Cvs Health Corporation · NYSE:CVS
Cvs Health — Q3 2018 Earnings Presentation
28 slides from Cvs Health's earnings presentation, Nov 6, 2018
Slide 1: Third Quarter 2018 Earnings Conference Call
Third Quarter 2018 Earnings Conference Call Larry Merlo President & Chief Executive Officer Eva Boratto Executive Vice President, Controller and Chief Accounting Officer November 6, 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: Progress on Aetna Transaction
Progress on Aetna Transaction • Regulatory Update – Received approval from the Department of Justice on October 10th – Final stages of state approval process: received 23 of 28 state approvals needed, including CT, our lead regulator – Expect to close prior to Thanksgiving • Immediate priorities of
Slide 8: Longer-Term Value Creation
Longer-Term Value Creation • Targeting substantial savings through specific portfolio of products & services – Better management of five common chronic conditions by building upon near-term medical cost savings through tighter integration of pharmacy and medical claims, the rich clinical dataset we
Slide 9: Three Priorities Guide How Health Care
Three Priorities Guide How Health Care Consumer Engagement is Transformed … … and guide our strategies for medical cost savings 1 Be Local Common Chronic Disease Management 2 Make it Simple Readmission Prevention Site of Care Management 3 Improve Health Optimize Primary Care Complex Chronic Disease
Slide 10: CVS Health is Uniquely Positioned to Address Medical Cost Savings Opportunities
CVS Health is Uniquely Positioned to Address Medical Cost Savings Opportunities Digital Data, Analytics Capabilities and Technology Community-Based Assets Partnerships Unmatched connections to the consumer … at the center 10 © 2018 CVS Health
Slide 11: Multiple Levers of Value Creation Allow CVS Health to Accelerate Enterprise Growth
Multiple Levers of Value Creation Allow CVS Health to Accelerate Enterprise Growth Value Creation Levers Open Platform Expanded Allows for Customer Increased Broad Value Customer Partnerships Membership Through Satisfaction Medical Growth CVS Assets and Cost Retention Savings Value creation to deliv
Slide 12: Third Quarter 2018 Business & Financial Review
Third Quarter 2018 Business & Financial Review 12 © 2018 CVS Health
Slide 13: Third Quarter: Strong Results
Third Quarter: Strong Results Q3 2018 Change vs. Q3 2017 Consolidated net revenues $47.3 billion 2.4% Adjusted operating profit $2.4 billion (3.5%) Adjusted EBITDA $3.0 billion (2.5%) Adjusted EPS $1.73 15.5% Free Cash Flow $557 million (76.3%) 1. Refer to reconciliation of cost allocation methodolo
Slide 14: Capital Allocation
Financial Update: Capital Allocation • In Q3, generated $557 million in free cash – $4.9 billion in free cash year-to-date, on track to achieve our strong free cash flow expectations of ~ $7 billion for the full year • Paid ~ $510 million in shareholder dividends in Q3 – Returning more than $2 billi
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 pre-Aetna transaction debt remaining $40 billion financing related to Aetna transaction 1. Does not include the $8.2 billion of Ae
Slide 16: Earnings per Share
Q3 2018 Income Statement: Earnings per Share • Q3 Adjusted EPS of $1.73, a 15.5% increase over last year – Growth primarily due to the lower effective income tax rate – Better-than-expected interest and tax rate drove results to high end of guidance range • GAAP diluted EPS was $1.36 16 © 2018 CVS H
Slide 17: Consolidated
Q3 2018 Income Statement: Consolidated • Consolidated revenues of ~ $47.3 billion, up 2.4% vs. LY and in line with expectations • Gross margin of 15.5%, up ~ 10 bps vs. LY largely due to segment mix • Gross profit dollars increased 2.9% • Adjusted operating expenses were 10.4% of sales … ~ 40 bps de
Slide 18: Below-the-line & Corporate
Q3 2018 Income Statement: Below-the-line & Corporate • Adjusted net interest expense of $226 million, ~ $19 million lower than LY • Adjusted effective tax rate of 26.6% – Better than expectations • Weighted-average share count of ~ 1.0 billion shares • Corporate: adjusted operating expenses of $221
Slide 19: PBM
Q3 2018 Income Statement: PBM • PBM revenues of $33.8 billion, up 2.6% vs. LY – Year-over-year growth driven by claims volume growth and brand inflation – Growth partially offset by rebates, continued pricing pressure, and the administration of rebates for Aetna’s Medicare Part D business • Adjusted
Slide 20: PBM 2019 Selling Season
PBM 2019 Selling Season • Gross wins: $2.6 billion • Net wins: $875 million, up ~ $675 million from last update • To date, have completed more than 90% of client renewals, roughly in line with previous years – Retention rate(1) is ~ 98% 1. Client retention rate is defined as: 1 less (estimated lost
Slide 21: PBM Cost Management Opportunities
PBM Cost Management Opportunities • CMS decision to allow use of step therapy to help reduce costs for Medicare Advantage plans for drugs administered under Part B – New rule enables payors to direct patients who are new to treatment to the most cost-effective, clinically-appropriate, therapies firs
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 13.6 million lives under management Medicare Part D Lives Served by CVS Caremark (1)(2) (thousands) Oct ‘17 Oct ’18 Oct YoY Growth Individual 4,518.2 4,867.2 7.7%
Slide 23: Retail/LTC
Q3 2018 Income Statement: Retail/LTC • Retail/LTC revenues of $20.9 billion, up 6.4% vs. LY – Increase primarily driven by strong script volume growth of 9.2% due to continued adoption of our Patient Care Programs, successfully partnering with PBMs and health plans, including our preferred position
Slide 24: Retail/LTC Revenue and Script Growth
Q3 2018 Income Statement: Retail/LTC Revenue and Script Growth • Total same store sales increased 6.7% • Pharmacy same store sales increased 8.7% • Pharmacy same store prescription volumes increased 9.2% on a 30-day equivalent basis (2) • Front store same store sales increase 0.8% • Retail pharmacy
Slide 25: Real Estate Update
Q3 2018 Income Statement: Real Estate Update Retail locations at end of Q2 2018 9,880 Opened 29 Closed (4) Retail locations at end of Q3 2018 9,905 Net new locations 25 Relocations 7 Retail locations with pharmacies 9,858 (1) 1. Including 8,149 CVS Pharmacy stores that operated a pharmacy and 1,709
Slide 26: 2018 Guidance
2018 Guidance 26 © 2018 CVS Health
Slide 27: Enterprise Outlook
Guidance: 2018 Full-year Enterprise Outlook Full-year 2018 Net Revenue Growth 1.5% to 2.5% Retail Same-Store Adjusted Scripts (1) (2) 8.25% to 9.25% PSS Total Adjusted Claims (2) 1.88 billion to 1.90 billion Adjusted Operating Profit Growth (0.75%) to 0.75% Adjusted EPS $6.98 to $7.08 Growth 18.25%
Slide 28: Impacts From the Close of Aetna Transaction
Impacts From the Close of Aetna Transaction • From a non-GAAP perspective, upon closing, the net interest expense associated with the deal-related debt raised in March will be included in the non-GAAP figures • We expect to issue approximately 285 million shares • There will be a slight increase in