CVS HEALTH CORPORATION FOURTH QUARTER 2019
Earnings conference call
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
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 involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our Securities and
Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K and in our most recently filed Quarterly Report on Form 10-Q.
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.
Financial highlights
Successful year across the Enterprise
Exceeded our 2019 financial expectations
- Q4 Adjusted EPS of$1.73
- 2019Full-Year Adjusted EPS of $7.08, 3 centsabove the high end of our guidance range
- ~25 centsfrom net realized capital gains and favorable prior years' development
- Performance driven by strong operating execution across the Enterprise, with all segments meeting or exceeding expectations
- Successful first full year with Aetna; producing synergies above expectations at ~$500 million
Strong cash flows from operations of $12.8 billion in 2019, exceeding our expectations
2020 Full-Year Adjusted EPS guidance of $7.04 to $7.17; growth of 4.0% at the mid-point vs. 2019 baseline of $6.83
- Ahead of 2020 guidance from June 2019 Investor Day
- All business segments advancing our strategic priorities and contributing to growth
Expect 600-650 HealthHUB®locations by end of 2020
Cash flow from operations expected to range from $10.5 billion to $11 billion in 2020
3©2020 CVS Health and/or one of its affiliates.
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 |
4©2020 CVS Health and/or one of its affiliates.
CONTINUED PROGRESS
ON STRATEGIC PRIORITIES
Grow and differentiate our businesses
Integrated value offerings
Zero to low co-pay plan options for Commercial members at MinuteClinics ®for 2020
Pharmacist Panels operating in four metro areas
HealthHUB®conversions on track
- >50 HealthHUB®locations opened during 2019 in four metro areas: Tampa, Atlanta, Houston, Philadelphia
- Expect600-650 HealthHUB®locations by end of 2020
- Expect 1,500 HealthHUB®locations by end of 2021
Business growth
Project above industry average Medicare membership growth during 2020
Implementing Florida Healthy Kids and West Virginia Foster Care in first quarter of 2020
Have completed ~65% of 2021 Pharmacy Services selling season renewals with strong retention, including FEP and WellCare
FY19 retail script share up ~110 bps year-over-year to 26.6%
5©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
Community care
Transform Oncology Care program rolled out to over 30 providers and ~200 Commercial insured members across 14 states
Chronic Kidney Disease (CKD) care management program is currently available to ~3.5 million people across Aetna and 14 Caremark clients
Clinical trial ongoing for our home hemodialysis device; we anticipate product launch late 2021
Expanding Aetna Community Care nationally across Medicare footprint in 2020
6©2020 CVS Health and/or one of its affiliates.
CONTINUED PROGRESS
ON STRATEGIC PRIORITIES
Create a consumer-centric technology infrastructure
CarePass ®membership and delivery
Digital scheduling
Mobile engagement
CVS mobile app
Aetna digital health
CarePass subscription program has ~1.6M enrolled members as of Q4 '19
- The average CarePass member is shopping CVS ~25% more often after joining the program
34% of MinuteClinic®visits scheduled digitally in Q4 '19, up from 23% in Q4 '18
>80M patients are enrolled in text messaging program, with an increase of 10% in actively engaged patients from last year
CVS app has 5.4M monthly average users as of Q4 '19, up 8% from Q4 '18
The new Aetna Health digital experience rolled out to over 20 million medical and dental members
7©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
Continued technology modernization with business system and application rationalizations, data center consolidation review and cloud strategy
- Advancing integrated data and analytics capabilities
- Rollout of additional intelligent automation and robotic automation of routine processes
8©2020 CVS Health and/or one of its affiliates.
2019 Financial Review
FULL-YEAR 2019 RESULTS
Consolidated results
in millions, | ||||||
2019 | 2018 | Change % | ||||
except per share data | ||||||
Adjusted revenues | $256,776 | $194,043 | 32.3% | |||
Adjusted | $15,339 | 11,261 | 36.2% | |||
operating income | ||||||
GAAP EPS | $5.08 | ($0.57) | NM | |||
Adjusted EPS | $7.08 | $7.08 | - | |||
Cash flow from | $12,848 | $8,865 | 44.9% | |||
operations | ||||||
Note:Year-over-year comparisons are impacted by the timing of the close of the Aetna acquisition. NM = not meaningful.
Interest expense of $3.0 billion
Adjusted effective tax rate of 25.6%
Weighted-average diluted share count: 1,305 millionshares
2019 results include ~25 cents per share from net realized capital gains and
favorable prior years' development
10©2020 CVS Health and/or one of its affiliates.
Q4 RESULTS
Consolidated results
in millions, | ||||||
Q4 2019 | Q4 2018 | Change % | ||||
except per share data | ||||||
Adjusted revenues | $66,889 | $54,341 | 23.1% | |||
Adjusted | $3,766 | $3,719 | 1.3% | |||
operating income | ||||||
GAAP EPS | $1.33 | ($0.37) | NM | |||
Adjusted EPS | $1.73 | $2.14 | (19.2%) | |||
Cash flow from | $2,634 | $2,479 | 6.3% | |||
operations | ||||||
Note:Year-over-year comparisons are impacted by the timing of the close of the Aetna acquisition. NM = not meaningful.
Interest expense of $734 million
Adjusted effective tax rate of 25.9%
Weighted-average diluted share count: 1,310 millionshares
11©2020 CVS Health and/or one of its affiliates.
Q4 RESULTS
Pharmacy Services segment
in millions | Q4 2019 | Q4 2018 | Change % | |||
Total revenues | $37,073 | $34,899 | 6.2% | |||
Adjusted | $1,447 | $1,425 | 1.5% | |||
operating income | ||||||
Total pharmacy claims | 533.9 | 484.6 | 10.2% | |||
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
- Total pharmacy claims volume, Specialty, including IngenioRx onboarding, and brand inflation, partially offset by continued price compression and increased generic dispensing rate (GDR)
- GDR of87.8%1, up ~ 90 bps, year-over-year primarily due to the impact of new generic drug introductions and increased use of generic drugs
Increase in adjusted operating income primarily driven by increased claims volume, the shift of Aetna mail order and Specialty operations into Pharmacy Services segment and improved purchasing economics, partially offset by continued price compression
Growth in total pharmacy claims processed1primarily driven by net new business and continued adoption of Maintenance Choice®offerings
12©2020 CVS Health and/or one of its affiliates.
Q4 RESULTS
Retail / LTC segment
in millions | Q4 2019 | Q4 2018 | Change % | |||
Total revenues | $22,580 | $22,029 | 2.5% | |||
Adjusted | $2,031 | $2,124 | (4.4%) | |||
operating income | ||||||
Prescriptions filled1 | 369.0 | 349.4 | 5.6% |
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
- Increased prescription volume and brand inflation, partially offset by continued reimbursement pressure and increased generic dispensing rate (GDR)
- GDR1of 87.5%, up ~ 80 bps,year-over-year
Adjusted operating income declined due to continued reimbursement pressure, partially offset by increased prescription volume and increased GDR
Delivered strong adjusted script growth
13©2020 CVS Health and/or one of its affiliates.
Q4 RESULTS
Retail pharmacy
in millions
Same store sales1
Pharmacy sales
Pharmacy prescription volume2
Front Store sales
4Q retail pharmacy script share of 26.8%2, 3
Change vs. Q4 2018
3.2%
4.1%
6.9%
0.7%
Up ~80 bps
Retail pharmacy script share increase
driven primarily by continued adoption of patient care programs
Growth in Front Store sales primarily driven by increases in health and beauty product sales, including strength in cough and cold sales
- Front Store growth continues despite industry headwinds
- Same store sales and prescription volume exclude revenues from MinuteClinic, and revenues and prescriptions from stores in Brazil andlong-term care operations.
- 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 December 2019
Approximately 9,900retail locations and 1,100MinuteClinics®in operation as of Q4 2019
14©2020 CVS Health and/or one of its affiliates.
Q4 RESULTS
Health Care Benefits segment
in millions, except MBR | Q4 2019 | Q4 20181 | Change % | |||
Total revenues | $17,150 | $6,239 | 174.9% | |||
Adjusted | $779 | $590 | 32.0% | |||
operating income | ||||||
Medical membership | 22.9 | 22.1 | 3.6% | |||
Medical benefit ratio | 85.7% | NM | ||||
(MBR) | ||||||
1. For periods prior to November 28, 2018, the Health Care Benefits segment was comprised of CVS Health's SilverScript ®PDP business. CVS Health's 2018 financial results include 34 days of legacy Aetna results. Accordingly, the MBR for the three months ended December 31, 2018 is not meaningful ("NM") and is not directly comparable to the
MBR for the three months ended December 31, 2019.
YE 2019 medical membership in line with expectations
Strong membership growth in Government products
FY MBR of 84.2% and 4Q MBR in line with expectations
Commercial medical cost trend for FY 2019 within expectations
Days Claims Payable (DCP) was 48 as of December 31, 2019; we remain confident in the adequacy of our reserves and our reserving process
15©2020 CVS Health and/or one of its affiliates.
Q4 RESULTS
Cash flow and capital allocation
Strong cash generation and commitment to disciplined capital allocation priorities
Generated $2.6 billionin cash flow from operations in Q4; and $12.8 billionfor Full-Year 2019
During 2019 we used approximately $4.7 billionof cash to repay net long- term debt
Repaid ~$8.0 billionof net long-term debt from close of Aetna transaction through year-end 2019; ahead of the $7.5 billionInvestor Day target
Paid ~$650 million in Q4 shareholder dividends; and$2.6 billion for Full- Year 2019
Continuing to reinvest in the business and growth opportunities
16©2020 CVS Health and/or one of its affiliates.
2020 Guidance
2020 Outlook
Strategic plan execution and successful integration drive 2020 outlook
2020 Full-Year Adjusted EPS guidance of $7.04 to $7.17, growth of ~3% to ~5% vs. 2019 baseline of $6.83
- 2020 outlook ahead of June 2019 Investor Day view
Integration costs expected to be ~$450 millionin 2020; excluded from non-GAAP financial measures
2019 capital management expected to produce interest expense tailwind in 2020
- Guidance includes significant improvements in the Pharmacy Services segment reflecting improvements in the 2020 selling season as well as other initiatives; HCB and Retail/LTC in line with prior projections
- Integration synergies expectation increased to$800 million - $900 millionin 2020 (primarily benefitting HCB)
- Enterprise Modernization expectation range narrowed to$450 million - $550 millionin 2020 (primarily benefitting Retail/LTC and PBM)
Maintaining current quarterly dividend to shareholders
Leverage ratio on track to low 3x'sin 2022
18©2020 CVS Health and/or one of its affiliates.
GUIDANCE: FULL-YEAR 2020
Enterprise outlook
in millions, except per share data
Consolidated total revenues
Adjusted operating income
GAAP EPS
Adjusted EPS
Full-Year 2020
$261,970 to $265,480
2.0% to 3.5%
$15,530 to $15,760
1.25% to 2.75%
$5.47 to $5.60
7.5% to 10.25%
$7.04 to $7.17
3.0% to 5.0%1
Enterprise expectations driven by growth across all business segments
Projected GAAP and Adjusted EPS reflect ~($0.13) year-over-year HIF impact; and ~($0.08) from higher shares outstanding
Note:Except as noted, percentages represent year-over-year growth from reported 2019 results.
1. Growth rate for Adjusted EPS is calculated against 2019 baseline EPS which excludes net realized capital gains and favorable prior years' development of approximately 25 cents per share.
19©2020 CVS Health and/or one of its affiliates.
GUIDANCE: FULL-YEAR 2020
Pharmacy Services outlook
in millions | Full-Year 2020 | |
Total revenues1 | $137,500 to $139,450 | |
(2.75%) to (1.5%) | ||
Adjusted operating income | $5,240 to $5,320 | |
2.25% to 3.75% | ||
Total pharmacy claims | 2,000 to 2,020 | |
processed2 | (0.75%) to 0.25% |
Note:Percentages represent year-over-year growth from reported 2019 results.
- IngenioRx network revenue recorded on a net basis
- Total pharmacy claims processed includes an adjustment to convert90-day prescriptions to the equivalent of three 30- day prescriptions.
Projected revenue decline attributable to net selling season losses and continued price compression
- Strong Specialty revenue expectations of about$45B, ~10%increase year-over-year
- Projected claims volume driven by IngenioRx, partially offset by net selling season losses
- Projected 2020 brand drug inflation of mid- single digits, consistent with 2019
Projections reflect improved net new business since 3Q 2019 update
20©2020 CVS Health and/or one of its affiliates.
AS OF JANUARY 2020
Projected 2020 PBM selling season revenue
($, billions)
5.1
(0.9)
(6.4) | ||||||
(7.8) | (3.6) | |||||
Gross | Centene | Other | Net | |||
new business | carve-in | non-renewals | new business |
Note:IngenioRx network revenue recorded on a net basis
2020 net new business improved $2.8Bsince 3Q 2019 update
Have completed ~65% of 2021 Pharmacy Services selling season renewals with strong retention, including FEP and WellCare
21©2020 CVS Health and/or one of its affiliates.
GUIDANCE: FULL-YEAR 2020
Retail / LTC outlook
in millions | Full-Year 2020 | |
Total revenues | $87,530 to $88,800 | |
1.0% to 2.5% | ||
Adjusted operating income | $6,720 to $6,820 | |
0.25% to 1.75% | ||
Prescriptions filled1 | 1,480 to 1,510 | |
4.5% to 6.5% | ||
Note:Percentages represent year-over-year growth from reported 2019 results.
1. Prescriptions filled include an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions.
Projected adjusted script growth driven by continued successful execution of patient care programs, including pharmacy clinical care
Projected pharmacy growth and Enterprise Modernization to be partially offset by continued reimbursement pressure
Front store expected to drive incremental operating income through growth in health and beauty
22©2020 CVS Health and/or one of its affiliates.
GUIDANCE: FULL-YEAR 2020
Health Care Benefits outlook
Projected total revenue growth is driven by strong Government product growth
in millions,
except medical cost trend, MBR
Total revenues
Adjusted operating income
Core Commercial medical cost trend
Medical membership
Medical benefit ratio (MBR)
Full-Year 2020
$74,060 to $74,830
6.5% to 7.5%
$5,470 to $5,550
5.0% to 6.75%
6.0% +/- 50 bps
23.1 to 23.4
1.0% to 2.25%
83% +/- 50 bps
Commercial signed more pharmacy business for January 2020 than in all of 2019
Adjusted operating income impacted by divestiture of PDP lives to WellCare partially offset by acquisition of IlliniCare Health Plan, Inc.
Benefit from transaction synergies disproportionately benefits HCB segment in 2020, consistent with 2019
Projected MBR includes ~160 bps benefit from HIF compared to 2019
Note:Percentages represent year-over-year growth from reported 2019 results.
23©2020 CVS Health and/or one of its affiliates.
GUIDANCE: FULL-YEAR 2020
Other items
in millions, except tax rates
Interest expense
Adjusted effective tax rate
Weighted-average diluted share count
Cash flow from operations
Cash available for debt repayment
Full-Year 2020
$2,870 to $2,890
~ 27.5%
Up ~190 bps from 2019
1,320
$10,500 to $11,000
$4,200 to $4,600
24©2020 CVS Health and/or one of its affiliates.
GUIDANCE: FULL-YEAR 2020
Other considerations
First quarter expected to be the lowest earnings quarter for the year due to seasonality in Pharmacy Services and Retail/LTC
Earnings for Health Care Benefits expected to be lowest in the fourth quarter due to the earnings progression for that segment, including spending to support January readiness
Benefit from Enterprise Modernization expected to ramp up over the course of 2020; integration synergies projected to be generated more ratably throughout the year
Cash available for debt pay down is affected by the timing of certain payables and receivables from 2019 and is expected to be sufficient to cover debt maturities
Higher effective tax rate reflects the reinstatement of the HIF for 2020
25©2020 CVS Health and/or one of its affiliates.
Performance against our scorecard
Adjusted EPS growth
Integration synergies
Enterprise Modernization
Transformation
Leverage ratio
Cash available for enhancing shareholder value
Inventory reduction
Timing
2019
2020
2021
2022+
2019
2020
2021+
2020Run-rate 2022
2022
Run-rate
2022
Annually Long-Term
2022
Target
$6.75 - $6.90
$7.00+(Low single digits%)
Mid single digits %
Low double digits %
$300M - $350M
- $800M
- $900M
$400M - $600M ~$1.5B - $2B
- $850M
- $2.5B
Low 3x's
~$10B - $12B
~ $1.5B
Update as of February 12, 2020
Actual results of $7.08
FY guidance of $7.04 to $7.17
Actual results of ~$500M
FY guidance of $800M - $900M
FY 2020 guidance of $450M - $550M
On track
On track
On track
Remain committed to repaying debt and reducing leverage
On track
26©2020 CVS Health and/or one of its affiliates.
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CVS Health Corporation published this content on 12 February 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 February 2020 14:18:10 UTC
