CVS Health Corporation

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the CVS Health Q1 2019 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. If you would like to answer your question, press the pound key. Thank you. Joe Krucheski, Vice President, Investor Relations. You may begin your conference.

Good morning, everyone, and thank you for standing by. Welcome to the conference call to discuss CVS Health's first quarter 2019 results and outlook for the remainder of the year. As a reminder, this call is being recorded on Wednesday, May 1st, 2019. I'm Joe Krucheski, Vice President of Investor Relations for CVS Health. I'm joined this morning by Larry Merlo, President and CEO of and Eva Barado, Executive Vice President and CFO. Following our prepared remarks, we'll host a question and answer session. John Roberts, COO, Karen Lynch, President of Aetna, Derica Rice, President of Caremark, and Kevin Hurrican, President of CVS Pharmacy, will also be joining us for the question and answer session. In order to provide more people with a chance to ask their questions, During the Q&A, please limit yourself to no more than one question with a quick follow-up. In addition to this call and our press release, we will have posted slide presentation on our website that summarizes the information in our prepared remarks, as well as some additional facts and figures regarding our operating performance and guidance. Our Form 10-Q will be filed later today, and that, too, will be available on our website once filed. Please note, during this call, we will make forward-looking statements that reflect our current views related to our future financial performance, future events, and industry and market conditions, and forward-looking statements related to the integration of the acquisition, including the expected consumer benefits, financial projections, and synergies. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what may be indicated in the forward-looking statements. We strongly encourage you to review the information in the reports we file with the SEC regarding these specific risks and uncertainties. In particular, those that are described in the risk factor section of our annual report on Form 10-K and the cautionary statement disclosures in our quarterly reports on Form 10-Q. You should also review the section entitled forward-looking statements in this morning's earnings press release. During this call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. In accordance with SEC regulations, you can find a discussion of these non-GAAP measures and the comparable GAAP measures in this morning's earnings press release and the reconciliation document posted on the investor relations portion of our website. And as always, today's call is being broadcast on our website, where it will be archived for one year following today's call. Now I'll turn the call over to Larry Merlo. Larry? Larry?

Well, thanks, Joe. Good morning, everyone, and thanks for joining us. Today, I'm pleased to report that we are off to a strong start to the year, as evidenced by our first quarter adjusted earnings per share of $1.62, which exceeds our initial expectations. The strong performance was driven by all businesses achieving or exceeding what was contemplated at the high end of our guidance ranges, with the healthcare benefits segment leading the favorability. Now, earlier this year, we provided 2019 adjusted earnings per share guidance of $6.68 to $6.88, and as a result of our Q1 performance, we are raising our full-year adjusted EPS guidance to $6.75 to $6.90. This reflects the positive momentum in the business while acknowledging it's early in the year. We remained singularly focused on driving both near and longer term value for our shareholders. And our first full quarter as a combined entity with Aetna was a success on many fronts. We executed smooth January 1 implementations in both the pharmacy services and healthcare benefits segments, posted significant Medicare Advantage membership growth, continued to grow share in our retail pharmacy, and we realigned some of our operations to drive greater value. In addition to highlighting these operational achievements, I'll provide updates on important operational initiatives that we called out during our fourth quarter call, progress on our integration and transformation initiatives, the 2020 PBM selling season, and potential policy changes impacting the Medicare Part D program. So let me start with the notable progress we've made on actions to mitigate the near-term headwinds impacting our business. First, our retail sales momentum remains strong, supported by continued focus on our clinical care programs and network relationships. Adjusted prescription volume for the retail long-term care segment increased a healthy 5.5% for the quarter. Additionally, our long-term care business is on track to achieve our targeted margin improvements given our cost management efforts, and we continue to work diligently in driving growth for the assisted living space. In the PBM, our new guaranteed net cost pricing model continues to garner interest from clients and benefit consultants, and we'll have a small number of clients adopting it this year, and we expect higher adoption in 2020 and beyond. We also embarked on a new effort to reduce costs across our enterprise through improvements in productivity and driving efficiencies across our operations. And Eva will provide details on that initiative shortly. Moving to our integration of the Aetna business, we are very pleased with the progress we have made. Currently, we are tracking to the higher end of the $300 to $350 million synergy goal for 2019. and we are on our way to exceed our initial target of 750 million in 2020. And while the synergies are important, the CVS Aetna combination is about bringing to market new approaches to healthcare delivery and management. In our Houston Health Hub stores, we are demonstrating our ability to bring more healthcare services into communities, meeting people where they are. We are using our data and analytics capabilities to offer people the next best action to achieve their best health, and in doing so, driving down healthcare costs. Our vision is for these consumer experiences to be seamlessly connected across digital and clinical interactions, resulting in elements of health becoming part of one's regular routine. The benefits of lower healthcare costs will have positive financial impacts throughout our enterprise. These new store formats illustrate how CBS Health is evolving and differentiating to address the changing healthcare landscape. And while it is early, we are very encouraged by the initial results in our Houston stores. The various product and service offerings are performing at or above our expectations. And given these results, we will expand the Health Hub model to fill out the Houston market, and we'll provide further details on our rollout strategy next month. but this is the first of many innovations we'll share with you at our Investor Day. Moving to the 2020 PBM selling season, our retention rate currently stands in the mid-90%, excluding the impact of Centene. The 20 selling season has been somewhat unusual, with no single factor contributing to lower-than-expected retention. And importantly, our service levels and performance metrics remain at historically high levels, and we expect to return to historical retention levels in future periods. Finally, let me discuss the role of rebates in Medicare Part D and how our Part D plans are preparing for the 2020 bid. And I want to begin by acknowledging the clarifying guidance that CMS issued for plan sponsors, that bids should reflect current law and not the newly proposed rebate rules. That guidance also stated that there are a number of issues that need to be addressed before the rule can be finalized. And should the rebate rule be implemented, the CMS demonstration project provides plans protection for much of the risk in applying rebates at the point of sale. Additionally, this demonstration project will allow the administration to evaluate in real time the potential impact of Part D members' premiums and to the actual costs that will be incurred by CMS. This is both a prudent step and an important analysis before such a significant change to the Part D program is made permanent. The demonstration project will allow the administration and the private sector to learn together and make adjustments to the Part D program over a more reasonable period of time. And we plan to participate in the demonstration project aided by the learnings from our Allure PDP product. Now, more broadly, the renewed focus nationally on what the next phase of access to affordable, quality healthcare will be has generated significant attention in recent weeks. This is an important discussion, and we will continue to be an active participant. That said, regardless of what shape and form the next stage of healthcare takes, we remain confident that the private sector will play an essential role in both shaping and executing that next stage. And importantly, we remain best positioned to create and capture new opportunities in this ever-evolving landscape through our local assets, our end-to-end health care offerings, and our ability to drive engagement positively impacting consumer health. So let me turn the call over to Eva to walk through the key items from the quarter and an update of our full-year outlook.