Cvs Health Corporation · NYSE:CVS
Cvs Health — Q2 2018 Earnings Presentation
39 slides from Cvs Health's earnings presentation, Aug 8, 2018
Slide 1: Second Quarter 2018 Earnings Conference Call
Second Quarter 2018 Earnings Conference Call Larry Merlo President & Chief Executive Officer Dave Denton Executive Vice President & Chief Financial Officer August 8, 2018
Slide 2: Important Information
Important Information No Offer or Solicitation This communication is for informational purposes only and not intended to and does not constitute an offer to subscribe for, buy or sell, the solicitation of an offer to subscribe for, buy or sell or an invitation to subscribe for, buy or sell any secur
Slide 3: Important Information
Important Information Cautionary Statement Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of CVS Health or Aetna. This communication may contain forward-looking st
Slide 4: Important Information
Important Information In addition, this communication may contain forward-looking statements regarding CVS Health’s or Aetna’s respective businesses, financial condition and results of operations. These forward-looking statements also involve risks, uncertainties and assumptions, some of which may n
Slide 5: Forward-looking Statements
Forward-looking Statements This presentation contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current views related to our future financial performance, future events and industry and market conditions. Forward-lookin
Slide 6: Aetna Update
Aetna Update 6 © 2018 CVS Health
Slide 7: Aetna Update – Regulatory
Aetna Update – Regulatory • Continue to make excellent progress – Highly experienced legal and government affairs teams are working hard to ensure we provide all additional information requested by state regulators and the Department of Justice • To date, a substantial number of states have approved
Slide 8: Aetna Update – Integration Planning
Aetna Update – Integration Planning • Work streams are making important progress against objectives, which include ensuring a smooth transition and achieving $750 million synergy goal for the second full year of operation – Pressure-testing our Day 1 readiness – Gaining a deeper understanding of eac
Slide 9: Second Quarter 2018 Business & Financial Review
Second Quarter 2018 Business & Financial Review 9 © 2018 CVS Health
Slide 10: Second Quarter: Strong Results
Second Quarter: Strong Results Q2 2018 Change vs. Q2 2017 Consolidated net revenues $46.7 billion 2.2% Adjusted operating profit $2.4 billion 4.6% Adjusted EBITDA $3.0 billion 4.6% Adjusted EPS $1.69 26.8% Free Cash Flow $2.5 billion 59.7% 1. Refer to reconciliation of cost allocation methodology ch
Slide 11: Challenges and Goodwill Impairment
Long-Term Care Pharmacy Challenges and Goodwill Impairment • Industry-wide financial challenges have created unexpected financial pressures on our facility clients, which resulted in lower growth than anticipated when we acquired Omnicare three years ago – Impairment was caused by several factors: •
Slide 12: Plan for Stronger Growth Trajectory
Long-Term Care Pharmacy Plan for Stronger Growth Trajectory • Installed new leadership team to manage day-to-day operations of Omnicare • Undertaking broad initiative to enhance service levels with objective to improve client retention levels – Identified near-term actions to substantially enhance c
Slide 13: Omnicare: Best-Positioned to Thrive Long-Term
Long-Term Care Pharmacy Omnicare: Best-Positioned to Thrive Long-Term • We continue to believe in and remain optimistic about Omnicare’s long-term growth potential and its relevance to our value creation strategy • As population ages, there will be increased need for long-term care services and supp
Slide 14: Capital Allocation
Financial Update: Capital Allocation • In Q2, generated $2.5 billion in free cash – $4.4 billion in free cash for first half, on track to achieve our strong free cash flow expectations [of approximately $7 billion] for full year • Paid ~ $510 million in shareholder dividends in Q2 – Expect to return
Slide 15: Debt Maturity Schedule
Financial Update: Debt Maturity Schedule 10 $, billions 9 8 7 6 5 4 3 2 1 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2035 2038 2039 2041 2043 2045 2048 CVS existing debt $40 billion financing 15 © 2018 CVS Health
Slide 16: Earnings per Share
Q2 2018 Income Statement: Earnings per Share • Q2 Adjusted EPS of $1.69, a 26.8% increase over last year – Primarily due to the lower effective income tax rate and pharmacy share gains in the Retail/LTC segment – Timing of PBM operating profit, interest, and taxes each performed better than expectat
Slide 17: Consolidated
Q2 2018 Income Statement: Consolidated • Consolidated revenues of ~ $46.7 billion, up 2.2% vs. LY, 25 bps above the high end of our expectations • Gross margin of 15.4%, up ~ 25 bps vs. LY due to segment mix, consistent with expectations • Gross profit dollars increased 3.9% • Adjusted operating exp
Slide 18: Below-the-line
Q2 2018 Income Statement: Below-the-line • Adjusted net interest expense of $236 million, ~ $11 million lower than LY • Adjusted effective tax rate of 26.6% – Better than expectations • Weighted-average share count of ~ 1.0 billion shares 18 © 2018 CVS Health
Slide 19: PBM
Q2 2018 Income Statement: PBM • PBM revenues of $33.2 billion, up 2.8% vs. LY – Year-over-year growth driven by claims volume growth and brand inflation – Growth partially offset by continued pricing pressure and increase in GDR to 87.6%(1) , up ~ 40 bps vs. LY – Growth also dampened by administrati
Slide 20: PBM 2019 Selling Season
PBM 2019 Selling Season • Gross wins: $1.8 billion – Fewer RFP opportunities than past few selling seasons • Net wins: $200 million • To date, have completed more than 70% of client renewals, roughly in line with previous years – Current retention rate(1) slightly higher than prior years • Extended
Slide 21: 2019 Formulary Strategy
2019 Formulary Strategy • Effective January 1st, we plan to remove 23 products from our Standard Control Formulary, while adding back 4 products that have been previously removed • Vast majority of members, 98.76%, will be able to stay on their current therapy • Since 2012, our formulary strategy is
Slide 22: SilverScript, a Strong Competitor in Med D
SilverScript, a Strong Competitor in Med D • Including non-captive Med D lives CVS Caremark manages for our health plan clients, we have 13.4 million lives under management Medicare Part D Lives Served by CVS Caremark (1)(2) (thousands) June ‘17 June ‘18 June YOY Growth Individual 4,492.3 4,833.5 7.
Slide 23: Retail/LTC
Q2 2018 Income Statement: Retail/LTC • Retail/LTC revenues of $20.7 billion, up 5.7% vs. LY – Strong growth primarily driven by very strong script volume growth of 9.3% due to continued adoption of our Patient Care Programs, partnerships with PBMs and health plans, and preferred position in a number
Slide 24: Retail/LTC Revenue and Script Growth
Q2 2018 Income Statement: Retail/LTC Revenue and Script Growth • Total same-store sales increased 5.9% • Pharmacy same-store sales increased 8.3% ̶ Negative impact of ~ 275 bps due to recent generic introductions • Pharmacy same-store prescription volumes increased 9.5% on a 30-day equivalent basis
Slide 25: CVS MinuteClinic
Q2 2018 Income Statement: CVS MinuteClinic • Operate 1,112 clinics across 33 states and Washington, D.C. • Q2 revenues up 4.2% vs. same quarter a year ago • MinuteClinic is now offering video visits to its patients through the CVS Pharmacy app • New telehealth service, leveraging Teledoc’s technolog
Slide 26: Real Estate Update
Q2 2018 Income Statement: Real Estate Update Retail locations at end of Q1 2018 9,847 Opened 36 Closed (3) Retail locations at end of Q2 2018 9,880 Net new locations 33 Relocations 12 Retail locations with pharmacies 9,832 (1) 1. Including 8,130 CVS Pharmacy stores that operated a pharmacy and 1,702
Slide 27: Corporate
Q2 2018 Income Statement: Corporate • Corporate: adjusted operating expenses of $224 million, down 3.7% to LY and slightly better than expectations, primarily due to shift in costs related to streamlining initiative 27 © 2018 CVS Health
Slide 28: 2018 Guidance
2018 Guidance 28 © 2018 CVS Health
Slide 29: Enterprise Outlook
Guidance: 2018 Full-year Enterprise Outlook Full-year 2018 Net Revenue Growth 1.5% to 2.5% Enterprise Adjusted Operating Profit Growth (0.75%) to 0.75% Tax Rate ~ 27% Adjusted Net Interest ~ 1.0 billion Adjusted EPS $6.98 to $7.08 Growth 18.25% to 20.0% GAAP EPS $1.40 to $1.50 Assumptions: 1. Assume
Slide 30: Retail/LTC Pharmacy
Guidance: 2018 Full-year Segment Outlook Full-year 2018 Net Revenue Growth 4.75% to 5.5% Retail/LTC Same-Store Sales (1) 5.0% to 5.75% Same-Store Adjusted Scripts (1) (2) 8.25% to 9.25% Adjusted Operating Profit Change (3) Down low-single digits Net Revenue Growth 2.25% to 3.25% Pharmacy Services To
Slide 31: Enterprise Outlook
Guidance: 2018 Q3 Enterprise Outlook Q3 2018 Net Revenue Growth 1.0% to 2.75% Enterprise Adjusted Operating (5.0%) to (2.5%) Profit Growth Adjusted EPS $1.68 to $1.73 Growth 12.5% to 15.5% GAAP EPS $1.29 to $1.34 Assumptions: 1. Assume for guidance purposes only, Aetna transaction closes at year-end
Slide 32: Pharmacy Retail/LTC
Guidance: 2018 Q3 Segment Performance Q3 2018 Net Revenue Growth 4.5% to 6.0% Retail/LTC Same-Store Sales (1) 4.75% to 6.25% Same-Store Adjusted Scripts (1) (2) 8.75% to 9.75% Adjusted Operating Profit Change Down mid-single digits Pharmacy Net Revenue Growth 1.5% to 3.25% Services Operating Profit
Slide 33: Drug Pricing
Drug Pricing 33 © 2018 CVS Health
Slide 34: Facts About Drug Pricing
Facts About Drug Pricing • Current debate centers on rebates and impact of out-of-pocket costs on consumers • Drug manufacturers want you to believe increasing drug prices are a result of them having to pay rebates and PBMs retaining these rebates. This is simply not true. – Rebate retention has no
Slide 35: Critical Role of PBMs in the Supply Chain
Critical Role of PBMs in the Supply Chain • Using PBM techniques, we’ve been able to improve adherence and keep drug cost inflation under control in spite of steady price increase by manufacturers – Last year, drug price growth for our clients was only 0.2% on a per capita basis despite AWP inflatio
Slide 36: Competitive Landscape
Competitive Landscape 36 © 2018 CVS Health
Slide 37: CVS Health Well-Positioned to Address Challenges Facing Health Care System
CVS Health Well-Positioned to Address Challenges Facing Health Care System • Our distinctive position is the result of several long-standing core competencies that set us apart from others in fundamental and critical ways – We deliver quality health care to patients in more ways and in more settings
Slide 38: CVS Health Well-Positioned to Address Challenges Facing Health Care System
CVS Health Well-Positioned to Address Challenges Facing Health Care System • Our PBM business has deep, longstanding relationships in the industry, and it helps thousands of payors and plan sponsors design more effective plans that help to keep drug trend low • Only a company with these capabilities
Slide 39: Delivering Quality Health Care in More Ways and in More Settings Than Anyone Else
Delivering Quality Health Care in More Ways and in More Settings Than Anyone Else Online-Only Pharmacies Track record of patient safety Experience operating in heavily regulated sector Highly sophisticated supply chain for drug delivery Retail and online options for consumers Long-standing r