CVS Health Corporation

Ladies and gentlemen, good morning and welcome to the CVS Health Second 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 a question. As a reminder, today's conference is being recorded. I would now like to turn the call over to Larry McGrath. Senior Vice President of Business Development and Investor Relations for CVS Health. Please go ahead.

Good morning and welcome to the CVS Health second quarter 2022 earnings call and webcast. I'm Larry McGrath, Senior Vice President of Business Development and Investor Relations. I'm joined this morning by Karen Lynch, President and Chief Executive Officer, and Sean Gurdon, Executive Vice President and Chief Financial Officer. Following our prepared remarks, we'll host a question and answer session that will include Dr. Alan Lawson, President, Pharmacy Services. Dan Finke, President, Healthcare Benefits. Michelle Peluso, Chief Customer Officer and Co-President, Retail. And Prem Shaw, Chief Pharmacy Officer and Co-President, Retail, as well as Tom Carey, Senior Vice President, Capital Markets. Our press release and slide presentation has been posted to our website, along with our Form 10-Q that was 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'll make certain forward-looking statements reflecting current views related to our future financial performance, future events, including potential impacts related to COVID-19, and 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, this morning's earnings press release, and our Form 10-Q. During this call, we'll use non-GAAP measures when talking about the company's performance and financial conditions, and you'll 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, Larry, and welcome to the team. Good morning, everyone, and thanks for joining our call today. CVS Health delivered another outstanding quarter. We grew revenue by 11% versus the prior year to over $80 billion, with strong results across all business segments. we delivered adjusted operating income of $4.8 billion and generated adjusted earnings per share of $2.40. This morning, we raised our full year 2022 adjusted earnings per share guidance range to $8.40 to $8.60, an increase of 20 cents. We are also increasing our full year outlook for cash flow from operations to $12.5 to $13.5 billion. These guidance increases reflect the continued positive momentum across all of our businesses. We remain well positioned and confident in our ability to achieve our near-term and longer-term growth goals. Our increasingly integrated foundational businesses delivered exceptional results for the quarter. The healthcare benefits segment had a strong quarter with revenue growth of nearly 11% year over year. we achieved adjusted operating income of $1.8 billion. Our medical benefit ratio of 82.9% improved by 120 basis points versus the prior year as medical cost trends remained favorable. We generated membership growth across all product lines versus the prior year. These results reflect the end-to-end value of our assets, increasingly working together, one customer at a time, at national scale. Our Medicare business remains one of our strongest growth segments, and we increase membership year over year across all Medicare products. Our individual Medicare Advantage membership continues to grow at a double-digit pace and faster than the overall market. This quarter, we achieved a major milestone with more than 2 million individual Medicare Advantage members, including dual-eligibles. Our PDP portfolio also maintains its momentum with healthy growth that is well ahead of industry trends, providing us future conversion and upsell opportunities. Looking ahead to 2023, we're maintaining a nearly 98% client retention rate in national accounts. Additionally, we are having a successful group Medicare Advantage selling season and expect to show positive membership growth next year. As we continue to build our individual exchange business, we're on track to expand coverage where we currently have individual exchange offerings and are obtaining final approvals to add four new states to our portfolio, bringing our total to 12 states. In pharmacy services, revenue grew nearly 12% compared to the prior year and delivered adjusted operating income of $1.9 billion. Specialty pharmacy revenue is up nearly 21% year over year. We are a leader in specialty pharmacy with programs that drive value in the marketplace, provide substantive savings to customers, and differentiate us as we pair programs with digital assets. Looking ahead, we're maintaining a 98% client retention rate for the 2023 selling season with more than 75% of renewals complete. we drove $3.1 billion of growth new business, providing evidence of our market-leading trend management, transparency, and integrated offerings. Turning to our retail long-term care segment, we continued our momentum from the first quarter. Our deep customer relationships, high-quality patient interactions, resilient supply chain, and agile operating model all contributed to the strong quarterly performance. Nearly 4.8 million customers engage with us every day at CVS locations, making us a powerful community health destination. In the quarter, we delivered over 6% revenue growth versus the prior year and $1.9 billion in adjusted operating income. Our front store sales grew more than 9%, driven by strength in consumer health sales, including strong COVID over-the-counter tests and sales of cough, cold, and flu products. Our pharmacy grew prescriptions 1.6%, or 4.6%, excluding the impact of the COVID-19 vaccination, which declined versus the prior year. Our retail script growth trend is remarkable as we have consistently increased market share year over year since the first quarter of 2020. As COVID-19 continues to move towards an endemic phase, we will continue to play a critical role in communities across the country. Millions of Americans depend on us for COVID-19 testing, vaccine administration, and dispensing antiviral medications for treatment. We administered more than 4 million COVID-19 tests and approximately 6 million COVID-19 vaccinations nationwide in the second quarter. The demand for antiviral medications to treat COVID-19 continues to increase as the national positivity rate remains in the double digits. Overall, we continue to successfully navigate a challenging retail environment while expanding services and increasing share of wallet by bringing new customers to CVS Health. Of the approximately 43 million new customers who have chosen CVS Health for COVID-19 health services, nearly 15% have engaged with us for additional services. Our omnichannel approach connects consumer health experiences, driving high satisfaction levels, and continuously enabling CVS Health to attract and retain customers. Our leadership on this omnichannel experience is a competitive advantage and one we are committed to investing in, enhancing over time. Turning to our strategic imperatives, let me give you a few updates. We are a leading provider of retail health services nationally, and we continue to advance our care delivery capabilities. Our CVS healthcare teams in our minute clinics have supported more than 2.8 million patient visits year-to-date, representing a 12% increase from the prior year. We are further enhancing our services and making them more relevant for our customers. We are working closely with the administration, offering in our MinuteClinics and pharmacies, and we'll be implementing pharmacist prescribing under certain conditions to even more seamlessly serve customers with COVID-19. This furthers our strategy to expand access to health services and helps consumers to navigate to the best site of care. As we evaluate complementary health services and care delivery capabilities to enhance our overall portfolio, we continue to take a disciplined approach. Inorganic growth is part of our strategy, and we look forward to updating you on our progress. Relative to store optimization, we've closed 198 stores to date and remain on track to close 300 stores this year. We are successfully minimizing disruption to our customers and maintaining high levels of satisfaction as we maintain our store and pharmacy hours across our locations to meet consumer health needs. We are retaining over 70% of prescription volume within our network and have redeployed over 90% of impacted colleagues to our other CVS locations. Our technology-forward digital-first approach is reducing complexity for our customers and creating new digital health solutions that are convenient. CVS Health now serves more than 45 million unique digital customers, up 1.5 million since last quarter. This increase is driven by our omnichannel pharmacy strategy focused on simplifying how consumers fill and receive prescriptions. Over 60% of our newly acquired digital users are customers of our specialty, mail order, and retail pharmacies. We are expanding our digital health services and deepening to drive convenience for customers. We launched our individualized health dashboard earlier this year and already have 6 million active users, up 20% from the prior quarter. As we successfully execute our strategy, our unified health model grows in relevance and importance every day for the consumers, customers, and the communities we serve. And you can see this in our results. And finally, as part of our ongoing commitment to sustainability, we entered into an agreement to purchase renewable energy with one of the nation's largest producers of carbon-free energy. This is the latest step on our path to sourcing 50% renewable energy by 2040. We are positioned to continue our momentum through the second half of this year. None of this would be possible without our talented colleagues who serve America's health needs every day. We recently added two proven leaders to the executive team. Tilak Mandati has joined CVS Health as our first chief data, digital, and technology officer, and Violetta Ostefin has joined CVS Health as our chief strategy officer. Both bring deep, unique expertise to our diverse leadership team. I will now turn it over to Sean for a deeper look into our operational and financial results and our outlook.