Cvs Health Corporation · NYSE:CVS
Cvs Health — Q4 2018 Earnings Presentation
30 slides from Cvs Health's earnings presentation, Feb 20, 2019
Slide 1: Fourth Quarter 2018 Earnings Conference Call
Fourth Quarter 2018 Earnings Conference Call Larry Merlo President & Chief Executive Officer Eva Boratto Executive Vice President & Chief Financial Officer February 20, 2019
Slide 2: Cautionary Statement Regarding Forward-Looking Statements
Cautionary Statement Regarding 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
Slide 3: Performance in 2018 Lays Strong Foundation For a Successful Combination With Aetna
Performance in 2018 Lays Strong Foundation For a Successful Combination With Aetna • Delivered on our financial expectations – Adjusted EPS of $7.08, at the top end of our previous guidance range – Free cash flow of nearly $7 billion – Returned more than $2 billion to our shareholders through divide
Slide 4: Balancing Near-term Execution with Long-term Vision: The Challenges in 2019
Balancing Near-term Execution with Long-term Vision: The Challenges in 2019 • Ongoing pharmacy reimbursement pressures in our businesses and reduction in offsets to those pressures, including a declining benefit from generics • Lower brand inflation and ongoing questions around rebates • Structural
Slide 5: Balancing Near-term Execution with Long-term Vision: The Action Plan in 2019
Balancing Near-term Execution with Long-term Vision: The Action Plan in 2019 • Front Store - new product lines in health and beauty, along with the expansion of higher- margin service offerings New Product and • Pharmacy – continue to deliver market-leading top-line growth through network Service In
Slide 6: Pillars of Long-term and Above-market Growth
Pillars of Long-term and Above-market Growth • Success requires use of the full breadth of our capabilities – comprehensive data, predictive analytics, and our unparalleled intervention points with consumers to drive behavior change and improve health outcomes • Expanding reach of government busines
Slide 7: Transforming the Consumer Experience Begins With Creating a New Front Door to Health Care
Transforming the Consumer Experience Begins With Creating a New Front Door to Health Care Improving the consumer experience Consumer New Front Door to Health Care System needs to be redesigned with a focus on consumers 7 © 2019 CVS Health
Slide 8: 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 8 © 2019 CVS Health
Slide 9: 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 10: Fourth Quarter 2018 Financial Review
Fourth Quarter 2018 Financial Review 10 © 2019 CVS Health
Slide 11: Presentation Changes for 2018
Reporting Update: Presentation Changes for 2018 • As a result of the Aetna acquisition, CVS Health established a Health Care Benefits (HCB) segment, which is equivalent to the former Aetna Health Care segment • Aetna’s large case pensions and long-term care products are included in the Corporate/Oth
Slide 12: Fourth Quarter: Solid Results
Fourth Quarter: Solid Results Change vs. Q4 Q4 2018 2017 Adjusted Consolidated Revenues $54.3 billion 12.3% Adjusted Operating Income $3.4 billion 4.5% Adjusted EPS $2.14 12.0% Free Cash Flow $1.9 billion 395% 12 © 2019 CVS Health
Slide 13: Delivered on Our Targets in 2018
Delivered on Our Targets in 2018 2018 Change vs. 2017 Adjusted Consolidated Revenues $194.0 billion 5.0% Adjusted Operating Income $10.3 billion 2.5% Adjusted EPS $7.08 19.9% Free Cash Flow $6.8 billion 7.5% 13 © 2019 CVS Health
Slide 14: Free Cash Flow & Capital Allocation
Financial Update: Free Cash Flow & Capital Allocation • In Q4, generated $1.9 billion in free cash – $6.8 billion in free cash for full-year 2018 • Deployed capital to fund the Aetna acquisition – In Q4, paid $1.25 billion of senior notes at maturity – In Q4, made $2 billion voluntary early repaymen
Slide 15: Debt Maturity Schedule
Financial Update: Debt Maturity Schedule 12 $, billions 10 8 6 4 2 0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2035 2036 2037 2038 2039 2041 2042 2043 2044 2045 2047 2048 CVS Standalone AET Standalone Deal Financing 3-year Term Loan 15 © 2019 CVS Health
Slide 16: Q4 2018 Income Statement: Consolidated
Q4 2018 Income Statement: Consolidated • Adjusted consolidated revenues of $54.3 billion, up 12.3% vs. LY • Adjusted total operating costs of $51.0 billion, up 12.8% vs. LY • Adjusted operating income of $3.4 billion, up 4.5% vs. LY – Adjusted operating margin of 6.2%, contracting ~ 45 bps vs. LY •
Slide 17: Q4 2018 Income Statement: Pharmacy Services Segment
Q4 2018 Income Statement: Pharmacy Services Segment • Revenues of $34.9 billion, up 2.2% vs. LY – Growth driven by increase in pharmacy network and specialty volume, brand inflation, and increase in Medicare Part D revenues; partially offset by continued price compression • In Q4, dispensed specialt
Slide 18: PBM Business: Selling Season Progress
PBM Business: Selling Season Progress • 2019 Selling Season – Gross wins of ~ $4.2 billion – Net new business of ~ $1.7 billion - Includes impact of Anthem implementation beginning in Q2 2019 - Revenue associated with Anthem contract will be recorded on a net basis in accordance with revenue recogni
Slide 19: Q4 2018 Income Statement: Retail Pharmacy / LTC Segment
Q4 2018 Income Statement: Retail Pharmacy / LTC Segment • Revenues of $22.0 billion, up 5.4% vs. LY – Growth driven by increased prescription volume and branded drug price inflation; partially offset by continued reimbursement pressure (1) • Adjusted prescriptions dispensed grew 8.6% vs. LY to 349.4
Slide 20: Q4 2018 Income Statement: Retail Pharmacy / LTC Segment
Q4 2018 Income Statement: Retail Pharmacy / LTC Segment (1) • Same store statistics : – Total store sales increased 5.7% – Pharmacy sales increased 7.4% (2) – Pharmacy prescription volumes increased 9.1% , at high end of guidance range – Front store sales increased 0.5% • Retail pharmacy market shar
Slide 21: Q4 2018 Income Statement: Health Care Benefits Segment
Q4 2018 Income Statement: Health Care Benefits Segment • Aetna transaction completed on November 28, 2018 – 34 days of legacy Aetna business is included in CVS Health’s consolidated totals • Total revenue of ~$5.5 billion • Adjusted operating income of ~$276 million • Membership as of December 31, 2
Slide 22: 2019 Guidance
2019 Guidance 22 © 2019 CVS Health
Slide 23: Reporting Update: Presentation Changes for 2019
Reporting Update: Presentation Changes for 2019 • New items for 2019: – Individual SilverScript (SSI) PDP moving from Pharmacy Services segment to Health Care Benefits segment • 2018 HCB reflects the addition of SSI revenue and related income • Previous intra-segment revenue for services provided by
Slide 24: Guidance: 2019 Full-year Enterprise Outlook
Guidance: 2019 Full-year Enterprise Outlook Full-year 2019 in millions, except per share data Consolidated Revenue $249,860 to $254,290 Adjusted Operating Income $14,840 to $15,150 Adjusted EPS $6.68 to $6.88 GAAP EPS $4.88 to $5.08 24 © 2019 CVS Health
Slide 25: Guidance: 2019 Retail/LTC Outlook
Guidance: 2019 Full-year Retail/LTC Outlook in millions Full-year 2019 Adjusted Revenue $85,250 to $86,790 Adjusted Prescriptions (1) 1,400 to 1,430 $6,590 to $6,710 Adjusted Operating Income down ~10% • Factors impacting outlook: – Strong script growth at CVS Pharmacy – Annualization of tax reform
Slide 26: Guidance: 2019 Pharmacy Services Outlook
Guidance: 2019 Full-year Pharmacy Services Outlook in millions Full-year 2019 Adjusted Revenue $136,490 to $138,950 Total Adjusted Claims (1) 1,940 to 1,970 $4,830 to $4,920 Adjusted Operating Income down low-single digits % • Factors impacting outlook: – Pricing compression, exacerbated by cumulati
Slide 27: Guidance: 2019 Health Care Benefits Outlook
Guidance: 2019 Full-year Health Care Benefits Outlook in millions, except medical cost trend and MBR data Full-year 2019 Adjusted Revenue $67,680 to $68,710 Adjusted Operating Income $5,100 to $5,190 Core Commercial Medical Cost Trend 6.0% +/- 50 bps YE Medical Membership 22.7 to 23.0 Medical Benefi
Slide 28: Guidance: 2019 Other Items
Guidance: 2019 Full-year Other Items in millions, except tax rate Full-year 2019 Net Synergies $300 to $350 Incremental Investment Spending $325 to $350 Interest Expense $3,100 to $3,150 Effective Tax Rate ~ 26% Weighted Average Share Count 1,308 Cash Flow From Operations $9,800 to $10,300 Gross Cap
Slide 29: Guidance: 2019 Q1 Enterprise Outlook
Guidance: 2019 Q1 Enterprise Outlook in millions, except per share data Q1 2019 Consolidated Revenue $59,610 to $60,530 Adjusted Operating Income $3,390 to $3,450 Adjusted EPS $1.49 to $1.53 GAAP EPS $1.04 to $1.08 • Cadence of earnings and segment outlook: – Seasonality of our expected results this
Slide 30: CVS Health Is Best Positioned to Provide Value to Consumers and Broader Community
CVS Health Is Best Positioned to Provide Value to Consumers and Broader Community • We aim to make health care more local, simpler, and less costly, while reducing our dependencies on dispensing revenue and maximizing the benefits from value-added services • Examples of value-added services: – Expan