Cvs Health Corporation · NYSE:CVS
Cvs Health — Q1 2018 Earnings Presentation
38 slides from Cvs Health's earnings presentation, May 2, 2018
Slide 1: First Quarter 2018 Earnings Conference Call
First Quarter 2018 Earnings Conference Call Larry Merlo President & Chief Executive Officer Dave Denton Executive Vice President & Chief Financial Officer May 2, 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 – Shareholders and Regulatory
Aetna Update – Shareholders and Regulatory • Shareholder approval: CVS & Aetna shareholders each voted to approve transaction with +95% approval on March 13 • Regulatory update – Highly experienced legal and regulatory team has made significant progress since the signing – In process of responding t
Slide 8: Aetna Update – Integration Planning
Aetna Update – Integration Planning • Formal, tightly organized Integration Management Office (IMO) established – Reporting to Larry Merlo and Mark Bertolini, led by senior executives from both companies – Steering committee of executive management developed to provide guidance and strategic directi
Slide 9: Aetna Update – Opportunity
Aetna Update – Opportunity • Transaction creates opportunity to re-think and re-invent U.S. health care • We have begun to identify populations and intervention tools for first programs – Primary patient populations: • Those with one of five chronic diseases: diabetes, hypertension, hyperlipidemia,
Slide 10: Driving Growth Through Recent Innovations
Driving Growth Through Recent Innovations 10 © 2018 CVS Health
Slide 11: We Are Continuing to Innovate
We Are Continuing to Innovate • Constantly exploring ways to provide greater value to health care stakeholders we support • Looking to improve quality and lower costs for patients and clients • Several recent announcements highlighted ways we continue to innovate – Addressing chronic kidney disease
Slide 12: Initiative Focused on Kidney Care and Dialysis Innovation
Initiative Focused on Kidney Care and Dialysis Innovation • Marshalling enterprise resources to help address an area of significant, unmet clinical need: chronic kidney disease • Two main tenets: 1. Use data analytics to predict and support diagnosis earlier in the patients’ disease course 2. Absent
Slide 13: Drug Trend Report
Drug Trend Report • 2017 Drug Trend Report released last month – Our PBM strategies reduced drug trend for commercial clients to lowest level in 5 years, 1.9% per member per year • Drug price growth at minimal 0.2% despite manufacturer price increases of ~ 10% – 42% of payor clients spent less on ph
Slide 14: Saving Patients Money
Saving Patients Money • Industry’s most comprehensive approach to helping make prescriptions more affordable by providing greater pricing transparency across all points of care … – At the doctor’s office: Real-Time Benefits enables prescribers to see member-specific out-of-pocket costs of a prescrib
Slide 15: First Quarter 2018 Business & Financial Review
First Quarter 2018 Business & Financial Review 15 © 2018 CVS Health
Slide 16: First Quarter: Strong Results
First Quarter: Strong Results Q1 2018 Change vs. Q1 2017 Consolidated net revenues $45.7 billion 2.6% Adjusted operating profit $2.1 billion 3.4% Adjusted EBITDA $2.7 billion 3.7% Adjusted EPS $1.48 26.5% Free Cash Flow $1.9 billion (39.1%) 16 © 2018 CVS Health
Slide 17: Capital Allocation
Financial Update: Capital Allocation • In Q1, generated $1.9 billion in free cash • Paid ~ $508 million in dividends in Q1 – Expect to return more than $2 billion to shareholders this year through dividends • In Q1, no shares repurchased due to the Aetna transaction • Issued multiple tranches of sen
Slide 18: 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 18 © 2018 CVS Health
Slide 19: Earnings per Share
Q1 2018 Income Statement: Earnings per Share • Q1 Adjusted EPS of $1.48, a 26.5% increase over last year – Primarily due to the lower effective income tax rate and higher script volume in the Retail/LTC segment – Interest and taxes slightly better than expectations, contributing ~ 2¢ to Adjusted EPS
Slide 20: Consolidated
Q1 2018 Income Statement: Consolidated • Consolidated revenues of ~ $45.7 billion, up 2.6% vs. LY, consistent with expectations • Adjusted gross margin of 15%, up ~ 25 bps vs. LY due to segment mix, consistent with expectations • Adjusted gross profit dollars increased 4.4% • Adjusted operating expe
Slide 21: Enterprise Streamlining Initiative Update
Q1 2018 Income Statement: Enterprise Streamlining Initiative Update • Across all work streams, expect to generate ~ $475 million in gross benefits this year; $700 million or more annually once work is complete • Enhancement example: – CVS Pharmacy and Caremark implemented process to share member’s e
Slide 22: Cost Allocation Methodology
Q1 2018 Income Statement: Cost Allocation Methodology • In Q1, moved to common financial platform (SAP) across the enterprise, as previously discussed • Now have better information to allocate shared services costs to operating segments • Revising 2016 and 2017 financial statements for this change,
Slide 23: PBM
Q1 2018 Income Statement: PBM • PBM revenues of $32.2 billion, up 3.2% vs. LY – Year-over-year growth driven by net new business, including growth in Medicare Part D lives, and specialty growth – Growth partially offset by continued pricing pressure and increase in GDR to 87.6%(1) , up ~ 65 bps vs.
Slide 24: PBM 2019 Selling Season
Q1 2018 Income Statement: PBM 2019 Selling Season • More than halfway through 2019 client renewals • Retention rate(1) currently in line with rates seen in prior years • Expect RFP opportunity in 2019 to be less than past few selling seasons 1. Client retention rate is defined as: 1 less (estimated
Slide 25: Specialty Pharmacy
Q1 2018 Income Statement: Specialty Pharmacy • In Q1, specialty revenues increased 5.9%; scripts increased 8.0%(1) • Revenue moderated by: – Mix of drugs shifting towards lower-priced therapies as well as fewer scripts for Hep C 1. Includes the adjustment to convert 90-day prescriptions to the equiv
Slide 26: SilverScript Still Clear Leader in Med D Space
Q1 2018 Income Statement: SilverScript Still Clear Leader in Med D Space • 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) March ‘17 March ‘18 March YOY Gro
Slide 27: Retail/LTC
Q1 2018 Income Statement: Retail/LTC • Retail/LTC revenues of $20.4 billion, up 5.6% vs. LY – Strong growth primarily driven by increased script volumes due to continued adoption of our Patient Care Programs, partnerships with PBM’s and health plans, and preferred position in a number of additional
Slide 28: Retail/LTC Revenue and Script Growth
Q1 2018 Income Statement: Retail/LTC Revenue and Script Growth • Total same-store sales increased 5.8% • Pharmacy same-store sales increased 7.3% ̶ Negative impact of ~ 280 bps due to recent generic introductions • Pharmacy same-store prescription volumes increased 8.5% on a 30-day equivalent basis
Slide 29: CVS MinuteClinic
Q1 2018 Income Statement: CVS MinuteClinic • Operate 1,111 clinics across 33 states and Washington, D.C. • Q1 revenues up ~ 15% vs. same quarter a year ago, including clinics within Target stores • Plan to launch telehealth services later this year with which patients can access our care providers v
Slide 30: Real Estate Update
Q1 2018 Income Statement: Real Estate Update Locations at end of Q4 9,803 Opened 50 Closed (6) Retail locations at end of Q1 2018 9,847 Net new locations 44 Relocations 5 Retail locations with pharmacies 9,798 (1) 1. Including 8,099 CVS Pharmacy stores that operated a pharmacy and 1,699 pharmacies l
Slide 31: Corporate
Q1 2018 Income Statement: Corporate • Corporate: adjusted operating expenses of $224 million, flat to LY and slightly better than expectations 31 © 2018 CVS Health
Slide 32: Below-the-line
Q1 2018 Income Statement: Below-the-line • Adjusted net interest expense of $242 million, ~ $10 million lower than LY • Adjusted effective tax rate of 26.1% – Better than expectations • Weighted-average share count of ~ 1.0 billion shares 32 © 2018 CVS Health
Slide 33: 2018 Guidance
2018 Guidance 33 © 2018 CVS Health
Slide 34: Enterprise Outlook
Guidance: 2018 Full-year Enterprise Outlook Full-year 2018 Net Revenue Growth 1.25% to 3.0% Enterprise Adjusted Operating Profit Growth (1.5%) to 1.5% Tax Rate ~ 27% Adjusted Net Interest ~ 1.03 billion Adjusted EPS $6.87 to $7.08 Growth 16.25% to 20.0% GAAP EPS $5.11 to $5.32 Assumptions: 1. Adjust
Slide 35: Retail/LTC Pharmacy
Guidance: 2018 Full-year Segment Outlook Full-year 2018 Net Revenue Growth 4.0% to 5.5% Retail/LTC Same-Store Sales (1) 4.0% to 5.5% Same-Store Adjusted Scripts (1) (2) 7.25% to 8.25% Adjusted Operating Profit Change (3) Down low-single digits Net Revenue Growth 1.5% to 3.5% Pharmacy Services Total
Slide 36: Quarterly Operating Profit Cadence
Guidance: 2018 Full-year Quarterly Operating Profit Cadence • Operating profit will be weighted more to front half of this year, differing from what we indicated previously – $275 million of investments made with a portion of the savings from tax reform is predominantly back-half weighted – Retail/L
Slide 37: Enterprise Outlook
Guidance: 2018 Q2 Enterprise Outlook Q2 2018 Net Revenue Growth 0.25% to 2.0% Enterprise Adjusted Operating Flat to 3.25% Profit Growth Adjusted EPS $1.59 to $1.64 Growth 19.25% to 23.0% GAAP EPS $1.21 to $1.26 Assumptions: 1. Assume for guidance purposes only, Aetna transaction closes at year-end 2
Slide 38: Pharmacy Retail/LTC
Guidance: 2018 Q2 Segment Performance Q2 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) 7.75% to 9.25% Adjusted Operating Profit Growth Mid- to high-single digits Pharmacy Net Revenue Growth (0.25%) to 1.5% Services Down mid- t