Guidance

Jan 4, 2018

Summary

FY 2018 adjusted operating profit growth was projected at 1%-4%, with revenue growth of 0.75%-2.5%. Script growth and tax reform were expected to support results, offset by Anthem implementation, RxCrossroads and financing effects.

Ladies and gentlemen, thank you for standing by and welcome to the CVS Health 2018 Guidance Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during this conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded today, Thursday, January 4, 2018. I would now like to turn the conference over to Mr. Mike McGuire, Senior Vice President, Investor Relations. Please go ahead. Thank you, Colin. Good morning, everyone. Happy New Year, and thanks for joining us. I am here this morning with Dave Denton, Executive Vice President and CFO. Larry Merlo, President and CEO, is also with us today and will participate in the question and answer session following our prepared remarks. During the Q&A, in order to provide more people with the chance to ask their questions, please limit yourself to no more than one question with a quick follow-up. Keep in mind that the focus of this call is on our guidance, and we will not be sharing incremental information related to our pending acquisition of Aetna. Please also note that we have posted a slide presentation on our website that summarizes the information in our prepared remarks, as well as some additional facts and figures regarding our operating performance and guidance. The press release we issued earlier today is also available on our website. Please note that today's call is neither an offering of securities nor solicitation of a proxy vote in connection with our announced transaction with Aetna. The information discussed today is qualified in its entirety by the registration statement and joint proxy statement that CVS Health and Aetna have filed with the SEC in connection with our proposed transaction. The shareholders of CVS Health and Aetna are urged to read those filings carefully because they contain important information about the proposed transaction between CVS and Aetna. 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 acquisition, including the expected consumer benefits, financial projections, synergies, financing, 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 may be indicated in the forward-looking statements. We strongly encourage you to review the information in the reports we file with the SEC regarding these specific risks and uncertainties, in particular, those that are described in the risk factor section of our most recently filed annual report on Form 10-K 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 the discussion of these non-GAAP measures and the comparable GAAP measures in the associated slide presentation we posted on the investor relations portion of our website. 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 Dave Denton. Thank you, Mike, and good morning, everyone, and thanks for joining us for a short guidance call this morning. Given our pending acquisition-related filing, we thought it would be appropriate to give the market some additional color around our expectations for both 2017 and 2018 in advance of our fourth quarter earnings call in early February. Given the uncertainty around the timing of the Aetna transaction and the impact that it will have on our financials, we are limiting our guidance to a few key metrics. However, we believe the elements we are providing today will enable you to adequately model our current expectations for the business. With that, let's begin with our outlook for 2017. On our last earnings call for the fourth quarter of 2017, we provided guidance ranges for adjusted earnings per share of $1.88-$1.92 per share. This represents growth of approximately 10%-12.5% over the prior period, with adjusted consolidated operating profit growth of 5.75%-8%. We currently expect adjusted consolidated operating profit and adjusted earnings per share to come in at the lower end of these respective ranges. For the pharmacy services segment, we expect robust mid-teens year-over-year adjusted operating profit growth in Q4, albeit below our guidance range. Our lower expectations in the PBM are mainly due to softer margin performance in our client and retail network claims management process. As a result, we now expect adjusted operating profit growth of about 4% for the full year in the PBM. With respect to the retail long-term care segment, given stronger script performance, we now expect that segment's operating profit growth will be near the high end of our guidance range of down 1% to 3.5% in the quarter. Now, going below the line, our guidance in November included the expectation that we would complete $5 billion of share repurchases in 2017. Given the suspension of the share repurchases program due to the Aetna transaction, we now expect to complete about $4.4 billion in share repurchases for the year. The negative impact from the suspension is expected to be offset by a better-than-expected effective tax rate in Q4. Please note that while we expect to meaningfully benefit from the Tax Cuts and Jobs Act in Q4, we have not included estimates of these benefits as we are still working through the law's impact on our 2017 financial statements. Now, turning to our full-year 2018 expectations, we continue to expect the Aetna transaction to close sometime during the second half of this year. However, given the uncertainty regarding the exact timing of the close, we are assuming for guidance purposes only that the transaction closes after year-end 2018. Additionally, all bridge financing fees, transaction, and integration costs related to the deal are excluded from our adjusted figures. We will also be using the low end of the guidance ranges for the full year 2017 as the jump-off point for our growth expectations. Given these assumptions, we expect the company's full year 2018 adjusted operating profit growth to be in the range of 1%-4%, with consolidated revenues up 0.75%-2.5%. Our 2018 growth will be unfavorably affected by implementation costs for the Anthem contract, as well as the absence of the RxCrossroads business due to its recent sale. The combined negative impact on growth for these two factors is approximately 125 basis points. For the segments, we expect operating profit growth in the retail long-term care segment in the low single digits, with growth in the pharmacy services segments in the low to mid-single digits. Within retail, we expect strong pharmacy comp script growth of 6%-7% as we benefit from the broader partnerships we established in 2017, including those with Optum, Cigna, and Express Scripts, as well as our expanded participation as a preferred pharmacy in more Medicare Part D networks. This additional volume will allow us to increase productivity across our store base. We expect same-store sales to grow in the range of 2%-3.5%. Within the long-term care business, despite lower bed census in the skilled nursing marketplace, we expect solid script growth driven by new initiatives tailored toward assisted living facilities and benefits from acquisition activity. As a result, for the entire retail long-term care segment, we expect revenue growth of 2.5%-4%. The retail long-term care segment is expected to benefit from continued purchasing economics from our Red Oak venture and our enterprise streamlining effort. All in, we expect operating profit growth again in the low single digits. Retail long-term care segment growth is somewhat muted by the sale of RxCrossroads. Not having that business in 2018 creates a headwind of about 50 basis points on the segment's operating profit growth outlook. Now, turning to the PBM, we continue to expect solid top-line growth driven by volume increases in our pharmacy network and specialty, growth in Medicare Part D lives, and favorable purchasing economics. We expect between 1.91 billion and 1.93 billion adjusted claims next year, which yields roughly 8% growth over LY. PBM revenues are expected to grow between 1.5% and 3.5%, which is a bit lower than what we've seen historically and lower than you would expect given the strong script growth. This is driven by a few factors. First, this year we will begin to administer rebates for Aetna's Medicare Part D business under our existing PBM contract. Second, within the specialty business, there has been an increase in generic introductions, which carry a lower average claim price. Third, branded drug price inflation is expected to continue at levels lower than what we've seen historically. Lastly, pricing pressures continue to dampen PBM revenues across the marketplace. As with retail long-term care, we expect the PBM to benefit from the company's enterprise streamlining effort in 2018. It will also benefit from some additional initiatives we've embarked upon, including the automation of the prior authorization process and improvements in workflow efficiencies. As I mentioned earlier, in 2018, we will begin to implement the Anthem business that we will start to administer in 2020. We expect to spend approximately $150 million in costs related to both capital and operating expenses during the year. This level of investment is consistent with other client implementations of this size, scale, and complexity. The investment will dampen PBM operating profit growth by about 190 basis points this year. All in, the PBM operating profit growth is expected to be in the low to mid-single digits. I also want to make you aware of one other item related to streamlining. As we continue our efforts to take cost out and to drive more efficiencies within shared services, a critical step in the process is having the enterprise aligned on a common financial platform. To achieve this step, we have chosen to move to a common platform using SAP. As a result, we expect to have the ability to capture more granular level of information for our enterprise shared service, which may result in some movement of allocated expenses across the segments. However, there is no impact to the enterprise. We expect the transition to occur during 2018, but we do not anticipate material changes to the segments. Going below the line, as we said when we announced the Aetna acquisition, we suspended share repurchases for 2018. We expect to use our cash to pay down debt, pay our $2 per share annual dividend, and eventually fund the purchase of Aetna. Absent the suspension, share repurchases would have contributed between 340 and 610 basis points of growth in adjusted earnings per share. With regards to interest, there are several moving parts related to Aetna, but we expect net interest expense to be in the range of $2 billion-$2.3 billion in 2018. In addition to interest on our existing debt, we will have transaction-related bridge financing fees as well as interest on the new debt to fund the acquisition. The net interest expense on our existing portfolio is expected to be roughly $1 billion. The fees associated with obtaining and maintaining the bridge financing commitment are expected to be in the range of $180 million-$215 million. The remainder is the interest from the new debt. The range takes into account the variability of timing of issuance and interest rates, as well as the mix of maturities. Keep in mind that the bridge financing fees will be excluded from adjusted earnings per share, while the new debt will be included in adjusted earnings per share. Our tax rate will benefit from the tax reform legislation signed into law last month. We expect the rate to be approximately 27% in 2018, taking into account the change in the statutory federal rate, as well as the effect on state taxes and other permanent items. This compares obviously very favorable to our 39%, where we have been hovering for many years. We expect this will represent an increase in annual net income and cash flow of about $1.2 billion. For guidance purposes, our guidance does not include reinvestment of any of this back into the business, but you should consider that we will take advantage of some of the financial flexibility tax reform provides to us by making strategic investments in the growth of our business, including deleveraging our balance sheet more rapidly than we previously planned. We will have more to say about this as we finalize our plans for the year. Most of you are aware that we will be filing our Form S-4 related to the Aetna transaction in the very near future. This filing will contain performance estimates for the next several years that we use as part of the deal process. Given the timing of when those estimates were provided, there are differences between those estimates and our current expectations for 2018 that you should keep in mind. For one, the Anthem implementation costs were not known at the time of the deal. Of course, the S-4 estimates includes the expectations of repurchasing $5 billion of shares and what I will call a normal amount of interest expense, which has all changed as a result of the deal. Finally, the S-4 does not incorporate the benefits from the tax reform. Before we wrap up, while we are not providing Q1 2018 expectations on this call, I want to make you aware that we expect to see our lowest level of year-over-year enterprise operating profit growth in Q1. Operating profit in the retail segment is expected to contract in Q1 as we incur costs associated with the investments we have made to grow that business. However, retail operating profit is expected to improve as the year progresses, as the benefits from our initiatives and network arrangements begin to ramp up. We will provide more details about the company's cadence of profit delivery during the February earnings call. In closing, I want to highlight our success against the four-point plan we put in place at the end of 2016 to return to healthy growth. We said that we would partner more broadly with other PBMs and health plans to leverage our enterprise capabilities and CVS Pharmacy's compelling value proposition, and we are doing just that as we expect to drive script growth through these exciting new partnerships. We said we would be focused on driving growth through PBM innovation, and we have done that through the introduction of new programs, such as Transform Value programs and the new network strategies, such as our performance-based network with CVS, Walgreens, and independent pharmacies. These programs are designed to offer incremental benefits based on outcomes achieved, and we are seeing early interest in them from our clients. Our unmatched ability to innovate our PBM cost management strategies has yielded yet another successful selling season. We said we would continue to be a low-cost provider, and in 2018, we expect to make great strides in achieving incremental benefits through our streamlining efforts across the business. We said we would be thoughtful with respect to using our strong cash generation capabilities to return value, and I believe we've done that through our robust capital allocation program, as well as the pending acquisition of Aetna, which provides for even greater long-term growth. We are pleased with the progress we've made to return to solid enterprise operating profit growth and look forward to the opportunities that lie ahead in our business. With that, I'll now open it up for questions. Thank you very much. Ladies and gentlemen, if you'd like to register for a question, please press the one followed by the four on your telephone keypad. You will hear a three-tone prompt which simply acknowledges your request. If you notice your question or comment has been addressed and you would like to withdraw your registration, please press the one followed by the three. Lastly, if you are using a speakerphone, please lift your handset before entering your request. One moment, please, for our first question. Our first question comes from the line of Ricky Goldwasser with Morgan Stanley. Your line is open. Please proceed with your question. Yeah. Hi. Good morning, and congrats on a good guidance. One question and then a follow-up. When we think about the script growth for 2018, how should we balance between what's coming from the preferred networks that are coming new in the year versus what you think typical organic growth is? Yeah. Ricky, good morning. It's Larry. Actually, Ricky, it's coming from multiple sources. Dave touched on growth coming out of the new PBM relationships along with increased participation in Medicare Part D networks. Also keep in mind that we continue to expand our clinical programs, which are creating script growth. As we've talked many times, Caremark had another successful selling season, and we expect to also see growth coming from those new clients as well as clients that perhaps are in their second or third year of being a new Caremark client. So, it's really a combination of all those factors that are driving the script growth that Dave outlined. Okay. Just like one follow-up on the selling season. I mean, obviously, you are not going to talk about a transaction, but clients that are up for renewal this coming year, what type of conversations are you having with them? Yeah, Ricky, we have got about $38 billion up for renewal, which I know that sounds like a large number, but when you look at our denominator, as a percent of business up for renewal, it is pretty much on par. We have continued to have very productive conversations. We will give updates as we go through the year in terms of where we stand with renewals and what percent of our business has been renewed at that point in time. But, listen, it continues to be a competitive market from a pricing point of view, but again, as we have talked many times, you have got to be right on price, you have got to be right on service, and we continue to have a lot of discussions about other ways in which we can bend the cost curve while providing high levels of service for clients' members. There continues to be interest in some of the value-based contracts, some of the things that Dave touched on. Again, we will have more to say as we go through the selling season. Thank you. Thanks, Ricky. Our next question comes from the line of Lisa Gill with JPMorgan. Your line is open. Please proceed with your question. Thanks very much. Dave, you talked about Anthem, as well as RxCrossroads being 125 basis point headwind. Can you maybe help me to understand what the cost-cutting initiatives are as far as the tailwind in 2018? Yeah. Obviously, in 2017, the cost outweighed the benefits as we look at it. Now, we're shifting where the benefits are outweighing the cost. I would point you back to Analyst Day of a year ago, where we laid out the cadence over the next several years. I would say, if you look at the cadence of delivery from a savings perspective, we are on plan, if not a little bit ahead of plan of taking cost out of the business. But I can't give you much more color than that, Lisa. Okay, great. My follow-up just would be, Larry, you talk about the PBM and you talk about that it's still a really competitive market. As I think about this tax opportunity that you have, how much of that do you anticipate you're going to be able to hold on over time versus it being competed away in pricing? Yeah, Lisa, I just got done mentioning that you got to be right on price, right on service. As we look at making investments back into the business, there are many ways in which you can enhance value for clients. Doing things faster, better, and cheaper is obviously one of those important ways. As Dave mentioned, we're working on a variety of what we see as opportunities to accelerate investments in the business, especially as we think about the opportunities that exist with Aetna. As we finalize those plans, we'll have more to talk about in terms of where we see opportunities to do exactly that. Thank you. Our next question comes from the line of George Hill with RBC. Your line is open. Please go ahead. Good morning, guys, and thanks for taking the question. I guess, Dave, I would kind of start off with below the line, the interest expense guidance. You talked about the billion-dollar run rate on the current book of debt, the bridge financing, and the balance scaling up to two and change. I would think that that gets matched, we should get matched at close to the time when the transaction closes. Am I not thinking about that right, or is there a reason why you guys would be assuming the debt and the service costs well ahead of transaction close? Yeah, George, we'll make sure that we have, I'll say, the permanent financing in place in advance of close. Obviously, the company will need to be an open window to do that. Our expectation is that we would place that debt within the next three to six months. Obviously, the timing of the close of the transaction is still subject to some fluidity, I guess. Okay. No, understood. But then I guess, ex the financing for the transaction, if we're thinking about the 2018 profile in broad strokes, operating earnings for the business are going to grow, call it 2%-3%, underlying interest expense shouldn't change, and inclusive of the tax benefit, which would happen ex the transaction, earnings on the core business should grow high teens, potentially 20%. Am I thinking about that the right way? I think that- There's going to be a share- George, I haven't done the math like that, but I think you're thinking about it appropriately. Because at the end of the day, the tax reform yields about $1.2 billion of net income or gross income, then obviously $1.2 billion in cash flow. Yes. Okay. I guess the last thing I could sneak in is just, can you provide any more color on what's happening in the PBM business in Q4 and the network component of that? I guess, is that a negative mix impact based on utilization, or did something change in a network pricing or a network strategy? Anything you can give there would be helpful. George, it's largely a mix issue. As you know, the mix of utilization by client, by a retail provider can change on you. Obviously, that's a complicated equation as you think about modeling that. You should just expect that that is the lion's share of the impact. George, it's Larry. Those variables, we believe, have been contemplated with regards to 2018. I didn't want to ask one more, but you knew where I was going, Larry. Thank you. Our next question comes from the line of Eric Percher with Nephron Research. Your line is open. Please go ahead. Thanks for the clarity on 2018. I might continue with a little bit of PBM detail. The volume looks quite strong for next year. I wanted to make sure I understand all the mechanics that, Dave, you walked through. I know we had in there the Aetna rebates as well as specialty and brand pricing. Can you walk us through the mechanics at work, particularly with Aetna, volume versus profit? Well, I think what you are seeing there is the rebates, obviously, because we are administering them from a Medicare Part D perspective, buy down the revenue and buy down the cost as we think about it from our financial statements. So that dampens revenue growth, although the scripts maintain the same. Clearly, branded inflation has been running light in comparison to the last several years, so obviously that is a damping effect. As we have discussed a bit, in the specialty business, there are more generics coming to market, both late last year and into 2018. That obviously compresses the revenue line, but it actually enhances the bottom line. And the specialty generic elements, how much of a benefit to profit levels is that relative to traditional generics? Well, obviously, in our business model across all elements, moving from a branded molecule to a generic molecule is helpful, and you should expect that to continue certainly within specialty as well. We have not quantified it specifically, but it is a tailwind to our business if you think about it from that perspective. Eric, just keep in mind that the rate of conversion is not as great in specialty as you would see in traditional pharmacy. Sure. Well, thank you. Thank you. Thanks, Eric. Our next question comes from the line of Glen Santangelo with Deutsche Bank. Your line is open. Please proceed with your question. Oh, yeah. Thanks for taking my question. I just wanted to follow up on the retail segment. Based on some of your prepared remarks, I think you suggested that the EBIT growth in the first quarter in the retail segment would be in negative territory. Larry, I think you sort of said you made some investments that you made in order to grow that business. I interpret that to mean some price concessions maybe you made. We heard from your two closest competitors in the past 24 hours with respect to their sort of nuanced views with respect to reimbursement and pricing and stuff. Maybe just coming through this selling season and competing to be in those preferred networks in the Part D business, could you maybe just give us your take on the overall environment right now in terms of the competitive pressures, or do you think they're accelerating? Do you think they're abating? And how should we think about the outlook going forward? Yeah, Glen, I think, again, as you've heard us say many times, it continues to be a competitive marketplace. I wouldn't say that the level of margin compression is accelerating. I think that you've got the issue of ongoing margin compression and what are the offsets associated with that. I think in Dave's prepared remarks, to some degree, what he was alluding to in terms of the investments is that you're seeing us make some marketing investments, especially with the Med D and new network arrangements that we want to make sure that there's a high level of customer awareness as we have an opportunity to introduce those programs to new customers. Good. I think also what's important here is, as we become a preferred provider in some of these networks, as you know, there's not a huge network restriction put on those programs. So we actually win share more slowly. It's almost a member-by-member event. So we won't ramp that up as quickly as we would in, I'll say, a commercial network where we have more restrictions from a network perspective. Dave, maybe if I just follow up on one item. The expenses related to Anthem, I think if you take out the 50 basis points for RxCrossroads, it would assume that those expenses are costing you about 75 basis points of operating profit growth this year. Are those expenses just one-time in nature, or will they continue in 2019 or get bigger, or will they decelerate as we head into 2019? They are essentially one-time in nature, but there will be some in 2018, likely some in 2019 as we implement for 1/1/20. Okay. Thank you very much. Our next question comes from the line of John Ransom with Raymond James. Your line is open. Please go ahead. Hi. Good morning. Good morning. Sorry, taking off the speaker. One of the things that's been confusing us is the difference between the cash tax rate and the GAAP tax rate with the CapEx deduction. Have you guys done any work to try to figure that out? We haven't yet. That's partly why we didn't really talk about 2017, because as you know, we will have benefits as we true up the deferred tax asset on our balance sheet, and that will flow through Q4. We're still working through that at this point in time. More to come. Obviously, it's not that in 2017, the non-cash item, but it will have an effect on the face of the P&L. I have to say, I am kind of disappointed in you, Dave. I was looking for some help. I will continue to sit here in the dark then. Get your Excel spreadsheet out, John. That is all I have. Thank you. Thanks, John. Our next question comes from the line of Charles Rhyee with Cowen. Your line is open. Please go ahead. Yeah, thanks. Just a couple quick questions on, I guess, as it maybe relates to Aetna. As you're in discussions early in the selling season, maybe you can give a sense at all how any kind of discussions with other partners have been in light of the transaction. Then secondly, when we think about some of the benefits coming from taxes, and you think about reinvestment, can you give us a sense on any kind of early work you might consider doing on the retail side in preparation for that as we think about how we sort of extend, do more of the retailization of healthcare into the retail setting? Thanks. Yeah, Charles, it's Larry. In response to your first question, I mean, after we had the Aetna announcement in early December, we had a pretty robust communication strategy with all of our health plan and employer clients. The reaction, I would describe it as ranging from interest in learning more about how we can create value for them and their members to very supportive and excited about the opportunity. So, I think there's going to be ongoing dialogue that as the healthcare market continues to evolve and new models are being created, there's going to be more levels of partnership and at the same time, competition where we can partner with a company in one area of the business while competing against them in another. We've talked a lot about Medicare Part D as an example of that, where we've been able to grow SilverScript and at the same time manage the Med D benefit for more than 40 health plan clients now, and demonstrate that utilizing our capabilities, they can grow faster than the market. We've got more than 80% of our Med D lives in a four or five-star performing plan, so we're pretty proud of that. So, I would say that the feedback has been very positive to date. Your second question, Charles, on tax, and I think Dave and I will tag-team this one. I think I mentioned in an earlier question that the opportunities to accelerate, especially with the opportunities that we see in mind with Aetna, whether it's the expansion of MinuteClinics, the opportunities to broaden the level of services provided in MinuteClinic, those are things that are certainly on our list, as well as the ongoing evolution of our retail footprint. Certainly, that's helpful. Then maybe one follow-up, Dave. You talk about the 27% tax rate here under your expectations on the tax reform. Any reason why it might not be lower than that, given, if I'm not mistaken, the headline corporate tax rate at 20? Is that just all different at the state level then? Maybe you can help us Yes, I clear that. Yeah, I think that what you're largely seeing is the effect of going down from a federal perspective to 21, but obviously the state taxes, the impact of that actually is somewhat negative, goes the other way. So, 27% is our best estimate at this point in time. I think we feel pretty confident in that as we look to 2018. Great. Thanks a lot, guys. Okay, thanks. Our next question comes from the line of John Heinbockel with Guggenheim Securities. Your line is open. Please go ahead with your question. I am curious, how steep is the sequential ramp in comp scripts in the retail business next year? Right, obviously, you think about that 6%-7%, it would have to be, I would think, less in the first half, more in the second. But how steep is that? Yeah, we will give you more color on that as we get to Q1, or excuse me, Q4 earnings call. We will give a little bit more color on that. But clearly, think about it as ramping up through the year, without a doubt, as we gain share, particularly in Medicare, because again, that happens patient by patient throughout the year. And when you guys think about the investment, right, price concessions to pick up these lives, I mean, how do you think about the ROI on that? Obviously, it is a somewhat sticky business and there is a value of a lifetime customer. But is there a good analytical process to go through and look at one type of concession versus another, one plan versus another? Yeah, we have been pretty diligent on that. We actually underwrite all of our network strategies, both from a retail perspective as we lean into either preferred relationship or a restricted relationship in the commercial line of business. And we do look at it over multiple years. I think what we are going to begin to see, John, a little bit, it is not necessarily even a rate conversation. It is beginning to move to a value conversation and outcomes, because to the degree that if we are in network and we can demonstrate performance, particularly in adherence, we can drive the Star metrics that drive incremental value into the system for our partners, that is where we are moving to, and I think we have been pretty successful at demonstrating our value in that spot. Okay, thank you. Welcome. Our next question comes from the line of Mohan Naidu with Oppenheimer. Your line is open. Please proceed with your question. Thanks for taking my questions. Dave, I just want to go back onto the PBM segment for a quick question there. You discussed the four buckets that is impacting the PBM growth, revenue growth, despite having a strong claims growth. How should we think about these as a long-term concern versus just intermediate concerns, or do you see any opportunities to counter these? So that your claims growth can actually reflect much better revenue growth. Yeah, I would actually not look at them as a concern. I think if you look back, even in our retail business or our PBM business over the last five or six years, you've seen the introduction of generics coming to the marketplace really dampen the top line, but it affect us in a positive way, the bottom line. So, I think the revenue growth, the dollar revenue growth might give you a false positive or negative if you think about that. So, I would look at this as an opportunity, and I do think you're going to see continued dampening going forward as you think about the pipeline of generics still coming into the marketplace over time. Got it. Thanks a lot, Dave. You're welcome. Take care. Our next question comes from the line of Brian Tanquilut with Jefferies. Please go ahead with your question. Hey, good morning. Dave, just a really quick question on the retail side in terms of same store. How are you thinking about the front end same store performance for this year? Yeah, we don't really guide to that metric, but you'll certainly see it as we progress through the year. As you know, we've been pretty, I guess, disciplined as we think about our promotional spend in the front. We've probably given up some comp store sales volume, but have actually enhanced our margin profile over the last several years. I do think you'll see us going forward, our performance in the front to be a little bit better as we think about 2018 and 2019 going forward than what we've seen over the past, as we've kind of cycled, if you will, the pullback on those promotional strategies. Brian, we've continued to get very good learnings from our personalization efforts as well. I think to Dave's point, I think a lot of the strategy work is behind us. We expect the trends to be better than they've been the last two years. Sounds good. Thanks, guys. Thank you. Take care. Our next question comes from the line of Robert Jones with Goldman Sachs. Your line is open. Please go ahead. Hey, thanks for the question, guys. A lot of the ones I had obviously have been addressed, but I guess, Dave, just hard not to notice the absence of EPS guidance specifically, and I know you've given us a ton of the pieces to get there, but just curious on the thought process behind not just putting out the specific EPS range. And then, are those targets, are the EPS targets something we should expect to see in the S-4? Well, I'll hold my comments till you take a look at the S-4 when it comes out. But I will say that the reason why we didn't give those EPS ranges, just given the elements that I walked through, the range would be pretty large and pretty wide, so I didn't think it was as useful to look at it from that perspective. So, I think it was better for us, and I think for you guys, to look at how we're performing within our overall business on an operating level and in your segments on an operating profit level, and that will measure the health of our business and how we're performing over time. I think those are just better metrics as we think about 2018, just given all the timing movements in our business below the line. Understood. Thanks. Thank you. Our next question comes from the line of Scott Mushkin with Wolfe Research. Your line is open. Please go ahead. Hey, guys. Thanks for taking my questions. So just two things. Number one is, you got Walgreens is going to be shutting down a lot of stores. That's usually been a positive for the person competing mostly against them. How are you guys thinking of that? Have you put any of that in your guidance? That's question number one. And then the second question is, on that $1.2 billion kind of bucket, how are you guys just thinking about it versus paying down debt and reinvesting? Just kind of what's the decision process there as you're going to go through? Thanks. Yeah, Scott, it's Larry. I'll take the first one. Scott, listen, you're right. We know that as you look historically in the marketplace, as stores close and those prescription files move to another location, there is rarely 100% retention to that new location. Yes, we see that as an opportunity in the marketplace. Obviously, we think we've reflected that with expected script growth of 6%-7%. As far as the benefits of tax, Scott, earlier, we touched on some of the thoughts that we have that we're working through in terms of how we would accelerate investments back into the business. Especially with that in mind, I'll flip it over to Dave, and he can provide his context in terms of the debt impact of that. Yeah. Scott, obviously, there's some portion of that cash flow that we'll use to essentially fund the transaction into the lever. Keeping our balance sheet healthy is really important to us, and we've committed to get ourselves back into the zip code of 3.5 times leverage in the next couple years post-close. We're very focused on that, and to the degree we can do that more rapidly, we'll be focused against anything we can do there. Obviously, there are opportunities to make some strategic investments in projects that ultimately drive down cost in the healthcare system, increase engagement with consumers at the retail stores and clinics, and ultimately drive better outcomes from a health perspective. Obviously, we're going through a set of priorities at the moment, and the teams are working on what we need to make in the near term, particularly in light of the pending acquisition over the next several months. More to come as we think about this and as we get our planning underway. All right, perfect. Thanks, guys. You got it. Thanks, Scott. Our next question comes from the line of Kevin Caliendo with Needham. Your line is open. Please go ahead. Hi. Thanks, guys. Thanks for taking my call. You mentioned the $34 billion in PBM business that's out for bid. Can you break it down a little bit in terms of how much of that is health plan, how much of that might be state or employer? Is there any sort of color you can provide around that? Kevin, it's Larry. I don't have the exact numbers, but I think if you look historically, the selling season is pretty evenly split across the segments. I wouldn't expect this to be any different this year. Okay. Just one question about the, in terms of the timing of the debt, bringing the debt on. To get to your sort of interest expense ratio, it sounds to me or it seems to me like that you would be taking that debt on the balance sheet somewhere in the second quarter, roughly. Is that a fair way to think about it? Is there anything that could change that timing in terms of- Yeah, I would say that's probably a good estimate. We've kind of said within the next three to six months. It will obviously depend on, again, the company needs to be in an open window. We'll look at the market conditions to make sure from a capital markets perspective, the market's robust. But my guidance range from that perspective really assumed a three to six-month window. Okay. Great. Thanks so much, guys. We're going to take two more questions. Thank you. Our next question comes from David Larsen with Leerink. Your line is open. Please go ahead. Hi. Congratulations on the 6%-7% volume growth for 2018. That looks fantastic. I think that compares to like minus 3% in 2017. I mean, as we think about a steady state going forward into 2019, are there significantly more narrow network contracts that you can enter into to continue that or maintain that type of growth rate? Any thoughts on how far along or how penetrated you are in that region of the market? Thanks. David, it's Larry. I think that will continue to be an ongoing discussion. I mean, if we look at Maintenance Choice as an example, we still see some open runway for additional adoption. As you heard Dave mention earlier in the prepared remarks, we have some new network designs that are more performance or value-based networks that out of the gate is getting a lot of interest. We will see what transpires over the course of the year. I do think that there is open road in front to see more adoption around that. Okay, great. Thanks very much. Thanks, Dave. Our final question comes from the line of Brian Callen with Bank of America Merrill Lynch. Your line is open. Please proceed with your question. Hi. Good morning. Thank you. Just another one on the net interest expense and the new debt. I guess, Dave, can you discuss your thoughts on using special mandatory redemptions or not having them in certain debt tranches, given some of the regulatory challenges with vertical M&A recently? How that might relate to your 2018 debt maturities or any liability management exercises that you could do? Yeah. We will be paying down debt that matures in 2018 with cash on hand. Obviously, I think it's prudent to have redemption in many of the tranches of the debt that we will offer, just as an insurance policy, so you should expect that. Obviously, the market's not That doesn't happen in all tranches because of market conditions, but you should expect us to do that. Okay. Thank you very much. You are welcome. Thank you. I just want to say thank you for everybody joining us on very short notice. I appreciate all the questions and look forward to seeing you all shortly. Take care. Thanks, everybody. Thank you. Ladies and gentlemen, that does conclude the conference call for today. Thank you all for your participation. You are now free to disconnect your lines.