CVS Health Corporation

Good morning or good afternoon all and welcome to today's third quarter 2023 CVS Health Earnings Call. My name is Adam and I'll be your operator for today. If you'd like to ask a question at the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand the floor to Larry McGrath to begin. So Larry, please go ahead when you are ready.

Good morning and welcome to the CVS Health third quarter 2023 Earnings Call and webcast. I'm Larry McGrath, Senior Vice President of Business Development and Investor Relations for CVS Health. I'm joined this morning by Karen Lynch, President and Chief Executive Officer, and Tom Cowie, Interim Chief Financial Officer. Following our prepared remarks, we'll host a question and answer session that will include additional members of our leadership team. 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. 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. In particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our most recent annual report filed on Form 10-K, Our quarterly reports in form 10Q, the most recent of which was filed this morning, and our recent filings in form 8K, including this morning's earnings press release. During this call, we will use non-GAAP measures when talking about the company's financial performance and financial condition, and you can find a reconciliation of these non-GAAP measures in this morning's press release and in the reconciliation document posted to our investor relations portion of our website. With that, I'd like to turn the call over to Karen.

Thank you, Larry. Good morning, everyone. And thanks for joining our call. Today, we reported strong third quarter results, highlighting the power of our diversified business model. We delivered adjusted EPS of $2.21 and adjusted operating income of nearly $4.5 billion. Our consolidated revenues for the quarter of almost $90 billion reflect an increase of nearly 11% over the prior year. And once again, we generated outstanding operating cash flows bringing our year-to-date total to $16.1 billion. We are reconfirming our guidance range for 2023 adjusted EPS of $8.50 to $8.70. This reflects execution against our strategy with strong performance in our pharmacy and consumer wellness segment and continued momentum in our health services segment. offsetting incremental Medicare Advantage medical cost pressures in our healthcare benefits segment. The power of our integrated model is clear. We demonstrated this with the significant progress made in restoring our Medicare Advantage star ratings. Our 2024 ratings show that we will have 87% of our Medicare Advantage members and plans rated four stars or better. We accomplished this in a very short period of time by utilizing the full breadth of CVS Health touchpoints with our members. We improved CAP scores by an average of two-thirds of a point by deriving powerful consumer insight to design experiences that address the unique needs of our members. We also made improvements beyond CAP, for example, to address fetus and patient safety measures our Medicare Advantage team worked closely with CVS Pharmacy and Caremark to help members improve medication adherence, remove costs and transportation barriers, and ensure members completed critical tests, screenings, and preventive services. As a result of these efforts, among many others, Aetna was the top performer in both the Part C patient safety and HEDIS domain. Our 2024 STARS ratings will improve our position in the 2025 plan year and will enhance our position well into the future. Medicare Advantage is a key strategic growth area for our business. While it is still early in the 2024 annual enrollment period, we are confident that our competitive offering and attractive benefit design will meet consumer expectations. Aetna continues to be a leader in zero dollar premium products, and approximately 84% of Medicare eligible will have access to Aetna plans in this category in 2024. We are also expanding the breadth of our DSNIP footprint and now cover more than two-thirds of Medicare eligible, up 6% from last year. Our DSNIP strategy focuses on offering the coordinated medical management these members need to live healthier lives, including introducing them to care delivery options such as Oak Street Health where appropriate. Our ability to offer access to convenient sites of care and the integrated benefits that seniors value most will position us to grow at or above the market in 2024. Turning now to how we are unlocking new sources of value in healthcare. This quarter we announced the creation of Cordavis, a wholly owned subsidiary of CVS Health. We have an established history of innovating to find ways to lower drug spend and to ensure that people we serve have access to the medications they need to stay healthy. Cordavis continues that history of innovation. The biosimilar market in the U.S. is expected to be $100 billion opportunity by 2029. It represents one of the biggest sources of drug cost savings for consumers in the U.S. healthcare system. Through Cordavis, we are working directly with manufacturers to bring a portfolio of biosimilar products to the market driving our growth and ensuring that our customers and clients will realize the significant savings potential available through biosimilars for years to come. Let's turn to our performance in the quarter. In our healthcare benefits segment, we grew revenues to more than $26 billion, an increase of nearly 17%, and delivered adjusted operating income of $1.5 billion. Medical membership in the third quarter grew to 25.7 million, an increase of 1.4 million members versus the prior year, reflecting growth across multiple product lines, including individual exchange, Medicare, and commercial. We continue to experience elevated utilization trends in our Medicare Advantage business, primarily in outpatient and supplemental benefits, such as dental, behavioral health, OTC, and flex cards. Given the elevated cost trends that have emerged this year, we are executing on plans to unlock additional revenue, clinical, and network opportunities to help alleviate these pressures. In our health services segment, revenues grew to nearly $47 billion, an increase of more than 8%. Adjusted operating income grew nearly 11% to $1.9 billion. These results, once again, reflect impressive performance in our pharmacy services business, where our commitment to lower drug costs and deliver innovative clinical solutions drive value for our consumers and our clients. In the 2024 selling season, our renewals are substantially complete and our retention remains strong in the high 90s, excluding the 17 contracts. Our sales strategy for new business has been successful. capturing over 60% of national employers that moved CBM. Turning to our care delivery assets, we are scaling capabilities to accelerate growth at both Signify and Oak Street. We are progressing on our initiatives to create integrated health experiences across multiple channels, including Aetna, Signify, CVS Retail Health, and CVS Pharmacy. For Oak Street Health, we are using these channels to educate Medicare eligible adults about the health services they need and can receive in our primary care clinic. While it's still early, the results of these initiatives are encouraging and we are excited to share more details at our investor day in December. For Signify Health, we are connecting more CVS pharmacy patients to Signify for in-home evaluation and other services in the home. Our trusted relationship with 90 million patients at the pharmacy counter is a powerful connection and the most frequent engagement in healthcare. By utilizing our pharmacist connection, we have been able to reach more than 50% of Aetna members that Signify was previously unable to reach, enhancing the opportunity to more effectively engage these members in their care. This initiative has surpassed our initial conversion rate goals, and we are excited by the prospects of scaling our capabilities in 2024 and beyond. Turning to our pharmacy and consumer wellness segment, Revenues grew to nearly $29 billion, up 6% versus the prior year. We generated $1.4 billion of adjusted operating income in the quarter, in line with our results in the prior year. Performance in our retail pharmacy business was strong. Same store pharmacy sales increased nearly 12% versus the prior year, primarily driven by pharmacy drug mix and brand inflation. Same store prescription growth when excluding the impact of COVID grew by 3.5%. Turning to our consumer engagement strategy, our digital platform is helping consumers navigate and simplify their health journey. Our digital reach continues to grow with now over 55 million unique customers, an increase of nearly 20% versus last year. This strong growth has been powered by our focus on innovating and delivering on experiences that matter most for our customers. We have been removing barriers to digital adoption and making it easier for customers to access the services they seek, such as pharmacy refills and advanced scheduling for immunizations online. Our strong digital engagement and enhanced capabilities will strengthen our ability to drive seasonal flu, COVID, and RSV immunization awareness and connect patients to our CVS locations for these important health services. Before I turn it over to Tom to discuss our financial results, I'd like to highlight some recent changes to our leadership team. As we previously announced, I would like to welcome Brian Cain as our new president of Aetna. Brian's extensive industry experience will be critical as he and his team work to deliver consumer-centric holistic healthcare to the more than 35 million members served by Aetna. In mid-October, we also announced that Sean Gurtin, our Chief Financial Officer and President of the Health Services business, is taking a leave of absence due to unforeseen family health reasons. Tom Cowie has been appointed to the role of Interim CFO, and Mike Peikos has assumed the role of Interim President of Health Services. Both Tom and Mike are well-positioned to continue to seamlessly execute on our strategy. I would like to thank our colleagues for the commitment and dedication they show every day to support our customers, our clients, and our patients. I will now turn the call over to Tom to provide more details on our results and our guidance. Tom?