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DATE

Thursday, May 7, 2026 at 8 a.m. ET

CALL PARTICIPANTS

  • Chair and Chief Executive Officer — J. David Joyner
  • Chief Financial Officer — Brian O. Newman
  • Executive Vice President, Capital Markets — Larry McGrath
  • President, Health Care Benefits — Steven Hale Nelson
  • President, Pharmacy and Consumer Wellness and Chief Pharmacy Officer — Prem S. Shah

TAKEAWAYS

  • Adjusted Operating Income -- $5.2 billion, up over 12% year over year, driven primarily by Health Care Benefits segment improvement.
  • Adjusted EPS -- $2.57, a year-over-year increase exceeding 14%.
  • Total Revenue -- Over $100 billion, growth of more than 6% year over year, with increases across all major operating segments.
  • Cash Flow from Operations -- $4.2 billion was generated during the quarter.
  • Health Care Benefits Revenue -- Nearly $36 billion, up over 3%, led by government business and partially offset by exit from the individual exchange business.
  • Health Care Benefits Medical Membership -- Approximately 26 million members, declining sequentially by about 600,000 due to business exit, partially offset by commercial growth.
  • Health Care Benefits Adjusted Operating Income -- Approximately $3.0 billion, reflecting substantial improvement, with a medical benefit ratio of 84.6%.
  • Health Services Revenue -- Over $48 billion, up 11% year over year, primarily reflecting pharmacy drug mix and brand inflation, partially offset by pharmacy client price improvements.
  • Health Services Adjusted Operating Income -- Approximately $1.5 billion, down around 7%, impacted by price improvements but partially mitigated by better purchasing economics and earlier-than-expected recognition of value.
  • Pharmacy and Consumer Wellness Revenue -- Nearly $32 billion, consistent with prior-year quarter; same-store pharmacy sales grew over 3%, with nearly 7% increase in prescription volumes.
  • Pharmacy and Consumer Wellness Adjusted Operating Income -- Approximately $1.2 billion, declining about 9% year over year, impacted by milder seasonal illness, weather, and reimbursement pressures.
  • Retail Pharmacy Script Share -- Over 29%, reflecting growth versus last year.
  • Dividend -- Nearly $850 million returned to shareholders.
  • Leverage Ratio -- Ended the quarter at 3.84x, with plans for further improvement.
  • Full-Year Adjusted EPS Guidance -- Raised to a range of $7.30-$7.50 from prior guidance of $7.00-$7.20.
  • Full-Year Revenue Outlook -- Now expected to be at least $405 billion.
  • Full-Year Operating Cash Flow Guidance -- Updated to at least $9.5 billion due to improved working capital.
  • Health Care Benefits Full-Year Adjusted Operating Income Guidance -- Set at $4.0-$4.34 billion, $420 million higher than previous guidance, largely due to favorable prior-year development.
  • Pharmacy and Consumer Wellness Full-Year Adjusted Operating Income Guidance -- Raised to at least $6.18 billion, a $90 million increase from prior outlook.
  • Enterprise Full-Year Adjusted Operating Income Guidance -- Increased to $15.53-$15.87 billion, with earnings split roughly 60/40 between first and second halves of the year.
  • Cost Management Initiatives -- Announced exclusion of branded Stelara from commercial formularies effective July 2026 to accelerate biosimilar adoption, modeled on prior HUMIRA conversion success.
  • Prior Authorization Standardization -- Aetna is 88% standardized, well ahead of industry target, with 95% of eligibles approved in 24 hours and 80% in real time.
  • AI and Technology Investment -- Health 100, an AI-native platform, is launching to connect payers, PBMs, pharmacies, and providers; positioned as a core growth driver.
  • GLP-1 Strategy -- Achieved a 200 basis point increase in GLP-1 prescription share via DTC and payer channels, with cost-neutral impact under new price models.

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RISKS

  • CEO Joyner said, "sustainability, but it remains insufficient to offset underlying medical cost trends. These trends remain above historical levels and for the past several years have pressured the entire industry. This includes our own Medicare business, which improved."
  • Prem S. Shah stated, "the legislation [in Tennessee] will raise costs for the state, threaten pharmacy access.and create complexity and challenges for specialty pharmacy operations," with full effect not until 2028 but active evaluation of potential legal action ongoing.
  • Ongoing pressure on Health Services segment adjusted operating income, which decreased approximately 7% year over year, was attributed to continued pharmacy client price improvements impacting profitability despite positive factors elsewhere.

SUMMARY

CVS Health Corporation (CVS +0.58%) delivered revenue growth above 6%, adjusted operating income growth over 12%, and adjusted EPS up 14% for the quarter. Management raised full-year adjusted EPS guidance to $7.30-$7.50 and increased enterprise adjusted operating income and cash flow targets, citing broad-based improvement. Segment performance included sequential membership declines in Health Care Benefits due to exchange exit, robust commercial growth, and 11% year-over-year gains in Health Services revenue despite earnings headwinds. Significant biosimilar adoption efforts, an accelerated technology strategy with the launch of Health 100, and deeper PBM pricing model shifts were highlighted as forward strategic drivers. The company cited persistent industry headwinds, including insufficient Medicare Advantage rate increases and upcoming adverse regulatory impacts at the state level, particularly in Tennessee.

  • Management confirmed ongoing technology investments are expected to shift from net investment to net benefit over time, but timing was not specified in financial outlook statements.
  • "Our updated CVS Pharmacy guidance now already reflects an over 2% increase in earnings in 2026," according to CFO Brian O. Newman, distinct from initial Q1 segment performance commentary.
  • Sector-wide medical cost trends continue above historical averages, directly named as a factor limiting margin achievement and explicitly referenced as pressing industry and company results.
  • Full-year Health Care Benefits adjusted operating income guidance increased by $420 million on favorable prior-year development, but management kept projections for medical benefit ratio unchanged, maintaining a prudent cost trend perspective.
  • The CEO confirmed active engagement with CMS, the Federal Trade Commission, and state governments on PBM reform and reimbursement rules, aiming to accelerate operational adaptation to regulatory change.
  • The company stated pharmacy and benefit managers' cost model evolution, with the TrueCost and Cost Advantage offerings, is underway to address client demand for transparency and affordability, emphasizing proactive strategic positioning.
  • CVS reiterated confidence in achieving a mid-teens EPS CAGR through 2028 despite recently passed state-level pharmacy legislation not previously factored in guidance, citing scale and business mix diversification as mitigating factors.

INDUSTRY GLOSSARY

  • Prior Authorization: Administrative process requiring approval from a health plan before a service or prescription is provided to ensure coverage.
  • PBM (Pharmacy Benefit Manager): Third-party administrator that manages prescription drug benefits, formulary design, and pharmacy networks for health insurers or plan sponsors.
  • Medical Benefit Ratio (MBR): The ratio of medical claims paid to premiums collected; a lower MBR can indicate higher profitability in health plans.
  • Biosimilar: A biologic medical product highly similar to an already approved reference biologic, typically introduced to reduce drug costs through competition.
  • GLP-1: Class of glucagon-like peptide-1 receptor agonist drugs used in diabetes and obesity management.
  • TrueCost: CVS's PBM drug-pricing model focused on drug-level rebates and transparent net costs to payers and consumers.
  • Cost Advantage/CostManage Model: CVS pricing approach that aligns closer to drug acquisition cost, reducing volatility and margin swings on high-cost drugs.
  • Health 100: The forthcoming AI-native, open-platform consumer engagement and integration service announced by CVS to connect payers, PBMs, pharmacies, and providers.
  • Oak Street Health: CVS value-based primary care asset focused on improving outcomes and lowering costs in Medicare and senior populations.

Full Conference Call Transcript

Operator: You will be given instructions for the question and answer session. As a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I would now like to pass the call to Larry McGrath. Larry? Please proceed. Good morning.

Larry McGrath: And welcome to the CVS Health Corporation first quarter 2026 earnings call and webcast. I'm Larry McGrath, Executive Vice President of Capital Markets at CVS Health Corporation, and I'm joined this morning by J. David Joyner, Chair and Chief Executive Officer, and Brian O. Newman, Chief Financial Officer. Following our prepared remarks, we will host a question and answer session that will include additional members of the leadership team. Our press release and slide presentation have been posted to our website along with our Form 10-Q filed this morning with the SEC. Today's call is also being broadcast on our website. During this call, we will make certain forward-looking statements.

Our forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results. We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties, in particular those that are described in the cautionary statement concerning forward-looking statements and risk factors in our most recent annual report on Form 10-K, our quarterly report on Form 10-Q filed this morning, and our recent filings on Form 8-K, including this morning's earnings press release.

During this call, we will use certain non-GAAP measures in talking about the company's financial performance and financial condition, and you can find a reconciliation of these non-GAAP measures in this morning's press release and in the reconciliation document posted to the investor relations portion of our website. With that, I would like to turn the call over to David. David, thank you, and good morning, everyone.

J. David Joyner: Let me start off with some highlights across the business. We entered 2026 with strong momentum, and our intentional execution and deliberate actions across CVS Health Corporation have led to another quarter of excellent performance. We are driving improved results at Aetna while removing friction for members and providers. We remain laser-focused on delivering meaningful savings and the lowest net cost to our clients and members at Caremark. We are executing against our operational plans in Health Care Delivery to improve health care access across the country. And through the dedication and hard work of our colleagues and the communities across the country, we continue to build momentum and expand our position as the best-run national pharmacy.

Turning to our results this quarter, we delivered adjusted operating income of $5.2 billion and adjusted earnings per share of $2.57. Our strong first quarter performance gave us the confidence to increase our full-year 2026 adjusted earnings per share guidance to a range of $7.30 to $7.50, up from the previous range of $7.00 to $7.20. Our revised outlook continues to reflect the core principles of our guidance philosophy: credible targets, disciplined execution, and clear opportunities for outperformance. Across CVS Health Corporation, our teams remain focused on what matters most: improving affordability, reducing friction, and delivering a more connected and seamless health care experience.

However, to realize our ambition of becoming America's most trusted health care company, we need to drive change across the entire health care ecosystem. We have been focused on strengthening our relationships with all stakeholders to address our key priorities and improve health care for Americans. We share CMS' goal of ensuring the long-term sustainability of the Medicare Advantage program, which remains the best example of a public-private partnership. The final rate notice that came out in April represented a step in the right direction towards greater sustainability, but it remains insufficient to offset underlying medical cost trends. These trends remain above historical levels and for the past several years have pressured the entire industry.

This includes our own Medicare business, which improved significantly in 2025 but, like most of the industry, still generated an adjusted operating loss. As we look ahead, we remain committed to taking the necessary actions to progress towards our target margins. We are encouraged to see the recognition of the importance of value-based care providers and the detrimental impact of the proposed risk model changes, as well as the critical role of clinician-led documentation in the chart review process. This is a clear example of how we are working to engage with CMS, regulators, and legislators—discussing what is not working, developing constructive solutions, and being disciplined in the actions we control.

That same approach of collaboration with a focus on consumer outcomes is also shaping how we are working with the Federal Trade Commission to reach a settlement. We saw where the market needed to go more than two years ago, and we have been leading that transition. Recent regulatory actions are helping clarify that direction and reinforcing our focus on simpler pricing, greater transparency, and lower out-of-pocket cost for patients at the pharmacy counter. A clear example of this commitment is our work to ensure that every American has access to certain insulin products for $25 per month across our network of more than 60 thousand pharmacies, including our own 9 thousand CVS pharmacies.

At the same time, we continue to introduce innovations that simplify the pharmacy experience, accelerate biosimilar adoption, and improve cost predictability. We recently announced that as of 07/01/2026, we will exclude branded Stelara from our commercial template formularies to be replaced with low cost-effective biosimilars. We will use the same proven playbook that allowed us to be the only ones to meaningfully move share with HUMIRA, converting over 90% of eligible patients. By delivering the same frictionless experience for providers and patients, we expect to achieve similar conversion rates and for the majority of our customers to pay $0 out of pocket for this therapy. This is not theoretical policy. It is real, repeatable savings delivered at scale.

Another important priority we are focused on is reducing unnecessary friction for providers and patients, particularly in the prior authorization process. Our leadership here is clear. Aetna has the fewest medical services subject to prior authorization in the industry. Our focus on embedding technology within each of our businesses has enabled us to approve more than 95% of the eligible prior authorizations within 24 hours, with over 80% being approved in real time. We have integrated medical and pharmacy decisions, and we have introduced bundling solutions for certain conditions that replace multiple approvals with just one. And now we are leading the way forward by standardizing prior authorization submissions.

Over the past several months, we rallied and worked with key industry peers through AHIP to commit to standardize the services for the most common prior authorizations, which represent over 50% of the PA volume by the end of this year. Importantly, Aetna is well ahead of the industry standard, with 88% of procedures standardized today. This is a meaningful step towards faster decisions, less administrative burden, and a better experience for clinicians and patients alike. As we look ahead, the next critical step is ensuring other stakeholders within the health care system open up their own systems so these standards can be fully adopted and the benefits of this work can be realized at scale.

While we drive towards reducing cost and friction in the system, our work to reimagine the health care experience is also directly aligned with our priorities around access and interoperability. At our Investor Day in December, we outlined our vision: an open consumer engagement platform with the consumer at the center. Later this year, we will be launching Health 100, an AI-native state-of-the-art technology and service platform that allows for any payer, PBM, pharmacy, or provider to seamlessly connect. The Health 100 app is designed to be the consumer's front door to a fully integrated health care experience regardless of the banner on their pharmacy or brand of their benefit card.

This is where CVS Health Corporation's scale, consumer trust, and position in the system truly differentiate us. Few companies have the reach, data, and engagement points with the consumer that are necessary to bring a platform like this to market—and to do so in a way that benefits consumers, clients, and the broader health care system. We are focused on developing tech-forward solutions like Health 100 because we believe the future of best-in-class health care companies will be powered by technology and AI. We see an immense opportunity for technology to drive systemic change across the entire health care industry.

That is why we have been embedding it in everything that we do and using it to ensure that we are best in class in each of our businesses. AI has been deployed across CVS Health Corporation for years to improve our operations and to drive efficiencies. But what we are most excited about, and believe will have the biggest impact, is AI's ability to improve consumer experiences, engagement, and outcomes. It is already making it easier for our members to find the right providers and better navigate the system. We are enabling more personalized and exceptional care by empowering our pharmacists and clinicians with constantly improving insights.

And we are accelerating our go-to-market strategies by using cutting-edge technology to develop deep consumer insights rapidly and at scale. Technology is truly the enabler of our strategy and growth, and we are continuously driving innovation across the enterprise to distinguish ourselves in the marketplace. In closing, I want to emphasize how encouraged we are by our first quarter performance, our revised outlook for the rest of the year, and the incredible progress we are making on our initiatives to improve affordability for our clients, patients, and members. We are executing against our commitments and continuing to build momentum on our path to becoming the most trusted health care company in America.

As we look ahead, our priorities remain clear: disciplined execution, thoughtful partnership with stakeholders across the health care system, and a continued focus on innovating to improve affordability, access, and provide a simple health care experience—one person, one family, one community at a time. With that, I will turn it over to Brian to walk through the financial details.

Brian O. Newman: Thank you, David, and good morning. I will cover three key topics in my remarks this morning. First, an update on our first quarter results. Then I will discuss cash flow and the balance sheet. And finally, I will wrap up with an update on our revised financial outlook for the remainder of 2026. I want to start by reinforcing the theme David just outlined. Our first quarter results and our updated expectations for 2026 are a clear reflection of our say-do philosophy in action. This guidance philosophy is predicated on committing to thoughtful and credible targets while simultaneously striving to identify and execute on opportunities to deliver outperformance.

The strength of our results in the first quarter demonstrates the discipline with which we are managing the enterprise. Let me highlight some of our enterprise results in the first quarter. We generated over $100 billion of revenue, an increase of over 6% over the prior-year quarter, driven by growth across all operating segments. Adjusted operating income of approximately $5.2 billion increased over 12% from the prior-year quarter, primarily driven by an improvement in our Health Care Benefits segment. We delivered adjusted EPS of $2.57, a meaningful increase of over 14% from the prior-year quarter. Finally, during the quarter, we generated cash flow from operations of approximately $4.2 billion. Turning now to each of our segments.

In Health Care Benefits, we generated nearly $36 billion of revenue in the quarter, an increase of over 3% from the prior year. This increase was primarily driven by our government business, partially offset by our exit from the individual exchange business in 2026. We ended the quarter with approximately 26 million medical members, which declined sequentially by approximately 600 thousand members. This decrease was primarily driven by our exit from the individual exchange business in 2026, partially offset by growth in our commercial fee-based membership. Adjusted operating income in the quarter was approximately $3.0 billion, and our medical benefit ratio was 84.6%.

Our performance reflects a substantial improvement from the prior-year quarter as we continue to execute on our margin recovery plans at Aetna. The MBR was also better than our expectations in the quarter, driven by favorable prior-year development as well as some pockets of core outperformance resulting from strong medical cost management. We remain confident in the adequacy of our reserves. Shifting now to our Health Services segment. During the quarter, we generated revenues of over $48 billion, an increase of 11% year over year. This increase was primarily driven by pharmacy drug mix and brand inflation, partially offset by continued pharmacy client price improvements.

We delivered adjusted operating income of approximately $1.5 billion in the quarter, a decrease of approximately 7% from the prior-year quarter, primarily driven by continued pharmacy client price improvements, partially offset by improved purchasing economics and pharmacy drug mix. Our results this quarter also reflect the early recognition of value that we previously expected to occur in the second quarter. When excluding the impact of this pull-forward, our Health Care Delivery adjusted operating income grew by approximately 15% compared to the same quarter last year, primarily driven by Oak Street Health. Our Pharmacy and Consumer Wellness segment delivered another strong quarter. We generated revenues of nearly $32 billion, which remained relatively consistent with the prior-year quarter.

In the quarter, we saw increases primarily driven by pharmacy drug mix, increased prescription volumes, and brand inflation. These increases were largely offset by the impact of regulatory-related price reductions on select drugs as well as the impact of recent generic drug introductions and pharmacy reimbursement pressure. On a same-store basis, total revenues increased approximately 3% in the quarter. Same-store pharmacy sales grew over 3% compared to the prior-year quarter, driven by the revenue drivers I previously mentioned, including a nearly 7% increase in same-store prescription volumes. Same-store front store sales increased 120 basis points versus the prior-year quarter. Our retail pharmacy script share of over 29% continues to represent meaningful growth compared to the same quarter last year.

Adjusted operating income decreased approximately 9% from the prior year to approximately $1.2 billion. Although results in PCW this quarter were impacted by milder seasonal illness and greater weather disruption compared to last year, our strong underlying business performance exceeded our expectations. This provided us with the flexibility to make incremental investments in our business. Turning now to cash flow and the balance sheet. In the first quarter, we generated cash flows from operations of approximately $4.2 billion and returned nearly $850 million to our shareholders through our quarterly dividend. We ended the quarter with approximately $2.2 billion of cash at the parent and unrestricted subsidiaries. Our leverage ratio at the end of the first quarter improved to 3.84x.

We expect to drive further improvement this year as we execute against our 2026 guidance. Shifting now to our outlook for 2026. As David mentioned, we are increasing our full-year 2026 guidance for adjusted EPS to a range of $7.30 to $7.50, an increase of $0.30 or more than 4% higher than our previous guidance. We now expect our full-year total revenues to be at least $405 billion. We are also updating our outlook for full-year cash flow from operations to at least $9.5 billion, reflecting improved underlying performance primarily related to working capital.

In our Health Care Benefits segment, we now expect full-year adjusted operating income to be in a range of approximately $4.0 to $4.34 billion, an increase of $420 million relative to our prior guidance, reflecting the favorable prior-year development that we experienced in the first quarter. We continue to expect a full-year MBR within our previous guidance range of 90.5%, plus or minus 50 basis points. This outlook continues to maintain the same respectful and prudent view on medical cost trends until we have greater visibility into how those trends are developing.

In our Pharmacy and Consumer Wellness segment, we now expect full-year adjusted operating income of at least $6.18 billion, an increase of approximately $90 million from our prior guidance. This increase reflects our strong underlying business performance in the first quarter and our revised expectations for the remainder of the year. We are also pleased to reiterate our full-year guidance for our Health Services segment. In aggregate, we now expect full-year enterprise adjusted operating income to be in the range of $15.53 to $15.87 billion. We now expect a roughly 60/40 split of earnings between the first half and second half. You can find additional details on the components of our updated 2026 guidance on our investor relations website.

Before we open the call for questions, I just want to reiterate how incredibly encouraged we are by our performance in the first quarter. We drove over $1 billion of year-over-year AOI improvement at Aetna. Our updated CVS Pharmacy guidance now already reflects an over 2% increase in earnings in 2026. We are driving improvement at Health Care Delivery, and our team is executing well against our rebate guarantee commitments in our Caremark business. We remain confident that 2026 will be another year of meaningful progress as we continue to deliver on the tremendous amount of earnings opportunity ahead of us. With that, we will now open the call to your questions. Operator?

Larry McGrath: Thank you.

Operator: At this time, if you would like to ask a question, please click on the raise hand button which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen and then you will hear your name called. Please accept, unmute your audio, and ask your question. If you are calling in today, star nine will activate the raise hand feature and star six can be used to mute and unmute your line. We ask that you please limit yourself to one question this morning. We will wait one moment to allow the queue to form. Our first question comes from Justin Lake.

You may unmute yourself and ask your question.

Justin Lake: Thanks. Good morning. Wanted to ask first about the Medicare Advantage rates coming out for 2027, your thoughts on those and then how you think that fits within the previously discussed trajectory of MA margins getting to the 3% ballpark by 2028.

J. David Joyner: Thanks, Justin, and good morning. Before I turn it over to Steve, I think it is important to reflect on at least the last couple of years. As you know, the rates have not been supportive of the elevated medical trends, and I think our team has proven, at least now in two consecutive years, that we have been able to manage prioritizing margin over growth. I could not be more proud of the team in terms of their focus on making sure that they are restoring the performance of this business. I also want to reinforce the commitment to Medicare Advantage.

I think the team has done a great job working closely with the administration on giving feedback and having constructive dialogue in terms of making continued improvements in the program offering. With that, Steve, do you want to give some guidance on the rates?

Steven Hale Nelson: Sure. Thanks, David. Good morning, Justin. I just want to add my personal acknowledgment of the strong partnership we have had with CMS. We appreciate the progress made from advance notice to final notice. They definitely listened, and notwithstanding the shortfall relative to trend, we appreciate the partnership there. We are off to a strong start in our Medicare Advantage business. You can see that the year-over-year improvement is really encouraging. As David said, we have been laying down the foundation for this business over the past two years. We took a very disciplined strategy into our 2026 planning; strong execution during AEP resulted in improved geographic mix, product mix, and membership that landed in line with our expectations.

We have leading Star scores, and we are going to carry those into 2027 as well. We will take the same disciplined approach going into 2027 and feel confident that we can continue the momentum and, again, make meaningful progress towards target margins in 2027. I will just reaffirm our confidence in hitting target margins in 2028.

Brian O. Newman: And, Justin, maybe I will just reassert what Steve was getting at. We have tremendous earning power at Aetna, and we see a path back to target margins, as you mentioned, by 2028. Our goal remains to get back to target margins as quickly as possible, and I think the start of this year reinforces our trajectory.

Operator: Our next question comes from Michael Cherny. You may unmute yourself and ask your question.

Michael Cherny: Good morning. Thanks for taking the question. If I can just dive in a bit on HSS. Obviously a big focus heading into the year as you work through the rebate guarantees. It is great to see the outperformance even adjusting for the timing. Is it possible to go a little bit more into some of the timing dynamics?

And then as you think about the build for the year, what is embedded in guidance—have you seen any changes either from a competitive perspective or from a manufacturer perspective that would influence the views one way or the other, especially given what has been a number of headlines out of D.C. and other places relative to the future value and the importance of the PBM?

Brian O. Newman: Maybe I will start, Prem, and then hand it over to you. As I mentioned in my prepared remarks, AOI in the quarter reflected some timing benefit in Q1. However, importantly, when you adjust for the pull-forward, HSS actually modestly exceeded our expectations. That was really driven by the underlying execution. The rebate guarantee pressure was tracking broadly in line with our expectations. It is still early in the year, and I think maintaining our full-year guide is a prudent approach at this stage. Prem, do you want to fill in some color?

Prem S. Shah: Thanks for the question, Mike. As Brian said, we assumed the trends from 2025 would persist and create some incremental pressure in 2026, and that was reflected in our 2026 expectations. The team is really focused on resolving this with our clients, and they are executing very well against our 2026 rebate guarantee commitments. It is driven by focus and disciplined execution across our book. As we look at the back half of this year, we are pleased with the rebate guarantee performance to date, and our expectation is that this is reflected in our 2026 outlook with no surprises.

On your second question about industry dynamics: our clients' biggest challenge today is that pharmacy drug trends are still too high. Over 90% of our clients' costs are coming from 10% of the branded drugs. PBMs continue to play a really important role in driving competition and creating value. From our perspective and our active dialogue—we just had our client forum—their biggest asks are to ensure we create competition and affordability for their members and that we continue to enhance transparency. We launched TrueCost over two years ago, which is our PBM offering, and we continue to provide that transparency to our customers.

The model is evolving; with regulations like the CAA, we are moving from rebate guarantees to drug-level rebates and pricing guarantees focused on ensuring clients get the value—and their members get it at the point of sale. As a reminder, our Aetna fully insured business over the last eight years has had point-of-sale rebates. We remain on our front foot to drive the evolution and change in the space, hyper-focused on creating affordability and driving down cost inside the PBM.

Operator: Our next question comes from Stephen C. Baxter. You may open your line and ask your question.

Stephen C. Baxter: Yeah. Hi. Thank you very much. I just wanted to ask a little bit about the approach to the HCB guidance at this stage. It looks like most of the guidance range could be potentially attributed to the net favorable PYD you saw in the quarter, which is obviously good to see. It implies you have taken a pretty conservative approach to the current-year cost trend. Could you talk a bit more about the pockets of outperformance you have seen so far and whether those are across the board or more notable in certain businesses? And at this stage, have you made any changes to how you are booking current-year cost trend into the P&L?

Brian O. Newman: Thanks very much for the question. Maybe I will start on the guidance question and then, Steve, turn it over to you for some color. We are very pleased with our performance across Aetna and encouraged by the Q1 early results. We did benefit, as I mentioned, from some favorable prior-year development, primarily in the government business. We also saw some pockets of core outperformance driven by strong medical cost management, which has not been reflected in our updated guidance because it is only the first quarter and it is early in the year. We saw outperformance on nonmedical cost items such as net investment income and fees.

While encouraging, our full-year outlook maintains the same respectful and prudent view that we talked about most of last year. Overall, we are pleased with where we are at this point and confident in our ability to deliver the full year. Steve, can you provide some more color on the business?

Steven Hale Nelson: Sure. Thanks, Brian. Good morning, Steve. We have had a really strong start to the year and great year-over-year performance and improvement across Aetna, driven by the government business, which is encouraging, but we also saw strong performance across all lines of business. Our commercial business has been strong; we have been investing in it, and we saw nice growth in a very disciplined pricing environment. That growth was across all parts of our commercial business and came from better retention and some nice new wins. Our Medicare business performed strongly with a great start.

In Medicaid, we have been executing well on rate advocacy, and we are starting to see those rates line up with acuity—strong partnerships with the states, encouraging start, and a good outlook for the rest of the year. We are very focused on returning the business to target margin in the second year of that multiyear journey and on returning Aetna to leading capabilities—moving from a transaction orientation to a consumer solutions orientation. We have been investing in technology and AI and driving really nice results there. David highlighted what we have done in prior auth with industry-leading statistics.

As we look at affordability, in addition to strong medical cost management fundamentals, we are leaning into navigation and partnerships with providers in a distinctive way. A better informed, more engaged member is a better health care consumer, and combining that with provider partnerships reduces total cost of care. We are getting external validation—our clients and members, and awards like Prescane naming us their inaugural Health Plan of the Year. We have an incredible team, a culture of execution and accountability, a strong start, and confidence in the rest of the year and beyond.

Operator: Our next question comes from Andrew Mok. You may unmute your line and ask your question.

Andrew Mok: Hi. Good morning. Question on capital deployment. With respect to AI, you are still reinvesting meaningfully across the enterprise, but you talked about the immense opportunity to drive systemic change. One, can you help us understand the level and pace of AI investments you are making this year and when we should think about the inflection point when AI shifts from net investment to net benefit on the P&L? And then, relatedly, it looks like net leverage in the quarter finished in the low threes, which I believe is better than the BBB leverage target. If so, when do you expect to turn share repurchase back on?

Brian O. Newman: Maybe I will take the second question first, and then we can rotate. As we think about share repo, we started down this path a couple of years ago and are making a lot of good progress toward our objectives. I am really proud of the team and the performance they have delivered. We remain focused, however, on strengthening our balance sheet, and that is by reducing leverage. A lot of good progress, but we will continue to evaluate the impact of the improving financial performance and leverage throughout 2026, as well as the potential implications of capital deployment opportunities later this year.

Right now, that is not baked into the 2026 guide, but we will evaluate as we go through the year. David, do you want to pick up?

J. David Joyner: Andrew, it is a great question on the reinvestments we are making into our business, in particular around technology. We see this as an inflection point. We are moving from a consumer-based health care company to a consumer-based health care technology company. We think we are really at the center of leveraging technology to engage the consumer, as Steve mentioned at Aetna. We are doing the same across our pharmacy assets. This is an important time for us to stand above the rest of the industry in terms of our investment in technology, the consumer experience, and connecting stakeholders across the system. I will let Steve and Prem talk specifically about how it is impacting their businesses. Steve?

Steven Hale Nelson: Morning, Andrew. For Aetna, think about AI investment in three buckets. First, cost structure and efficiency—investing in business fundamentals: accuracy, reducing rework, better forecasting, better analytics, and pricing discipline, all coming from advanced analytics. Second, improving the way we work so our colleagues can spend more time on what matters. We are equipping our workforce to leverage AI—we took our leaders through an AI Academy and are launching an AI Academy for all colleagues at Aetna, and we will do that across the enterprise. Third, capabilities that empower members—better experience, insights, and navigation: Informed Choice, Smart Compare, care pathways, all helping members be better consumers of health care due to leading AI and digital tools.

We are excited about the rapid progress and what it means for better outcomes and lower total cost of care.

Prem S. Shah: Thanks, Steve, and thanks, David. A couple of things, Andrew. Technology and AI are at the core of our businesses. With the assets we have, we must be industry-leading and leverage technology to operate. The progress in PCW and the work in HSS are founded in industry-leading technology and AI. As we mentioned at Investor Day, we are launching Health 100, which is powered by our ability to engage consumers differently. AI will help us accelerate and create unique solutions. If we can engage members, we can drive better results, better outcomes, and lower costs for our clients. We are happy with the progress on Health 100—more to come.

This is a founding principle in how we operate across all businesses, enabling colleagues to serve customers.

J. David Joyner: Prem mentioned the client forum we had a couple of weeks ago on the Caremark side. It is a good scorecard for whether we are heading in the right direction. We had 500 of our largest customers attending, and we showcased the technology and our investments, particularly around Health 100. Their answer was, “What took you so long?” There is real frustration with the fragmentation of health care delivery and its impact on engagement. The fact that we are standing up and connecting stakeholders and making it easier for the consumer to engage is something our customers are looking for. Our consumers have been asking for this, and we are uniquely positioned to execute on that strategy.

Operator: Our next question comes from Lisa Christine Gill. You may unmute yourself and ask your question.

Lisa Christine Gill: Thanks very much, and good morning. I wonder if we could spend a couple of minutes talking about the current regulatory environment. We have legislation that has passed on a national level, but I am thinking about states like Tennessee that look to do something similar to what we saw in Arkansas. Two questions. One, how are you navigating that? And two, with your client forum, will we see meaningful changes due to some of these potential changes that could happen in trying to separate the different components of pharmacy—specialty or retail versus the PBM?

J. David Joyner: Lisa, it is a very good question. I will frame out how we are navigating changes at the federal and state level. We have known these changes were coming—that is in large part why we launched TrueCost more than two years ago. We knew there was a push toward net cost economics, ensuring the consumer gets the benefit of the discounts and changing pricing from average gross to net price. That is well understood in our business and among our customers, and we have been on that journey for the last two years. At the federal level, we are basically reinforcing the path we are on.

With the CAA and our work to reach a settlement with the FTC, there will now be clarity in terms of the rules we operate under. The industry will have a new set of rules to transition to. We think it also gives some durable reimbursement relief to independent pharmacies, which has been a pain point in some of the states you mentioned. Importantly, while we have been at it for two years, we still have more time ahead; we are looking to make this transition over the next couple of years. Do I think there will be change? Yes.

These broader federal changes will create a set of rules and a structure the entire industry will move to, which I think will accelerate adoption among our customers—a positive. The frustration is that every state is running separately. Our clients wanted us to focus on two things: cost is still the single biggest issue—from GLP-1s to rising specialty costs, they want us to continue to drive costs down and improve the member experience. Second, with all of the changes underway, they want more assurances on how they will budget over the long run. That is what we are focused on now. Prem, speak to the Tennessee specifics and how we are reacting in the marketplace.

Prem S. Shah: Lisa, thanks for the question. From a Tennessee perspective, we are disappointed with the direction the state has chosen. They put politics over rational policy. The legislation will raise costs for the state, threaten pharmacy access—there are already pharmacy deserts in specific parts—and create complexity and challenges for specialty pharmacy operations. Many issues are already covered in federal legislation via the CAA or in negotiations with the FTC. The good news is we have time; it does not take effect until 2028. We are evaluating options, including potential legal action as we did in other states, and we will continue active dialogue with Tennessee.

In the meantime, our pharmacies will operate as normal, and we are grateful for their great work every day. On your second question, our role as a PBM is critical to create competition and drive down medication costs. A specific example is GLP-1s—one of our clients’ biggest trend drivers. We were deliberate in creating competition in this category to reduce costs, but the affordability challenge is real. Only about half of our clients cover GLP-1s for weight loss. Clients need more innovative PBM solutions. In specialty, roughly half of pharmacy benefit revenues are specialty. We run a world-class operation focused on driving down cost, leveraging biosimilars and generics to create value.

We are pivoting the model to make it much more transparent as part of TrueCost and aligning with the evolving regulatory environment. We feel good about where we are, our market solutions, and the changes we are making to continue creating the competition needed to drive down cost.

Brian O. Newman: And just to close with an earnings comment, Lisa, we remain confident in our ability to deliver a mid-teens EPS CAGR through 2028. At our Investor Day in December, we talked about multiple pathways to achieve that growth. While the Tennessee outcome was not contemplated at the time, we have the scale, diversification, and execution to absorb this and deliver on our commitments. Thanks for the question.

Operator: Thank you. Our next question comes from Elizabeth Hammell Anderson. You may unmute yourself and ask your question.

Elizabeth Hammell Anderson: Hi. Good morning, and thanks so much for the question. I was wondering—I had a two-part question. One, you mentioned Oak Street doing well in the quarter. Could you talk about that and the impact you think it will have on the remainder of the year? And two, you called out some core outperformance in the HCB segment. I imagine part of that could have been transitory elements like weather and flu. Any callouts you could make on that side to better understand the core improvement you also called out?

Prem S. Shah: From an Oak Street perspective, we believe value-based care is the future, and Oak Street is the right asset. We continue to focus on a differentiated care model—better care, strong patient engagement, and lower medical costs. As you recall, last year we had a specific set of actions to improve trajectory: disciplined growth with the right membership, adapting to V28—on track—working with payer partners to have the right contracts, and continuing to optimize our clinician-led model. To date, we are pleased with Oak Street performance in 2026. We recognize the need to continue to make progress in future years, but we feel good about where we are and what we have done so far.

Steven Hale Nelson: On weather and flu, all in line with our expectations and nothing material to call out. We had strong medical management with proactive efforts aligned to these trends and do not see anything material there.

Operator: Thank you. Our next question comes from George Robert Hill. You may unmute your line and ask your question.

George Robert Hill: Good morning, and thanks for taking the question. I wanted to come back to pharmacy and the GLP-1 market. Multi-part: how focused are you on retaining share in that space? How has the margin profile progressed given the move to the cost-plus model? And related to the cost-plus model, at the start of this quarter we saw prices of a bunch of drugs come down because of IRA or MFN. Historically, they might have been money-losing drugs for the pharmacy side, but as spreads narrow and prices come down, how is the margin profile evolving on branded drugs under the cost-plus model?

J. David Joyner: Thanks, George. I will take the first part and let Prem talk about impacts on retail. This remains one of the most talked-about categories with consumers and payers. As a PBM and a payer, we are focused on managing the cost of this category, which is why we introduced competition on the formulary and wrapped weight management solutions around the category. It is important to deliver value for customers, demonstrate meaningful impact on population health, and ensure affordability on the pharmacy side. As Prem mentioned earlier, many clients are discontinuing coverage for the obesity GLP-1s.

We have one of the most holistic GLP-1 solutions, including an extensive direct-to-consumer solution—partnerships like De Novo Care—and as coverage shifts off benefit, CVS Pharmacy remains a viable solution and distribution channel. Where GLP-1s were a headwind several years ago, our migration to the Cost Advantage price model has neutralized that. We are not losing money and we are not over-earning; we participate on every drug in a fair, value-based approach. Prem, do you want to speak to the share gains?

Prem S. Shah: A few additions. We have approximately 9 thousand local community pharmacies to serve members. There are really two GLP-1 markets: insured/payer when there is coverage, and DTC as an alternative option. For lifestyle medications, on the payer side David covered it. On the DTC side, we are working to ensure patients have access to affordable prices in our stores, and we are seeing the benefits in retail—our tech stack and workflows drive prices down. In GLP-1s, we have had a 200 bps improvement in share across the category—from winning new DTC customers and continuing to serve payer customers. As it relates to margin per script, this is exactly what CostManage was intended to do.

We allow payer customers to enjoy the benefits of our industry-leading cost of goods on every script, and we earn a fair margin. From our perspective, this is working as intended. And on the PBM side, TrueCost is a net cost model, so the consumer sees a very competitive price compared to cash—another example of transparency enabling informed decisions about the most cost-effective channel.

Operator: Thank you. Our next question comes from Analyst. You may unmute your line and ask your question.

Analyst: Hi. Thanks. Good morning. I wanted to toggle over to the commercial business—two questions. First on commercial group risk: can you give an update on how medical cost trends are progressing there? And then on the enrollment side, how retention and sales are tracking. Also any early insight into how things are progressing for the commercial fee-based large group selling season for 2027?

J. David Joyner: Steve, that is all you.

Steven Hale Nelson: Thanks. As I said earlier, the commercial business is strong and continues to perform well. We saw nice growth across all parts of the business, including fully insured, where we maintained very disciplined pricing. Our product suite and innovative approach—better navigation, empowerment, leading technology—are resonating with clients and members and driving results. I have good confidence in this business for the rest of 2026. As we think about 2027, the pipeline looks strong and we are well positioned. We have been investing in products and returning Aetna to being a leader in health care solutions, not just transactions.

We are leaning into advocacy—meeting members where they are and helping them through the journey—and into provider-payer partnerships, which reduce friction and create a more seamless experience. We have 18 million members in our commercial book, so that is meaningful. We think we have leading solutions and will continue to get stronger. I am really excited about the outlook for the commercial business.

J. David Joyner: Thank you, Steve. I think this concludes the call for this morning. Before we wrap, a couple of points. We think this is a really strong start to the year. We believe we are well positioned and will continue to build momentum throughout the year. I want to thank the management team for their continued performance and execution against the plan. I also want to thank our colleagues for the work they do every day. Their focus on executing against the strategic imperatives and on serving consumers is what is driving the progress you heard about today. Thank you for your time, and we look forward to seeing you next quarter.

Operator: Thank you for joining the CVS Health Corporation first quarter 2026 earnings call. This concludes today's conference call. You may now disconnect.