaves many questions to be answered in the future. It does provide a little bit more clarity than we had in the past.

But I think we do understand the dynamics and some of the mitigation efforts that we could put in place if certain things stand or certain things get modified. In many ways, though, what I would say is what we saw come out of those notices, I think, is exactly why you want high-quality Medicare Advantage value-based care assets.

In its most – simplest sense, when you have a year, for example, when reimbursements get squeezed, what’s one of the things you want to do, you want to look at your cost control levers. And certainly, Oak is a demonstrable asset that has proven to improve outcomes and reduce costs.

And so I think as we think about navigating the future of Medicare Advantage and maybe even a broader opportunity in Medicare value-based care in the fee-for-service population, I think both Signify and Oak are exactly the kind of assets that you would like to have at your side as you do that..

And Lisa, just adding to that point, I think we all recognize the importance of Medicare Advantage and the popularity, and we are very encouraged by the political statements that were made last night to support Medicare. And this fits really nicely into that picture as well..

Great. Thanks so much..

Thank you. Our next question will come from Michael Cherny with Bank of America. Your line is open..

Good morning. Thanks for taking the question. Congratulations on the deal. I’m sure there are going to be a number of other questions there, so I want to hone in on Health Care Benefits and particularly the work you’re doing around Stars. I know last month, Karen, you outlined the waiver and the requirements to push forward on the ‘24 mitigation plans.

Can you just give us a sense of where you stand on the various different work streams tied to achieving the ‘25 mitigation and the planned throughput you have in order to get there and reestablish your Stars presence?.

Yes, Mike, thanks for the question. And you’re right. We did make progress on our regulatory approvals to move our contracts forward. And we are continuing to make investments in Stars so that we can mitigate the risk.

As you might remember, we narrowly missed in our CAPS scores, and the team has been working very diligently over the course of the last couple of months to make sure that we are improving our results. I’m going to ask Dan to talk about the specifics.

Yes. Thanks, Karen. So in 2022, we really took a look at the opportunity around CAPS and member experience, and we launched some additional campaigns related to that, that frankly are still ongoing, things like assisting our members to understand their benefits, expanding our concierge services to really maximize the member experience overall.

We also have the opportunity to impact other domains as well, our patient safety domain that worked really hard with our retail colleagues on in the fourth quarter related to patient medication adherence.

And then, of course, on the HEDIS front, closing as many gaps and care as possible in the fourth quarter and now currently focused on really optimizing our record collection during the hybrid season. So we’re committed to improve our Stars ratings. We believe we are the right actions and the right team to really improve the ratings overall..

Great. Thank you..

Thank you. Our next question will come from A.J. Rice with Credit Suisse. Your line is open..

Hi, everybody. Congratulations on the transaction as well. I wondered, since we had Mike on the call, the – obviously, this has played out a little bit in the public domain. So there is been speculation that someone might be up with Oak Street for a while.

I wonder if he could comment on what kind of feedback he’s gotten from his doctors, how do they – how are they reacting to this.

And I wonder, do they have to approve in any way this transaction? Is there anything in their agreements that require approval? And then lots of questions around the deal, but I might just ask, Shawn, Karen, you’re thinking you’re going to close this at the end of the year and/or sometime this year.

I know the regulatory process is a little less certain than it was a few years ago, I guess, the way to describe it.

If it were to slip into some point in ‘24, would you – would that materially change your $9 and $10 target? Or are you – does that have some flexibility around the timing of the deal?.

Hi, A.J., we do – we’re – we do expect to have this transaction close, I’ll let Shawn comment on the financials, but I don’t think that we have material changes in those numbers. I am going to turn it over to Mike.

Mike, can you just respond to A.J.’s question around the clinicians?.

Yes, happy to. So, on the second point, no, we don’t require any separate approvals. We just need more of the standard shareholder approvals. On the first question you are asking, I think is the most important one. At Oak Street Health, our mission is to rebuild healthcare as it should be.

And I think the physicians I have talked to and opinion leaders and team members across Oak Street that I have talked to so far. I think there is a huge amount of excitement that this is kind of the next stage of our journey. And we are really proud of what we have built over the first 10 years of Oak Street.

But we really believe there is an order of magnitude of more growth out there for us. We can go to more communities and impact more older adults.

And I think that CVS Health brings just a huge amount of resources that we can partner with and leverage to help us provide higher quality care for patients, to help us provide a better patient experience and to help continue to make Oak Street the best place to work in healthcare.

So, I think from our physicians and the rest of our team members’ perspective, I think this is a huge positive to continue to help us execute on our mission..

And A.J., I am not sure if you had a question about more global kind of deal returns, but specifically to your question about the timing of close, the answer is no, it would not change those.

And arguably, it actually adds a little bit of lift because, if you remember, there is an operating loss that’s going on for a little bit of time and you are picking that up a little bit deeper into the cycle of moving from kind of loss to breakeven to gain.

So, it actually would not kind of change the $9 to $10 at all, certainly not in a negative way..

Okay. Great. That’s clear. Thanks Shawn..

Thank you. Our next question will come from Justin Lake with Wolfe Research. Your line is open..

Thanks. Good morning. Wanted to shift back to health benefits for a minute. I wanted to ask you to walk us through your expectations on membership growth across the businesses in detail. So, where do you expect to grow in MA, shrinking tape, commercial and the exchanges.

And then your MLR looks like it’s up about 100 basis points year-over-year, maybe a little less. Just hopeful you could frame how much of that comes from the PYD roll off that you are not assuming and what other drivers might be impacting that? Appreciate it..

Hi Justin, it’s Karen. Let me just comment on the growth. So, first of all, in our commercial book, we do expect to grow in our commercial book. And our value proposition is truly resonating in the marketplace. We announced last month that we closed the state of North Carolina, which will bring us about 570,000 members on 1/1/25.

So, I think that’s a good demonstration of the strong value proposition that we have in our commercial business. I mentioned our significant growth in individual exchanges, 900,000 to 1 million members next year.

And then in Medicare, as you know, Justin, we are disappointed in our individual Medicare Advantage growth, but we are growing our D-SNP business and our group MA business. So, I will let Dan specifically give you a little bit more details on growth, but I am going to turn it to Shawn to answer your MBR question..

Yes. So, Justin, the MBR, I think the guidance midpoint is up about 70 basis points year-over-year. There is a number of pieces that are leading to that. The first, to the point of your question, is the removal of prior year favorable reserves development is about 20 basis points there.

Second, the provision we are making for the exchange business and the provision for any adverse deviation there is also worth about 20 basis points. About 10 basis points is driven by Medicaid redeterminations and what we think the MBR impact will be there.

The divestiture of our international business in 2022, that was lower MBR, so that’s adding about 10%. So, it’s three or four items that are building that up.

I would say more broadly behind this that when you looked at the fourth quarter and you looked behind the impacts of flu and respiratory illness, utilization continued to perform very consistent with what we expected to see. And we still feel the pricing environment is very sound and rational going into 2023..

Yes. And Karen, I would just add two comments to your remarks. I mean first on the Medicare front, a couple of bright spots during AEP, where our growth in the duals population as well as our group MA products, and so we expect continued growth in those products through the remainder of the year.

And clearly, the team is also focused on our individual MA enrollment as it relates to OEP and our lock-in period. Some of the investments we made at the end of AEP showed some signs of growth that we are looking forward, let’s say for the remainder of the year. And then the last comment would just be on Medicaid.

We do expect some modest growth in that book of business through the first quarter. But as anticipated, at the end of the first quarter, we do expect some of the re-determined members to fall off the roster. And so we are working closely with the states around our opportunities to regain that membership..

Thank you. Our next question will come from Eric Percher with Nephron Research. Your line is open..

Thank you. Eric Percher and Josh Raskin here at Nephron.

A question with respect to the approach to M&A, how important was geographic diversification in your process or as you are examining assets and making this decision? And then conversely, how important was how much you need the model that Oak Street has built? And maybe lastly, how do you think about how this and Signify come together with respect to physician enablement?.

I can have Karen talk about that as well at the end, but what I would say is, as we talked about our factors here, Eric.

We have conducted a very thorough evaluation over the last 15 months and are confident this is the best asset in the space that really satisfied all of our criteria talented and capable leadership, a leading integrated technology platform, a clear ability, to the point of your question, to scale and reproduce the model and the results across both geography and for different payers.

It also has, as Mike mentioned, the demonstrable capability to improve clinical outcomes and lower costs and I think a very clear path around the unit economics required for profitability.

I would be remiss if I didn’t also mention that it has a fundamentally differentiated patient experience as evidenced by their 90 NPS and their exclusive AARP endorsement. So, this asset, really, we have talked about the list of criteria, we really hit it. And I think to your point, the geography was important. We are a big company.

We are going to need a big footprint over time, and being in 21 states was important in and of itself. But it’s actually, in my mind, the scalability element was the ability to demonstrate the model worked in different geographies.

And to the point of your second question about having, I will call it, the homogeneity of the model, it was the ability to reproduce it and then make changes to it. I think that was very, very important, and frankly, very distinct and what we looked at in the market.

I think the second part of your question, I think, is important, too, because there is a lot of interplay potentially down the road between these two assets.

One of, I think the benefits that we have, and I think we have built in a modest synergy when we talk about the ability to accelerate growth, is the ability of Signify when they are doing a home visit to recognize that here is a member that needs to be returned or connected to care.

And that doesn’t have to be obviously through Oak, but it can be and can be our MinuteClinics as well.

So, the interconnectivity of actually getting these members the care they need, when they need it and where they need it, and to Mike’s point, the way it should be provided, I think these two things over time, we will be able to work powerfully together..

Yes. And Eric, just to add to that, I think it’s really important to think about community and community-based care as we have talked a lot strategically being in the community and really having kind of all these assets work together.

Shawn made a good example of Signify and Oak, but then you think about our MinuteClinics, and we can kind of leverage those MinuteClinics for additional capacity. We can leverage our nurse practitioners as well and then we can have wraparound services. So, we can have a very much of a holistic approach to care in the community.

I would also add that it is really critically important for us to be a multi-payer agnostic provider and make sure that we are connecting care for all the patients that we are interacting within the community..

Thank you..

Thank you. Our next question will come from Stephen Baxter with Wells Fargo. Your line is open..

Hi. Thanks. I appreciate all the color on the Oak Street acquisition.

I was hoping you could help us think a little bit about the timing you would expect to be required to realize both the greater than $2 billion of earnings power itself and also the $500 million of synergies and also maybe any insight into where both those figures might be on a reported basis over the next couple of years, would be great? Thank you..

Yes. So, let me talk kind of about this in sort of a financial terms and try to get at some of those points. As I mentioned, right, this is a – we do think this is a deal that has an attractive long-term return on capital. And – but it also has the potential to move the needle from an earnings perspective in a company of this size and scale.

Our strategy has been and will continue to be to deploy capital to improve the sustainable earnings growth rate of this company as a whole. When you look at this asset in concert with Signify, we project this could improve our overall long-term earnings company growth rate by at least 100 basis points a year as these investments mature.

It’s important as you think about this, that the dilution, especially the dilution from financing, is temporal in short-term, but these sustainable improvements in growth rate are not. From a return on capital standpoint, we think it earns double-digit returns on capital in year seven.

And very importantly, because of the embedded value in that clinic infrastructure, that return on capital continues to grow on the order of 200 basis points a year thereafter. And I have mentioned in my remarks that at the current rate of expansion, we would expect to have 300 clinics by – in 2026 or by the end of 2026.

And using the Oak Street convention around adjusted EBITDA at $7 million per clinic, we think the embedded EBITDA could cross the $2 billion threshold in the 2026 year. So, that’s an important sort of data point.

But I think it’s important to recognize that the way that embedded EBITDA really manifests itself can be in these ongoing returns on capital. I would comment that while the return profile might be longer than other deals you have seen in the past, I don’t think it’s atypical of deals that meaningfully improve your strategic positioning as a company.

And I do think it’s important – in fact, I think being overly slavish to deals that only satisfy short-term returns are exactly what can lead to long-term growth problems. And I think we are – this is something that has a lot of long-term growth earnings power. And finally, you had asked about the synergies and some of the kind of accretion dilution.

The synergies are powerful here, and I think it’s one of the things that we are uniquely positioned to deliver on. I have often – when I have talked to all of these companies, they have often said to me like, if I say what do you need to grow faster, and they say members and capital. Well, that’s something we can bring to bear here.

But most of the synergies, probably about 70% of what we talked about, are tied up really in that accelerated growth and the improved retention of MA members. And so when you think about the model here, the J-curve, if you will, this is about moving them along that curve faster.

And in that trajectory, that generally gets closer to breakeven and positive in that year two to year three timeframe. So, that it’s after that, that a lot of these synergies mature.

The way we see that playing out is, I think this would be roughly EPS-neutral probably in like year four of our ownership, thereabouts, and begin to be accretive on an EPS line for year five. But make no mistake, it is improving each year, which is going to help our growth rate between then and now.

And you are building substantial embedded long-term value in that footprint..

Thank you. Our next question will come from Ann Hynes with Mizuho Securities. Your line is open..

Hi. Good morning. Maybe we can shift to retail, our guidance for OP of $5.95 billion to $6 billion.

Can you just let us know how much endemic COVID you have in that guidance? And for 2024 and 2025 expectations, are you assuming that stays flat, or is there any growth in that base business?.

No. So, Ann, for 2023, we have about $500 million to $600 million of what I will call the endemic COVID contribution from the three categories we have been talking about vaccines, diagnostic testing and over-the-counter testing.

It’s important to recognize that, that is significantly down from the contribution that we experienced in 2022, nearly $1 billion down from that. So, we are targeting producing the $6 billion again despite kind of that headwind.

In our forecasting, the general – I would tell you the general targeting as we continue to expect retail to be able to maintain flat. And it’s – we have a declining COVID contribution, and our thinking behind that, that obviously, there is other initiatives.

And I am going to let Michelle and Prem maybe talk about some of the other things that are going on in both the front of the store and the back of the store that are helping the business broadly, but also helping us sort of manage through the decline in COVID contribution..

Hi Ann, it’s Michelle. So, while it’s easy to see we had a really strong financial year and gaining share in both front store and pharmacy, there is a lot of underlying trends that I think are driving the momentum even if COVID slows.

So, if you think about 2022, we grew consumers, we experienced stronger household penetration, and we actually grew service levels and Net Promoter Scores to historically high levels. And so the foundation and momentum has been strong in the front door.

This is coming about because of things like our investments in omnichannel, modernizing our store fleet, improving our merch mix, improving service and even our pricing and promotional strategy. So, this is a kind of underlying momentum and foundation that we think will help us continue our growth trajectory.

But at the same time, we absolutely recognize there is also opportunity to invest in cost structure and productivity improvements. So, we are investing in supply chain, for instance, to optimize, modernize and selectively automate. We believe that will bear a significant return.

We are also finding lots of other opportunities to improve inventory turns and reduce overall product loss. So, it’s this combination of growth on site productivity improvements that we think will continue to fuel our performance not just in 2023, but beyond. So, let me turn it over to Prem..

Yes. Just a couple of other points. Our Q4 market share in pharmacy is now approximately 27%. We grew share another 12 basis points, and we are about 117 basis points higher than the pre-pandemic share. And then secondly, I would say there is two areas we are really focused.

One is on our digital approach and our pharmacies and how we continue to be the most convenient retail destinations for our patients and consumers and really connecting that with our digital strategies. And the second is really around our clinical programs.

We are seeing continued strong adoption of those clinical programs that drive further adherence and retention for our patients. And we are starting to see new therapies also rise.

So, continued strong momentum in retail from a pharmacy perspective, we continue to have extremely strong service levels in our business as well to drive the business forward..

Thank you. Our next question will come from Nathan Rich with Goldman Sachs. Your line is open..

Hi. Good morning. Thanks for taking the questions. Oak Street’s cohort data paints a pretty compelling path just in terms of the embedded EBITDA that is in the centers.

I guess what do you see as the key variables to kind of achieving that kind of J-curve that they have laid out? And you have talked about some of this, but what can CVS do to potentially accelerate that? And then just as a quick follow-up, Shawn, I was wondering if you could just talk a little bit more – in more detail about capital deployment plans in ‘24 and ‘25.

I think you said some modest level of share repurchases in ‘24 and more in ‘25. Can you also talk about maybe what you see as sort of deleveraging our debt pay-down across those years as well? Thank you..

Yes. So, as you mentioned, I think and I can certainly – I think Mike can comment as well, right. Really, the variable, and it’s remarkably consistent, right, over time is the ability to drive membership growth sort of along, to your point, along that sort of J-curve of cohort financials.

And today, I think Oak has done a great job being successful as that and what this deal really opens up, is a lot of new potential pools for members. And I think that will take a lot of different forms, right. There are certainly – well, it’s very much going to be a multi-payer asset.

There is obviously things we can do for plan design offerings to highlight the Oak network or the Oak clinics. We can do that with the Aetna members. I mentioned Signify before as a potential sort of source of members.

But when you just think about the vast array of members that we interact with and the vast array of seniors that we interact with every year across this company, this is a much wider catch basin, if you will, for potential growth.

I also think we can strengthen the value of the offering with our other fulfillment assets around pharmacy and MinuteClinics.

And frankly, I think that will make that offering not only more attractive than the most, but all of the payers who contract with Oak, they will all benefit from what we bring to bear with our retail health strategy and our pharmacy strategy. And I think that is sort of – that is an opportunity there.

On capital deployment, I think as I mentioned, what we expect for this to play out is that over the next couple of years, we will likely be in the mid-3s from a debt-to-EBITDA ratio, and that’s obviously a range is consistent with our current investment-grade ratings, and that is important to us to maintain that rating profile.

Having said that, I still think we have an ample amount of financial flexibility over the next 2 years to 3 years after this transaction. We would – our current projections are – or let me step back, as you mentioned, we have a modest amount of share repurchase in the ‘24, ‘25. Think about that as maybe one point or two points above dilution.

That’s very consistent with what we told you on Investor Day. So, when we think about the flexibility we have, I would say that we would have probably between $4 billion and $8 billion of flexibility over the ‘23, ‘24 window and then that grows more to like the $10 billion to $15 billion of flexibility in the ‘24, ‘25 window.

Timing, obviously still to be determined. But I think that gives us ample flexibility because this is the capital that we could continue to use to return value to shareholders via the dividend, obviously, incremental share repurchases, deleveraging, to your point, or it could be used for other corporate purposes..

So, before we conclude, I want to take this opportunity to thank our CVS Health colleagues for their extraordinary work, bringing our vision to life, improving the health of our customers and delivering on our financial objectives. As you heard today, CVS Health delivered strong results, and we are advancing our strategic initiatives.

We entered 2023 with great momentum, and we are well positioned for growth in our foundational businesses, and we are making continued progress against our strategy. We are so excited about the opportunities ahead of us, including both the Signify and Oak Street Health acquisitions, and we look forward to keeping you updated throughout the year.

Thank you..

Ladies and gentlemen, this does conclude today’s CVS Health fourth quarter and full year 2022 earnings call and webcast. You may disconnect your line at this time, and have a wonderful day..