CVS Health : Q4 2021 Transcript (opens in new window)

Corrected Transcript

09-Feb-2022

CVS Health Corp. (CVS)

Q4 2021 Earnings Call

	Total Pages: 21
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CVS Health Corp. (CVS)	Corrected Transcript
Q4 2021 Earnings Call	09-Feb-2022

CORPORATE PARTICIPANTS

Susan Vissers Lisa	Daniel P. Finke
Senior Vice President-Investor Relations, CVS Health Corp.	Executive Vice President & President-Health Care Benefits, CVS Health
Karen S. Lynch	Corp.
Michelle Peluso
President, Chief Executive Officer & Director, CVS Health Corp.
Shawn M. Guertin	Executive Vice President, Chief Customer Officer and Co-President-CVS
Pharmacy, CVS Health Corp.
Chief Financial Officer & Executive Vice President, CVS Health Corp.	Prem Shah
	Executive Vice President, Chief Pharmacy Officer and Co-President-CVS
	Pharmacy, CVS Health Corp.

.....................................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Lisa C. Gill	Kevin Caliendo
Analyst, JPMorgan Securities LLC	Analyst, UBS Securities LLC
Lance Wilkes	A.J. Rice
Analyst, Sanford C. Bernstein & Co. LLC	Analyst, Credit Suisse
Matthew Borsch	Stephen Baxter
Analyst, BMO Capital Markets Corp.	Analyst, Wells Fargo Securities LLC
Steve J. Valiquette	Justin Lake
Analyst, Barclays Capital, Inc.	Analyst, Wolfe Research LLC
Michael Cherny	Eric Percher
Analyst, BofA Securities, Inc.	Analyst, Nephron Research LLC
Charles Rhyee	Nathan Rich
Analyst, Cowen and Company	Analyst, Goldman Sachs & Co. LLC

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CVS Health Corp. (CVS)	Corrected Transcript
Q4 2021 Earnings Call	09-Feb-2022

MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, good morning, and welcome to the CVS Health Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow CVS Health's prepared remarks, at which point we will review instructions on how to ask your questions. As a reminder, today's conference is being recorded.

I would now like to turn the call over to Susie Lisa, Senior Vice President of Investor Relations for CVS Health. Please go ahead.

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Susan Vissers Lisa

Senior Vice President-Investor Relations, CVS Health Corp.

Thank you, and good morning, everyone. Welcome to the CVS Health fourth quarter and full year 2021 earnings call. I'm Susie Lisa, Senior Vice President of 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 will host a question-and-answer session that will include Alan Lotvin, President, Pharmacy Services; Dan Finke, President, Health Care Benefits; Michelle Peluso, Chief Customer Officer; and Prem Shah, Chief Pharmacy Officer, both Co-Presidents of the Retail segment; and Jon Roberts, Chief Operating Officer.

Our press release and slide presentation have been posted to our website along with our Form 10-K that we filed with the SEC this morning.

During this call, we will make certain forward-looking statements reflecting our current views related to our future financial performance, future events, industry, and market conditions as well as the expected consumer benefits of our products and services and our financial projections. Our forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from what may be indicated in them. We strongly encourage you to review the information in 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 section in this morning's earnings press release and included in our Form 10-K.

During this call, we will use non-GAAP financial measures when talking about the company's performance and financial conditions, and in accordance with SEC regulations, you can find a reconciliation of these non-GAAP measures to the comparable GAAP measures in this morning's earnings press release and the reconciliation document posted on the Investor Relations portion of our website. Today's call is being broadcast on our website where it will be archived for one year.

Now, I'd like to turn the call over to Karen.

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Karen S. Lynch

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

Thank you, Susie. Good morning, everyone, and thank you for joining our call today.

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CVS Health Corp. (CVS)	Corrected Transcript
Q4 2021 Earnings Call	09-Feb-2022

2021 was an important year for CVS Health. We exceeded our financial goals, we advanced our strategy, and we brought greater value to the people we serve, playing a critical role in the nation's pandemic response. We ended a strong 2021 with another strong quarter. We exceeded our adjusted EPS expectations for the fourth quarter in a row, delivering $1.98 adjusted EPS in the final quarter of 2021 and $8.40 adjusted EPS for the full year.

We are entering 2022 with powerful momentum. We are delivering health care solutions that are personalized, connected, and increasingly digital. We are engaging millions of consumers across our businesses and in our community health destinations across America. CVS Health is becoming a bigger part of their everyday health.

Turning now to our performance, for the full year 2021, CVS Health grew adjusted revenue by 8.8% to $292 billion. We delivered adjusted operating income of $17.3 billion, up 8.1% year-over-year, and we increased adjusted earnings per share by 12%. We generated strong cash flow from operations of nearly $18.3 billion for the full year, exceeding our most recent guidance of at least $13.5 billion.

This strong performance positions us well for 2022. At this early stage of the year, we are maintaining our full year 2022 adjusted earnings per share guidance of $8.10 to $8.30. Our forecast reflects increased volume from COVID testing and front store sales in our Retail business relative to our forecast at Investor Day, offset by the accelerated timing of vaccine boosters pulled into the fourth quarter of 2021. Shawn will provide more details on our results and guidance shortly.

Our 2021 performance demonstrates our ability to anticipate, deliver, and exceed consumers' expectations for healthcare. Consumers are a major force driving change in healthcare, and we continue to engage successfully with individuals in more places and on their terms, virtually, in the home, and in their local community. Customers and clients continue to realize the superior value we are providing with our integrated health solutions, particularly those that address the most prevalent, costly, and complex health conditions such as diabetes, cancer, and chronic kidney disease.

Turning to the segment highlights, in Health Care Benefits, we delivered 9.4% adjusted revenue growth for the full year 2021 driven by our performance in Government Services. We had another strong year of Medicare growth with increases across all product lines. Total Medicare Advantage membership grew at 9.8% on a year-over-year basis as we added over 265,000 new members in 2021 and exceeded our initial growth expectations. As a result of our strategic focus on dual eligible, special needs plans, enrollment nearly doubled in 2021.

Our full year medical benefit ratio of 85% was in line with our guidance expectations. For the full year 2021, the utilization of total healthcare services in aggregate was in line with normalized historical baseline levels.

Turning to 2022, we had an impressive annual enrollment period in our Medicare business. For the second consecutive year, we grew all Medicare product lines, and our growth rates this year exceed the industry averages in all categories. We grew total Medicare Advantage membership by 11.6% versus the prior year, reflecting increases in individual and group Medicare Advantage of over 15% and 6%, respectively, year-over- year. We also led the industry in absolute Medicare PDP net membership growth. This added nearly 295,000 net new members while the overall PDP market continues to decline.

We had a solid 2022 selling season in our national accounts commercial business. We expect to grow membership in the low-single digits for the full year and maintain strong client retention of 96%. Our success is driven by the combination of our competitive cost structure, our integrated benefit designs including medical and

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CVS Health Corp. (CVS)	Corrected Transcript
Q4 2021 Earnings Call	09-Feb-2022

pharmacy, and products and services that utilize CVS Health capabilities such as Transform Care Diabetes (sic) [Transform Diabetes Care] and virtual primary care programs.

Membership enrollment was lower than expected in the eight ACA individual exchanges we entered this year. We continued to build this business gradually with select geographic expansion, a focused price discipline, and the appeal of co-branded Aetna CVS Health offerings. Consistent with our prior guidance, we do not expect this offering to contribute materially to our financial results in 2022.

Overall, our deep understanding of consumer needs, innovative product portfolio, and our service excellence will drive growth in our Health Care Benefits segment. Our comprehensive range of products and benefit design that address consumers' whole health needs remains a key differentiator and fueled a strong selling season. For 2022, we forecast 7% to 9% revenue growth and 15% to 17% adjusted operating income growth.

Turning to Pharmacy Services, we delivered 7.8% revenue and 20.6% adjusted operating income growth in 2021. We continue to be a consultative partner to our clients and members. We're delivering industry-leading cost trends and savings, service excellence, a broad product portfolio, and a commitment to transparency.

We consistently create value for our customers and clients with our better-than-market drug trend. We continue to enhance our utilization programs to ensure access to the therapeutics that are the most clinically appropriate. For 2022, we achieved a client retention rate of over 98% and drove $8.8 billion of net new business revenue.

We are a leader in specialty pharmacy, delivering revenue growth of 12.3% for the fourth quarter and 9.3% for the full year versus prior-period. Our specialty pharmacy programs drive value in the marketplace, and they differentiate us as we pair programs with digital capabilities to deliver a convenient and connected experience.

For Pharmacy Services in 2022, we expect 6% to 8% revenue growth and 7% to 9% adjusted operating income growth as we create long term value for our clients and our members.

Our Retail segment plays a critical role as a community health destination for millions of Americans. This segment outperformed the industry and our expectations in 2021. We grew revenue 9.8% year-over-year to just over $100 billion, marking an important milestone in the history of this CVS Health business. We delivered an exceptional 24% adjusted operating income growth in 2021.

Pharmacy sales and prescriptions filled both increased by nearly 9% year-over-year. This was notably driven by consumers who came to CVS Health for COVID-19 vaccine administration. For the full year 2021, CVS Health administered more than 32 million COVID-19 tests and more than 59 million vaccines. Over 35% of COVID-19 vaccines in 2021 were administered during the fourth quarter.

Our work to test and vaccinate America for COVID is a powerful example of the relationships we're building with consumers which leads to new customers seeking a range of other health services at CVS Health.

Front store sales growth was strong throughout 2021, up 8.4% versus the prior year. They were led by consumer demand for the over-the-counterCOVID-19 tests as well as cough and cold, beauty, and personal care products. We sold over 22 million OTC COVID-19 tests with approximately 70% of sales in the fourth quarter.

We are progressing on optimizing our Retail portfolio and pivoting our stores into three formats: primary care clinics, enhanced HealthHUBs, and traditional CVS Pharmacy locations. We are executing our plan to de-densify stores based on consumer health and buying needs, omni-channel preferences, and shifts in the US population.

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