CVS Health Corporation

Hello and welcome to CVS Health's third quarter 2025 earnings call. We ask that you please hold all questions until the end of the prepared remarks, at which time you'll be given instructions for the question and answer session. As a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I would now like to pass the call to Larry McGrath, Chief Strategy Officer. Larry, please proceed.

Good morning and welcome to the CVS Health Third Quarter 2025 Earnings Call and Webcast. I'm Larry McGrath, Chief Strategy Officer. I'm joined this morning by David Joyner, President and Chief Executive Officer, and Brian Newman, Chief Financial Officer. Following our prepared remarks, we'll host a question and answer session that will include additional members of the leadership team. Our press release and slide presentation have been posted to our website, along with our Form 10-Q filed this morning with the SEC. Today's call is also being broadcast on our website, where it will be archived for one year. During this call, we'll make certain forward-looking statements. Our forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results. 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 risk factors in our most recent annual report on Form 10-K, our quarterly report on Form 10-Q filed this morning, and our recent filings on Form 8-K, including this morning's earnings press release. During this call, we will use non-GAAP measures when talking about the company's financial performance and financial condition. And you can find a reconciliation of these non-GAAP measures in this morning's press release and in the reconciliation document posted to the investor relations portion of our website. With that, I'd like to turn the call over to David. David?

Thank you, Larry, and good morning, everyone. This morning, we are pleased to report another quarter of solid results, once again reflecting the power of our diversified business and progress on becoming the most trusted healthcare company in America. In the third quarter, we delivered adjusted operating income of $3.5 billion and adjusted earnings per share of $1.60. In addition, for the third consecutive quarter, we are increasing our full year 2025 adjusted earnings per share guidance to a range of $6.55 to $6.65, up from our previous range of $6.30 to $6.40. Over the past 12 months, We have been intensely focused on executing against our commitments to our customers, partners, colleagues, and shareholders. We are building momentum across the enterprise and feel a growing excitement about the opportunities ahead for CVS Health. We are incredibly proud of what we have accomplished so far this year. While we are encouraged by our progress, we maintain a disciplined and cautious outlook as we position our business for another year of strong performance in 2026. This transformation is clearly visible within our Aetna business, where after a challenging 2024, there is renewed vigor and optimism about the future. Steve, Katrina, and the broader Aetna team are well on the path to ensuring this business is best in class. The Aetna team continues to drive impactful and exceptional results. Aetna is once again the industry leader amongst national payers for 2026 Medicare Advantage STARS ratings. even with CMS recently announcing that cut points for stars continue to become more challenging. Based on the current membership, we expect over 81% of our Medicare Advantage members will be in plans rated four stars or higher, with over 63% of them in four and a half star plans, nearly double the industry average. This result is not just a point of pride, but another proof point that our ability to effectively collaborate across the enterprise allows us to deliver exceptional quality and service, drive down the cost of care, and remove friction from the healthcare system. We are still in the early stages of the 2026 annual enrollment period, but we remain confident that our thoughtful approach to our geographic footprint, benefit design, and pricing positions us well for another year of recovery. In my first year as CEO, I have pushed our team to act with urgency and focus as we execute on opportunities to improve our business. This means making thoughtful and difficult decisions, such as exiting our individual exchange business or taking advantage of market opportunities like our acquisition of the Rite Aid assets. In a similar way, as we outlined last quarter, we are moving with urgency to address pressures in healthcare delivery. During the quarter, we recorded a $5.7 billion Goodwill impairment within healthcare delivery. I want to be clear that this business's performance in the quarter was in line with our most recent expectations. However, our decision during the quarter to temper Oak Street Health clinic growth over the next few years was the primary reason for recording this charge. Despite this update, value-based care remains a critical component of our strategy. The reasons to believe in this business have not changed, but the marketplace is evolving and we are adapting our strategy to get financial performance back in line with our expectations. We understand the challenges at Oak Street Health and have taken actions to improve performance in both the near and long term. We continue to strengthen our healthcare delivery business through investments in technology, a new leadership team, and a fair and equitable contracts with our payer clients. Turning to pharmacy services, we're incredibly proud of the meaningful impact we've had on drug costs in this country. As you've seen with our recently announced IVF initiative with the administration, we are strong supporters of President Trump's focus on lowering brand prices in America. This is important for our patients, our customers, and for our business model. By tackling branded pharma's inequitable pricing strategies that have left Americans carrying the financial weight of global drug innovation, the government is helping to relieve a longstanding burden on U.S. consumers and businesses. We believe that over time, the administration's actions can create a new lower ceiling price in the U.S. in which PBMs will continue to negotiate and further reduce costs for their customers and consumers. This has been our job for more than three decades, and we have been tremendously successful at achieving durable results. We believe these actions are good for us, for our customers and for consumers, and we are encouraged to see the impact they may create for the industry. As the leading healthcare consumer company, we've been working diligently for years to lead with greater transparency and savings for consumers at the pharmacy counter. We were at the forefront of this transition with more than 25 million members who benefit at the pharmacy counter from our lowest net cost through point of sale rebates. This includes our Aetna fully insured commercial members who we transitioned in 2019 and the benefit design we offer our own colleagues. Two years ago, we continued our innovation leadership when we introduced our new true cost model, which guarantees a net cost for each individual drug delivering drug pricing transparency for our clients and consumers. We are encouraged by recent announcements that others are following us on this path. We know that this is the transition that consumers want and is also important for the future of our business. We're incredibly encouraged by the path Caremark is on. However, we acknowledge there are near-term market dynamics from a few of our client contracts that have resulted in a revision to our guidance and will impact our near-term growth rate. While incorporating this, as Brian will discuss later, we continue to expect meaningful growth in enterprise earnings next year. We are working diligently to recontract over the next few years and resolve this issue. Importantly, clients, including the most sophisticated buyers of pharmacy benefit services, continue to see the tremendous value we provide as evidenced by another strong selling season. We have achieved new client wins of nearly $6 billion and are closing out another selling season with retention in the high 90s. I am incredibly bullish about the road ahead and believe we will continue to lead this industry given our unique advantages and insights. Turning to PCW. Our leadership is clear in the retail pharmacy market as we work towards a more sustainable and transparent future. Our deliberate strategic decisions, intentional investments, best-in-class drug purchasing, and superior customer service have meaningfully improved our differentiated position in the market. Once again this quarter, CVS Pharmacy delivered solid performance, including pharmacy share gains, This is a testament to the strength and scalability of our model, as well as the commitment of our engaged colleagues. We play a critical role in improving the health of millions of Americans by providing convenient health services, including vaccinations. Our 9,000 pharmacies are the front door to our enterprise. They are a differentiator for our business and a force multiplier towards improving the health of the communities that we serve. For CVS Health, being the most trusted healthcare company in America means improving health, simplifying care, and delivering a quality experience every day. We do not take this responsibility lightly, and it is this team's firm belief that we must drive the evolution of healthcare forward in the U.S. We have unique capabilities to achieve all of those goals. The strength of our diversified businesses continue to set us apart. enabling us to deliver strong results, even in this dynamic environment. The progress we've made this year is fueling momentum, and our disciplined execution positions us for another year of strong performance in 2026. We are working to simplify healthcare and are bullish about the opportunities we see to lower the cost of care and drive innovation. Our future is bright because of the work of our more than 300,000 colleagues who take care of their friends, families, and neighbors in communities across our country. We look forward to sharing more on our longer-term plans at our investor day on December 9th. With that, I'd like to hand the call over to Brian.