CVS Health Corporation

Ladies and gentlemen, good morning and welcome to the CBS health, 4th, quarter and full year 2021 earnings conference call at this time. All participants are in a list and only mode a question and answer session will follow CBS health 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 not like to turn the call over to Susie. Lisa senior vice president of investor relations for CBS health. Please go ahead.

Thank you and good morning everyone. Welcome to the CVS Health fourth quarter and full year 2021 earnings call. I'm Susie Lisa, Senior Vice President of Investor Relations for CVS Health. I'm joined this morning by Karen Lynch, President and Chief Executive Officer, and Sean Gurtin, Executive Vice President and Chief Financial Officer. Following our prepared remarks, we will host a question and answer session that will include Alan Lotvin, President, Pharmacy Services, Dan Finke, President, Healthcare Benefits, Michelle Peluso, Chief Customer Officer, and Prem Shah, Chief Pharmacy Officer, both co-presidents of the retail segment, and John Roberts, Chief Operating Officer. Our press release and slide presentation have been posted to our website along with our Form 10-K 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 filed 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 this morning's earnings press release and included in our Form 10-K. 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'd like to turn the call over to Karen.

Thank you, Susie. Good morning, everyone, and thank you for joining our call today. 2021 was an important year for CVS Health. We exceeded our financial goals, we advanced our strategy, and we brought greater value to the people we serve, playing a critical role in the nation's pandemic response. We ended a strong 2021 with another strong quarter. We exceeded our adjusted EPS expectations for the fourth quarter in a row, delivering $1.98 adjusted EPS in the final quarter of 2021 and $8.40 adjusted EPS for the full year. We are entering 2022 with powerful momentum. We are delivering healthcare solutions that are personalized, connected, and increasingly digital. We are engaging millions of consumers across our businesses and in our community health destinations across America. CVS Health is becoming a bigger part of their everyday health. Turning now to our performance. For the full year 2021, CVS Health grew adjusted revenue by 8.8% to $292 billion. We delivered adjusted operating income of $17.3 billion, up 8.1% year over year, and we increased adjusted earnings per share by 12%. We generated strong cash flow from operations of nearly $18.3 billion, for the full year, exceeding our most recent guidance of at least $13.5 billion. This strong performance positions us well for 2022. At this early stage of the year, we are maintaining our full year 2022 adjusted earnings per share guidance of $8.10 to $8.30. Our forecast reflects increased volume from COVID testing and front store sales in our retail business relative to our forecast at Investor Day. offset by the accelerated timing of vaccine boosters pulled into the fourth quarter of 2021. Sean will provide more details on our results and guidance shortly. Our 2021 performance demonstrates our ability to anticipate, deliver, and exceed consumers' expectations for healthcare. Consumers are a major force driving change in healthcare, and we continue to engage successfully with individuals in more places, and on their terms, virtually, in the home, and in their local community. Customers and clients continue to realize the superior value we are providing with our integrated health solutions, particularly those that address the most prevalent, costly, and complex health conditions such as diabetes, cancer, and chronic kidney disease. Turning to the segment highlights. In healthcare benefits, we delivered 9.4% adjusted revenue growth for the full year 2021 driven by our performance in government services. We had another strong year of Medicare growth with increases across all product lines. Total Medicare Advantage membership grew at 9.8% on a year-over-year basis as we added over 265,000 new members in 2021 and exceeded our initial growth expectations. As a result of our strategic focus on dual eligible special needs plans, enrollment nearly doubled in 2021. Our full year medical benefit ratio of 85% was in line with our guidance expectations. For the full year 2021, the utilization of total health care services in aggregate was in line with normalized historical baseline levels. Turning to 2022, we had an impressive annual enrollment period in our Medicare business. For the second consecutive year, we grew all Medicare product lines, and our growth rates this year exceed the industry averages in all categories. We grew total Medicare Advantage membership by 11.6% versus the prior year, reflecting increases in individual and group Medicare Advantage of over 15% and 6%, respectively, year over year. We also led the industry in absolute Medicare PDP net membership growth. This added nearly 295,000 net new members, while the overall PDP market continues to decline. We had a solid 2022 selling season in our national accounts commercial business. We expect to grow membership in the low single digits for the full year and maintain strong client retention of 96%. Our success is driven by the combination of our competitive cost structure, our integrated benefit designs, including medical and pharmacy, and products and services that utilize CVS health capabilities, such as transformed care diabetes and virtual primary care programs. Membership enrollment was lower than expected in the eight ACA individual exchanges we entered this year. We continue to build this business gradually with select geographic expansion, a focused price discipline, and the appeal of co-branded Aetna CVS Health offerings. Consistent with our prior guidance, we do not expect this offering to contribute materially to our financial results in 2022. Overall, our deep understanding of consumer needs, innovative product portfolio, and our service excellence will drive growth in our healthcare benefits segment. Our comprehensive range of products and benefit design that address consumers' whole health needs remains a key differentiator and fueled a strong selling season. For 2022, we forecast 7 to 9% revenue growth and 15 to 17% adjusted operating income growth. Turning to pharmacy services, we delivered 7.8% revenue and 20.6% adjusted operating income growth in 2021. We continue to be a consultative partner to our clients and members. We're delivering industry-leading cost trends and savings, service excellence, and a broad product portfolio, and a commitment to transparency. We consistently create value for our customers and clients with our better than market drug trend. we continue to enhance our utilization programs to ensure access to the therapeutics that are the most clinically appropriate. For 2022, we achieved a client retention rate of over 98% and drove $8.8 billion of net new business revenue. We are a leader in specialty pharmacy, delivering revenue growth of 12.3% for the fourth quarter and 9.3% for the full year versus prior period. Our specialty pharmacy programs drive value in the marketplace, and they differentiate us as we pair programs with digital capabilities to deliver a convenient and connected experience. For pharmacy services in 2022, we expect 6% to 8% revenue growth and 7% to 9% adjusted operating income growth as we create long-term value for our clients and our members. Our retail segment plays a critical role as a community health destination for millions of Americans. This segment outperformed the industry and our expectations in 2021. We grew revenue 9.8% year-over-year to just over $100 billion. marking an important milestone in the history of this CVS Health business. We delivered an exceptional 24% adjusted operating income growth in 2021. Pharmacy sales and prescriptions filled both increased by nearly 9% year over year. This was notably driven by consumers who came to CVS Health for COVID-19 vaccine administration. For the full year 2021, CVS Health administered more than 32 million COVID-19 tests and more than 59 million vaccines. Over 35% of COVID-19 vaccines in 2021 were administered during the fourth quarter. Our work to test and vaccinate America for COVID is a powerful example of the relationships we are building with consumers. which leads to new customers seeking a range of other health services at CVS Health. Front-store sales growth was strong throughout 2021, up 8.4% versus the prior year. They were led by consumer demand for the over-the-counter COVID-19 tests, as well as cough and cold, beauty, and personal care products. We sold over 22 million OTC COVID-19 tests with approximately 70% of sales in the fourth quarter. We are progressing on optimizing our retail portfolio and pivoting our stores into three formats, primary care clinics, enhanced health hubs, and traditional CVS pharmacy locations. We are executing our plan to de-densify stores based on consumer health and buying needs, omnichannel preferences, and shifts in the U.S. population. For 2022, as I mentioned, given the earnings outperformance and pull forward of vaccine boosters in 2021, we are maintaining our 2022 guidance. This now implies retail revenue to be plus or minus 1% versus prior year and a low 20% decline in adjusted operating income growth. Sean will provide more details. Our digital approach is focused on delivering a superior experience for consumers by creating a more connected and seamless health journey. We are making progress towards setting a new standard for digital healthcare for consumers. CVS.com is one of the top health websites with over 2 billion visits in 2021, up nearly 55% over the prior year. Our digital capabilities for health interactions, such as COVID testing and vaccines, prescription services, and sales of health and wellness products have dramatically increased consumer engagement across all CVS Health businesses. We now serve 40 million customers digitally, up approximately 10% in the last six months alone. In 2021, we launched several new digital health services powered by advanced analytics to personalize the experience. We made it easier to join our Care Pass program, reaching 5.6 million subscribers in the quarter, up more than 40% year over year. We integrated Care Pass for our Aetna commercial members and are excited about the adoption we are seeing. We also simplified the Care Pass enrollment for all consumers, which is driving more growth in subscribers. For our Health Hub and Minute Clinic patients, we simplified and digitized the check-in process for patients. Our self-service digital tool enables individuals to complete traditional paperwork in advance of their appointment. Almost 80% of patients are already utilizing this capability. At our Investor Day, we promised a superior healthcare experience for consumers that will improve health outcomes, lower costs, and provide broader access to care. We are making several moves to realize our vision for healthcare. We're advancing our care delivery capabilities, optimizing our retail portfolio, and further diversifying the health products and services that we offer. We're driving this evolution both through internal initiatives and by seeking to execute capability-focused M&A for complementary health services. We will connect consumers in more places, in more ways, and on their terms with our digital-first, technology-forward approach, as well as an enhanced omnichannel health experience. These strategic moves will accelerate the growth of our foundational businesses. In all this work, we will place the consumer at the center of all that we do. We remain focused on delivering on our commitment to sustainability for our shareholders, our customers, and our communities. We recently launched CVS Health Zones aimed to advance health equity and to address social determinants of health in high-risk communities. We are collaborating with trusted national and local organizations to confront the six key social determinants of health through local investments. Our goal is to equip communities with the resources needed to close gaps in care for specific health conditions such as diabetes and heart disease. Health Zones is now active in five geographies with additional markets planned in 2022. We remain committed to the environment and have pledged to reduce our overall impact, cutting greenhouse gas emissions across our operations and supply chain and decreasing resource consumption, especially paper and plastic. In December, CVS Health was named to the 2021 S&P Dow Jones Sustainability North American Index for the ninth consecutive year, and the Dow Jones Sustainability World Index for the third consecutive year. Our financial performance, execution, portfolio of assets, and differentiated strategy all create strong momentum into 2022 and a clear pathway to achieve low double-digit adjusted EPS growth over time. I would also like to take a moment to recognize the continued contribution of our colleagues who have played a vital role in helping our nation prevail over the pandemic. I am proud of what we have done and are doing every day to make a difference. With that, let me turn it over to Sean.