CVS Health Corporation

Ladies and gentlemen, good morning and welcome to the CVS Health first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow CVS 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 Tom Cowie, Senior Vice President of Capital Markets for CVS Health.

Please go ahead. Good morning, and welcome to the CVS Health first quarter 2022 earnings call and webcast. I'm Tom Cowie, Senior Vice President of Capital Markets 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 John Roberts, Executive Price President and Chief Operating Officer, Dr. Alan Lotvin, President, Pharmacy Services, Dan Finke, President, Healthcare Benefits, and Michelle Peluso, Chief Customer Officer, and Prem Shah, Chief Pharmacy Officer, both co-presidents of the retail segment. Our press release and slide presentation have been posted to our website along with our Form 10-Q that we filed this morning with the SEC. Today's call is also being broadcast on our website where it will be archived for one year. During this call, we will make certain forward-looking statements reflecting 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 currently projected results. We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties, including our most recent annual report on Form 10-K, our recent current reports on Form 8-K, and this morning's earnings press release and our Form 10-Q. During this call, we will use non-GAAP measures when talking about the company's performance and financial conditions, and you can find a reconciliation of these non-GAAP measures in this morning's press release and in the reconciliation document posted to the Investor Relations portion of our website. With that, I'd like to turn the call over to Karen. Karen?

Thank you, Tom. Good morning, everyone, and thanks for joining our call today. We entered 2022 with significant momentum and delivered strong first quarter results across our business. We grew revenue by over 11% to $76.8 billion and increased adjusted operating income by nearly 7% to approximately $4.5 billion. Adjusted EPS was $2.22, up over 8.5% over the prior year. In the quarter, we generated $3.6 billion of operating cash flows, representing growth of over 20% as compared to the prior year quarter. Our foundational businesses performed well in the quarter. In healthcare benefits, revenue increased by 12.8% year over year. We achieved adjusted operating income of $1.8 billion. We grew membership sequentially and year over year. Overall medical costs remain consistent with projected baseline trends. These results reflect our strong product portfolio, our deep understanding of consumers' health needs, and service excellence. In pharmacy services, revenue increased by nearly 9% year-over-year. Adjusted operating income grew 8.6%, despite a flat year-over-year contribution from our 340B product lines. Our results demonstrate the consistent value and savings that we deliver to our customers. In retail, we strengthened our position as a leading community health destination for millions of Americans. We grew revenues by approximately 9% with approximately 15% adjusted operating earnings growth over the prior year. We grew same store retail scripts by approximately 6%, approaching twice the growth in the marketplace. Store visits increased over prior year as more Americans see CVS Health as central to their health needs. We administered more than 6 million COVID-19 tests and more than 8 million COVID-19 vaccines nationwide in the first quarter of 2022. Given these results, we are raising our full year 2022 adjusted earnings per share guidance to $8.20 to $8.40. Our cash flow guidance for the year remains strong in a range of $12 to $13 billion. We are well positioned to achieve near-term and longer-term growth goals. We are doing this across five strategic value-creating imperatives, which we outlined at our investor day. Let me just share a few examples of the strong progress we are making in each. First, we are advancing our all-payer primary care delivery capabilities. Our community health destinations are engaging more consumers with 6.5 million in-person and virtual visits in 2021, approximately 1.5 million visits in the first quarter, up nearly 35% from the prior year. Our virtual care solution represents one of many care delivery channels and lower cost sites of high quality of care. We'll be broadening our virtual care services in the next 30 days. More people are accessing healthcare using digitally enabled solutions, Pre-pandemic, back in 2019, we supported 10,000 virtual mental health visits. Last year, we supported 10 million virtual visits just for mental health. This dramatic increase demonstrates the power of our ability to drive innovation at scale. Second, we are optimizing our retail portfolio that will be comprised of three models, advanced primary care clinics, enhanced health hub locations, and our traditional CVS pharmacy locations. As of today, we have closed approximately 100 stores out of the 300 planned for this year and the 900 planned by the end of 2024. Our early experience suggests we are retaining nearly 70% of the prescription volume within our network, demonstrating strong evidence of our value to consumers. Additionally, we retained more than 95% of colleagues and redeployed them to other CVS locations. Third, we are diversifying our growth portfolio with new health services. We are expanding our capabilities in home health as we prepare for the 2023 launch of a post-acute transitions pilot for our Aetna membership in select geographies. Partnering in technology and home-based care will allow us to reduce readmissions and improve care for our customers at this critical juncture on their path to recovery. As we broaden our capabilities to create new sources of value, we continually evaluate our portfolio for non-strategic assets. Our recently announced sale of Payflex and selected assets from our international businesses are two recent examples of our actions. These transactions are in line with our commitment to invest in areas that are aligned with our strategy. Fourth, we are focused on our digital first technology forward approach. We serve nearly 44 million unique digital customers as of the end of the first quarter, up by over 7 million customers since our investor day, a testament to the value and ease of our digital offering. Digital customers are omnichannel and on average visit CVS Health two times more often than traditional customers. We also continue to expand our digital first health dashboard offering. This dashboard makes managing your family's health more seamless, convenient, and personalized. It does so by putting critical health information into one place, health records, pharmacy medications, and next best actions. We have 5 million active health dashboard users up over 25% in the past quarter, and we will continue to enhance connectivity to more services later this year. Finally, we are making progress serving our consumers wherever and whenever they receive health care. In the first quarter, we launched a new fulfillment option for consumers as part of our omnichannel health experience. Consumers can purchase health and wellness products online with an option for free, same-day pickup that will be available in approximately 6,000 CVS community health destinations later this year. We are partnering with Google and Microsoft in ways that deliver real benefits to consumers. For example, MinuteClinic scheduling is now integrated into Google Search, driving new and more convenient appointment bookings. In our specialty pharmacy, we are using Microsoft text analytics and robotics to automate the 40% of prescriptions that are still paper or fax-based, making it easier and faster for us to fill the patient's prescription. We are increasingly using technology to improve our business process and reduce costs. Here are just two examples. Our specialty intelligent medication monitoring and adherence engine uses machine learning to help our most at-risk patients by predicting the likelihood of individual patients becoming not adherent to their medication. This approach then prompts ways in which we can coach and help them maintain their overall health. Also, using machine learning and robotics, we can now resolve a wide range of prescription drug claims, which previously required the attention of our pharmacists bringing them up to spend time with patients. This advanced approach reduces overall costs and improves the patient experience. These five strategic imperatives taken together place the consumer at the center of everything we do. Consumer value is behind the integration of our businesses, and we are making steady and real progress. Ultimately, it's the hard work and commitment of our dedicated colleagues that makes our strategy and results achievable. At CVS Health, we are committed to fostering a culture of values. We have made increasing workforce representation, promoting inclusion and belonging, and equitable access to growth and development our priority. Our commitment to shareholders, customers, and communities remains steadfast. In our 2021 Environmental Social Governance Report, released last month, we highlighted our sharpened focus on sustainable business practices and our priority to advance health equity in America. You can find our report on our website. Our work to fundamentally reshape the delivery of health care in our country is well underway. Before I turn it over to Sean, I am pleased to announce we have named a new Chief Medical Officer, Dr. Sri Chaguttaru. Also, I'd like to acknowledge John Roberts, who will be retiring at the end of June, and thank him for his many contributions to CVS Health over his 42-year career at our company. I am grateful to our dedicated colleagues who continue to deliver every day, helping millions of Americans and bringing their heart to every moment of our customers' health. Let me now turn it over to Sean for a deeper look into our operational results and outlook for the remainder of the year.