CVS Health Corporation

Hello and welcome to CVS Health's fourth quarter 2025 earnings call. We ask that you please hold all questions until the end of the prepared remarks, at which time you will 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 fourth quarter 2025 earnings call and webcast. I'm Larry McGrath, Executive Vice President of Capital Markets at CVS Health. I'm joined this morning by David Joyner, Chair 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-K filed this morning with the SEC. Today's call has also been broadcast on our website. 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 recent SEC filings, including in our annual report on Form 10-K. During this call, we'll use certain non-GAP measures, and you can find a reconciliation of these non-GAP 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. I want to start today by recognizing that 2025 was a meaningful year of progress for CVS Health. As I close out my first full year as CEO, I'm encouraged by our ongoing work to simplify the healthcare experience and make healthcare more affordable and accessible for American families. However, the healthcare experience is still not where it needs to be. Our leadership team and our 300,000 colleagues work hard every day to make it better and to realize our ambition of becoming America's most trusted healthcare company. I'm also proud of our progress, strengthening our operations and driving improved financial performance. This morning, we are pleased to once again report another quarter of strong results. In the fourth quarter, we delivered adjusted operating income of $2.6 billion and adjusted earnings per share of $1.09. We are also reaffirming our full year 2026 adjusted EPS guidance range of $7 to $7.20, that we shared at our investor day in December. For full year 2025, we delivered adjusted earnings per share of $6.75 and operating cash flow of $10.6 billion, exceeding our initial expectations coming into the year for adjusted EPS by approximately 15% and meaningfully outperforming our expectations on cash flow. We still have an incredible amount of earnings power to unlock across our diversified business, but our progress to date has been impressive. In our Aetna business, we dramatically improved our financial results, delivering a year-over-year adjusted operating income improvement of over $2.6 billion. We refreshed our leadership team, improved our culture, and strengthened our key points of distinction, including the capabilities that enabled our leading stars position among national payers. We entered 2026 with significant momentum and expect this year to be another strong step forward on our path to target margins. Our efforts are being recognized in the market. Recently Aetna received the inaugural Press Ganey Health Plan of the Year Award. This award acknowledged us for our high quality offerings, technological innovation and the best in class experiences we deliver to our members, partners and providers. This recognition validates the disciplined execution and relentless commitment of our colleagues and is a powerful proof point that we are making progress, driving distinction, and improving simplicity in healthcare. Before I highlight some of the successes in our pharmacy businesses, I want to spend a moment on the 2027 Medicare Advantage Advanced Rate Notice. The proposed rate simply does not match the level of medical cost trend in the industry. We are advocating for more appropriate funding to ensure adequate access as well as the stability and sustainability of a program relied on by more than half of the seniors in this country. While the advance rate notice is disappointing, our commitment to margin recovery at Aetna is unchanged. We remain laser focused on improving margins in our Medicare business while ensuring we have a sustainable and compelling product offering. We strongly believe the Medicare Advantage program delivers better outcomes at lower costs when compared to the traditional fee-for-service model. At CVS Health, we have multiple capabilities focused on serving MA members, collaborating with their health plans, and supporting the Medicare Advantage program overall. We support CMS's desire to align diagnosis to encounters with medical professionals. We see the value of these encounters every time one of our Signify clinicians enters the home of the more than 3.5 million consumers we serve each year. Signify plays a critical role in providing increased access to provider-led health evaluations, particularly to members in rural areas or those who may have barriers to office visits. These in-home visits include all the components of a typical annual wellness visit, in addition to capturing the social aspects of a member's health. Through these encounters, we are also able to facilitate connections back into the healthcare system to close gaps in care. Last year, our providers supported over 500,000 of these brief connections, including nearly 100,000 urgent escalations. Signify plays an important role in making sure Aetna and other health plan partners understand the holistic health of their members. which is critical to ensuring they receive appropriate care. Signify leaves this market because of our focus on innovating to meet the needs of the seniors who welcome us into their homes. We will continue this innovation to ensure we support our clients and their members. We are aligned with CMS and recognize the significant benefits of value-based care and its ability to deliver significant savings and better engagement and outcomes. While Oak Street Health represents a relatively small portion of our enterprise today, we are focused on thoughtfully expanding the number of patients we serve. We have taken steps to position ourselves for a more sustainable and attractive business over the long term, and we will continue making leading models like Oak Street's available to more seniors. Turning to our pharmacy businesses, we've made significant progress in 2025. The value proposition of Caremark and our pharmacy services businesses is more important today than it ever has been. Branded drug manufacturers continue to increase prices and put untenable strain on the U.S. health care system. Brandless price increases have outpaced inflation by an average of 4% per year since 2012. And so far in 2026, branded manufacturers have made more than 750 drug price increases, adding 25 billion of costs to the healthcare system with no added value. A relentless pursuit of driving savings and delivering the lowest possible net cost to our clients and their members is a critical check on the monopolistic tendencies of branded drug manufacturers. We use every tool at our disposal to achieve this goal. including our ability to generate competition among manufacturers, our innovative and transparent PBM model, our industry-leading specialty pharmacy capabilities, and our unique position in the biosimilar market. Our offerings are resonating with new and existing clients who rely on us to manage the pharmacy benefit and partner with us to achieve their goals. Caremark's priorities have remained consistent, and this business has been adaptive to client needs and market dynamics. This includes regulatory changes, and our perspective here is clear. We support legislation that does not impact our ability to create competition in the supply chain. We also support legislation that creates greater transparency for all stakeholders, including consumers, and enables savings to be seen directly at the pharmacy counter. We believe the recent regulatory changes impacting the commercial market are manageable, particularly given the timeline for implementation. The changes are closely aligned to where we believe the industry needs to go and to the core principles of our true cost model. We have been moving in this direction since we announced true cost in December of 2023 and hope this legislation will lead to greater adoption of this model. This legislation will accelerate transparency and puts the focus back on what matters most in the market, ensuring patients access the right medicine at the lowest possible cost and delivering superior experiences. Caremark consistently evolves to respond to our clients' needs and drive changes in the market. We did this two years ago with TrueCost and continue to do this today, including our work with the administration and our role as a key pharmacy partner to TrumpRx, helping to enable greater access and affordability of fertility medicines. This is a business that has regularly and proactively adapted to many market and regulatory changes over the last few decades, Importantly, our margins have remained durable as the value we deliver is vital to achieving prescription affordability in this country. And finally, CVS Pharmacy exceeded expectations in 2025 and established a new trajectory of at least flat earnings annually starting in 2026. This turnaround reflects our consistent investments in colleagues, technology, and the consumer experience. These were important and deliberate actions to transform consumer engagement at a national scale and community pharmacies. They also ensure we maintain our position as a trusted provider in the local communities we serve. And importantly, I'm pleased to say that we have successfully completed the transition to a cost-based reimbursement. This was a significant step in creating a more transparent and stable pharmacy market for the long term. and I'm proud of our team's ability to deliver on this important commitment to you. The strong foundation we built in 2025 gives me confidence in our path forward. As we look ahead to 2026, we will continue building momentum and expect another year of meaningful progress as we execute against our multi-year objectives. Our commitment to re-imagining the healthcare experience has never been stronger. we are taking a lead to address some of the biggest challenges in the U.S. healthcare system, its cost, its complexity, and the fragmentation that exists today. By combining our unique set of enterprise capabilities, we can provide a connected solution for consumers that deliver better experiences and improve health outcomes at lower cost. Aetna members who have a combined medical and pharmacy offering have lower medical costs. Adetna members who consistently use CVS Pharmacy have higher medication adherence and lower ER utilization. Through the combination of Cordovus, Caremark, and CVS specialty, we are able to seamlessly transition share to low-cost biosimilars. Our Humira biosimilar strategy allows us to drive 96% adoption of a low-list price biosimilar, with more than 80% of the members paying $0 out-of-pocket. This ultimately created more than $1.5 billion in savings for our clients and their members. These are strong examples of the value we can deliver with the power of our combined enterprise. We continue to focus on improving connectivity between our businesses, using technology to support greater interoperability, and facilitate a common experience which will ultimately make healthcare easier to navigate. By creating consumer engagement points and greater connections across our unique and impactful collection of capabilities, we can help improve consumer trust, lower costs for members and clients, and better support the professionals who dedicate their lives to making people healthier. All of us as consumers of healthcare are experiencing the same growing affordability pressures that have been escalating for decades. To address this, we need to collectively have a transparent and honest dialogue about what is and what isn't driving up healthcare costs. Brand drug manufacturers raise prices. Hospitals raise prices. CVS Health lowers costs and drives affordability. We create competition and negotiate with providers and drug manufacturers, which directly lead to lower costs for consumers. Aetna's network negotiations resulted in over $235 billion of savings for our members and clients. Caremark's negotiations with drug manufacturers deliver an incremental $45 billion of annual savings. Together, that's over $280 billion of annual savings we generate for our clients and members. Additionally, our care management programs, our local pharmacists, and our value-based care providers use clinical interventions and proactively manage the health of our members and patients to keep them healthy and avoid costly conditions. And our pharmacy businesses utilize their positions as some of the largest purchasers of pharmaceuticals in the world, as well as their sophisticated technology capabilities to drive savings for our clients and ensure patients can get the right medications at the lowest possible cost. The work we do is critical to counterbalance the inflationary pressure that gets placed on the systems by hospitals, branded pharmaceutical manufacturers, and others who, unlike CVS Health, are incentivized to raise the cost of health care. Across our businesses, we are also working to make the healthcare system easier to navigate. This starts with reducing the administrative obstacles that frustrate doctors and complicate treatment. Our Aetna business has the fewest medical services subject to prior authorization, about half as many as our nearest competitor. Additionally, 95% of eligible prior authorizations are approved within 24 hours, with many completed instantaneously. We are making the process simpler, faster, and less costly. We've previously highlighted the work we've done to streamline prior authorizations for musculoskeletal and oncology patients. Our condition-specific bundled prior authorizations replace the multiple approvals with just one, allowing us to expedite care, reduce frustration, and improve health outcomes. We've also begun to expand this approach for certain conditions and procedures such as IVF. combining authorizations for both medical care as well as the drugs required for treatment. Finally, as we talked about at our investor day, we are using our deep consumer engagement and extensive technology to address the lack of interoperability within the healthcare system. We continue to work diligently to unlock the potential value of this opportunity and look forward to providing you with updates. And in closing, I'm proud of what this team and organization accomplished in 2025. When I took this role, there were clearly more questions than answers about our businesses, our performance, and our strategy. As you can see, we are answering those questions with confidence and strong performance. We are building significant momentum by strengthening our operations, expanding our capabilities, and improving our financial performance. We share many of the same goals as the administration when it comes to improving the health care system and are uniquely positioned to deliver better outcomes and experiences at lower cost for our consumers, patients, members, and clients. We are on the right path, and I'm excited about where we're headed. With that, I'll turn it over to Brian to walk through our financial details.