CVS Health Corporation (CVS) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the CVS Caremark First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, May 2, 2012. I would now like to turn the conference over to Ms. Nancy Christal, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us today. I'm here with Larry Merlo, President and CEO, who will provide a business update; and Dave Denton, Executive Vice President and CFO, who will provide a financial review. Per Lofberg, President of our PBM business; and Mark Cosby, President of CVS/pharmacy, are also with us today and will participate in the question-and-answer session following our prepared remarks. [Operator Instructions] During this call, we'll discuss some non-GAAP financial measures in talking about our company's performance, namely free cash flow, EBITDA and adjusted EPS. In accordance with SEC regulations, you can find the definitions of the non-GAAP items I mentioned as well as the reconciliations to comparable GAAP measures on the Investor Relations portion of our website. And we also encourage you to download the slide presentation we posted on our website this morning. The slides summarize the information on this call as well as key facts and figures around our operating performance and guidance. As always, today's call is being simulcast on our website, and it will be archived there following the call for one year. Finally, please note that we filed our Form 10-Q this morning and it's available through our website. Now before we begin, our attorneys have asked me to read the Safe Harbor statement. During this presentation, we'll make certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. Accordingly, for these forward-looking statements, we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We strongly recommend that you become familiar with the specific risks and uncertainties that are described in the Risk Factors section of our most recently filed annual report on Form 10-K and that you review the section entitled Cautionary Statement Concerning Forward-Looking Statements in our most recently filed quarterly report on Form 10-Q. And now, I'll turn this over to Larry Merlo.

Well, thanks, Nancy, and good morning, everyone. Thanks for joining us today. Well, we're certainly very pleased with the results we posted this morning. We reported adjusted earnings per share from continuing operations of $0.65 for the first quarter, with both retail and PBM results coming in at the high end of our expectations and EPS exceeding the high end of our guidance by $0.02. And while our operating results came in at the high end of our expectations, the EPS beat was driven by financial-related items including the change in inventory accounting methods, interest and lower shares outstanding resulting from our successful capital allocation program, all of which Dave will cover more fully in his update. But overall, this was a terrific quarter with strong results across-the-board including our cash generation. In the first quarter, we achieved the expected $0.03-per-share benefit from the impasse between Walgreens and Express Scripts. For the second quarter, we are projecting a $0.03 to $0.04 EPS benefit from the impasse, assuming the situation remains unresolved for the duration of the quarter. The benefit is expected to be slightly higher than the first quarter, primarily driven by greater operating efficiency in our pharmacies, and we'll also see a full quarter's run rate of ESI script volumes that transferred throughout the first quarter, as well as a modest ramp in the front store benefit from these new customers. As a result of our strong first quarter results, as well as the inclusion of the Walgreens-Express benefit in the second quarter, we are raising our guidance for the full year. We now expect to achieve adjusted earnings per share for 2012 in the range of $3.23 to $3.33, with both ends of the range up $0.05 from our February guidance and up $0.08 from our initial guidance, which we provided at our December Analyst Day. And please remember that we are taking the Walgreens-Express benefit one quarter at a time. We're not projecting benefits to quarters beyond the current one. So we would encourage you to only include the benefit in your models through the second quarter. We will report the estimated impact from this impasse to you, again, on a quarter-by-quarter basis throughout the year if it remains unresolved. And as I said, Dave will provide the details of our results, as well as guidance for the second quarter and full year, during his financial review. Now let me turn to a brief business update, and I'll begin with our PBM. As you know, we had a terrific 2012 selling season, winning $7.1 billion in net new business on top of another $5.5 billion in incremental revenues from the Universal American contracts we picked up this year. So we expect to add $12.6 billion in net new revenues in 2012 with a 98% retention rate. And while it's still early in the '13 selling season, we're optimistic about the opportunities and continue to feel very good about our unique position in the marketplace. We are bullish about the receptivity to our model, along with our proprietary programs. Now there's obviously a lot of change in the marketplace related to the Walgreens-Express impasse as well as recent significant PBM consolidation activity. But the market continues to be competitive, yet rational, and with our stable business and unmatched breadth of capabilities, we believe we are very well positioned for success now and in the future. So let me touch on renewals. To date, about 1/4 of our scheduled renewals have gone through the renewal process, which is pretty typical for this time of year. And while we previously said we had approximately $16 billion up for renewal in '13, the number dropped to about $14.5 billion, largely due to the Health Net Med D PDP acquisition. And since we acquired the business, we're no longer including that contract in our renewal number. So given that it's still early in the season, we have about 3 quarters or $11 billion left to go through the renewal process, and we'll have a lot more to say about renewals as well as new business as we get further along in the selling season. Now I do want to take a minute to address our recent decision to remove certain drugs from our formulary. And some of you have asked about this and have written about the issue based on market chatter. Let me clarify it. For those who may not be familiar, we made the decision to remove or require prior authorization for 34 drugs from our formulary. And to be clear, this change only applies to customers using our standard or template formulary. It does not apply to any of our customers with a custom formulary, which would include most of the health plans and some of our large employers. The 34 drugs we removed from our template formulary totaled only about 1.5% of the drug spend, and we made this decision in an effort to take unnecessary costs out of the system for our clients. Now I recently attended our CVS Caremark client forum. We had in excess of 700 participants in attendance, and we had the opportunity to listen to our customers. And we were able to discuss the formulary change. What I heard from our clients was some dissatisfaction around the timing and the method of communicating the change, but not the philosophy of the change itself. Our clients understand the challenges we are dealing with regarding brand inflation, along with the proliferation of manufacturer coupons, which encourage the use of more expensive drug therapies. And they count on us to help them manage the drug spend. So we've certainly listened intently to client feedback. And going forward, we will make sure that any future changes get communicated earlier. I think it's also important to note that since we implemented the change, there has been limited to no disruption to our members. So I hope that clarifies the formulary change for you. And while this decision has gained some prominence in the marketplace, we are confident that over the long term, this is the right decision, one that will drive savings for our existing clients as well as future clients while in no way compromising the clinical integrity of our offering. So let me move on and provide an update on the progress we're making on selling our integrated offerings that capitalize on what we've been calling our integration sweet spots. And as you know and as we've mentioned many times, these are the products and services that are extremely difficult for stand-alone PBMs and pharmacy retailers to replicate. We currently have about 10.5 million lives covered under 850 plans that have implemented or committed to implement Maintenance Choice. And we have compelling data to share with clients demonstrating that Maintenance Choice has been successful in broadening access while reducing costs and improving prescription adherence. We're making Maintenance Choice enhancements and we believe they will provide a transformative member experience that will further differentiate CVS Caremark in the marketplace. And we're giving members what they want. They want more control and more flexibility in managing their maintenance medications. The next generation of Maintenance Choice that we have been referring to is Maintenance Choice 2.0, includes a less restrictive or voluntary plan design option. And with our anticipated launch of 2.0, we expect the number of clients taking advantage of our Maintenance Choice offerings to increase dramatically over the next few years. And we expect many clients who have not yet adopted Maintenance Choice to try this version of the program and to recognize at least some of the savings associated with Maintenance Choice. And this new plan design option, along with the enhancements that we're making for both legacy and new Maintenance Choice clients, will be rolled out on a limited basis this year. And then we expect to make it broadly available beginning in January of '13. And once clients experience the benefits and savings of the program, we expect that some will consider adopting the more restrictive Maintenance Choice plan design option so they can maximize their savings. As for Pharmacy Advisor, again, we have made very significant progress and our data demonstrates that we are identifying important opportunities for cost savings while improving adherence and closing gaps in care. And as an example, following one year on the program, recent analysis showed that certain members using CVS retail experienced a 17.2% decline in gaps in care, while members using Caremark mail experienced a 12.8% decline. And that compares with a 0.4% increase in gaps in care for a control group of members without Pharmacy Advisor. As for adherence to lipid-lowering medication, Pharmacy Advisor users had 26% lower first fill drop-off rates while mail users had 10.3% lower drop-off rates relative to a control group. We now have more than 16 million lives covered by almost 900 clients committed to implement Pharmacy Advisor for diabetes, and that's up from 12 million lives at year-end 2011. Pharmacy Advisor is targeted to become available to both Medicare and Medicaid clients in '13. And once that occurs, we estimate that this program could potentially touch about 47 million lives over time. This past month, we launched Pharmacy Advisor for a suite of cardiovascular conditions. And we plan to go live in January of '13 with 5 additional programs for depression, asthma, COPD, osteoporosis and breast cancer. And I think Pharmacy Advisor is just a great example of how our integrated assets are improving the health of those we serve in a very differentiated way. Now moving onto some of the highest growth areas for the PBM. Once again, we saw significant increases in our Specialty Pharmacy business with revenues climbing 46.3% for the quarter. Primary drivers of the growth were the new payors such as the Federal Employee Plan, CalPERS, IBM, new product launches primarily in the Hep C and oncology areas, along with inflation. And excluding the addition of the Aetna specialty business, which we began filling in the second quarter of last year, specialty revenues still increased a very strong 34% versus last year's first quarter. Our Med D business also continues to grow. We recently completed the acquisition of Health Net's PDP, and that shifted about 425,000 lives from our PBM to our PDP, bringing our total PDP lives to approximately 4 million. And we expect the transition to one enrollment system for the 2013 Med D plan year. Before turning to retail, let me touch briefly on the Aetna contract and the PBM streamlining initiative. With regard to Aetna, we've completed the transition of both specialty fulfillment and mail fulfillment to our facilities, and our focus now is on the migration of Aetna's clients onto our platform. As for the streamlining initiative, it's on track to deliver over $1 billion in cumulative cost savings through 2015. As we've said, through this initiative, we're streamlining operations to improve productivity, rationalizing capacity and consolidating our adjudication platforms to one destination platform with enhanced capabilities. As we've stated, the benefits outweigh the costs this year and we continue to expect to hit the full run rate of annual savings, that being between $225 million and $275 million, beginning in 2014. So with that, let me turn to the retail business, which is certainly taking advantage of an unprecedented industry-driven opportunity and gaining significant market share as a result. In the first quarter, our same-store sales increased 8.4% above the high end of our guidance range. Pharmacy comps increased 9.8% in the quarter with front store comps increasing 5.3%. Script comps increased 9.2% on a 30-day supply basis and 7.2% if counting 90-day supply as one script. Now this reflects strong underlying performance as well as a significant benefit from the Walgreens-Express impasse. And we estimate that the impasse added 350 to 400 basis points to our pharmacy comps in the quarter, which equates to about 5.7 million to 6.5 million prescriptions. Our script unit comps continue to outpace all of our primary competitors, even more so than in prior quarters. And as a result, we gained significant market share. And IMS data has our retail scripts growing approximately 15 percentage points, more than all other chains. Now in addition to the benefit of script transfers from the Walgreens-Express dispute, pharmacy comps reflect an approximately 75-basis-point positive impact from the one extra day in the quarter due to leap year and a 50-basis-point positive calendar shift impact from one additional weekday. Conversely, pharmacy comps were negatively impacted by 305 basis points from new generics in the quarter and pharmacy comps were also negatively impacted by a weak flu season, but that was partially offset by the early onset of the allergy season given the unusually mild weather. In the front store, we were up against an easier comparison due to the severe weather in the first quarter of last year. But having said that, I'm very pleased with our 5.3% front store comp, which was positively impacted by about 120 basis points from the extra day, as well as a successful Valentine's Day with sales up about 9% versus a year ago. And like pharmacy, front store sales were negatively impacted by the weak flu season, which was partially offset by an early allergy season. Front store sales also benefited from our new Express Scripts customers, although this was not material to our first quarter results. And as we've said previously, our initial focus was on making the prescription transfer process as seamless as possible. And we began to shift gears during the quarter to focus on converting these new customers to front store customers. Now we've gotten a lot of questions on how to model the front store benefit related to these new pharmacy customers, and let me start by saying that while helpful, the front store benefit is not expected to be the major needle mover in the near term. To put it into perspective, assuming the run rate we've achieved in incremental scripts and then further assuming that we achieve a 20% front store conversion rate for those new customers, we would generate less than $0.01 in EPS per quarter. And the real win in the front store is in the opportunity to convert those pharmacy customers to loyal CVS shoppers for all of their front store needs. And of course, we're working to ensure that we get more than our fair share of that business over time. So overall, I'm very pleased with our front store sales this quarter. We saw increased customer traffic and a slightly higher average ticket. Our ExtraCare loyalty program continues to be a key differentiator for us and we've had the program in place for well over a decade. And now with 69 million active cardholders, we continue to find new ways to enhance the offering. And as an example, our ExtraCare Beauty Club, it already boasts more than 12 million members and is helping to drive sales across the beauty business. In addition, we're working on several digital initiatives to make things easier for our customers. We relaunched the CVS mobile app with full-blown ExtraCare functionality to enable customers to scan their phone, to manage their ExtraCare account, to view offers and send them to their card. And the customer feedback has been terrific. During the quarter, we also continued to make progress on our clustering initiatives with plans to add another 50 urban stores this year. And we're also developing and testing additional clustering concepts and plan to have market tests in place later this year. And we believe these efforts around localization are a key component to optimizing the return on capital of our store program. And as for our real estate program, we opened 72 new or relocated stores. We closed 7, resulting in 25 net new stores in the quarter, and we're right on track to increase our retail square footage growth by approximately 2% to 3% for the year. Now before turning it over to Dave, let me give you a brief update on MinuteClinic. And despite the very mild flu season that we talked about, MinuteClinic revenues increased nearly 22% in the quarter versus last year, with approximately 86% of visits paid through some type of third-party insurance. Now MinuteClinic continues to enhance its role as a collaborator with integrated health networks, while at the same time adding new services and raising awareness. During the quarter, MinuteClinic and HCA's TriStar Health, which is the largest health system in Middle Tennessee, entered into a clinical affiliation to enhance access to high-quality, affordable healthcare services in the Nashville area. Also as part of our strategy to maintain break-even status on an all-in basis while growing our clinic base, we closed some of our seasonal clinics during the quarter and we plan to convert others to full-time status. So as of the end of the quarter, we operated 570 clinics, including the opening of 9 new clinics. And I think it's important to note that while MinuteClinic is a small business relative to the overall enterprise, it does receive a fair amount of airtime with PBM clients. It's an important piece of our integrated strategy and our clients are very interested in how MinuteClinic can help them reduce costs while keeping their members healthy. And we believe our plans to double our clinic count over the next several years should position us well to play an important role in solving the primary care physician shortage, especially with millions of newly insured individuals expected to enter the healthcare marketplace. So with that, let me turn it over to Dave for the financial review.

Thank you, Larry, and good morning, everyone. Today, I'll provide a detailed review of our first quarter financial results. I'll also provide guidance for the second quarter and update our guidance for the full year of 2012. But first, let me start with a summary of what we've been doing from a capital allocation standpoint. As you know, we raised our quarterly dividend this year by 30%, our ninth consecutive year with an increase. So in the quarter, we paid approximately $211 million in dividends. And given our earnings expectations for this year, we anticipate a payout ratio of approximately 21%, keeping us comfortably on track to achieve our targeted payout ratio of between 25% and 30% by 2015. In regard to share repurchase, we had $3 billion left under our current authorization when we entered 2012. During the first quarter, we repurchased a total of 18.1 million shares at an average cost of $44.69 per share. So between dividends and share repurchases, we have returned more than $1 billion to our shareholders just in the first quarter. It is my expectation that, at a minimum, we will complete the remaining $2.2 billion on the current repurchase authorization this year. And between dividends and share purchase, we'll allocate roughly $3.8 billion to enhancing shareholder value. And additionally, we continue to be focused on maintaining our credit ratings and have set an adjusted debt-to-EBITDA target of 2.7x. And as I said before, we are committed to our capital allocation program remaining a vital component to driving shareholder value. Through it, we'll take advantage of the powerful cash flow generation capabilities of CVS Caremark, both in the near term as well as the longer term. We generated more than $2.4 billion of free cash in the quarter, an increase of more than $840 million from the prior year, due mainly to an increase in our accrued expenses. We received advance payments from CMS for the April time period, which drove the increase in accrued expenses. With April 1 falling on the weekend, CMS sent the payments to us before the first quarter ended. And the same thing will happen in the second quarter and then it will reverse in the third. Without the advance payments, free cash flow was in line with the prior year period. During the quarter, our underlying free cash flow was driven by strong earnings, as well as solid year-over-year improvements in accounts receivables and accounts payable. Partially offsetting these positive drivers was inventory, which increased on the retail side from year end as we stocked up to handle the influx of new customers. Of course, it was important to remain in stock during the time that customers were switching pharmacy homes, and we'll continue to monitor inventory levels going forward. And despite the quarterly dollar increase in inventory, inventory days within the retail segment improved by more than one day from the end of last year. And combined with gains in DPO and DSO, we reduced our retail cash cycle by more than 2 days so far this year. As we continue to make process improvements, the retail team remains committed to its inventory reduction target of $500 million for the full year, and working capital improvements such as these are expected to continue to enhance our cash generation capabilities. Given the lack of any sale leaseback activities, net and gross capital spending for the first quarter was $376 million, an increase of nearly $80 million from the prior year period. Turning to the income statement. Adjusted earnings per share was $0.65 for the quarter with GAAP diluted EPS from continuing operations and at $0.59 per share, both $0.02 above the high end of our guidance. As Larry said, while our operating results came in at the high end of our expectations, the EPS beat was driven by financial-related items including the change in inventory accounting methods, interest and lower shares outstanding. I'll address all of these in a moment, but first, let me walk down the P&L. On a consolidated basis, revenues in the first quarter increased by nearly 20% to $30.8 billion. Drilling down by segment. Net revenues increased by 32% in the PBM to $18.3 billion. The majority of the growth from last year was driven by the addition of the Universal American business to our book, as well as new client starts. However, we did see higher revenues than expected due to higher drug cost inflation, which was partially offset by increases in the generic dispensing rate. PBM pharmacy network revenues in the quarter increased 34% from 2011 levels to $12.6 billion, while pharmacy network claims grew by 26%. Total mail choice revenues increased by 29% to $5.7 billion, while mail choice claims expanded by 17%. Our overall mail choice penetration rate was 22.8%, down approximately 120 basis points versus LY. This decrease was driven by the addition of the Universal American Med D business, which has a lower mail penetration rate than our average book of business. In our retail business, we saw revenues increase 10% in the quarter to $16 billion. This increase was primarily driven by our same-store sales increase of 8.4% as well as net revenues from new stores, relocations and MinuteClinic, which accounted for approximately 150 basis points of the increase. And Larry talked about our pharmacy and front store comps in some detail, so I won't go into those here. Turning to gross margin. The consolidated company reported 16.6% in the quarter, a contraction of approximately 185 basis points compared to Q1 of '11. Within the PBM segment, gross margin was down approximately 120 basis points versus last year's first quarter. The decrease was primarily driven by price compression, increased expenses associated with a significant number of new client starts on 1/1 and our expanding Medicare Part D operations. As you know, profitability in the Med D business is back-half weighted, with the Med D business experiencing losses in the first part of every year. So as our Med D business grows, this trend will become more pronounced. Partially offsetting these was the positive margin impact from the approximately 275-basis-point increase and the PBM generic dispensing rate, which grew from 73.8% to 76.5%. This was due, in large part, to a 520-basis-point increase in mail choice GDR. New generic drug introductions had a positive impact, as did our continuous effort to encourage plan members to use generics whenever available and appropriate. Gross margin in the retail segment was 28.5%, up approximately 10 basis points year-over-year, mainly due to the change in inventory accounting I mentioned a few moments ago. Excluding this change, gross margin at retail was down approximately 5 basis points. In regards to the accounting change, the details are provided in the 10-Q we filed this morning, but let me summarize it for you now. Prior to this year, we valued pharmacy inventory in our stores using the retail inventory method. Beginning in January, all pharmacy inventory in the retail segment is now valued using the weighted average cost method, consistent with how the PBM values it. This only affects the pharmacy portion of our retail inventory. Front store inventory will continue to be valued using the retail method of accounting. In the pharmacy, we believe that the weighted average cost method provides a better matching of cost of goods sold with revenue. It also allows us to have a consistent inventory valuation method for all our pharmacy inventory across the enterprise. So what's the overall impact from this change? Over an extended period of time, both methods produce similar results. However, because both methods use averaging, certain timing differences between the 2 can occur periodically. But due to how it addresses actual quantities on hand, the weighted average cost method results in a greater level of precision, leading to a better matching of cost of goods sold with revenue. Had we had not made this accounting change, we estimate our gross profit for the first quarter would have been approximately $30 million lower and our EPS would have been approximately $0.01 lower. The impact from this change was not considered in our prior guidance because the accounting change was not finalized at the time of our fourth quarter call. Going forward, the impact from this chain will be -- change will be included in our guidance. Additionally, we plan to disclose the difference, if any, between each method in our 10-Q filings throughout 2012. And we don't expect the change to have a material impact on EPS for this year, but there are expected to be some quarters with a positive impact and others with a negative impact. And as I've mentioned, additional details of this accounting change are included in Note 2 to our financial statements, which are included in our 10-Q filings that we filed this morning. Now putting this change aside, as we expected, we saw margin pressure from pharmacy reimbursement rates and the growth of Maintenance Choice. These unfavorable factors were partially offset by an increased generic dispensing rate, with retail GDR increasing by 290 basis points to 78.1%. Total operating expenses as a percent of revenues improved by approximately 135 basis points versus the first quarter of '11. The PBM segment's SG&A rate improved by approximately 25 basis points to 1.5%. This was primarily due to expense leverage gained by the strong revenue growth, which was partially offset by the addition of the operations associated with our acquisition the Universal American Medicare Part D business. In the retail segment, SG&A as a percent of sales improved by approximately 45 basis points to 20.4%. This improvement in expense leverage was again driven by solid sales growth and continued discipline around expense controls. Within the Corporate segment, expenses were up approximately $21 million to $168 million, or less than 1% of consolidated revenues, improving by approximately 5 basis points versus the same period in 2011. And with the change in gross margin more than offsetting the improvements in SG&A as a percent of sales, operating margin for the total enterprise declined by approximately 50 basis points to 4.6%, in line with our expectations. Operating margin in the PBM was 1.9%, down about 90 basis points, while operating margin at retail was 8.1%, up about 60 basis points. Retail operating profit increased a very healthy 18%, at the high end of our guidance range, and PBM operating profit declined 11%, also near the top of our guidance range. And going below the line on the consolidated income statement. We saw net interest expense in the quarter decline by approximately $2 million to $132 million versus last year. Interest was favorable to our expectations due in large part to our strong cash flow position. Additionally, our expected income tax rate was 39%, as expected, and our weighted average share count was 1.31 billion shares, approximately 5 million shares lower than anticipated. Now let me update you on our guidance for the full year '12 and provide guidance for the second quarter. Please note that this guidance reflects the potential estimated benefit that the Walgreens-Express Scripts impasse continues only through the end of the second quarter. It does not include any potential benefit beyond the second quarter. I'll review the highlights of our guidance, but you can find all the details in the slide presentation we posted on our website. We currently expect to deliver adjusted EPS in 2012 of between $3.23 and $3.33 per share, reflecting very healthy year-over-year growth of 15.5% to 19%. GAAP diluted EPS from continuing operations is expected to be between $3.01 and $3.11. This guidance includes the $0.03 to $0.04 benefit expect to see during the second quarter from the Walgreens-Express Scripts impasse and does not include any benefit for the third or fourth quarters. Taking into account the expected impact from the new ESI-Walgreens scripts in the first half, we currently anticipate a consolidated net revenue growth of between 13.5% and 15%. Both segments of our business should see strong revenue growth, especially the PBM, which is benefiting from the addition of new clients following a great 2012 selling season. Also recall that our estimates include one extra day in '12 versus '11 for leap year. Within the retail segment, we now expect revenues to increase year-over-year by 5% to 6%, an increase of 200 basis points over our prior guidance. Obviously, this increase is being primarily driven by the Walgreens-Express Scripts impasse that continued into the second quarter. We expect same-store sales for the year to be in the range of 3.5% to 4.5% and same-store scripts to be in the range of 5% to 6%. We continue to expect gross margin in this segment to be moderately up over 2011, while operating expenses as a percent of revenues are expected to be modest -- to modestly increase. As a result, operating profit margin in the retail segment now is expected to grow between 10.5% and 12.5%, another increase of 200 basis points from our prior guidance. Retail operating profit margin is expected to increase by 40 to 50 basis points. Within the PBM segment, we are increasing our revenue growth expectations by 100 basis points to between 23.5% and 25.5%. Given the amount of drug price inflation we've experienced in the first quarter, we expect inflation to exceed our initial expectations throughout the year, although not at the levels we've seen to date. Gross margin in the PBM are still expected to be down notably, while we anticipate moderate improvement in operating expense as a percent of revenue. We expect a decline in the PBM's operating margin of between 30 and 40 basis points and an increase in PBM operating profit of between 11% and 15% for the full year. The only other items of note at the consolidated level are interest and amortization. We are reducing our interest expense guidance by $10 million and now expect between $550 million and $560 million of net interest for the full year. At the same time, we have increased our amortization outlook by approximately $15 million to $475 million reflecting, the Health Net PDP acquisition in the PBM segment. Our free cash flow guidance remains unchanged for the year at a range of $4.6 billion to $4.9 billion. And for the second quarter, we expect adjusted EPS of between $0.78 and $0.80 per share, reflecting growth of 20% to 24% over the same period of last year. GAAP diluted EPS from continuing operation is expected to be in the range of $0.72 to $0.74 in the second quarter. As I mentioned earlier, this includes a $0.03 to $0.04 benefit from the Walgreens-Express Scripts impasse. Consolidated revenues are expected to increase 16% to 17.5%. In the retail segment, revenues are expected to increase 6.5% to 7.5% versus the second quarter of '11. While the majority of our top line increase reflects the continued share gains in retail, it also reflects an increase in drug inflation, which is helping to offset some of the deflation from new generic introductions. As with the PBM, we've assumed that we'll see more inflation going forward, but not at the first quarter levels. Same-store sales growth is expected to be in the range of 5% to 6%. And as you model second quarter comps versus what we've achieved in the first quarter, you should keep a few things in mind with respect to the front store. We will have a slight negative Easter shift, given the holiday season is 14 days shorter in the second quarter this year versus last year. We also expect to see a tougher allergy comparison in the second quarter given the early onset of the season and the shift of sales into the first quarter. And of course, the benefit of leap day will not repeat itself. That said, we still expect front store comps to be healthy in the second quarter, just not at the level of the first quarter. Same-store script growth is expected to be in the range of 6.5% to 7.5%. Operating profit in the retail segment is expected to grow between 16.5% and 18.5% during the second quarter. Revenues at the PBM are expected to grow by 27% to 29%, largely reflecting the new client additions and the ramp-up in the UAM business. PBM operating profit is expected to be up 7% to 11% in the quarter. So in conclusion, we've turned in another solid quarter, and our outlook for the year remains very good. We've also continued to generate very significant free cash flow, and that will play an important role in driving shareholder value now as well as in the future. And with that, I'll turn it back to Larry.

Okay. Thanks, Dave. And as you've heard already, we had a terrific start to the year and I'm very pleased with our results across the enterprise. And I want to thank our 200,000 colleagues who are working very hard every day to help people on their path to better health. And on behalf of our senior leadership team, I can tell you that we feel very good about our position in the marketplace. And with our stable business and unique suite of assets, we're very well positioned in the industry for continued success. So with that, let's open it up for your questions.

[Operator Instructions] Our first question comes from the line of Deborah Weinswig, Citigroup.

This is Tiffany Konegen [ph] filling in for Deb Weinswig. Can you please provide some detail around the breakdown of the $7 billion of new wins this season?

Well, the biggest single one is the FEP contract, which was the mail order and the specialty business that we didn't have. We also renewed the retail part of that. So the incremental revenue that we got from the FEP contract was roughly $2.5 billion out of the $7 billion, and then the rest of it is made up by a number of other prominent employer and other types of customers.

And also one additional question. Can you provide some more color around your decision to close the 25 Beauty 360 locations? And what is your strategy for beauty and cosmetics going forward?

Yes, let me take the first part of that and then I'll ask Mark to jump in. But as you know, we began this concept about 4 years ago. It was disruptive in the marketplace in terms of offering what had been only distributed through department stores and specialty beauty stores, certainly products not available in the drug channel. And we got tremendous learnings over that 3-, 4-year period. We found that we did not or were not able to secure all of the, call it, Tier 1 brands that would create a holistic offering for that prestige beauty customer. But again, it was a very successful innovative test where we got learnings that we can apply to our beauty business going forward.

So just a little color on top of what Larry said. We clearly believe in the beauty business. It's a huge priority for us as we go forward. It was a 25-store test where we learned a ton. We are in the process right now of a whole beauty reinvention and much of the learning that we took from those tests will be integrated into that beauty reinvention. Other things that we have in the works, I think, that have been effective on the beauty front have been this Beauty Club that we launched this past year, which now has 12 million members, and we continue to look for ways to take that to the next level; and then the successful launch that we had this past year of the Salma Hayek Nuance product exclusive to us. It came with industry accolades and customer accolades, and it is also meeting our sales expectations. So we have a lot happening in the beauty world these days. We are committed to it, and stay tuned for more on that front.

Our next question comes from the line of Lisa Gill of JP Morgan.

I have a couple of questions on the PBM side. First off, when you talk about the one quarter that's already been renewed, can you talk, either Per or Larry, about what your retention rate has been so far? And then secondly, can you also talk about what customers are looking for this year in the selling season? Are you hearing more around narrow networks? And obviously, you're well positioned to provide a narrow network. And what are you seeing competitively with all the disruption, and most notably recently SXC and Catalyst coming together, as well?

Yes, Lisa, let me take the first part, and then I'll ask Per to talk more about what he's seeing in the selling season. As we said in our prepared remarks, it's very early in the selling season. We're not going to provide any numbers around retention rates, and we just think it's way too early to talk about that with where we're at. And we'll certainly talk about that in a more holistic fashion as we approach the fall time frame.

And, Lisa, I think the network question is clearly on the table and I think that it's, I think, in part put on the table by the Express-Walgreens situation. And I think what many customers have realized is that you can actually serve the market very successfully with less than all of the stores around the country. And quite candidly, Express has done a nice job really managing transitions of their retail customers over to other participants in the network. So it is a viable option for customers where they, I think, will be looking at, due to the benefits, the savings that they can get from narrowing down the network somewhat. And they will kind of look at those benefits compared to other types of savings opportunities that are available to them through plan designs and that sort of thing. So I truly expect there to be a healthy discussion around network options as we get into this year's selling season.

Can you help us, Per, to understand what level of savings a customer is looking for? I think that Walgreens has probably said that customers won't move for less than 5%. Our experience has been that, that's not the case, but perhaps you can give us some insights into the level of savings people are looking for, for a more narrow network.

Well, I mean, I think to get to 5% savings, you have to make very drastic cuts in the network. But this business is very price-sensitive, as you know, and customers will value a lot top line reductions of 1%, 2%, 3%. If you're a $1-billion health -- if you're a health plan that spends $1 billion on prescription drugs, 1% saving is $10 million and 2% savings is twice that. So it is very meaningful and I think it's clearly sort of worth consideration by customers.

And, Lisa, I think the wisdom that has been out there was a 2% to 3% number. And I think, to Per's point, that the paradigm that existed in terms of customer disruption, we're kind of living a learning laboratory, and Express has done a very effective job in terms of managing client and member disruption, that I think it's possible as a result of that, that you could see clients evaluate what would it mean for a 1% savings because the disruption is just not what people thought it might be.

Our next question comes from the line of John Heinbockel of Guggenheim Securities.

A couple of things. So first on the PBM, when you think about all of the noise in the marketplace today, do you guys think the benefit in this selling season is more net new wins, the potential for that, or strong -- stronger margins on renewals of contracts that are up for renewal this year? Do you think -- does one, in your mind, weigh more heavily than the other as an opportunity this year?

Well, I mean, I do think that the opportunity to capture new business is probably the more important factor there. What is sort of interesting, I think, in this year's selling season is that in addition to looking at customers that are contemplating a change for January 2013, we actually have quite a substantial number of customers that are looking at 2014 change. And it's unusual, at least in my experience, to have that many customers kind of go out to market almost like a year ahead of plan, if you will. So that is a new phenomenon, I think, this particular season. With respect to the pricing, I really don't see any significant change compared to the past. I mean this is a very competitive business. It will continue to be very competitive business. And when plans go out to bid, they look very much at how to improve the economics of their drug benefits. So I kind of fully expect that the economics will be in the forefront of all of these opportunities.

But is it wrong to think that with all of the -- again, all of the noise, all of the change that's out there that people might be a little more risk-averse right now? And if they're generally happy with your offering, a, there's a greater likelihood they stay with you, and b, it's going to take a lot more to -- price discount to bid them away. Or is that not right?

Well, I mean, I think if you have a successful service relationship with the customer, which is very much the case for us, I mean, typically as the incumbent, you have sort of the upper hand, if you will. And that sort of is what you see reflected in the high retention rates. But that doesn't really translate into a significant sort of margin opportunity. It tends to be very, very competitive and clients are really focused on trying to improve the economics of their drug programs.

All right. And then just finally, Larry, 2 quick things on Retail. When you think about this whole Walgreen-Express ending at some point, how do you think that all plays out in terms of them trying to get business back? They'll probably do transfer coupons, maybe bigger than $25. How does that play out? How do you respond to that? And there should be an annuity benefit that you'll keep some percentage of these customers into '13, correct?

Yes, John, I mean, as we've discussed many times, we know that, that pharmacy customer is the hardest person to lose and the hardest person to get back once you've lost them. The longer this impasse goes on, the stickier that customer is going to be. And they're going to have multiple opportunities to visit a CVS/pharmacy and establish a relationship with their CVS pharmacist. So yes, there will be a retention impact of this if and when the situation gets resolved.

Our next question comes from the line of Dane Leone, Macquarie.

Maybe starting with retail. Can you just kind of go into the plan, as we head into the back half of the year, to convert some of those new pharmacy customers into loyalty program customers or -- yes, I mean, front store shoppers.

Well, it's a big part of our game plan obviously. When we started this past year back in January, we had an aggressive plan, both in terms of marketing and in in-store initiatives, for attracting the ESI customers and then converting them into really whole store shoppers. The plan included marketing, both on the broadcast front as well as on the promotional front, and then we had a significant amount of activity around ExtraCare. We also did a tremendous number of things on the in-store front, including staffing. We added inventory where it was appropriate and then we had a major campaign, which we had -- saw some success that we think we will continue in the second half of the year around ambassadors, which we put in place in our top stores to really teach these new customers the services that we have available in our store, from e-mail capability to texting to ExtraCare and the power of ExtraCare, signing them up to ExtraCare, and of course our ReadyFill initiative. The big focus now is on service because we believe if we provide the best possible service experience, that will then lead to the more likelihood that the folks will retain, but then also use the full store. So we have a number of initiatives in place to convert the customer not only to a loyal pharmacy user, but also to a loyal front store user.

Great. And 2 questions on the PBM side. Just following up on a previous question, I'm just curious about why customers would be sending out RFPs for the 2014 selling season this early, given all the disruption going on. And then another question. There's been some talk with consultants percolating over the last month or so just regarding potential IT issues on the Caremark destination platform. I was just hoping maybe you could just give some color on why we might be hearing about that. And is it just a normal noise? Or is there something more to focus on there?

Yes, I think, let me start with the last one. I mean there are really no IT issues associated with the destination platform. It's a very, very strong platform that will basically be able to handle a tremendous range of plan design requirements, capturing all the segments of our book of business. And we just -- earlier this year, we migrated all of our Med D business over to that platform, which is arguably the most complicated part of our business. So it's a very, very sophisticated state-of-the-art platform that will be able to robustly handle all of our requirements for many years to come. So that's not at all sort of an issue. With respect to the 2014 thing, I don't have any really definitive insight there other than what I've just said. I do think when you have this kind of market disruption that's going on right now and the M&A activities that you're familiar with, those types of changes can be kind of an impetus for many plans simply to just sort of ask themselves, maybe this is a good time for us to look at what's out in the marketplace and figure out what the options -- what options are available for them to provide this cost-effective drug benefit going forward. So I don't have anything other -- any other insights than that to offer.

Our next question comes from the line of Meredith Adler, Barclays Capital.

Larry, you were talking about the likelihood of retaining customers. I was just -- because of the former Walgreen customers. I was just wondering why you're being so conservative about not assuming any of it in the second half. Is that just because you don't know what Walgreens is going to do to try to win those customers back if this dispute is resolved?

Yes, Meredith, we have been -- I think going back to December, we had said that this was a very fluid situation and we certainly can't predict the outcome or let alone the timing of that, and that we would take this one quarter at a time, recognizing, as Mark just pointed out, there's an awful lot of things that we're doing to ensure that those new customers have an outstanding experience and that we convert them to not just a pharmacy customer but a front store customer. So we certainly expect that we'll talk about that at the appropriate time, and we'll provide another update on the next quarterly call in terms of where we're at should the situation be unresolved or resolved, for that matter.

So for CVS enthusiasts, then we should assume that you'd keep some of it?

Yes, Meredith, as we -- someone asked the question earlier, that this has gone on long enough that we would certainly expect some retention to take place, because these customers have had an opportunity to date to visit a CVS pharmacy perhaps 3, 4 times now and to begin to establish a relationship with their pharmacist.

And I think, Meredith -- this is Dave. I think a couple of things, is that one, we want to put in our guidance things that we can control, and obviously, this situation is somewhat outside of our control, number one. But number two, while we've talked about it a lot, we're still pretty early in the process. We've kind of got 1.5 quarters under our belt here. And as time goes on, we'll know much more and we'll have a lot more clarity at that point.

Great. And then I have a question about your Medicare, your PDP business. This is the first quarter -- or first quarter that you've had the Universal American business. And obviously, that's always the weakest quarter for the PDP business. I was just wondering if there have been any surprises in terms of what customers are -- how many prescriptions they're filling and whether you feel comfortable with the premiums that you're getting paid in that business this year?

Yes, no surprises. It's very much on track with our expectations.

Our next question comes from the line of Tom Gallucci of Lazard Asset Management.

Just a follow-up question or 2. In terms of the RFPs that you're getting on the PBM side going into the heart of the selling season here, can you talk about anything that you're seeing that's new or different in terms of what customers are asking for in those RFPs? I mean, you touched a little bit on maybe there's going to be more talk around narrow networks. Something else that we've heard is maybe customers looking to be -- to gain a little more control over the specific retailers that are in their networks as opposed to just sort of relative access points. Can you talk about that and anything other that you're seeing that's new or different?

Yes, I don't see anything to the kind of controlled aspect of your question. I mean, I think, typically, when they specify the parameters around networks, it has to do with access, geographic access, in relation to where their people are. And that's been a fairly broad-based sort of definition of what the network requirements should be based on. And so that's probably -- I mean I don't see any real change there. With respect to other things that people are looking for, one of the things that's sort of on the table right now for many employers is what their plans are with respect to retiree coverage and whether they're going to exit the Retiree Drug Subsidy Program into either a defined contribution or EGWP-type plans. So there's a fair amount of interest in those types of options, especially from large employer customers.

Great. Could you remind us if an employer does make a change there, let's say, toward an EGWP, what's the net effect for you all?

Pretty much -- I mean, it's not a major shift. We obviously -- there's a slight deterioration typically in the mail order aspect of it because in the EGWP plans, you can't have as aggressive mail order incentives as many employers have for their retirees today.

Right, okay. And then what about managed Medicaid? I know you guys are pretty big players there through some of your customers. Do you view that as a longer-term opportunity? Or what's the relative quality of that business and how you look at it?

Well, we certainly see that being a big growth area for us, and many states that have major fiscal problems are clearly kind of looking at switching out of fee-for-service Medicaid programs into managed Medicaid programs to improve the generic dispensing rates, to reduce the dispensing fees and so on, so that seems to be a pretty robust trend right now that certainly had a significant impact this year. But other states will continue to kind of look for those types of savings going forward and that's a very interesting market opportunity for us.

And, Tom, it's also an opportunity on the retail side because it gives us an opportunity -- it's going to vary by state and by PBM, but it gives us an opportunity to work with the PBMs around incentive programs rather than just being focused on just share reimbursement formulas.

And even going back to the network issue, many of these managed Medicaid programs are being set up around retail networks that have less stand-alone pharmacies in it.

Our next question comes from the line of Ed Kelly of Crédit Suisse.

Larry, you've said previously that you did not expect to see a large -- that there'd be a large opportunity out there for new business wins because of the Express-Walgreens dispute. And I guess I don't want to put words in your mouth, but I guess it's because you didn't expect that Express would have that much difficulty in retaining business without Walgreens. Do you still feel that way now that we're sort of in the heat of the selling season and you're getting some feedback from clients?

Yes, Ed, I think we still feel that way. I think as you've heard us comment on several times, Express has done a very effective job in terms of managing the client member disruption so that it's not an issue. And I think, to Per's earlier point, that clients are always looking for ways in which they can capture savings. And I think that we don't know how it'll play out, but I think that there will be and is going to be more chatter around, what does a more restricted network mean in terms of potential cost savings for a respective client?

As we think about more restrictive networks and if we were to take a 5-plus-year view on sort of where the marketplace going, it seems like there's going be more prevalence of restricted networks, which I guess means that the decision to fill a script starts to move from the employee, which it's been historically, to maybe a bit more to the employer. So my question for you is, does that have any impact on the way you think about real estate opportunities, right? For instance, is it as critical going forward to have the high-cost main-on-main location as it's been in the past?

Well, Ed, I think as we look to the future, I think there's a lot of variables that continue to come in play. Keep in mind that part of that real estate strategy is the convenience of the front store offerings and the hours of operation that, that affords, which quite frankly, those elements are very important to clients and their members and I think will be part of the considerations that go into a decision to potentially restrict the networks. So I don't see, as we sit here today, any changes in how we think about our real estate strategy with that in mind.

Okay. And just real quick, last question for you. You brought in a lot of new business this year as well as last year. Can you just comment on how the execution of the new business has been? And does that create any limitation for you on how much business you'd be looking to try to pick up in the upcoming year?

Well, I mean, we did take on a huge amount of business, as you know, in January. And at this point, we're very sort of satisfied with the service levels and the operations around all of these new customers. To be quite candid, there were some moments in very early January when I think our systems were pretty much stressed and we had some spikes in the customer call centers that were -- caused a little bit of consternation. We pretty quickly got behind that, so it's not an issue any longer. But it was quite an effort in early January to manage all this inflow of business. And going forward, I think we obviously take all of these experiences and try to learn from them, try to find areas where we need to strengthen our processes and strengthen our systems, so we can continue to grow this business very successfully. And I don't really see any limitations there whatsoever.

Our next question comes from the line of Larry Marsh, Barclays Capital.

And for what it's worth, Per, to your earlier point, we participated in an industry call last week where several consultants said they are specifically recommending more of their customers go out to bid this year to see if they can capture more savings in their drug spending, because of the change in the industry, as you said. But my question is really I wanted to get you to discuss a little bit, briefly, your success in winning and retaining health plans through your PBM. You've lost what I thought were several visible health plans for '13, but also recently won Blue Cross Blue Shield of Hawaii from Medco. So I guess my question is, do you feel like you can continue to gain share in this segment, specifically addressing the concerns some might have that you're competing with them for Part D lives?

I mean, I do, Larry. We will never doubt that 100%, and the accounts that we lost early this year were -- they were hotly contested and we put in a huge effort on those and, I thought, gave proposals that were very aggressive and what we felt we could justify. So having said that, we're not going to win all the time. I do think that our model, especially with the integration with CVS retail and the MinuteClinic, is of increasing significance to the health plan segment. And that, I think, has become really a focal point for many of the health plan discussions right now, and in particular, health plans that have a significant Medicare population. As you probably know, Larry, the government has basically created the Star rating program as a way to measure health plan performance and also to pay health plans for their performance, and a significant portion of those Star ratings today are dependent on being able to improve adherence and close gaps in care for chronic medication users. And we have a particularly strong suite of capabilities to help health plans in that area. So I'm very, very optimistic about the growth opportunities in the health plan segment going forward.

Right, thanks. And I guess, given that it's public, to the extent Cigna does decide to move forward with its outsourcing of its combined pharmacy benefit assets, why might they consider you given you already service their large competitor, Aetna?

Well, I think, Larry, that obviously, the point that Per just made about our integrated model, I think, creates an awful lot of interest among clients of all types, especially health plans, as you think about more and more of this business becoming B2C and the opportunities that we have to serve varying needs.

Right, okay, great. And a quick -- real quick follow-up. To the extent Express does choose to move forward to terminate Medco's retail network agreement with Walgreens for 2013, are there any notable incremental costs you need to incur to help drive that seamless transition like you did with Express? Or do you feel like you've already learned and you've expensed most of that already with the Express Scripts switch?

Yes, it would be very minimal, Larry. I mean it would be investing in some of the store labor, okay, as Mark talked about, to ensure that, that transition experience becomes a seamless one, because there is some administrative duties that have to be performed as part of that transfer process.

But again, we could easily handle that from a capacity perspective with no issue whatsoever.

Our next question comes from the line of Scott Mushkin of Jefferies.

A couple of housekeeping items, Dave. The inventory change, you said it added $30 million to gross profit. I didn't hear a breakdown on segments. Do you have one?

Yes. It's all Retail Pharmacy because the change only affects our Retail Pharmacy inventory accounting method.

So then I also noticed in the guidance, it seemed you beat by $0.02, you raised by $0.05, if I'm missing something, and you said it was mostly below the line. So it seems like we got an extra $0.02 or...

Well, I think if you look at it, we beat by $0.02 for the quarter and then we raised essentially by $0.03 due to the Walgreens-Express impasse, $0.03 to $0.04.

For the second quarter.

For the second quarter.

For the second quarter, okay. That's great. And then ExtraCare. I didn't hear -- maybe again it's been long, maybe I missed it. ExtraCare cardholder numbers during the quarter, how much was that up?

We didn't provide, Scott, the quarter number, but we currently have 69 million active cardholders. So it's up a couple of million from our last update.

Up a couple of million. And then one final one as I just kind of run through these checks. Is the number of pharmacy shoppers that also use the front end, say, over a 6-month period high? Or is it low?

Well, Scott, the number that we've talked about in the past is when you look at that pharmacy customer and ask, what percent are purchasing something in the front at the time they're picking up their prescription, that number is right around 30%.

But over a 6-month period, I would assume it must be much, much higher, right, because sometimes you're just running in there to pick up your scripts, you're going through the drive-through or whatever. But I guess that's what I'm trying to understand and how -- I think you threw out a 20% conversion on some of these Express people, and I would think over time it could be a lot higher unless I'm missing something.

Yes, Scott, that's true, although we have not quantified that.

Our next question comes from the line of Bob Willoughby, Bank of America Merrill Lynch.

Larry, given your competitors' continuing commitment to your retail excess, are there more aggressive strategic moves you could make to enhance the opportunity? You mentioned the store clustering opportunity. Is that an acceleration of store openings? Or is that more or less in line, just a bit more focused? And can you give us kind of a target market maybe where something like that would happen?

Yes, Bob, I mean, we are following through on our plans. I would say the one thing that we're doing in response to your question is that we have entered new markets over the last couple of years and we have a rich and robust pipeline of stores. So I'll take a market like St. Louis where we have probably 10 or 11 stores today and another 15 or 18 in the pipeline. And we're looking at those new markets to see if we can accelerate what has already been approved as real estate.

Okay, but the overall number of stores more or less in line with what you've guided to over the past.

Absolutely.

Okay. And maybe more bluntly, Larry, what's the economic reason not to ultimately exclude Walgreens from your pharmacy networks -- from your PBM pharmacy networks? Why go restrictive when you can knock them out completely?

Bob, I mean first off, I mean, we have a long-term contract with Walgreens, so that's sort of the basis from which we operate. And as we do with all of our network partners, we will continue to look for sort of the best mix of participating chains and independents and the economics that, that will lead to. So I'm not going to make any predictions one way or another, but certainly having Walgreens in the network on competitive terms is a good thing for our customers.

Would you foresee excluding them? Any meaningful damage to your PBM profitability or growth opportunity?

We have no plans in that regard.

And we wouldn't speculate on that, Bob, as well.

Our last question comes from the line of Ricky Goldwasser, Morgan Stanley.

Question on the inventory change. I just wanted to clarify, is this only an accounting change? Or is this also a signal that you're just kind of like looking potentially at a more structural change to how you think about managing inventory across the organization? And really, what I'm getting at is, are you also looking at potentially consolidating the purchasing for the PBM and retail segment as part of managing the inventory?

Ricky, this is Dave. This is purely an accounting change, although we think it will be helpful to us from an operational perspective over time. Keep in mind that today, the purchasing across our enterprise, both from a PBM perspective and a retail perspective, is already consolidated. So we leverage the purchasing power of our organization across both of our segments.

Just by the fact that you're using 2 different wholesalers?

Correct. But we -- that is correct, but we still purchase them centrally through our operations.

And, Ricky, we use the wholesalers geographic to a large degree actually across our retail enterprise. Okay, everyone. So thanks for your interest and your time today. And if there's any follow-up questions, I know you know how to get ahold of Nancy. So thanks, again.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines. Have a great day, everyone.