Ladies and gentlemen, thank you for standing by and welcome to the second quarter 2017 CVS Health earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded today, Tuesday, August 8, 2017. I would now like to turn the conference over to Mr. Mike McGuire, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Leila. Good morning, everyone, and thanks for joining us. I'm here this morning with Larry Merlo, President and CEO, and Dave Denton, Executive Vice President and CFO. Jon Roberts, Chief Operating Officer, and Helena Foulkes, President of CVS Pharmacy, are also with us today and will participate in the question-and-answer session following our prepared remarks. During the Q&A, please limit yourself to no more than one question with a quick follow-up so that we can provide more people with a chance to ask their questions. Please note that we posted a slide presentation on our website before this call. It summarizes the information in our prepared remarks as well as some additional facts and figures regarding our operating performance and guidance. We also filed our Form 10-Q, and that too is also available on our website. I have one announcement this morning. Our annual Analyst Day has been scheduled for Tuesday, December 12, in New York City. You'll have the opportunity to hear from several members of our senior management team, who will provide a comprehensive update of our strategies for driving long-term growth. We plan to send invitations via email with more specific details at the end of the summer. But please save the date. Again, that's Tuesday, December 12. Additionally, during this presentation we will make certain forward-looking statements that reflect our current views related to our financial performance, future events, and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what may be indicated in the forward-looking statements. We strongly encourage you to review the information in the reports we file with the SEC regarding these specific risks and uncertainties, in particular those that are described in the Risk Factors section of our most recently filed Annual Report on Form 10 K and the cautionary statement disclosures in our Form 10-Q. You should also review the section entitled Forward-Looking Statements in our earnings press release. During this call, we will use non-GAAP financial measures when talking about our company's performance. In accordance with SEC regulations, you can find the reconciliations of these non-GAAP measures to comparable GAAP measures on the Investor Relations portion of our website. And as always, today's call is being webcast on our website, and it will be archived there following the call for one year. Now I'll turn this over to Larry Merlo.

Thanks, Mike. Good morning, everyone, and thanks for joining us to hear more about our second quarter results. Total company revenues increased 4.5%, comfortably within our guidance range. We delivered adjusted earnings per share of $1.33, which is $0.01 better than last year and at the high end of our guidance. On an adjusted basis, operating profit was down 7%, within expectations. And this reflects performance in the retail business that was in line with expectations along with performance in the PBM that was ahead of our expectations. We generated approximately $1.6 billion of free cash during the quarter and more than $4.6 billion year to date. And while we are pleased to report results within our expectations, we won't be satisfied until the total enterprise returns to healthy levels of earnings growth. Back in November, we outlined our four-point plan to return to healthy growth, and that plan included: leveraging our enterprise capabilities and CVS Pharmacy's compelling value proposition to partner more broadly with other PBMs and health plans; focusing on driving growth through new PBM product introductions that capitalize on the benefits inherent in our unique integrated model; continuing to be a low-cost provider; and continuing to be very thoughtful with respect to using our strong cash generation capabilities to return value to our shareholders. And as we go through today's call, you'll hear about the progress we've made against this plan. Given our solid first half performance and our expectations for the remainder of the year, we are narrowing our full-year adjusted EPS guidance range and raising the midpoint. We currently expect to achieve adjusted earnings per share for 2017 of $5.83 to $5.93, reflecting a year-over-year change of down 0.25% to up 1.5%. That compares to our previous range of $5.77 to $5.93. and Dave will…

Thank you, Larry, and good morning, everyone. Today I'll provide a detailed review of second-quarter results, followed by an update on our guidance. I'll start first with a summary of how we continue to enhance shareholder value through our capital allocation program. During the second quarter, we paid $512 million in dividends. Our 12-month trailing dividend payout ratio currently stands at 36.6%. Let me remind you again that this ratio is artificially high, as it includes some expenses that are more temporary in nature, as described in our non-GAAP reconciliations on our website. On a comparable basis, we remain well on track to achieve our targeted payout ratio of 35% by the end of 2018. In addition, we have continued to repurchase shares. As we discussed in the first quarter earnings call, in April we completed the previously announced accelerated share repurchase programs. We received approximately 10 million shares at the close of those programs. We repurchased an additional 4.3 million shares during the quarter, bringing the total repurchased in the second quarter to 14.3 million shares. Year to date we've repurchased 50.4 million shares for approximately $4 billion or $78.67 per share. So between dividends and share repurchases, we've returned approximately $852 million to shareholders during the quarter and nearly $5 billion year to date. We continue to expect to return more than $7 billion to our shareholders in 2017 through both a combination of dividends and share repurchases. As Larry mentioned, we generated approximately $1.6 billion of free cash in the second quarter, and we have produced more than $4.6 billion year to date. Free cash flow in the quarter benefited from the timing of PBM cash receipts and payable, due in part to the early receipt of a Medicare Part D payment that shifted into Q2 due…

Thanks, Dave. Before moving into the Q&A, I did want to share our approach and actions in dealing with the rhetoric around the drug pricing debate. We have been and continue to be a very active voice in Washington with regard to healthcare issues. In fact, at the beginning of this Congress, we outlined a series of proactive proposals to lower drug costs. And these proposals focus on increasing competition in the drug market, strengthening the ability to use our drug management tools, and easing out-of-pocket costs for consumers, and we have seen action on a number of fronts. Foremost, the new FDA Commissioner has embraced proposals to prioritize the review of generic drug applications, launching a Drug Competition Action Plan. And as part of this plan, the agency has published a list of more than 260 off-patent branded drugs without approved generics in order to encourage the development of ANDAs in markets without competition. Additionally, the FDA now will expedite the review of generic drug applications until there are three approved generics for a given product, recognizing that patients do see significant price reductions when there are multiple generics available. And we're already seeing results, as May and June of this year have seen the most generic drug approvals since the FDA began tallying its monthly approvals. We're also engaged with the administration at all levels, and our discussions have increased the understanding of the value of the PBM, are highlighting the significant savings being generated in Medicare Part D, and are providing solutions for consumers to better afford the drugs they purchase at our pharmacy counters. And there's still more that can be done. We're piloting the use of technology to provide drug pricing information to both the patient and the prescriber at the point of prescription. This dramatically changes the conversation with policymakers, several of whom have expressed great interest in these capabilities. And ultimately, we believe continuing to demonstrate the role that CVS Health plays in making healthcare more affordable, more accessible, and more effective will be the winning strategy. So with that, let's go ahead and open it up for your questions.

Thank you. And our first question comes from the line of Scott Mushkin with Wolfe Research. Please go ahead with your question.

Hey, guys. I appreciate it. I had one shorter-term question regarding the guidance and then one longer-term question. So the guidance is, to summarize, it looks like the operating profit for the enterprise is coming down a little bit. That's specialty and maybe some more investments in retail.

That's correct.

And then bridge me to the better performance. Is it just tax rate and the share buybacks? That's how you get to the move up in the range?

That's correct. There's a little bit of softness due to volume in retail and a little bit of softness due to specialty at the operating profit line and some investments that we're making to drive the long term. But all of that's being mainly offset through both tax rate and our performance from the share repurchase program.

Okay, perfect. And then this is a broader question. I'm sure it's going to come up in the call, so I might as well ask it because I cover Amazon. Amazon has been rumored to be entering, or may enter. I know it came up on the Express Scripts call. How do you guys view that, especially on the retail side of the business? And what would prevent them from taking share if they decided to enter?

Scott, listen. It's Larry. I think as you've heard many talk about, there are many barriers to entry when you're looking at pharmacy. And I think most people are thinking about pharmacy as another distribution point. But pharmacy is also about the clinical outcomes that are provided. And in an environment where there's a migration to more value-based care, those clinical capabilities are going to continue to grow in importance. It's highly regulated, so the barriers to entry are high. And you know the role that – today you've got more than 90% of prescriptions that are covered by some type of third-party insurance, so there's an awful lot of work that exists between pharmacists working with payers and physicians to provide that care. And we know the role that pharmacists play in the community. We've seen mail-order pharmacy decline to some degree over the last couple years, and patients put a lot of value in the trust and the relationship that they have with their community with their retail pharmacist. So I don't think there's anything that is in the near-term world that changes those dynamics. I think as you flip over and think about the front store, listen, there are many more online retailers today than what we had five years ago. And the CVS Pharmacy model is built on convenience, when you think about 9,700 points of access and the fact that you've got almost 80% of the U.S. population that lives within a few miles of a CVS. And over the last couple years we've been working hard to define what omni-channel means for us and means for those customers, and have been investing in our digital tools and capabilities to provide more of an omni-channel experience. So listen, there's no question that Amazon is a competitor in the marketplace. They've done a great job, and you don't take anything that they're doing for granted. But at the same time, I think that we have a lot of capabilities and a value proposition that can compete effectively in the market.

All right, perfect. I'll yield. Thanks, guys.

All right. Thanks, Scott.

Our next question comes from the line of Lisa Gill with JPMorgan. Please go ahead with your question.

Great, thanks very much and good morning. Larry, you talked about the relationships with Cigna, Optum, and Express Scripts. Can you maybe just give us any updated thoughts around the number of prescriptions you think this could drive over time? And then secondly, any updates on Medicare Part D network relationships, any thoughts around participating in preferred networks as we think about 2018?

Lisa, the relationships, the things that we talked about in the prepared remarks, I think those products are out being sold in the marketplace as we speak. We don't expect it to have any material impact in 2017, and we hope to see it begin to ramp up in 2018 and beyond because we think that there is a robust pipeline. At the same time, I think we've learned from our experience between Caremark and our health plan clients the challenges that exist in terms of selling those products in the marketplace, so it will take some time. In terms of Med D. I think you've seen some announcements that this is work in progress. We'll have more to say on this at the end of the year, but CVS Pharmacy will be preferred in Aetna's Medicare Part D network beginning in 2018. So I think that there's progress being made as we continue to evaluate those opportunities.

And then my follow-up just would be on the generic comments that you made, obviously, more generics coming to the market, generally viewed as a positive as we think about the PBM and drug retail. Is there a certain point where the pricing is so low that you can't capture the same amount of margin opportunity, or is lower pricing and competition around generic procurement always a positive for your book of business?

Lisa, I would say at this point and for the foreseeable future, we view it as a positive for our business. And it would be interesting if we can ever find a point where that hypothesis that you mentioned would – we've got a long way to go before we get to that point. Maybe that's the right way to say it.

Okay, great. Thank you

Thanks, Lisa.

Our next question comes from the line of John Heinbockel with Guggenheim Securities. Please go ahead.

Larry, on the Transform Value program. I know it's early, but what learnings have you had from the diabetes portion of this as you look at rolling out the next three – maybe enhance those three? And then when you think about using this to get closer to your health plan and other PBM partners, have you been able to – is there a way to dimensionalize that possible impact, or you know it's positive but it's very difficult this early to figure out what that might mean for share?

John, I'll start and then I think Jon will want to jump in here. John, the learnings that we've got from the Transform Diabetes Care, I would say it's largely come from the pilot program. And I think what we found is that – keep in mind that there are two parts to this program. There's the client part in terms of which we're telling them that we can control their costs in a differentiated way, recognizing that diabetes has been a contributor to trends over the last couple years. And for the patient, we're working with them in terms of providing more effective care and a better health outcome by monitoring their blood glucose in real time and avoiding unnecessary visits to the physician or to the emergency room. So the pilot program demonstrated for us that we can improve the patient outcome and reduce costs for the client. That's what we're out there selling right now, and there has been a high level of interest. But again, those programs are being sold in the marketplace, so we'll have more to say on that later this year or early next year in terms of the traction that it's getting.

And, John, this is Jon. We've been talking for many years about the value of adherence and lowering overall healthcare costs. And I think this diabetes program, which is our clients' top priority when they look at their population and what's driving their overall healthcare costs. So it really is positioning us as a partner to not only provide pharmacy services but also to help manage the overall healthcare costs for those clients. And so the response has been very positive. People are interested in solutions. There have been solutions in the marketplace, but they are point solutions, so they can now come to us and get a comprehensive program and we can talk about not only their pharmacy costs but their medical costs. And we expect to roll Transform Care programs out for four additional disease states over the next 24 months, and that will be asthma, hypertension, hypercholesterolemia, and depression. And we tell our clients that these members have to be in one of our channels to get the value of these programs. So I do think there is share shift. There will be share shift that comes as clients adopt these programs and we demonstrate our ability to lower overall healthcare costs.

And then maybe as a follow-up for Larry, if you think about the reimbursement pressure you and everybody else is seeing and what that has to be doing to those with subscale business models, what happens to share over time? And do you think – by definition does there have to be some moderation in reimbursement pressure, either as a means to not prevent some of these other channels from leading the market or maybe we get there because share consolidates too much? What's the prognosis there?

John, I think the question that we've talked about probably every year for the last several is that I wouldn't describe reimbursement pressure as increasing from its historic levels. I think the dynamic that we see, at least this year, is the offsets associated with that reimbursement pressure are more challenging than what may have existed in prior years. And you would expect there are going to be ebbs and flows to that, whether it's the contribution that new generics can make to the market or other dynamics underway. You've heard us talk, John, about the migration to – and we're talking about value-based networks. And I do think that dynamic will change the construct of networks because now pharmacy networks will not be simply defined by location and price, they'll be defined by clinical capabilities and outcomes. And I think that will create a different dynamic than what exists today in terms of who can participate and who can't when you look at clinical capabilities.

Okay, thank you.

Thanks, John.

Our next question comes from the line of Ricky Goldwasser with Morgan Stanley. Please go ahead.

Hi, good morning. Larry, in your prepared remarks about the selling season, you talked about some wins in the government segment. So can you just help us think about how the mix of the new business with the profitability associated with it, and how should we think about that compared to last year?

Ricky, this is Dave. As typical in the PBM space, profitability within a new client is pretty thin in the first years. And I would say that as we look forward to profitability in these contracts next year versus this year, I'd say more or less on a comparable basis consistent with year over year. I do think one of our challenges and that we work hard on is once we onboard a client is making sure that we work to improve their performance, drive value for them and drive value for us, whether that's shifting to new generics, whether that's improving clinical outcomes, whether it's moving into some value arrangements. And that's the program that we constantly run, and that is something that our organization and our teams are consistently focused on.

Ricky, this is Jon. The only other thing I would add is about half our wins are in the government space, and they probably perform more like health plans because they're limited in the programs they can adopt. So I would probably think of it along those lines.

Okay, that's very helpful. And the other half, is it commercial?

The other half, Ricky, think of it as being split between health plan and employer.

Okay, and then just a question around capital deployment. When you provided us the long-term guidance growth of 10%, it included capital deployment, so two questions there. One, how do you think about capital deployment? I know that Pfizer last week said that they are holding back on M&A until they have more clarity around tax reform. Is that something that you're thinking about as well? And my second question is when we think – this might be a little bit early for that. But when we think about – how should we think about 2018 within the context of that long-term 10%?

Ricky, it's probably a little too early to talk specifically about 2018. As you know, we're targeting 10% adjusted earnings per share growth over time. We said that some years will be better than that. Some years will be light to that. We're obviously working hard to get ourselves back to a growth platform here. From a tax reform perspective, we are encouraged by the progress and the discussions that are occurring around tax reform. We are not waiting on tax reform to make investments in our business. I think at a nearly 40% tax rate all-in from both federal and state, we're more likely than not to be a beneficiary of tax reform. So therefore, it will enhance our performance over time. So we're not going to wait for that to come through legislatively. We're going to work towards making investments in our business that make the most sense long term.

And any thoughts about areas of M&A and the scale that you would be considering?

Ricky, we've probably not much comment there. We obviously continue to look at the healthcare space pretty holistically. I think our platform from a pharmacy care management perspective is pretty robust. I do think there are still areas that we can continue to invest on that platform and continue to add value to both our shareholders and to the clients and members that we serve, but I can't probably give you any more specifics at this point.

Thank you.

Our next question comes from the line of Michael Cherny with UBS. Please go ahead.

Good morning, guys. Thinking about the updated guidance and particularly on the retail side and the script growth, can you maybe give a sense, especially since you talked about the lighter script growth being some of the driver for the reduced EBIT guidance? Are the numbers you had expected at the beginning of the year or late last year when you first gave guidance relative to the initial 40 million or so scripts tracking in line with what you had expected?

I think materially, they're fairly consistent with what we expected, so no big changes there. I think as you've seen, our script delivery for the first half of the year within the Retail/Long-Term Care segment has been pretty consistent with expectations. We are seeing a little softness from a market perspective, so our go-forward guidance reflects that. I would also say that just from a Long-Term Care perspective, we're seeing bed census lower, so that obviously had some effect on script delivery in that portion of our business.

And mostly, Mike, within the skilled nursing space.

Thanks, that's helpful, and then just one quick follow-up on Part D. As you think about the evolution of the competitive dynamics in the market, and SilverScript obviously has been a leader for a while, have you seen any changes in parallel to what's happening with regards to the repeal-and-replace debate that are impacting Part D and your view of Part D and the competitive dynamics around Part D to the positive or negative?

Mike, I don't think we've seen much change from that perspective. This continues to be an area where we've excelled in Part D. Our set of services and products are priced very competitively. We've been able to drive a lot of value, and we continue to grow share and membership in this space over the last several years. And I think it's important to note that we're not only growing share within our PDP business. At the same time, the capabilities that we deliver from a PBM perspective are allowing our health plan partners and clients to grow share within their base, so we're participating in both aspects of that business.

Mike, if anything, I think the dialogue is probably the reverse; that are there things that exist within the Medicare space that should be applied to Medicaid. And you think about the fact that there is still a large percentage of Medicaid fee-for-service that there are opportunities to reduce costs across the country and in many state Medicaid programs by migrating some of the tools that exist in other spaces.

Excellent, thanks.

Thanks, Mike.

The next question comes from the line of Robert Jones with Goldman Sachs. Please go ahead.

Great, thanks for the questions. Dave, you covered a lot of the changes to the outlook, but I wanted to just go back and ask specifically on the retail pharmacy gross margin. It went down in the quarter after showing some improvement last quarter, and you guys obviously maintained modest improvement for the year. So just curious if you could talk a little bit about what changed in 2Q versus 1Q. And then how are you thinking about the improvement or the implied improvement in the retail gross margin in the back half?

I think this is largely tied to the timing of break-open generics as we think about the back half of this year. So you would think a little bit about that driving that performance. Also, when you get to the fourth quarter, you start overlapping the restricted network changes as it relates to TRICARE. So that overlap helps, at least from a growth perspective – maybe not the rate, but it certainly helps from a growth perspective.

Okay, great. I guess just one quick follow-up on the selling season. Obviously, good news on the FEP retail and mail extension. I'm curious about the thought process behind the one-year extension. If I think back, I believe these contracts were typically longer in duration when they were renewed or reassigned, so just wondering if there was any more background on the extension around FEP.

Bob, this is Jon. They had two one-year options to extend the contract. They had exercised one, and this is the exercising of that second one-year option.

And, Bob, FEP continues to be extremely satisfied with the levels of service that we're providing for their members.

Okay, got it. That's helpful. Thanks, guys.

Thanks, Bob.

Thank you. Next question?

The next question comes from the line of Ann Hynes with Mizuho Securities. Please go ahead.

Hi, good morning. Can we talk about Omnicare a little bit more? Because if I'm hearing you correctly, I think maybe the softness in guidance for retail is more related to Omnicare than anything else. Is that correct, and maybe just a little bit more detail on what's happening and how you can fix it? Thanks.

Ann, this is Dave. I think the softness from a volume perspective is a little bit of both, both Long-Term Care and we're just seeing some softness in retail more broadly. And by the way, that's just a tweak, that's not a major trend break, so we're just tweaking that guidance expectation around the edges here. I do think what you see in the skilled nursing facility space, you're seeing length of stay and just that census come down a little bit in the marketplace. And as that has occurred, that affects Omnicare disproportionally greater because it has a fairly sizable share in that space. I will say as we think about new beds and as we think about marketing and offering new services to new clients and new operators, I think our products are resonating in the marketplace. I feel like we're nicely positioned here. We have a little industry headwinds as we cycle in the back half of this year in that business as it relates to volumes.

Ann, the only other thing I would add is that we had talked about some of the technology investments and enhancements that we needed to make in that business, and those have largely been complete. So now it's a question of executing those new capabilities. And in addition to what Dave mentioned, there are opportunities to improve the productivity and efficiency in that business as well.

Okay, great. And then just to focus on the ramp to Q3 to Q4, I think there is some concern historically because it's much bigger, but I'm assuming you're pretty confident on the Medicaid Part D side that it's more a timing issue than anything. And I think you also mentioned there's a second reason why, just maybe some more cost savings. Can you tell us how much of the ramp has to do with cost savings versus the Medicare Part D risk corridors? Thanks.

This is largely a Medicare Part D PDP topic. There's a little bit of investments we're making in the corridor from a cost perspective, driving initiatives, but this is largely Medicare Part D. And I'll just reiterate a little bit of what I said before. If you took Medicare Part D, our PDP, and you excluded it from all periods this year and last year, our PBM year-over-year growth in Q3 and Q4 would be very much in line with the growth that we saw in Q2.

Okay.

And, Ann, the other point in terms of getting comfortable with that, keep in mind that Part D has been growing at a pretty significant rate and represents a bigger portion of the PBM business than it would have last year or the year prior.

Okay.

Yes, and one last topic there. Just also, as I said earlier to Bob's comment I believe or question, is when we get to the fourth quarter, we begin to wrap the impact of the TRICARE decision to restrict the network. And that took effect December of last year, but we started feeling the effects of that a little earlier than December.

Okay, very helpful. Thank you.

Thank you.

Thanks, Ann.

Our next question comes from the line of Steven Valiquette with Bank of America Merrill Lynch.

Okay, thanks. Good morning, Larry and Dave. I'm just curious with Walgreens and Rite Aid now proposing a scaled-down asset purchase instead of a full merger, I'm just curious whether or not that's changed the tone of any narrow network contracts you're going to be negotiating right now. I guess specifically, does their lack of a full-scale merger maybe put CVS in a better light now on a relative basis when negotiating these narrow network deals when you're trying to be the anchor chain? Thanks.

No. Steve, it's Larry. I don't think that anything has changed with that as a variable. I think that as we talked a fair amount about in our prepared remarks, I think the dialogue around network configuration is about capabilities, and I don't think there's anything associated with Walgreens-Rite Aid that changes that dynamic.

Okay. By the way, thanks for the confirmation on the Aetna Medicare Part D network that we talked about several months ago as well. We look forward to more color on that in the future as well. Thanks.

Great, thank you.

And our next question comes from the line of David Larsen with Leerink Partners. Please go ahead.

Hi. Can you provide a little bit more color around your narrow network deals with Cigna, Express, and Optum, like roughly any sense for how many lives are included in each of those deals? And when will those volumes start to impact retail, or have they already? Thanks a lot.

They certainly have not impacted at this point in time our retail performance. Keep in mind, what we have done, and this is just one I'll say product offering or service offering that we provide to PBMs in the marketplace, the option to sell in services related to CVS Pharmacy. And as they sell them in, we begin to get share. And part of that could be a narrow network. Part of it could be a clinical offering. Part of it could be communications with their members. And so we expect that over time, the success of how they sell those lives into their book of business and then over time we will gain share. Our experience with health plans is that it takes time for share to come through. We're optimistic about what we see in the marketplace, but we will have to watch carefully and help those members transition into our channel over time. So I'm not prepared at this point in time to give you a definitive number. I do think – as we look forward for the next several periods, we do think there's an opportunity to grow share into our channel.

Okay. And then just quickly, with the exclusions lists that were recently published, it seems like you had 12 that were added, 12 that were taken off, so net zero incremental exclusions. It's very different from last year, where I think you had a lot more exclusions. Can you talk about that, any reason for what appears to be a less, I guess, aggressive approach to your exclusions list for 2018?

This is Jon. We're not any less aggressive than we've ever been. And quite candidly, we've been able to demonstrate that we can move share away from product. So these pharma companies are coming back to the table trying to get back into our formulary and bringing value. That then makes sense for us to add those drugs back in those therapeutic classes. And we've been very conservative about adding drugs back, but we felt like this was a year and there was enough value for our clients to make moves that you saw with our new formulary announcement.

Okay. And then just real quick, any thoughts on your Aetna relationship, how it's progressing? Thanks very much.

I'm sorry, what about Aetna?

Just your relationship there?

Listen, our relationship continues to be very good. We talked about where we're going with Med D on the CVS Pharmacy side. Next year we'll be taking on a portion of Aetna's rebating. And as we alluded to earlier, we continue to partner very closely with their sales organization in selling in our unique integrated products, whether it's Maintenance Choice or some of the other products you heard us talk about earlier today. So I think our two organizations are working extremely well together in a cohesive and complementary fashion.

Thanks very much.

Okay. Thanks, Dave. We'll take two more questions.

Very good, our next question comes from the line of Charles Rhyee with Cowen & Company. Please go ahead.

Hey, thanks for taking the question. I wanted to ask about RxCrossroads. You took the impairment charge. But is it fair to think you plan to retain the business itself? And I guess the specific question is within RxCrossroads, their HUB services offering, how important is that to have it still connected to the Specialty Pharmacy business?

Dave, we're obviously exploring all options with that business. I don't think the HUB connectivity to our Specialty businesses is important to us, so that could be disconnected easily, so we're not focused on that at this point in time.

Okay. And then when you talked about the timing on Medicare Part D moving more to the fourth quarter, does that imply anything in terms of the growth rate in the Med Part D business this year versus last year? So if you move through the donut hole earlier, was there faster growth last year in the first half versus this year, or is that just timing when you saw the growth?

It has nothing to do with growth. It really has to do with how the members utilize the benefit and when they hit those risk corridors at what stage. So it's not really affecting the year, and our performance in the business is really simply a shift between Q3 to Q4 from a profitability delivery perspective.

Okay, great. And then one last clarification around – I'm sorry, go ahead.

It's all right. Go ahead.

I just had one more clarification on the FEP contract. You extended it for a year. Are there any more additional extension periods embedded within the contract, or does it go to RFP at some point then in 2019 or 2020? Thanks.

This is Jon. The contract runs through 2019, and we expect it to go out to RFP at that point. There are no more extensions left.

Okay, great. Thank you.

Thank you.

Last question.

Our last question comes from the line of Ross Muken with Evercore ISI. Please go ahead with your question.

Thanks, guys. So maybe just thinking about, Larry, the comment you made in the press release that you won't be satisfied until the organization is back to healthy earnings growth, help us tick and tie how the year has played out so far, particularly on the operating income line, with some of the tweaks there relative to the long-term plan you talked about at the Analyst Day. It seems like a few pieces out of your control like volumes are maybe a bit lighter. But then on the positive side, you've got some of these network changes rolling off, and you've also got the streamlined piece kicking in, and it seems like you've got some new interesting relationships with a number of managed cares. So help think us through conceptually in your mind how the business has progressed and your confidence level in getting back to those healthy growth rates that obviously the business was used to more historically.

Ross, this is Dave. I'll start a little bit maybe with some color around this year. I think if you look at our performance year to date, we've largely delivered on the expectations that we set forth at the beginning of this year. I think that the organization continues to focus on driving as much growth as possible. We know this is a rebuilding year, but we've largely been able to through the first half of the year deliver on our top line and our bottom line. I think as we look forward, we made some slight tweaks as we've seen the industry soften a little bit from a volume perspective, but literally tweaks around that. I think the good thing too is despite the fact that because of those tweaks, we've had a little softness in the operating profit delivery in the back half of the year, our strong cash flow has allowed us to continue to deliver from an adjusted earnings per share a range that hasn't really moved. In fact, it actually increased $0.03 midpoint to midpoint. So I think we feel very good about what we've done. We have a lot of work ahead of us. We're focused on that. So with that, maybe I'll turn it to Larry.

Ross, I think, as Dave outlined the focus in terms of delivering 2017, we're also working in terms of how do we plan and prepare for the future. And I think we feel very good about the quality of the work that's been done in terms of the new relationships on the CVS Pharmacy and related business side, and equally important, the innovation that is coming to market through the PBM. The Transform Care programs and some of the things that we talked about that Jon alluded to in his comments as well, and the work that is being done in terms of allowing us to be an even more efficient and productive provider on the streamlining, that work is on target and is moving in the right trajectory. So we feel very good about the work that's being done that prepares us for the future.

And I guess just as a quick follow-up, how would you grade, Larry, your responses to some of the challenges last year in terms of how you've addressed them so far and your confidence level in, again, getting this business back on to the trajectory that's normal? Do you think you've, in most of the pivots you've made, done enough essentially to feel like you've got the business back now to where you've actually got some positive momentum, it seems like for share this year withstanding some of the market noise?

Ross, listen. There's no question that there is a high sense of urgency in the organization in terms of delivering on the things that both Dave and I alluded to. So I feel very good in terms of how the organization has responded and has rallied to the charge to work with speed and in focus. So I'm very proud of the work of our CVS Health colleagues, and I don't think we can ask any more of them in terms of the effort and the work they're doing.

Thanks, guys.

Thanks, Ross.

Thank you, Ross.

So listen, we know this was a long call. We had a lot of information to talk about, and we certainly appreciate everyone's interest and attention. And if there's any follow-up, don't hesitate to call Mike McGuire.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your line.