FIRST QUARTER 2020
Earnings conference call
May 6, 2020
Larry Merlo
President &
Chief Executive Officer
Eva Boratto
Executive Vice President &
Chief Financial Officer
©2019 CVS Health and/or one of its affiliates. Confidential and proprietary.
Cautionary statement concerning forward-looking statements
This presentation includes forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of CVS Health Corporation. By their nature, all forward-looking statements are not guarantees of future performance or results and are subject to risks and uncertainties that are difficult to predict and/or quantify. Actual results may differ materially from those contemplated by the forward-looking statements due to the risks and uncertainties related to the COVID-19 pandemic, the severity and duration of the pandemic, the pandemic's impact on the U.S. and global economies and consumer behavior and health care utilization patterns, and the timing, scope and impact of stimulus legislation and other federal, state and local governmental responses to the pandemic, as well as the risks and uncertainties described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 and our recently filed Current Reports on Form 8-K.
This presentation includes non-GAAP financial measures that we use to describe our company's performance. In accordance with SEC regulations, you can find the definitions of these non-GAAP measures, as well as reconciliations to the most directly comparable GAAP measures, on the Investor Relations portion of our website.
Link to ournon-GAAPreconciliations
2©2020 CVS Health and/or one of its affiliates.
CVS Health is uniquely positioned to help the country through the COVID-19 pandemic
First priority is the wellbeing and safety of our colleagues, consumers and the communities we serve
- Executing robustCOVID-19 response plan*
- Acted swiftly to invest in our people and our businesses
- In collaboration with federal, state and local governments:
Second priority is maintaining the continuity of our businesses and operations
- Making investments to support our consumers, clients and members, while deepening our relationships and advancing ourlong-term strategy of being the most consumer-centric health company
- Opened large scaleCOVID-19 testing sites across 5 states. Through May 4, we had administered nearly 90k tests with real-time results
- Establishing additional testing sites; targeting up to 1,000 locations across the country by the end of May
*Refer to today's earnings press release for comprehensive view of actions taken
3©2020 CVS Health and/or one of its affiliates.
Financial highlights
Strong first quarter in unprecedented and unpredictable environment due to COVID-19
Q1 2020 Enterprise results reflect strong underlying performance
- Q1 Adjusted EPS of$1.91, up 17.9%year-over-year
- Strong underlying core performance exceeded our expectations
- COVID-19added ~10 centsto Q1 2020 Adjusted EPS, as we met elevated consumer and member needs from COVID-19
- Q1 Total Revenues of$66.8 billion, up 8.3% year-over- year
- Growth driven by higher volume in Retail/LTC and Pharmacy Services and membership growth in Government products in Health Care Benefits
Strong liquidity position with access to over $11B in cash, short-term investments and commercial paper or borrowing capacity under credit facilities
Cash flow from operations of $3.3 billion; returned ~$650 million to shareholders through dividends
2020 Full-Year Adjusted EPS guidance range of $7.04 to $7.17 and cash flow from operations guidance range of $10.5 to $11 billion remain unchanged
- Underlying core business performance strong prior toCOVID-19
- Prudently managing operating expenses; will reduce planned capital expenditures by~$200 million
-
Guidance is subject to key considerations, including significant uncertainties that exist surrounding the COVID-
19 pandemic, including: - The severity and duration of the pandemic
- The impact of the pandemic on the U.S. and global economies, consumer behavior and health care utilization patterns
- The timing, scope and impact of stimulus legislation and other governmental responses to the pandemic
- Given likelihood of significant variability in impact ofCOVID-19 on financial statement line items and related ratios, 2020 additional detailed guidance not noted above is withdrawn
Remain committed to target leverage ratio in low 3x's in 2022
4©2020 CVS Health and/or one of its affiliates.
Strength and diversity of our Enterprise
Our integrated, innovation-driven health care model is providing benefits to members and consumers across the health care system that will continue into the future as needs evolve
New opportunities to serve our members and consumers
- Significant acceleration of digital platform utilization
- Opportunity to utilize CVS Health Retail assets to conduct nationwideCOVID-19 testing and provide medication therapies and vaccines, when available
- Increase of care in the home (through home delivery and other services including telehealth and infusion)
- Enhance flu vaccine program in anticipation of stronger than historical demand
Uncertainties
- Severity and duration of theCOVID-19 pandemic
- Impact of the pandemic on consumer behavior and health care utilization patterns
- Impact of stimulus legislation and other governmental responses to the pandemic (including on the economy and unemployment)
- Impact of incremental benefit costs and operating expenses associated withCOVID-19
5©2020 CVS Health and/or one of its affiliates.
Enterprise Priorities Update
Enterprise priorities to accelerate growth
Consumer focused - be local, make it simple, improve health
Grow and | Deliver |
differentiate our | transformational |
businesses | products and services |
Create a consumer- | Modernize Enterprise |
centric technology | functions and |
infrastructure | capabilities |
7©2020 CVS Health and/or one of its affiliates.
CONTINUED PROGRESS
ON STRATEGIC PRIORITIES
Grow and differentiate our businesses
- Includes an adjustment to convert90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
- Source: IQVIA retail pharmacy script data for March 2020
Integrated value offerings
In collaboration with federal, state and local governments, MinuteClinic®practitioners are administering COVID-19 rapid tests across 5 states. Through May 4, we had administered nearly 90k tests with real-time results
Pharmacist Panels that integrate pharmacy and medical data are operating in 75 pharmacies supporting over 1,200 high risk patients with engagement rates exceeding expectations
HealthHUB®conversions status:
- 98 HealthHUB®locations opened as of April across 17 states
- HealthHUB®conversions paused due to COVID-19;year-end 2020 count dependent on duration of stay-at-home guidelines and other COVID-19 related constraints
- Expect 1,500 HealthHUB®locations by end of 2021
Business growth
Medicare Advantage sequential membership growth of 11.3% in Q1, outpacing the industry average of ~6%
Completed >70% of 2021 Pharmacy Services selling season renewals with strong retention rate
Q1 2020 Specialty pharmacy revenue growth of ~19% year-over-year
Q1 2020 Retail script share up ~50 bps year-over-year to 26.8%1, 2
Agreed to acquire Schnuck Markets Inc.'s Retail and Specialty pharmacy businesses
8©2020 CVS Health and/or one of its affiliates.
CONTINUED PROGRESS
ON STRATEGIC PRIORITIES
Deliver transformational products and services
Oncology care
Chronic Kidney Disease care
Diabetes management
Transform Oncology Care program rolled out to over 40 providers and ~1,300 Commercial insured and Medicare members across 17 states
Chronic Kidney Disease (CKD) care management program is currently available to ~4 million people across Aetna and 14 Caremark clients
Entered into joint venture with Satellite Healthcare to provide comprehensive kidney care in two geographies
Home hemodialysis device: enrollment in our clinical trial paused due to stay at home guidelines
Launch of integrated version of our diabetes product for early adopter Caremark and Aetna ASC clients scheduled for September 2020, with a full launch scheduled for January 2021
9©2020 CVS Health and/or one of its affiliates.
CONTINUED PROGRESS
ON STRATEGIC PRIORITIES
Create a consumer-centric technology infrastructure
CarePass®membership
Retail prescription home delivery
Telemedicine
Mobile engagement
CarePass subscription program has ~2.2M enrolled members as of Q1 2020, ~40% growth from prior quarter
Retail prescription home delivery is up more than 1,000% compared to Q1 2019
Utilization of telemedicine for virtual visits through MinuteClinic®is up ~600% compared to Q1 2019
Launched streamlined digital experience through new scheduling app to support COVID-19 testing sites; 85% customer satisfaction rate
~89M patients are enrolled in text messaging program as of Q1 2020, up 9% from prior quarter
Double digit percentage increase in app usage across CVS Pharmacy, Caremark and Specialty compared to Q1 2019
Through the Aetna Health app, engaged more households in Q1 2020 than in the first three quarters of 2019
10©2020 CVS Health and/or one of its affiliates.
CONTINUED PROGRESS
ON STRATEGIC PRIORITIES
Modernize Enterprise functions and capabilities
Client service delivery
Modernization
Investing in improving client service delivery with continued progress toward process simplification and delivering net savings
- Enhancingself-service capabilities by eliminating unnecessary member and patient inquiries, mailings and reducing incoming call volumes
Continued technology modernization with business system and application rationalizations, data center consolidation review and cloud strategy
- Advancing integrated data and analytics capabilities
- Advancing and embedding intelligent automation to streamline routine processes and optimize our utilization management capabilities
11©2020 CVS Health and/or one of its affiliates.
Q1 2020 Financial Review
Q1 RESULTS
Consolidated results
in millions, | ||||||
Q1 2020 | Q1 2019 | Change % | ||||
except per share data | ||||||
Total revenues | $66,755 | $61,646 | 8.3% | |||
Adjusted | $4,113 | $3,595 | 14.4% | |||
operating income | ||||||
GAAP EPS | $1.53 | $1.09 | 40.4% | |||
Adjusted EPS | $1.91 | $1.62 | 17.9% | |||
Cash flow from | $3,305 | $1,948 | 69.7% | |||
operations | ||||||
Interest expense of $733 million
Adjusted effective tax rate of 27.0%
Weighted-average diluted share count: 1,312 millionshares
COVID-19 added ~10 centsto Q1 2020 Adjusted EPS, as we met elevated consumer and member needs from COVID- 19
13©2020 CVS Health and/or one of its affiliates.
Q1 RESULTS
Cash flow and capital allocation
Strong cash generation and commitment to disciplined capital allocation priorities
Generated $3.3 billionof cash flow from operations
Strong liquidity: access to over $11 billion
- Over$5 billionof cash and short- term investments at March 31, 2020, including proceeds from the March bond deal
- $6 billionavailable through commercial paper or borrowing capacity under credit facilities
Continue to prioritize paying down debt and maintaining dividend, with no share repurchases planned until leverage target met
Paid ~$650 million in shareholder dividends
Remain committed to target leverage ratio in low 3x'sin 2022
14©2020 CVS Health and/or one of its affiliates.
Q1 RESULTS
Pharmacy Services segment
in millions | Q1 2020 | Q1 2019 | Change % | |||
Total revenues | $34,983 | $33,558 | 4.2% | |||
Adjusted | $1,181 | $947 | 24.7% | |||
operating income | ||||||
Total pharmacy claims | 541.4 | 481.8 | 12.4% | |||
processed1 | ||||||
Note: IngenioRx network revenue recorded on a net basis
1. Total pharmacy claims processed and generic dispensing rate for all periods presented include an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
Revenue growth drivers
- Growth driven by Specialty pharmacy revenue reflecting full benefit of IngenioRx that started onboarding in Q2 2019 andCOVID-19 related pull- forward of scripts and increase in 90-day prescriptions, partially offset by previously disclosed client losses and continued price compression
Increase in Adjusted Operating Incomeprimarily driven by Specialty pharmacy volume, continued improvement in purchasing economics and an increase in generic dispensing rate (GDR), partially offset by previously disclosed client losses and continued price compression
- GDR of89.0%1, up ~ 70 bps, year-over-year
Growth in Total Pharmacy Claims Processed1primarily driven by increased claims from IngenioRx and COVID-19 related prescription volume discussed above. Estimated COVID-19 impact ~125 bps
15©2020 CVS Health and/or one of its affiliates.
Q1 RESULTS
Retail / LTC segment
in millions | Q1 2020 | Q1 2019 | Change % | |||
Total revenues | $22,749 | $21,115 | 7.7% | |||
Adjusted | $1,902 | $1,489 | 27.7% | |||
operating income | ||||||
Prescriptions filled1 | 375.1 | 346.8 | 8.2% |
1. Prescriptions filled and generic dispensing rate for all periods presented include an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
Revenue growth drivers
- Strong prescription volume growth described below and increased Front Store revenues (up ~2% pre-COVID-19), partially offset by continued reimbursement pressure and increased GDR
- GDR1of 89.3%, up ~ 60 bps,year-over-year
Adjusted Operating Incomegrowth from strong sales performance, benefit from generics, Front Store margin improvements and lower SG&A reflecting favorable resolution of legal matters and ongoing modernization efforts, partially offset by continued reimbursement pressure
Prescriptions Filledgrowth driven by continued adoption of patient care programs, COVID-19 related prescription volume and leap day. Estimated COVID-19 impact ~200 bps
COVID-19 had meaningful impact on segment performance
- COVID-19contributed ~40% of Q1 2020 adjusted operating income growth, including the impact of additional operating expenses
16©2020 CVS Health and/or one of its affiliates.
Q1 RESULTS
Retail pharmacy
Same store sales1
Pharmacy sales
Pharmacy adjusted prescription volume2
Front Store sales
Retail pharmacy script share of 26.8%2, 3
Change vs. Q1 2019
9.0%
9.3%
9.8%
8.0%
Up ~50 bps
Growth in prescription volume driven by continued adoption of patient care programs, COVID-19 related prescription volume and leap day
Growth in Front Store sales primarily driven by strength in consumer health and general merchandise sales, which was primarily driven by COVID-19 related sales, expansion of CarePass®program and leap day
- Same store sales and prescription volume exclude revenues from MinuteClinic and revenues and prescriptions fromlong-term care operations and, in 2019, from stores in Brazil.
- Includes an adjustment to convert90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
- Source: IQVIA retail pharmacy script data for March 2020
17©2020 CVS Health and/or one of its affiliates.
Q1 RESULTS
Health Care Benefits segment
Revenue growthprimarily driven by strong membership growth in Government products
in millions, except MBR
Total revenues
Adjusted operating income
Total medical membership
Commercial membership
Government membership
Medical benefit ratio (MBR)
Q1 2020 | Q1 2019 | Change % | ||
$19,198 | $17,870 | 7.4% | ||
$1,491 | $1,562 | (4.5%) | ||
23.5 | 22.8 | 2.8% | ||
17.6 | 17.9 | (1.9%) | ||
5.9 | 4.9 | 19.6% | ||
82.4% | 84.0% | 160 bps |
Adjusted operating income slight decline primarily
due to membership declines in Commercial insured products, higher Medicaid benefit costs in certain states and incremental operating expenses related to onboarding IlliniCare members, partially offset by membership growth in Government products and increased integration synergies
Medical membershipgrowth driven by increases in Medicare and Medicaid products, partially offset by decline in Commercial insured products
Improvement to MBRprimarily reflects return of HIF. During Q1 2020, also saw reduced discretionary utilization due to COVID-19 that started in mid March, partially offset by growth in Government business and leap day
18©2020 CVS Health and/or one of its affiliates.
Q1 RESULTS
Estimated impact of COVID-19 on Q1 financials
Pharmacy Services
Increase in prescription volume due to pull- forward in scripts driven by early maintenance medication refills and greater use of 90-day prescriptions
- EstimateCOVID-19 impacted total pharmacy claims growth by ~125 bps
Incremental costs for operations
Retail / LTC
Increase in prescription volume; same drivers as
PSS
- EstimateCOVID-19 impacted prescriptions filled growth by ~200 bps
Front Store revenue growth of 8.5%; significant portion due to COVID-19
Incremental costs for operations
Long term care performance
Health Care Benefits | Corporate / Other |
Lower discretionary | Realized capital losses |
utilization starting mid | in investment portfolio |
March |
Realized capital losses in investment portfolio
COVID-19 related business activity added ~10 cents to Q1 2020 GAAP Diluted EPS and Adjusted EPS
19©2020 CVS Health and/or one of its affiliates.
April Business Update
April business update
Retail same store sales1
Pharmacy sales
Pharmacy adjusted prescription volume2
March 2020 YoY
17.5%
17.2%
12.6%
April 2020 YoY3
1.4%
5.3%
(0.6%)
Change in April prescription and claims processed volume year-over-year versus March driven by reversal of the pull- forward in scripts seen in March, and drop in new prescriptions related to lower physician visits
Front Store sales
Pharmacy Services total claims processed2
HCB decreases in utilization across an array of services
18.6%(10.9%)
17.0%0.6%
(~30%)
Decline in April Front Store sales year- over-year as increased basket size is offset by reduction in store traffic as shelter in place orders took hold
Reduction in discretionary utilization that began in mid March continued through April; Q2 2020 MBR could be lowest of the year
- Same store sales and prescription volume exclude revenues from MinuteClinic and revenues and prescriptions fromlong-term care operations and, in 2019, from stores in Brazil.
- Includes an adjustment to convert90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
- April 2020 information is preliminary.
Cannot predict impact of delayed or missed treatment on members with chronic conditions
21©2020 CVS Health and/or one of its affiliates.
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CVS Health Corporation published this content on 06 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 May 2020 13:13:06 UTC