CVS Health : Q2 2023 Transcript

Corrected Transcript

02-Aug-2023

CVS Health Corp. (CVS)

Q2 2023 Earnings Call

	Total Pages: 19
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CVS Health Corp. (CVS)	Corrected Transcript
Q2 2023 Earnings Call	02-Aug-2023

CORPORATE PARTICIPANTS

Laurence McGrath	Daniel P. Finke
Senior Vice President, Investor Relations & Business Development, CVS	Executive Vice President & President, Health Care Benefits Segment,
Health Corp.	Aetna, CVS Health Corp.
Karen S. Lynch	Michael T. Pykosz
President, Chief Executive Officer & Director, CVS Health Corp.	Chairman, Chief Executive Officer & Co-Founder, Oak Street Health,
Shawn M. Guertin	Inc.
J. David Joyner
Chief Financial Officer & Executive Vice President, CVS Health Corp.
Michelle A. Peluso	Executive Vide President & President, Pharmacy Services, CVS Health
Corp.
Executive Vice President, Chief Customer Officer & Co-President, CVS	Kyle Armbrester
Pharmacy and Consumer Wellness, CVS Health Corp.
	Chief Executive Officer, Signify Health, Inc.

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OTHER PARTICIPANTS

A.J. Rice	Kevin Caliendo
Analyst, Credit Suisse Securities (USA) LLC	Analyst, UBS Securities LLC
Lisa C. Gill	Nathan Rich
Analyst, JPMorgan Securities LLC	Analyst, Goldman Sachs & Co. LLC
Michael Cherny	Joshua Raskin
Analyst, BofA Securities, Inc.	Analyst, Nephron Research LLC
Justin Lake
Analyst, Wolfe Research LLC

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CVS Health Corp. (CVS)	Corrected Transcript
Q2 2023 Earnings Call	02-Aug-2023

MANAGEMENT DISCUSSION SECTION

Operator: Good morning, everyone. My name is Bruno, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the CVS Health Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

I will now hand over to your host, Larry McGrath. You may begin your conference.

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Laurence McGrath

Senior Vice President, Investor Relations & Business Development, CVS Health Corp.

Good morning and welcome to the CVS Health second quarter 2023 earnings call and webcast. I'm Larry McGrath, Senior Vice President of Business Development and Investor Relations for CVS Health. I'm joined this morning by: Karen Lynch, President and Chief Executive Officer; and Shawn Guertin, Executive Vice President and Chief Financial Officer.

Following our prepared remarks, we'll host a question-and-answer session that will include additional members of our leadership team. Our press release and slide presentation have been posted to our website, along with our Form 10-Q that we filed this morning with the SEC. Today's call is also being broadcast on our website, where it'll be archived for one year.

During this call, we'll 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 statements concerning forward-looking statements and risk factors in our most recent Annual Report filed on Form 10-K, our Quarterly Reports on Form 10-Q, the most recent of which was filed this morning, and our recent filings and Form 8-K, including this morning earnings press release.

During this call, we'll use non-GAAP measures when talking about the company's financial performance and financial condition. You can find a reconciliation of these non-GAAP measures in this morning's press release and in the reconciliation document posted to our Investor Relations portion of our website.

With that, I'd like to turn the call over to Karen. Karen?

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Karen S. Lynch

President, Chief Executive Officer & Director, CVS Health Corp.

Thank you, Larry. Good morning, everyone, and thanks for joining our call today. CVS Health closed another successful quarter, delivering on our financial commitment through the power of our diversified business model and focused execution of our strategy. We have been relentless in the pursuit of our goal to deliver superior health experiences by improving outcomes, lowering costs, driving higher levels of engagement and broadening access to high-quality care.

So far in 2023, we have achieved several key accomplishments. First, we acquired Signify Health and Oak Street Health, two best-in-classvalue-based care assets. We are making progress integrating these multi-payor

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CVS Health Corp. (CVS)	Corrected Transcript
Q2 2023 Earnings Call	02-Aug-2023

companies to create meaningful value. We are unlocking opportunities by connecting Signify and Oak Street to CVS Health assets, such as Aetna, MinuteClinic and CVS Pharmacy, and driving patient engagement and growth. As we scale our Health Care Delivery assets and realize synergy opportunities, we will accelerate our long-term growth trajectory.

Second, we expanded our individual exchange offering to 12 states and successfully onboarded more than 1 million new members. Strategically, this is an important marketplace that grew to approximately [ph] 15 million (03:43) enrollees in 2022. Our success with this population lays the foundation for future earnings growth at Aetna and creates connections for these members across all our integrated assets.

And finally, our ability to generate strong cash flows enables us to invest in our long-term strategy and return value to shareholders. Through June 30, we generated more than $13 billion of operating cash flow and returned more than $3.5 billion to our shareholders. We expect to continue to return cash to our shareholders and deploy capital to enhance shareholder value.

Today, we reported second quarter adjusted EPS of $2.21 and adjusted operating income of $4.5 billion. Our diversified business, strengthened by our exceptional execution, positions us to navigate emerging headwinds in Medicare Advantage and a changing consumer environment. We are reaffirming our full year 2023 adjusted EPS guidance range of $8.50 to $8.70. Shawn will provide more details on our updated outlook for the year shortly.

Turning to our performance highlights for the quarter. In our Health Care Benefits segment, we grew revenues to $26.7 billion, an increase of nearly 18% and delivered adjusted operating income of $1.5 billion. Medical membership in the second quarter was 25.6 million, an increase of 1.2 million members versus the prior year, reflecting broad-based growth including individual exchange, Medicare and commercial membership.

For our core commercial membership, this quarter marks the eighth consecutive quarter of membership gains. This growth reflects our differentiated product offering that address the total cost of care and the whole health of a member through our integrated solutions.

Medical cost trends were well-controlled in our Commercial and Medicaid books of business. Consistent with the broader industry, elevated medical costs emerged in our Medicare Advantage business, which became apparent in the latter part of the quarter. The primary driver of these elevated medical costs was greater than expected utilization in outpatient settings. Shawn will discuss these trends in more detail.

In Medicaid, the state of Oklahoma awarded us a new statewide Medicaid contract beginning in April 2024. That'll add approximately 200,000 members. This win demonstrates our market-leading ability to comprehensively support Medicaid populations through our deep local relationships, investment in clinical programs and integrated well-being solutions.

This quarter, we are able to offset the pressures in our Health Care Benefits segment with continued strong execution in our Health Services segment. Revenues grew to $46.2 billion, an increase of nearly 8%. Adjusted operating income grew 3.5% to $1.9 billion.

These results were driven by our Pharmacy Services business. We consistently demonstrate value to consumers and our clients by successfully managing drug cost trends and bringing innovative clinical solutions to the market.

In the second quarter, branded drug revenue increased, in part, driven by the GLP-1 category. This expensive and fast-growing category presents new choices for the over 70 million adults in the US who are living with

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CVS Health Corp. (CVS)	Corrected Transcript
Q2 2023 Earnings Call	02-Aug-2023

obesity and the nearly 37 million people who have type 2 diabetes. We are well-positioned to deliver value to customers in this category with our weight loss program and utilization management tools that drive the lowest net cost for our clients.

Every day, we create competition, drive the lowest net cost, and deliver transparency, value and choice to our customers. This is the foundation of our continued success and our market-leading position.

Turning to Health Care Delivery, both Signify Health and Oak Street Health had strong quarters, delivering business performance consistent with our expectations. These assets bring core capabilities to our multi-payorvalue-based care platform that drive optimal patient engagement with health services across multiple channels. In the short time since we closed these transactions, we've launched efforts to drive high patient engagement by leveraging our CVS Health assets.

Signify Health is core to our home health services strategy. Signify enables better health in the home and has an unmatched ability to build trust and connect with 3 million patients in their home annually. We capture valuable insights into a patient's broader care needs during in-home evaluation and are able to create engagement points across other health services for our health plan partners.

These engagement points ultimately drive better care, lower the total cost of care, such as reducing hospital readmissions and improving health outcomes. Survey results show that members who are highly satisfied with their Signify in-home evaluation are 26 times more likely to recommend their health plan and 74% more likely to consider additional health services. Signify's customers recognize the power of this trusted relationship and the value of these home services.

Since the close of the acquisition, Signify has demonstrated exceptional retention of its health plan and health system customers. We've added new relationships, expanding the opportunity to bring Signify's services to more Medicare members. CVS Health's trusted brand and our broad customer touchpoints further increase opportunity for Signify to engage with patients and expand the services they deliver.

This quarter, there was a strong demand for both in-home evaluations and additional Signify services in the home. We launched new member engagement initiatives at select CVS Pharmacies to drive IHE conversion of Aetna Medicare members and CVS Pharmacy customers to Signify. Early results are promising with higher engagement across the CVS Health channels utilized.

Turning to Oak Street Health, we are accelerating patient growth through our broad community presence and ability to engage consumers across multiple channels. Today, there are approximately 1 million Medicare eligible seniors who visit CVS Pharmacies each week that are located near an Oak Street clinic. We launched new member engagement initiatives focused on creating connections between Medicare eligible CVS customers, both in-store and digitally, and Oak Street Health providers. We are also connecting Aetna Medicare members who are currently without a primary care physician with their local Oak Street provider to reengage them in their care. These initiatives will drive Oak Street patient growth and accelerate the path to mature clinic profitability while broadly serving the needs of Medicare members.

As Oak Street expands to additional geographies, these opportunities to drive higher patient growth will continue to increase. By the end of 2023, we expect to have Oak Street clinics in 25 states, up from 21 at the close of the transaction. We will also open new Oak Street clinics co-located with CVS Pharmacies this year and have already identified additional locations for 2024. We now expect to build 50 to 60 clinics next year.

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