CVS Health Corporation

Ladies and gentlemen, thank you for standing by and welcome to the CVS Health Q4 2019 earnings column. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Valerie Hartel, Senior Vice President of Investor Relations for CVS Health. Thank you. Please go ahead, Madam.

Thank you, and good morning, everyone. Welcome to the CVS Health Fourth Quarter and Full Year 2019 Earnings Call. As a reminder, this call is being recorded. I'm Valerie Hartel, Senior Vice President of Investor Relations for CVS Health. I am joined this morning by Larry Merlot, President and CEO of Eva Barado, Executive Vice President and CFO. Following our prepared remarks, we'll host a question and answer session that will include John Roberts, Chief Operating Officer, Karen Lynch, President of Aetna, and Erica Rice, President of Caremark. In order to provide more people with the chance to ask a question during the Q&A, please limit yourself to no more than one question with a quick follow-up. Consistent with our practice, in addition to this call and our press release, we have posted a slide presentation on our website. Our Form 10-K will be filed next week and will be available on our website at that time. Please note that during this call, we will make certain forward-looking statements that reflect our current views related to our future financial performance, future events, and industry and market conditions, as well as expected consumer benefits of our products and services and our financial projections, including synergies from the Aetna acquisitions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what may be indicated in them. We strongly encourage you to review the information in the reports we file with the SEC regarding these risks and uncertainties, in particular, those that are described in the risk factors section of our annual report on Form 10-K and the cautionary statement concerning forward-looking statements disclosures in our quarterly reports on Form 10-Q. You should also review the section entitled Cautionary Statement Concerning Forward-Looking Statements in this morning's earnings press release. During this call, we'll use non-GAAP financial measures when talking about the company's performance and financial conditions. In accordance with SEC regulations, you can find a reconciliation of these non-GAAP measures to the comparable GAAP measures in this morning's earnings press release and a 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. Now I'll turn the call over to Larry.

Well, thanks, Valerie, and good morning, everyone, and thanks for joining us. 2019 was a transformational year for CVS Health, and we have made significant progress in our first full year after acquiring Aetna. We've been executing against our plan, which has been delivering substantial value above our initial expectations. And this value is driven by growth across our businesses, as well as contributions from our integration synergies. Eva will provide the details on our 19 performance, along with our improved outlook for 2020, and I'll provide a few financial highlights and discuss our operational executions. For the full year 2019, we delivered adjusted earnings per share of $7.08, with total revenues of nearly $257 billion, up 32%, reflecting a full year of Aetna's operations and positive momentum across our enterprise. We generated strong cash flows from operations of $12.8 billion, enabling us to repay $4.7 billion of net long-term debt, return $2.6 billion to shareholders in the form of cash dividends, and continue to invest to accelerate future growth of our enterprise. Moving to 2020, we expect continued progress with adjusted earnings per share in the range of $7.04 to $7.17, representing growth of approximately 3% to 5% over our 2019 baseline of $6.83, and which excludes net realized capital gains in prior years' development. This growth is ahead of what we outlined at our June Investor Day last year. Now, our strong performance as a combined company, along with positive feedback from our key stakeholders, gives us even greater confidence in our ability to accelerate growth in 2020 and beyond. We have set a clear and bold path for CVS Health to be the most consumer-centric health company. transforming the way care is delivered in the U.S. And a significant part of that is delivering an expanded suite of integrated health services across our businesses. And with over a year of successful integration, we have laid a strong foundation for growth. We remain focused on making healthcare more local across the country, making healthcare simpler to help consumers better navigate their health and make informed decisions, and helping people achieve their best health outcome, particularly when it comes to managing chronic disease. We have four priorities that guide our transformation as we outlined at our June Investor Day. And they are grow and differentiate our businesses, deliver transformational products and services, create a consumer-centric technology infrastructure, and modernize enterprise functions and capabilities. And we have advanced all four of these priorities in the past year. And I'll briefly touch on a few recent highlights to demonstrate areas where we have momentum and are driving innovation. In health care benefits, we have grown our membership to 22.9 million, up nearly 4% over last year, driven by strong growth in our government services businesses. In particular, our Medicare Advantage business group grew by over three times the industry average in 2019, generating outstanding membership growth of over 30% in both our individual and group Medicare products. Last year, in our commercial book, we implemented zero or low copay options for members at our mediclinics, with 3 million members enrolled for January 2020. At Caremark, we recently announced a new zero out-of-pocket program for diabetes care, we expect enrolled members on average to save an estimated $467 per year in out-of-pocket expenses. In the area of chronic disease management, we have developed a number of innovative pilot programs and service offerings. As an example, Transform Oncology Care is a new program that pulls together our integrated assets and capabilities. It includes a precision medicine program that uses the latest genomic science and technology, to help patients receive the most effective cancer treatments. We are also bringing innovation to the point of care at our retail pharmacies, which are at the forefront of our effort to make quality healthcare more accessible, simple, seamless, and affordable. And our health hubs are the most visible aspect of our integrated offerings, and an important component of our comprehensive strategy to fundamentally transform the way we deliver care to millions of Americans locally. As we expand our mini-clinics and health hubs, where our practitioners can treat about 80% of what a primary care physician can treat, we expect to help patients avoid more costly or unnecessary care. We also began rolling out pharmacist panels at our health hubs, which we will expand to other retail locations. And these panels provide a holistic 360-degree view of the patient by combining pharmacy and medical data. And having integrated data at their fingertips, our pharmacists can improve medication adherence, optimize medication regimens, close gaps in care, and connect patients to their health plan, a mini-clinic, or other appropriate resources. Now, our hubs continue to outperform their control group with higher script volume and increased minute clinic visits, and our front store sales are in line with expectations, and we continue to see increased utilization of health-related services. Now, a key part of our consumer-centric care strategy is meeting people where they are, including in the palm of their hand. And we're seeing positive uptake of our digital strategy, as consumers increasingly engage with us through our apps online and via text messaging. And we are seeing higher rates of satisfaction and loyalty from our digitally engaged consumers. So those are just a few of our accomplishments, with several more listed in our slide presentation. And they are the validation points that the Aetna integration activities over the past year have established a solid foundation to accelerate the pace of innovation, bring our unique offerings to more and more people, and drive profitable growth. As we continue to innovate and execute, we will stay close to the markets we serve and respond to the needs of our clients. And what this means for our four key priorities is the following. Within the health plan landscape, our clients, they're looking to us for solutions and innovations. In particular, the expansion of government programs creates a need for our services to manage complex, high-acuity, and chronic condition consumers. And with our convenient and local touch points in place, and with our advanced data and analytics, we have the ability to creatively and efficiently deliver local, personal, high-touch care with new products and service offerings coming to market. Second, the importance of specialty medicine and gene therapy benefit management solutions and services, it continues to grow. This year, we estimate about 60% of pharmacy spend is specialty, and that includes that paid under the medical benefit, and it could reach 25% of total health care costs over the next several years. And we are continuously innovating and bringing new programs and solutions to our clients. and further innovation in this area is imperative to delivering a better patient experience and lowering costs. Third is the importance of our open platform approach. We are committed to extending to our many health plan clients the technology offerings and healthcare services that we develop in-house. We have about 350 health plan relationships and over 100 health system alliances across the enterprise. And it's vital that we continue to grow these relationships and help these clients solve the issues they are managing. And our integrated model will benefit us as we not only transform our business, but also lead the transformation of the greater healthcare landscape. And finally, as discussed earlier, we are continuing to enhance our local offerings through our health hubs and our mini clinics, working to not leave any white space for disruptions. For us, the value within the four walls of our retail locations is only growing in the form of higher margin products and services, increased traffic, and medical cost savings. So with the substantial progress that we have made executing our plan, today's leadership announcement positions our company to further accelerate growth. These changes will enable us to more rapidly bring our innovations to market, by placing our experienced leaders in areas where their immediate past experience and deep relationships in the businesses will enhance execution of both our core growth initiatives and our transformation strategies. This announcement also reflects our deep and talented bench, along with the opportunities our business model creates for personal growth. So let me take a moment to congratulate Alan, Jonathan, and Alec on their new roles. And I also want to thank Derek for his leadership and contributions, and Derek and Alan will work together to ensure a smooth transition. So I am confident that we have the right leadership team in place, and we are at the forefront of driving a sea change in how our key stakeholders think about us and how consumers work with us to take control of their health. And with that, let me turn it over to Eva.