Q4 2025 CVS Health Corp Earnings Call

February 10, 2026

Speaker #1: 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.

Speaker #1: 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

Speaker #2: Good morning, and welcome to the

Speaker #2: CVS HEALTH 4th Quarter proceed. 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.

Speaker #2: 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.

Speaker #2: 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 currency-projected results.

Speaker #2: 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.

Speaker #2: During this call, we'll use certain non-GAAP measures 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.

Speaker #2: With that, I'd like to turn the call over to David. David?

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Q4 2025 CVS Health Corp Earnings Call

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Q4 2025 CVS Health Corp Earnings Call

CVS

Tuesday, February 10th, 2026 at 1:00 PM

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Operator: Branded drug manufacturers continue to increase prices and put untenable strain on the US healthcare system. Branded price increases have outpaced inflation by an average of 4% per year since 2012. So far in 2026, branded manufacturers have made more than 750 drug price increases, adding $25 billion of cost to the healthcare system with no added value. Our 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.

Operator: 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. CVS Caremark's priorities have remained consistent, and this business has been adapted 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.

David Joyner: 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. CVS Caremark's priorities have remained consistent, and this business has been adapted 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.

Operator: We have been moving in this direction since we announced TrueCost in December of 2023 and hope this legislation will lead to greater adoption of this model. This legislation will accelerate transparency and put 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. CVS Caremark consistently evolves to respond to our clients' needs and drive changes in the market. We did this 2 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 Trump Rx, 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.

Operator: 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 in 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.

Operator: 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 reimagining the healthcare experience has never been stronger. We are taking a lead to address some of the biggest challenges in the US healthcare system: its cost, its complexity, and the fragmentation that exists today. By combining our unique set of enterprise capabilities, we can provide a connective solution for consumers that deliver better experiences and improved health outcomes at lower cost. Aetna members who have a combined medical and pharmacy offering have lower medical costs. Aetna members who consistently use CVS Pharmacy have higher medication adherence and lower utilization.

Operator: Through the combination of Cordavis, CVS Caremark, and CVS Specialty, we are able to seamlessly transition care 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.

Operator: 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. CVS 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.

Operator: 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. 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 healthcare. 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.

Operator: 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 bundle prior authorizations replace the multiple approvals with just one, allowing us to expedite care, reduce frustration, and improve health outcomes. We have 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.

Operator: We continue to work diligently to unlock the potential value of this opportunity and look forward to providing you with updates. 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 healthcare system and are uniquely positioned to deliver better outcomes and experiences at lower costs for our consumers, patients, members, and clients. We are on the right path, and I'm excited about where we're headed.

Brian Newman: Thank you, David, and good morning. I will cover three key topics in my remarks this morning. First, an update on our full year and fourth quarter results. Then I'll discuss cash flow and the balance sheet. And finally, I'll wrap up briefly discussing our latest thoughts on our outlook for 2026. As David mentioned, 2025 was a strong year of progress at CVS Health. We made meaningful strides to ensure each of our businesses is best in class and are continuing to advance our ambition to become America's most trusted healthcare company. Importantly, we did all this while delivering on our financial commitments in spite of unexpected challenges in some of our businesses. In 2025, we delivered full year revenue of over $400 billion, adjusted EPS of $6.75, and operating cash flow of $10.6 billion, all of which meaningfully outperformed our initial expectations for the year.

Tom Cowhey: Thank you, David, and good morning. I will cover three key topics in my remarks this morning. First, an update on our full year and fourth quarter results. Then I'll discuss cash flow and the balance sheet. And finally, I'll wrap up briefly discussing our latest thoughts on our outlook for 2026. As David mentioned, 2025 was a strong year of progress at CVS Health. We made meaningful strides to ensure each of our businesses is best in class and are continuing to advance our ambition to become America's most trusted healthcare company. Importantly, we did all this while delivering on our financial commitments in spite of unexpected challenges in some of our businesses. In 2025, we delivered full year revenue of over $400 billion, adjusted EPS of $6.75, and operating cash flow of $10.6 billion, all of which meaningfully outperformed our initial expectations for the year.

Brian Newman: This is a direct result of the various actions we took to strengthen our operations and drive improved performance in 2025. Turning now to fourth quarter results specifically, we ended the year with another strong quarter. We generated over $105 billion of revenue, an increase of over 8% over the prior year quarter, driven by growth across all operating segments. We delivered Adjusted operating income of approximately $2.6 billion and Adjusted EPS of $1.9. While these results were ahead of our expectations, they were modest declines from the prior year quarter. This was primarily driven by the expected decline in Adjusted operating income in our healthcare benefits segment as a result of changes in the seasonality of the Medicare Part D program due to the impact of the Inflation Reduction Act.

Tom Cowhey: This is a direct result of the various actions we took to strengthen our operations and drive improved performance in 2025. Turning now to fourth quarter results specifically, we ended the year with another strong quarter. We generated over $105 billion of revenue, an increase of over 8% over the prior year quarter, driven by growth across all operating segments. We delivered Adjusted operating income of approximately $2.6 billion and Adjusted EPS of $1.9. While these results were ahead of our expectations, they were modest declines from the prior year quarter. This was primarily driven by the expected decline in Adjusted operating income in our healthcare benefits segment as a result of changes in the seasonality of the Medicare Part D program due to the impact of the Inflation Reduction Act.

Brian Newman: These decreases were partially offset by improved underlying performance in our government business within our healthcare benefits segment, as well as increases in adjusted operating income in our health services and pharmacy and consumer wellness segments. Finally, during the quarter, we generated cash flow from operations of approximately $3.4 billion. Turning now to each of our segments. In healthcare benefits, we generated over $36 billion of revenue in the quarter, an increase of over 10% from prior year. This increase is primarily driven by our government business, largely due to the impact of the IRA on the Medicare Part D program. We ended the year with approximately 26.6 million medical members, a slight decline sequentially, and a decrease of approximately 500,000 members from the prior year. The year-over-year decrease is primarily driven by declines in our individual exchange and government businesses, partially offset by growth in our commercial fee-based membership.

Tom Cowhey: These decreases were partially offset by improved underlying performance in our government business within our healthcare benefits segment, as well as increases in adjusted operating income in our health services and pharmacy and consumer wellness segments. Finally, during the quarter, we generated cash flow from operations of approximately $3.4 billion. Turning now to each of our segments. In healthcare benefits, we generated over $36 billion of revenue in the quarter, an increase of over 10% from prior year. This increase is primarily driven by our government business, largely due to the impact of the IRA on the Medicare Part D program. We ended the year with approximately 26.6 million medical members, a slight decline sequentially, and a decrease of approximately 500,000 members from the prior year. The year-over-year decrease is primarily driven by declines in our individual exchange and government businesses, partially offset by growth in our commercial fee-based membership.

Brian Newman: The segment generated an adjusted operating loss during the quarter of $676 million, a modestly higher loss than the prior year quarter, primarily driven by changes in the seasonality of the Medicare Part D program. This result also reflects a deterioration of our risk adjustment position in our individual exchange business and a provision for increased flu activity observed late in the quarter. Partially offsetting these items was improved underlying performance in our government business. Our medical benefit ratio in the quarter was 94.8%, consistent with the prior year quarter. This result was impacted by all the drivers I just described, in addition to the impact of Medicaid pass-throughs that came in the last few days of the year.

Tom Cowhey: The segment generated an adjusted operating loss during the quarter of $676 million, a modestly higher loss than the prior year quarter, primarily driven by changes in the seasonality of the Medicare Part D program. This result also reflects a deterioration of our risk adjustment position in our individual exchange business and a provision for increased flu activity observed late in the quarter. Partially offsetting these items was improved underlying performance in our government business. Our medical benefit ratio in the quarter was 94.8%, consistent with the prior year quarter. This result was impacted by all the drivers I just described, in addition to the impact of Medicaid pass-throughs that came in the last few days of the year.

Brian Newman: The combination of fourth quarter items related to Medicaid pass-throughs, our updated risk adjustment proposition, and our provision for the flu resulted in an approximately 20 basis point impact on our full year MBR of 91.2%. While this result was slightly higher than the expectations we provided in early December, I want to be very clear: medical cost trends in the quarter remained elevated across all products but were broadly in line with our expectations. Days' Claims Payable at the end of the quarter was approximately 38.9 days, a decrease of approximately 3.6 days sequentially, primarily driven by the utilization of premium deficiency reserves established in the first half of 2025, as well as continued improvements in claims processing. Excluding the impact of the PDRs, the sequential growth in reserves was consistent with the growth in premiums. We remain confident in the adequacy of our reserves.

Tom Cowhey: The combination of fourth quarter items related to Medicaid pass-throughs, our updated risk adjustment proposition, and our provision for the flu resulted in an approximately 20 basis point impact on our full year MBR of 91.2%. While this result was slightly higher than the expectations we provided in early December, I want to be very clear: medical cost trends in the quarter remained elevated across all products but were broadly in line with our expectations. Days' Claims Payable at the end of the quarter was approximately 38.9 days, a decrease of approximately 3.6 days sequentially, primarily driven by the utilization of premium deficiency reserves established in the first half of 2025, as well as continued improvements in claims processing. Excluding the impact of the PDRs, the sequential growth in reserves was consistent with the growth in premiums. We remain confident in the adequacy of our reserves.

Brian Newman: Shifting now to our health services segment. During the quarter, we generated revenues of over $51 billion, an increase of 9% year-over-year. This increase was primarily driven by pharmacy drug mix and brand inflation, partially offset by continued pharmacy client price improvements. We delivered adjusted operating income of approximately $1.9 billion in the quarter, an increase of over 9% from the prior year quarter, primarily driven by improved purchasing economics, partially offset by continued pharmacy client price improvements. Performance in our healthcare delivery business during the quarter was broadly in line with our expectations. Total revenues grew approximately 21% compared to the same quarter last year, excluding the impact of our exit from our CVS accountable care business. This increase was primarily driven by patient growth at Oak Street Health. Our pharmacy and consumer wellness segment delivered another strong quarter to close out a strong year.

Tom Cowhey: Shifting now to our health services segment. During the quarter, we generated revenues of over $51 billion, an increase of 9% year-over-year. This increase was primarily driven by pharmacy drug mix and brand inflation, partially offset by continued pharmacy client price improvements. We delivered adjusted operating income of approximately $1.9 billion in the quarter, an increase of over 9% from the prior year quarter, primarily driven by improved purchasing economics, partially offset by continued pharmacy client price improvements. Performance in our healthcare delivery business during the quarter was broadly in line with our expectations. Total revenues grew approximately 21% compared to the same quarter last year, excluding the impact of our exit from our CVS accountable care business. This increase was primarily driven by patient growth at Oak Street Health. Our pharmacy and consumer wellness segment delivered another strong quarter to close out a strong year.

Brian Newman: We generated revenues of nearly $38 billion, an increase of over 12% versus the prior year quarter, primarily driven by pharmacy drug mix and increased prescription volume, including incremental volume resulting from the Rite Aid transaction. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic drug introductions. On a same-store basis, total revenues increased 16% in the quarter. Same-store pharmacy sales grew over 19% compared to the prior year quarter, driven by pharmacy drug mix and a nearly 10% increase in same-store prescription volumes. Same-store front-store sales increased 50 basis points versus the prior year quarter. Our retail pharmacy script share in the quarter grew to over 29%, supported by our continued focus on delivering superior customer experiences, which drove organic growth, as well as the contribution from the Rite Aid transaction.

Tom Cowhey: We generated revenues of nearly $38 billion, an increase of over 12% versus the prior year quarter, primarily driven by pharmacy drug mix and increased prescription volume, including incremental volume resulting from the Rite Aid transaction. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic drug introductions. On a same-store basis, total revenues increased 16% in the quarter. Same-store pharmacy sales grew over 19% compared to the prior year quarter, driven by pharmacy drug mix and a nearly 10% increase in same-store prescription volumes. Same-store front-store sales increased 50 basis points versus the prior year quarter. Our retail pharmacy script share in the quarter grew to over 29%, supported by our continued focus on delivering superior customer experiences, which drove organic growth, as well as the contribution from the Rite Aid transaction.

Brian Newman: We generated adjusted operating income of over $1.9 billion, an increase of nearly 9% from the prior year quarter, primarily driven by increased prescription volume and favorable drug mix. These increases were partially offset by continued pharmacy reimbursement pressure and increased investments in the segment's colleagues and capabilities. On a full year basis, we delivered over $6 billion of adjusted operating income, an increase of over 4.5% from the prior year. As David mentioned, this result reflects our continued focus on service and operational excellence, as well as intentional investments in colleagues and technology to support the consumer experience. These actions have enabled us to solidify our position as the best-run national pharmacy in the country over the last few years.

Tom Cowhey: We generated adjusted operating income of over $1.9 billion, an increase of nearly 9% from the prior year quarter, primarily driven by increased prescription volume and favorable drug mix. These increases were partially offset by continued pharmacy reimbursement pressure and increased investments in the segment's colleagues and capabilities. On a full year basis, we delivered over $6 billion of adjusted operating income, an increase of over 4.5% from the prior year. As David mentioned, this result reflects our continued focus on service and operational excellence, as well as intentional investments in colleagues and technology to support the consumer experience. These actions have enabled us to solidify our position as the best-run national pharmacy in the country over the last few years.

Brian Newman: As we discussed at our investor day in December, we view the underlying drivers of this improved performance as durable, which led us to revise our long-term annual earnings outlook for this business to at least flat going forward. Shifting now to cash flow and the balance sheet. In 2025, we generated cash flows from operations of approximately $10.6 billion. This strong result includes the receipt of certain payments at the end of the year that were previously expected in early 2026, as well as continued focus on working capital efficiencies. We distributed over $3 billion in dividends to our shareholders in 2025 and ended the quarter with approximately $2.8 billion of cash at the parent and unrestricted subsidiaries. Our leverage ratio as of year-end 2025 was approximately 4x, a meaningful improvement from the prior year, primarily driven by our strong financial performance in 2025.

Tom Cowhey: As we discussed at our investor day in December, we view the underlying drivers of this improved performance as durable, which led us to revise our long-term annual earnings outlook for this business to at least flat going forward. Shifting now to cash flow and the balance sheet. In 2025, we generated cash flows from operations of approximately $10.6 billion. This strong result includes the receipt of certain payments at the end of the year that were previously expected in early 2026, as well as continued focus on working capital efficiencies. We distributed over $3 billion in dividends to our shareholders in 2025 and ended the quarter with approximately $2.8 billion of cash at the parent and unrestricted subsidiaries. Our leverage ratio as of year-end 2025 was approximately 4x, a meaningful improvement from the prior year, primarily driven by our strong financial performance in 2025.

Brian Newman: We expect to drive further improvement in our leverage this year as we continue to improve enterprise earnings. Shifting now to our outlook for 2026. As David and I both discussed at our investor day in December, we are focused on delivering on our financial commitments. Our guidance philosophy is predicated on reflecting thoughtful, incredible targets while simultaneously striving to identify and execute on opportunities to deliver outperformance. It also includes our commitment to clear communication. These are the principles we used when issuing our initial 2026 guidance at the end of last year and are what you can expect as we move forward. Today, we are reaffirming our guidance for full year 2026 revenue of at least $400 billion, as well as our expectation for full year 2026 Adjusted EPS in a range of $7 to $7.20.

Tom Cowhey: We expect to drive further improvement in our leverage this year as we continue to improve enterprise earnings. Shifting now to our outlook for 2026. As David and I both discussed at our investor day in December, we are focused on delivering on our financial commitments. Our guidance philosophy is predicated on reflecting thoughtful, incredible targets while simultaneously striving to identify and execute on opportunities to deliver outperformance. It also includes our commitment to clear communication. These are the principles we used when issuing our initial 2026 guidance at the end of last year and are what you can expect as we move forward. Today, we are reaffirming our guidance for full year 2026 revenue of at least $400 billion, as well as our expectation for full year 2026 Adjusted EPS in a range of $7 to $7.20.

Brian Newman: We are encouraged by the strength of our results as we closed out 2025 and by our momentum as we start this year. While medical cost trends remain elevated, our experience in 2025 is supportive of our trend assumptions underlying our guidance. We are also pleased with how we completed the Medicare Advantage annual enrollment period, with our enrollment coming in modestly down, which was in line with our expectations. We are updating our outlook for full year cash flow from operations to at least $9 billion. This reflects the impact from certain payments that shifted from 2026 into late 2025, as well as the persistence of underlying outperformance. Cash generation has long been a strength of this enterprise, and our position continues to improve as we make progress unlocking our embedded earnings power.

Tom Cowhey: We are encouraged by the strength of our results as we closed out 2025 and by our momentum as we start this year. While medical cost trends remain elevated, our experience in 2025 is supportive of our trend assumptions underlying our guidance. We are also pleased with how we completed the Medicare Advantage annual enrollment period, with our enrollment coming in modestly down, which was in line with our expectations. We are updating our outlook for full year cash flow from operations to at least $9 billion. This reflects the impact from certain payments that shifted from 2026 into late 2025, as well as the persistence of underlying outperformance. Cash generation has long been a strength of this enterprise, and our position continues to improve as we make progress unlocking our embedded earnings power.

Brian Newman: While our expectation for 2026 operating cash flow is down slightly, when combined with the higher cash flow we delivered in 2025, our cumulative cash flow expectation across 2025 and 2026 has increased by over $1.5 billion. We continue to expect a roughly 55/45 split of earnings between the first half and second half. As a reminder, we expect the increase between Q1 and Q4 MBR to be approximately 850 basis points in 2026, which is slightly steeper than the initial expectations we provided for 2025. You can find additional details on the components of our 2026 guidance on our investor relations website. Overall, 2025 was a strong year at CVS Health. We successfully navigated unexpected challenges and delivered on our targets. The performance of our diversified enterprise in 2025 reinforces that we are on the right track and building significant momentum into 2026.

Tom Cowhey: While our expectation for 2026 operating cash flow is down slightly, when combined with the higher cash flow we delivered in 2025, our cumulative cash flow expectation across 2025 and 2026 has increased by over $1.5 billion. We continue to expect a roughly 55/45 split of earnings between the first half and second half. As a reminder, we expect the increase between Q1 and Q4 MBR to be approximately 850 basis points in 2026, which is slightly steeper than the initial expectations we provided for 2025. You can find additional details on the components of our 2026 guidance on our investor relations website. Overall, 2025 was a strong year at CVS Health. We successfully navigated unexpected challenges and delivered on our targets. The performance of our diversified enterprise in 2025 reinforces that we are on the right track and building significant momentum into 2026.

David Joyner: Yep. Perfect. So thanks, Justin, for the question. Obviously, the advance rate notice is top of mind for us as a company, and as we look at it, it's really affecting two parts of our business. We'll have Steve Nelson speak to the impact for Aetna, and I'll also give some perspectives on 27 and 28. And I, and Dr. Shree, will talk specifically about how it's impacting our healthcare delivery business. So let me just put some context around the rate notice as we're looking at it today. It's obviously much more impactful to the Aetna business. Oak Street remains an important part of our strategy, but I think it's important to note that it's a much smaller portion of our business and impact with the rate notice. So we remain committed to Medicare Advantage. We think 25 proved that we made meaningful progress.

David Joyner: We expect to continue with that progress into 2026. I also think as we look more broadly at the MA program, it remains an important offering in terms of lowering costs and improving care for the Medicare beneficiaries. We think it's one of the most successful private and public sector partnerships. We've actually seen that it and it's been proven to be successful just based off the growth rate that we've seen with the enrollment now representing more than 50% of the seniors. So two things in the rate notice, and I think obviously if you look at the risk coding aspects of it, this is how we operate our business today. So it's consistent with the policies in the advance rate notice. We actually supported the documentation aligned with the encounters, and we're pleased to see that the in-home provider assessments have been maintained.

Steve Nelson: We've spent the last year and a half or so laying down this really strong foundation for the business, and we're going to continue to build on it. So the second straight successful year of executing both on the bids and the AEP. We're exiting AEP, this recent AEP, in line with what we signaled during our investor day with modest contraction, but very much strengthening the business with a better geographic and product mix. We also continue to maintain the leading stars position. So this business is going to advance towards its recovery and target margin in 2026. In addition to that, we talked about our group Medicare Advantage business and that we had 50% of our block up for renewal in 2026. We've executed on those rate renewals in a very positive way, and we'll continue to do that.

Steve Nelson: So this business returns to target margin as well. It's an important part of our business for our enterprise. So all in all, great progress, and we're going to continue to build on that momentum. So specifically about 2027, the strategy, I'll just David said it, but I'll say it again, it remains unchanged. We are going to build on the momentum in 2026 and continue to drive the Medicare business back to target margins. We take a leading stars position into 2027. That will be very helpful. And so notwithstanding the advance rate notice, we think our business is well positioned. It's an important part of our portfolio at Aetna, and we really take pride in serving the members that we serve. So we have confidence in the outcome and our ability to drive the business forward.

Larry McGrath: Thanks, David. Thanks, Steve. So as David mentioned, we're pleased to see the value of in-home provider visits are maintained. That's a recognition of the importance of Signify business models. We'll continue to provide this value to payer partners and members. However, as you've heard from David and Steve, the proposed rates fail to match utilization to cost trends, particularly as member needs become more complex. We firmly believe in the importance of value-based care. Oak Street Health is a best-in-class model. It delivers better outcomes and better experiences at lower costs for the patients we serve. We will continue to assess the rate notice to understand the full impact and continue to share our insights with CMS. We have a clear line of sight to improved performance and healthcare delivery in Oak Street Health in 2026, and we'll continue to make progress in future years.

Lawrence McGrath: Thanks, David. Thanks, Steve. So as David mentioned, we're pleased to see the value of in-home provider visits are maintained. That's a recognition of the importance of Signify business models. We'll continue to provide this value to payer partners and members. However, as you've heard from David and Steve, the proposed rates fail to match utilization to cost trends, particularly as member needs become more complex. We firmly believe in the importance of value-based care. Oak Street Health is a best-in-class model. It delivers better outcomes and better experiences at lower costs for the patients we serve. We will continue to assess the rate notice to understand the full impact and continue to share our insights with CMS. We have a clear line of sight to improved performance and healthcare delivery in Oak Street Health in 2026, and we'll continue to make progress in future years.

Lisa Gill: Good morning and thanks very much. David, I just want to follow up on a couple of your comments you made as it relates to the PBM side of the business. First, when you talked about regulatory, you said we're all for any type of regulation that doesn't impact the ability to create competition in the supply chain. So I have really a three-part question here. The first is, do you feel that currently what the FTC is proposing would in some way hinder your ability to negotiate in the supply chain? And is that the reason that we haven't seen some type of settlement yet for CVS Health? And then secondly, when I think about the PBM legislation, again, you talked about how that's manageable. We've seen you really start to shift your business towards transparency, towards many of the things that are talked about.

David Joyner: Yeah, thanks, Lisa. And let me try to take each one of those separately. And let me think, it's important to start with the long-term margin profile. And you've been and you've watched this industry for some time now. And we've had a long history of adapting to both changing client needs and a variety of different market dynamic changes. And what we've seen come through over the years is that we've been able to consistently earn what I believe are fair margins for the value the PBM delivers. That's not going to change with any of the things that you've seen presented. The PBM value, we believe, still stays intact. We remain the only entity that's its sole job is to create the competition and actually negotiate for lower prices on the pharmaceutical supply chain. I talked a lot in the opening comments about, still there's big drivers.

David Joyner: Just in 2026 alone, when you have 750 price increases that represent $25 billion of added cost to our customers just on our book alone, the role of the PBM, I think, remains more important now than ever, especially when you have launch prices that we've seen a median price of over $350,000. So this, again, I think speaks to somebody needs to play the role to continue to be the competition and/or create an entity that lowers costs for the consumer. So that said, what we've seen now, at least, is more clarity on where the reform is coming from. So the good news is that we know, at least with the legislation, how to operate and how to run our business. And we have time to put the changes in place. I can't speak to the FTC while we're in conversations.

Steve Nelson: Thanks, David. Appreciate the question, Michael. Let me start by just highlighting 2025, which really serves as the foundation for the future. PCW delivered another strong quarter, and we're delivering these results by operating at high levels of service, colleague engagement, and driving strong execution across the business. In the pharmacy, we saw prescription growth from market disruption, which is inclusive of the Rite Aid asset acquisition, and pharmacy innovation as well. Let me remind you of the positive impacts that we saw through the Rite Aid acquisition. We successfully welcomed 9 million new patients into our stores and welcomed over 3,500 new colleagues from Rite Aid into CVS Health. The transaction allowed us to serve patients who were left without a community pharmacy while also expanding our coast-to-coast footprint.

Steve Nelson: And I think this success reflects our deep commitments to ensuring patients maintain continued access to care they need, especially in the communities we serve throughout our country. Finally, with pharmacy, as David mentioned in his prepared remarks, we have successfully completed the transition of cost-based reimbursement across commercial third-party discount, Medicare, and Medicaid lines of business. And the cost-based pricing models are performing in line with our expectations. The front-store performance was powered by a few initiatives in particular. We're focused on delivering value and driving loyalty through improved value propositions. We're localizing our assortment to better meet the needs of our customers.

Steve Nelson: We're providing excellent customer service, and the consumer sits at the center of all of our decisions and experiences, which combined for the front store is resulting in growth in our customer base, increased trips, and increased retail market share, leading to our fourth consecutive quarter of front-store comp growth. And finally, we continue to invest in our colleagues, technology, and AI to improve consumer experience. And as Brian mentioned in his remarks, our results demonstrate that we are the best-run pharmacy in the country, operating nationally with strong consumer engagement, expertise, and trust. So if I shift to this year, we feel good about our position in 2026. And as discussed during our investor day, we built a competitive advantage that we believe no one else in healthcare can replicate. We will continue to expand the role we play in consumer and customers' everyday health and retail convenience.

Steve Nelson: This is demonstrated by our pharmacy script growth driven by innovation, adherence, and strong service levels, and emphasis on the front store through localized assortment, loyalty, and best-in-class customer experience, all through value propositions that resonate with our customers. Let me just give you one example of those value propositions. We recently made a decision to reduce prices on products such as milk in thousands of our stores to provide our customers with affordable options for everyday essentials. Finally, as I mentioned, we remain focused on efforts to drive operational efficiencies with technology and AI. We fundamentally believe healthcare is best delivered locally in the community. It's best delivered by trusted, caring, and tech-enabled colleagues. Retail customers desire freedom to shop and engage in a way that's most convenient for their busy lives.

Steve Nelson: Sure. Good morning, Andrew. So in respect to our commercial membership, we serve about 18 million members. It's the highest membership level that we've served in the last decade, actually. And so this is a strong business for us, and it remains strong. I think the overperformance and growth that we saw in 2025 and then, as we will continue to grow in 2026, it's a result of better-than-expected retention and just the innovative products and the approach that we're taking with these very sophisticated purchasers of healthcare, offering leading technology and solutions that they've been looking for. It's resonating with them. And so really pleased with the results there and the advancement we're making in the commercial business. Fully insured remains pressured just due to the disciplined pricing approach. And we're going to continue to be really disciplined in our pricing across all parts of this business.

And respect to our commercial membership. Um, we serve about 18 million members, it's the highest membership level, uh, that we've served in in the last decade actually. And so this is a strong business for us, and it remains strong. Um, we I think the, the over performance and growth that we saw in 25, and then, as we, we will continue to grow in in 26. It's a result of better than expected retention. And just a, a, um, the Innovative products. And the approach that we're taking, uh, with with, with these very sophisticated, purchasers of healthcare offering, um, leading technology and solutions that, that they've been looking for, it's resonating with them. And, and so, uh, really pleased with with the results results there and the advanced more making, um, in the commercial business, um, fully insured remains, uh, pressure just due to the

Steve Nelson: But that's been more than offset by growth in the self-funded business. So continue to be well-positioned. Aetna has been a brand that's long been associated with product innovation and clinical innovation. And we're getting back to that. And as David mentioned in his prepared remarks, really, really proud to be honored by Press Ganey acknowledging the innovative work we're doing around member experience and reducing friction there. And then the engagement we've had with our provider partners, again, plays out really well in terms of just reducing the friction, but also lowering the total cost of care. So pleased with how the commercial business is performing and confident about the ability to continue to advance that.

Steve Nelson: Sure. No, thanks. Look, the Medicaid business has been performing in line with our expectations. We had a really strong year of rate advocacy execution in 2025. We're going to continue that focus and discipline there. As we enter 2026, again, I think we're off to a strong execution start. It's obviously a high-trend environment. We remain cautious and prudent as we think about this. But the trends that we're seeing are in line with what we've laid out in our expectations. We're going to continue to work really closely with our state partners to make sure we have adequate rates, but also to provide clinical and operational excellence. This is a really important population that we serve, and proud to do it. Look, I like our progress on the Medicaid business overall.

Brian Newman: Thanks, David. And hi, George. How are you? Last year was, I think, a strong first year of our journey to the target margins. You'll recall AOI improved by about $2.6 billion. We expect another year, George, of strong progress in 2026 to continue to make progress towards achieving the target margins in each of the businesses. And we've been clear the trends are still very elevated, but we're not expecting that to change in 2026. So as you think about the expectations embedded in the guide for each of the businesses, in Medicare, we expect another year of margin improvement driven by a rational discipline approach to pricing in our individual, and PDP products and repricing in our group MA business. On the Medicaid side, I'd expect to maintain our cautious outlook on performance in light of the broader pressures across the industry that we're seeing.

Tom Cowhey: Thanks, David. And hi, George. How are you? Last year was, I think, a strong first year of our journey to the target margins. You'll recall AOI improved by about $2.6 billion. We expect another year, George, of strong progress in 2026 to continue to make progress towards achieving the target margins in each of the businesses. And we've been clear the trends are still very elevated, but we're not expecting that to change in 2026. So as you think about the expectations embedded in the guide for each of the businesses, in Medicare, we expect another year of margin improvement driven by a rational discipline approach to pricing in our individual, and PDP products and repricing in our group MA business. On the Medicaid side, I'd expect to maintain our cautious outlook on performance in light of the broader pressures across the industry that we're seeing.

Thanks, David, and hi George. How are you? I last year was was I think the a strong first year of our journey to the Target margins. Uh, you'll recall aoi improved by about 2.6 billion. Uh, we expect another year George of strong progress in 26. We continue to to make progress towards achieving the target margins in each of the businesses. And we've been clear that Trends are still very elevated but we're not expecting that to change in 26. So as you think about the expectations embedded in the guide, for each of the businesses in Medicare, we expect another year of margin Improvement driven by a rational discipline approach to pricing and our individual and PDP products and repricing in, in our group MMA business on the Medicaid side, I'd expect to to maintain our cautious outlook on performance, in light of the broader pressures across the industry that we're seeing. And then lastly in commercial we maintain pricing discipline. And and as a result, I think you can expect performance in 26 will remain strong.

Brian Newman: Focus and discipline. I'm switching microphones here so you can, I guess there's audio problems. I'm not sure. So I'll keep going here. But look, we have an opportunity to continue to build on the momentum across the business. But an additional driver beyond just focus on the fundamentals is we've built this really strong culture at Aetna, which, when you have more than 50,000 colleagues all aligned to returning the business to not only target margin, but a leading capability and consumer solutions company, we're really excited about the progress there and just the engagement of our population. And I would include CVS overall as we feel supported by the enterprise. So we have a lot of passion around the competitive capabilities, better navigation, better advocacy, and better partnerships with the provider. So we're going to continue to build on the momentum and return the business to target margins.

Tom Cowhey: Focus and discipline. I'm switching microphones here so you can, I guess there's audio problems. I'm not sure. So I'll keep going here. But look, we have an opportunity to continue to build on the momentum across the business. But an additional driver beyond just focus on the fundamentals is we've built this really strong culture at Aetna, which, when you have more than 50,000 colleagues all aligned to returning the business to not only target margin, but a leading capability and consumer solutions company, we're really excited about the progress there and just the engagement of our population. And I would include CVS overall as we feel supported by the enterprise. So we have a lot of passion around the competitive capabilities, better navigation, better advocacy, and better partnerships with the provider. So we're going to continue to build on the momentum and return the business to target margins.

David Joyner: Yeah, thanks, Erin and David. AI, as you heard from us, it's being utilized across the enterprise. We had the opportunity on Investor Day to highlight some of these examples and the way we're changing how we work, Erin. I think we're trying to change the experience we're able to provide in the healthcare system. So we're using AI to reimagine the healthcare experience, putting the consumer at the center, and to ensure each business is best in class. It's helping us with our cost and growth goals, allows us to reinvest in product innovation, including the Open Engagement Platform, which Prem and Tilak talked about at Investor Day, and hopefully enabling us to lead health services and technology from a corporate perspective. So still early days, but we see an incredible amount of opportunity to leverage the tools that we're investing in and connectivity.

David Joyner: It'll both drive savings, as well as accelerate growth. Prem, do you want to provide a little color on what you're saying? Sure. Thanks, Erin, for the question. We're incredibly excited by the prospect of our announcement at Analyst Day with the Open Engagement Platform. Progress to date is performing well, and we believe we're uniquely positioned to create the next generation of healthcare engagement. If you think about some of the things that Len said earlier and David said, we have over 185 million consumers that engage with us across CVS Health every year. We have the best-run pharmacy in our local footprint across the 9,000 community pharmacy destinations we have. We have a really important trusted brand and a loyal set of customer bases that we can leverage in really engaging them inside of their health.

David Joyner: We also have a unique set of existing capabilities that we've proven cross-business integration across Aetna, Caremark, and retail. We're extremely excited about kind of bringing that to market as we go forward. We continue to engage in productive conversations with potential partners across a diverse range of the healthcare ecosystem participants. We strongly believe we can unlock the power of that connection with consumers and drive greater engagement in healthcare, improve the quality of healthcare, and lower overall total cost of care. We plan to report our new product launches as well as partnership announcements in the coming quarters. We're looking forward to bringing you guys all along our journey over the course of 2026.

Sure. Thanks Aaron for the question and very incredibly excited about the prospect of our announcement at analyst with the open engagement platform. Uh progress today is performing well and we believe we're uniquely positioned to create the next generation of healthcare engagement. If you think about some of the things that Len said earlier and David said, we have over 185 million consumers that engage with us across CVS Health. Every year we have the best run Pharmacy in our local footprint across the 9,000. We Pharmacy destinations we have we have a really important trusted brand and a loyal set of customer bases that we can leverage um and really engaging them inside of their health. We also have a unique set of existing capabilities that we've proven cross business integration across at neck care market and Retail have a extremely excited about kind of bringing that to Market. Um, as we we go forward, we continue to engage in productive conversations with potential Partners, across a diverse range of the healthcare ecosystem, participants. And we strongly believe we can unlock the power of that connection with consumers and drive greater engagement and Healthcare improves the quality.

Steve Nelson: Sure. I'm sorry about that. I'm not sure. We switched microphones, so hopefully you can hear me now. I was just highlighting that we maintain a real disciplined focus around the fundamentals of the business. That has contributed to the success. We expect, as Brian said, progress in the Medicare business as we continue to strengthen that. That will be a meaningful driver of margin improvement overall, Aetna, not just in 2026, but I believe in 2027 as well. We expect stable margins in our Medicaid business. We're off to a good start and cautious about the high-trend environment, but it's in line with our expectations, and the commercial business is strong. We continue that to perform well, even in the midst of this very dynamic, high-trend environment. We maintain pricing discipline, but bringing compelling products, capabilities, and solutions to our sophisticated purchasers.

Progress in the Medicare business as we continue to um strengthen that and you know that would be a meaningful driver of margin Improvement overall Aetna, not just in 2026, but believe in 2027 as well. We expect stable margins in our Medicaid business. We're off to a good start and you know, cautious about the high Trend environment. But but it's in line with our expectations in the commercial business is strong, um, and we continue that to, to perform, perform well. Um, even uh, in the midst of this very Dynamic, High Trend environment. We, we maintain a price and discipline, but bringing, you know, compelling products, and capabilities and solutions to our sophisticated purchasers. But I would just highlighting to you that the underlying culture of of our team and and how they've come together to to drive, you know, kind of from a transaction mindset to this consumer Solutions mindset and it's it's resonating with with our customers and our members. So,

Brian Newman: Yeah, thank you, Steve. And thanks, everyone, for your questions. I think Steve closed with the right focus. We are a consumer-based healthcare company, and this is occurring across all of our businesses. I'm incredibly proud of the results that we delivered in 2025. Also very bullish on the momentum that we're carrying into 2026. So I just want to thank again the 300,000-plus colleagues that are actually delivering the work day in and day out to serve the consumers. I'm also proud of the work that we've done to make healthcare more affordable and accessible for American families. I do believe that CVS Health, through our unique position in healthcare and our connections with millions of Americans in their communities, is best positioned to simplify healthcare one person, one family, one community at a time. So thank you for joining our call.

Tom Cowhey: Yeah, thank you, Steve. And thanks, everyone, for your questions. I think Steve closed with the right focus. We are a consumer-based healthcare company, and this is occurring across all of our businesses. I'm incredibly proud of the results that we delivered in 2025. Also very bullish on the momentum that we're carrying into 2026. So I just want to thank again the 300,000-plus colleagues that are actually delivering the work day in and day out to serve the consumers. I'm also proud of the work that we've done to make healthcare more affordable and accessible for American families. I do believe that CVS Health, through our unique position in healthcare and our connections with millions of Americans in their communities, is best positioned to simplify healthcare one person, one family, one community at a time. So thank you for joining our call.

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