CVS Health(CVS) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported second quarter adjusted EPS of $2.21 and adjusted operating income of$ 4.5 billion, representing decreases of approximately 13% and 10% year-over-year respectively [8][21] - Total revenues for the second quarter reached nearly $90 billion, an increase of more than 10% year-over-year [21] - Year-to-date cash flow from operations was$ 13.3 billion, with expectations for strong full-year cash flow in the range of $12.5 billion to$ 13.5 billion [22][33] Business Line Data and Key Metrics Changes - In the healthcare benefits segment, revenues grew to $26.7 billion, an increase of nearly 18%, with adjusted operating income of$ 1.5 billion, a decline of approximately 20% year-over-year [9][23] - The health services segment generated revenues of approximately $46.2 billion, an increase of 7.6% year-over-year, with adjusted operating income growing 3.5% to nearly$ 1.9 billion [11][24] - The pharmacy and consumer wellness segment reported revenues of $28.8 billion, up nearly 8% year-over-year, with adjusted operating income declining approximately 17% [16][27] Market Data and Key Metrics Changes - Medical membership in the healthcare benefits segment increased to 25.6 million, reflecting broad-based growth across individual exchange, Medicare, and commercial membership [9][22] - The company successfully onboarded more than one million new members in its individual exchange offering, expanding to 12 states [7] Company Strategy and Development Direction - The company is focused on integrating acquired assets from Signify Health and Oak Street Health to enhance patient engagement and drive long-term growth [6][12] - The strategy includes expanding healthcare delivery assets and leveraging existing CVS Health resources to create synergies and improve care outcomes [6][15] - The company plans to open 50 to 60 Oak Street clinics in 2024, increasing access to care for Medicare members [16][75] Management's Comments on Operating Environment and Future Outlook - Management acknowledged emerging headwinds in Medicare Advantage and a changing consumer environment, leading to cautious guidance for 2024 [30][36] - The company reaffirmed its full-year 2023 adjusted EPS guidance range of$ 8.50 to $8.70, reflecting strong performance in pharmacy services despite challenges in other segments [8][31] - Management expressed confidence in the long-term strategy and the integrated model's ability to enhance patient engagement and care delivery [36] Other Important Information - The company announced a restructuring charge of nearly$ 500 million associated with cost optimization efforts, expected to generate over $600 million in run-rate savings beginning in 2024 [18][30] - The medical benefit ratio for 2023 is expected to be at the high end of the previous range due to higher Medicare Advantage utilization [31] Q&A Session Summary Question: Impact of changing consumer behavior and Medicare Advantage uncertainty - Management noted a pull-back in consumer behavior in June, reflecting economic volatility, and acknowledged higher than expected Medicare costs due to increased outpatient utilization [38][39] Question: Utilization of GLP1 drugs and its impact on the business - Management confirmed higher levels of GLP1 drug utilization but stated that pricing has been appropriately managed to mitigate risks [51][53] Question: Update on STARs performance and exchange business - Management reported positive internal indicators for STARs performance and continued cautious optimism for the exchange business, which has reached a million members [64][66] Question: Clarification on Medicare Advantage medical loss ratio and guidance changes - Management explained that the increase in guidance was primarily driven by changes in the Medicare MBR, with other lines of business performing in line with expectations [68][70] Question: Restructuring program savings and guidance revision - Management indicated that the restructuring savings would contribute to 2024 guidance, with specific impacts from higher utilization and reduced retail outlook considered in the revision [78]