CVS Health Corporation

Ladies and gentlemen, good morning and welcome to the CBS Health first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow CBS Health's prepared remarks, at which point we will review instructions on how to ask your questions. As a reminder, today's conference is being recorded. I would now like to turn the call over to Katie Durant, Senior Director of Investor Relations for CBS Health. Please go ahead. Thank you, and good morning, everyone.

Welcome to the CVS Health First Quarter 2021 Earnings Call. I am joined this morning by Karen Lynch, President and CEO, and Eva Borado, Executive Vice President and CFO. Following our prepared remarks, we will host a question and answer session that will include John Roberts, Chief Operating Officer, Alan Lotvin, President, Pharmacy Services, Dan Finke, President, Healthcare Benefits, and Neil Montgomery, President of Retail and Pharmacy. Our press release and slide presentation have been posted to our website, along with our Form 10-Q that we filed with the SEC this morning. During this call, we will make certain forward-looking statements reflecting our current views related to our future financial performance, future events, industry and market conditions, as well as the expected consumer benefits of our products and services, and our financial projections. Our forward-looking statements are subject to significant 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 cautionary statement concerning forward-looking statements and risk factors section in our most recent annual report on Form 10-K, this morning's earnings press release, and included in our Form 10-Q. 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 reconciliation of these non-GAAP measures to the comparable GAAP measures in this morning's earnings press release and the reconciliation document posted on the investor relations portion of our website. Today's call is being broadcast on our website where it will be archived for one year. Now, I would like to turn the call over to Karen.

Good morning, everyone, and thank you for joining our call today. In what continues to be an unprecedented environment, CVS Health has delivered strong first quarter results. For all of us, the past year has been defined by the pandemic and our response to it. In the first quarter, CVS Health orchestrated an all-out effort to vaccinate Americans against COVID-19. I am proud to say we have helped achieve the President's accelerated 100-day goal of 200 million vaccines. This would not have been possible without the dedication and effort of our approximately 300,000 colleagues who worked tirelessly throughout the pandemic and delivered when they were needed the most. Our results show we are providing superior value by creating an integrated healthcare model that is centered around the consumer. Our unparalleled capabilities, reach, and relationship with customers uniquely positions us to support them throughout their lifetime. Our strong first quarter delivered revenue growth of 3.5%. We generated adjusted earnings per share of $2.04, up nearly 7% versus first quarter of 2020. As a result, today we are increasing our adjusted earnings per share guidance to $7.56 to $7.68 to reflect the momentum across our business. Importantly, our performance reflects both growth in new and current markets. Eva will provide more details on our outlook and our results. Before turning to our three business segments, I'd like to underscore our ability to anticipate, deliver, and exceed customers' healthcare expectations. Today, We will share where we are seeing momentum and highlight several important achievements. It is clear that consumers want convenience, transparency, choice, and control over their healthcare. That is why we are engaging consumers in new and different ways by working to meet their health needs in the community, in the home, and virtually. Each of our businesses performed at or better than our expectations this quarter. We delivered strong results in the healthcare benefits segment, fueled by continued growth in government services. During the first quarter, utilization approached near normal baseline levels. We have continued momentum in our government services business. We increased membership across all Medicare business lines in the first quarter. We outperformed with dual eligible members, delivering over 30% growth, and we significantly expanded our reach, adding 14 new states. Finally, as we announced last quarter, we will reenter the public exchanges in 2022. We expect to enter up to eight states where we believe we can make a meaningful impact and maximize returns with our first ever Aetna CVS branded offerings. We are committed to helping provide access to affordable care for all Americans. We also achieved strong revenue and operating income growth in pharmacy services. building on the foundation of our specialty management capabilities and overall service excellence. As we announced last week, we delivered market leading results in controlling drug costs for commercial clients with only a 2.9% overall drug trend with 34% of clients experiencing negative trend in 2020. Specialty pharmacy revenue is up 7.2% year over year. This reflects new net wins due to our success in our trend management program, which continue to resonate in the marketplace and drive more customers into our channels. Specialty pharmacy spend management also remains a steady growth engine and key differentiator in the market. We are well positioned for continued growth in 2022. Our retail segment continues to play a vital role in the delivery care and wellness. is an integral part of our customer and community strategy. Since we began, we successfully administered over 23 million COVID tests and over 17 million vaccines through April. We are currently administering vaccines in 49 states and in more than 8,300 CVS locations. A third of vaccinations have been administered to members of underrepresented communities. Our strong second dose compliance of over 90% is the result of our consumer-centric digital approach. We schedule round-trip visits, booking both appointments at once, and we also provide appointments for second doses only. We are successfully driving health services engagement among customers who are new to CVS Health through COVID testing and vaccines. This has helped somewhat offset the impact of a weak flu, cough, and cold season. Although early, we have seen improvement in April as vaccinated customers are more actively shopping in CVS locations, part of a nationwide trend. For those customers that are new to us through COVID testing, we have realized about a 9% conversion in filling a new prescription at CVS Pharmacy. We continue to attract consumers to our Care Pass subscription program with approximately 4.5 million members in total, up approximately 18%, from 2020. Building on the success of our employer and university program, we recently expanded our return ready offering to include vaccinations. We have already administered 40,000 doses and client interest in this new service is strong and growing. Overall, we have successfully navigated through a challenging retail environment while capturing additional benefits from new customers we are bringing into CVS Health. As the nation's leading diversified health services company, we're advancing our technology and using CVS Health assets to connect consumers across the healthcare ecosystem. We're addressing the most prevalent, costly, and complex health conditions by expanding our platform to deliver more integrated care. Our approach combines both face-to-face and virtual points of care that are personalized to the individual. We prioritize the most valuable interventions. the next best action a member can take that will lead to a positive impact on their health and on medical costs. For example, early results in our Transform Diabetes program show an 8% improvement in changing Medicare members' behaviors. This program is on track to exceed its projected medical cost savings and return on investment of 2 to 1. With approximately 1.5 million members having access to this program today, We expect to add an additional 1.3 million members this year. Our new medical benefit plans are designed with low copay or no copay at MinuteClinics. We have approximately 7 million Aetna members enrolled, up from about 2 million members, or 350% member growth year over year. These plans offer broad access to affordable and convenient care with many CVS Health assets. First quarter results show Aetna commercial members are substantially more likely to use a minute clinic when enrolled in this type of plan compared to those without the benefit. In fact, these members are approximately 50% more likely to visit a minute clinic for an acute medical need, immunization, or COVID test. We also expanded our Health Hub offerings to include new services around behavioral health, an increasingly important component of care, especially during the pandemic. Our strategy is to deliver a single integrated experience that connects individuals to a CVS care team virtually and face-to-face by navigating consumers to the best site of care. We are a company focused on delivering the most convenient, connected experiences for our customers across our CVS Health digital assets. Our ability to redefine the health experience in an increasingly digital and hybrid world combined with our vast health assets and understanding of consumers' health, uniquely positions us for growth. There are three areas where I want to specifically highlight some of our achievements in the last quarter. They include using our digital assets to expand engagement with our members, expanding into new services and offerings, and leveraging digital capabilities to enhance the customer experience and improve our cost structure. Starting with engagement, we saw more than 80% increase in visits to our flagship digital properties year over year. Growth was primarily driven by engagement in our expanded set of digital health services such as COVID testing, vaccinations, and omnichannel pharmacy. Next, we are expanding access to care through our digital and virtual channels. We launched a digital first primary care model that helps consumers navigate the best side of care for their health needs. And lastly, we are also harnessing technology such as AI, machine learning services, and natural language processing to simplify our process and optimize our cost structure. We recently announced the launch of our CVS Health Ventures Fund that gives us insight into new digital health innovations. This approach allows us to invest in and partner with high potential early stage companies to drive technology enabled innovation and digital healthcare. Rising to meet the challenge of COVID-19 has advanced the transformation of the healthcare industry. For CVS Health, the chance to serve our nation at such a critical time has further proven the value of our strategy. We have made significant progress in the expansion of our vaccine and diagnostics businesses. We are focused on building broader capabilities in home health, virtual care, and health services. Our investments in these areas as well as our digital transformation have allowed us to be there for every meaningful moment of health and will enable us to capture the lifetime value of each of our customers. And finally, we are exploring every avenue for growth and increased returns. Accordingly, we will hold our 2021 Investor Day on December 9th, hopefully in New York conditions permitting, where the management team and I will more fully outline our longer-term strategic priorities and our financial roadmap for sustainable, profitable growth. In closing, our results this quarter show that our strong brand and national presence is allowing us to meet individuals where they are. It makes us an increasingly integral part of their everyday health. Now, I'll turn it over to our Chief Financial Officer, Eva Barado.