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Text: I'm Susie Lisa, senior vice president of investor relations for CVS Health.
Today's call is being broadcast on our website where it will be archived for one year.
CVS Health has delivered another strong quarter and exceeded expectations.
For the third quarter in a row, we are raising adjusted earnings per share guidance.
Throughout 2021, we have made progress executing our strategy to deliver an integrated healthcare experience centered around the consumer.
We sustained strong revenue growth in each of our core businesses helped improve health outcomes and reduce costs by broadening access to quality care.
We help fight the pandemic and reach millions of consumers with convenient, accessible care in communities across America.
During the third quarter, we delivered revenue growth of 10%.
This double-digit growth was led by membership gains in both healthcare benefits and pharmacy services, as well as higher volume in retail.
We grew adjusted operating income by 12.5%.
We generated adjusted earnings per share of $1.97 and strong cash flow from operations of $5.5 billion.
Given these results and our outlook, we are raising our adjusted earnings per share guidance to $7.90 to $8.
This higher guidance reflects the quarter's outperformance and continued positive momentum, which Shawn will discuss shortly.
Third quarter results again demonstrate that our customers value how we bring together our unique portfolio of assets our deep healthcare expertise and vast consumer touchpoints to meet health needs.
There is strong demand for our integrated solutions across the healthcare continuum, including health management programs for chronic conditions, mental health support, pharmacy services, and health and wellness products.
We added over 1.3 million new integrated pharmacy and medical members through the 2021 and 2022 selling season.
More customers are seeking complementary health services that work together, such as virtual care.
Earlier this year, CVS Health launched the first national Virtual Primary Care program.
This market-leading solution offers a national network of physicians virtually and access to convenient face-to-face care in our MinuteClinic locations when needed, often with 0 co-pay.
Our program has grown to 30 customer accounts with over 750,000 eligible members as of January 1, 2022.
This is an indication of our ability to scale nationally and bring innovative products to the marketplace.
Our customers recognize the importance of CVS Health Care Solutions and the ease of access we now provide in the community, the home, and virtually.
Our high customer retention rates and new business wins are a testament to the strength of our business model.
Healthcare benefits revenue increased 9.5% year over year.
Strength in government services helped drive an adjusted operating income increase of 2.4% versus prior year despite higher costs related to COVID-19, net of deferred care primarily within our commercial book.
We generated sequential membership growth across all three product lines in the quarter: commercial, Medicare, and Medicaid.
Our medical benefit ratio of 85.8% was above our expectations, driven by COVID-related costs, primarily driven by commercial.
Underlying non-COVID costs emerged in line with our expectations.
We believe aggregate medical costs will slightly exceed baseline levels for the full year.
We produced strong results in our Medicare business and grew membership both sequentially and year over year across all Medicare products.
This reflects our strong product portfolio, Stars performance, and reputation for service excellence.
Year to date, Medicare Advantage membership has grown 9.2%.
In 2022, we anticipate we will achieve double-digit growth in individual Medicare and generate strong momentum in dual eligibles.
Our strong performance in Stars continues, as you saw for 2022, with 87% of our members in Star plans rated four and higher, up from 83% in 2021.
In our commercial business, we expect moderate growth in 2022 for national accounts, driven by both increased sales, which are up approximately 50% year over year, and a 95% client retention rate.
As we mentioned earlier this year, we are reentering the individual exchanges in eight states as of January 2022.
Enrollment began on Monday, and we anticipate our co-branded CVS Aetna offering and benefit design focused on consumer choice will result in gains of at least 100,000 new members in 2022.
Turning to pharmacy services.
We delivered third quarter revenue growth of 9.3% and adjusted operating income growth of 9.5% year over year.
For the 2022 selling season, we achieved a 98% retention rate.
We drove $10.4 billion of growth new business, resulting in $8.9 billion of net new business wins, providing evidence of our market-leading trend management, transparency customer service, and integrated offerings.
We continue to be a leader in specialty pharmacy with programs that drive value in the marketplace provide substantive savings to customers and differentiate us as we pay our programs with digital assets.
We maintained a strong momentum this quarter with specialty revenue up 8.7% versus prior year.
Our service excellence and top-tier execution are key areas of differentiation.
Our retail segment continues to play a critical role as a local health destination for millions of Americans.
Retail outperformed both expectations and the industry in the third quarter.
We delivered 10% revenue growth and 22% adjusted operating income growth year over year.
Pharmacy sales and prescriptions filled both increased 8% year over year, largely driven by COVID-19 vaccine administration and core pharmacy services.
Our patient satisfaction scores remain high with approximately 90% satisfied with their experience in our CVS Health locations.
We continue to support millions of Americans for COVID-19 testing and vaccine administration.
We administered 11.6 million COVID-19 vaccines and 8.5 million COVID-19 tests in the quarter.
Since our program began, we have administered 43 million vaccines and approximately 38 million tests.
We also expanded our digital capabilities to provide universal access to CVS Health vaccination records to the millions of adults we have vaccinated.
This new capability has driven over 1 million visits per month to vaccination records on cvs.com.
This provides another opportunity for us to build deeper engagement with our customers while simplifying and connecting their health experience.
Front store sales momentum also continued with revenue growth of 13% versus prior year.
Front store sales were led by consumer demand for COVID-19 home testing kits, as well as cough and cold products, with year-over-year volume increases across most front store categories.
Our CVS Health retail presence consistently serves as a strong channel for capturing new lives.
In fact, this year, 12.5% of new COVID-19 testing customers chose to fill new prescriptions or receive a COVID-19 vaccination with CVS Health.
Finally, we anticipate a benefit from administering boosters and pediatric doses to eligible consumers will occur largely in the fourth quarter of this year.
We continue to make measurable progress with our strategy to deliver a superior customer experience and address the total cost of care.
We have focused on several important areas.
First, with our unique portfolio of businesses, we continue to expand our role in care delivery designed around the customer.
We are taking a proactive approach to meeting the emerging needs of customers, clients, and communities.
We are improving access, lowering costs, and combining local points of care to simplify the consumer health experience.
We have one of the country's largest network of physician extenders and are able to deliver care locally with our national footprint.
We will continue to drive higher engagement with customers as we evolve the format of select CVS locations, creating community health destinations, and shifting into three distinct models: sites dedicated to offering primary care services, an enhanced version of health hubs with products and services designed for everyday health and wellness needs.
Our traditional CVS Pharmacy store model that provides prescription services and health and wellness and other convenient retail offerings.
Our unique combination of businesses and our presence in communities nationwide enable us to meet consumers where they are to enhance their well-being and to be a bigger part of their wellness.
Next, we are further strengthening the consumer experience through the expansion of digital services and platforms that connect to health services and in-person channels for our more than 35 million unique digital customers.
For example, more than 70% of CVS Pharmacy customers are enrolled in our text messaging programs today.
Within that group this quarter, adherence outreach drove 10% growth in prescriptions filled.
Greater adherence leads to improved health outcomes and lower costs.
In today's hyper-connected digital consumer-driven world, the demand for omnichannel pharmacy is greater than ever.
We continue to modernize our operating systems and enhance the integration of pharmacy model simplifying consumer interactions and driving further engagement with our customers.
Finally, we continue to invest in our employees as part of our workforce strategy.
Last quarter, we announced the phased increase in the minimum wage to $15 an hour by July 2022.
We invested in modernizing our training programs and technology for our frontline and clinical colleagues.
Despite the tight labor market and anticipation of the higher demand for health services, we strengthened our workforce in every business.
We hired a record number of people in the third quarter to advance open enrollment and customer service, as well as enhance technology and clinical capabilities.
Nearly 20,000 pharmacists, pharmacy technicians, and nurses recently joined the CVS Health team supporting flu season, as well as COVID-19 vaccinations and testing.
Our pharmacists and pharmacy technicians are an integral part of our overall workforce strategy.
We are committed to investing in our pharmacists, awarding immunization bonuses in the second half of this year.
We look forward to sharing more about our strategy to improve access, quality, and customer engagement in investor day on December 9.
Our commitment to shareholders, customers, and communities remain steadfast.
Health equity is critical as the pandemic continues to disproportionately impact certain communities.
In addition to targeted vaccine and booster education efforts, we provided 31 million meals this year to people suffering from food insecurity and invested in 2,800 affordable housing units in 30 cities.
By helping address the social determinants of health, permanent housing can reduce healthcare costs by 59%.
Joneigh Khaldun, to build upon our efforts to advance health equity and better support underserved communities, and our increased wages and bonuses support our employees, their families, and their communities.
For the third quarter in a row, we executed on and exceeded our plan and raised adjusted earnings per share guidance.
We continue to enhance our diverse portfolio of assets to serve the customer.
We are guiding to a strong year end, all possible due to the leadership and commitment of our over 300,000 CVS Health colleagues that bring their heart to every moment of our customers' health.
Our third quarter results reflect a continuation of the strong performance observed in the first half of 2021 and as we exceeded our expectations from both a revenue, cash flow, and adjusted earnings per share basis.
These results ensue from our differentiated portfolio of capabilities and keen focus on operational execution.
This momentum in our performance enables us once again to raise our outlook for 2021.
Starting with the enterprise as a whole.
Total revenues of $73.8 billion increased 10% year over year with robust growth in all three segments.
We reported adjusted operating income of $4.1 billion, a 12.5% increase versus the prior year.
This growth in adjusted operating income was also reflected in the strong cash flow generation in the third quarter.
with year-to-date cash flow from operations now exceeding $14 billion.
Adjusted earnings per share of $1.97 represent a nearly 19% year-over-year increase, generated by our adjusted operating income growth and lower interest expense resulting from our ongoing deleveraging efforts.
Moving to the segments.
Healthcare benefits revenue increased by 9.5% year over year, driven by sustained growth in our Government Services business, slightly offset by the repeal of the health insurance fee.
In the third quarter, we saw Medicaid membership grow sequentially by 67,000 members across multiple geographies.
Medicare Advantage membership also continued to grow in the quarter, increasing by 42,000 members sequentially and representing year-over-year growth of 9.8%.
Our Medicare Advantage franchise continues to be a powerful growth engine with Medicare Advantage membership more than doubling since the third quarter of 2015, representing a 15% compound annual growth rate.
Our attention has now turned to ensuring a successful 2022 annual enrollment period for Medicare, which began on October 1.
While still quite early in that process, we are pleased with what we have seen to date.
Healthcare benefits adjusted operating income grew modestly year over year but fell below our expectations for the quarter due to higher-than-expected COVID-related medical costs in our commercial business.
With the surge in nationwide COVID cases emanating from the Delta variant, we experienced higher-than-expected COVID-related medical costs in August and September.
Three key factors drove this difference versus our expectations.
First, commercial COVID inpatient admissions in August and September.
Were in line with the peak levels experienced in January 2021 and were nearly three times the average of the second quarter of 2021.
Second, COVID testing costs, which we had expected to moderate during the third quarter, also approached January 2021 levels and were more than 1.5 times the average we experienced in the second quarter.
It is critical to recognize the outsized impact of COVID testing on overall claim costs as testing costs represented approximately 35% of gross COVID costs in the quarter.
And finally, while non-COVID deferred care was better than we had forecast, it was not enough to entirely offset these higher COVID costs in commercial.
The resultant medical benefit ratio for the quarter of 85.8% was above our forecast and driven almost entirely by the higher-than-expected commercial COVID testing and treatment costs.
There are two important aspects of HCB's third quarter performance to note.
One, absent these COVID dynamics, underlying performance in our commercial book of business continues to be in line with our expectations.
Two, in our government services business, we also saw an increase in COVID treatment and testing costs, but far less pronounced than in commercial.
This lower level of increase was fully offset by better-than-expected deferred care.
As a result, the overall performance of our Government Services business was in line with expectations.
Wrapping up HCB -- We experienced favorable prior period development in the quarter on both commercial and government products.
Days claims payable of 51 at the end of the third quarter is three days higher sequentially and two days above prior year.
While influenced by many factors with the anticipated abatement and COVID-related claims in the fourth quarter, we would expect DCP to return to a more typical results in Q4.
Overall, we remain comfortable with the adequacy of our reserves.
Turning to pharmacy services.
Our ability to deliver sustainable, profitable growth remains clear.
2021 is expected to be the second year of adjusted operating income growth in excess of 10%.
This sustained growth has been driven by our track record of delivering industry-leading drug trend on behalf of our clients, our proven industry-leading capabilities, particularly in the specialty pharmacy arena our outstanding customer service, as reflected by our over 98% renewal rate for 2022.
During the third quarter, pharmacy revenues increased by 9.3% year over year, driven by increased pharmacy claims volume, growth in specialty pharmacy, and brand inflation.
Total pharmacy membership increased by 1.6 million lives sequentially, primarily reflecting growth in government programs.
Total pharmacy claims processed grew nearly 7% above the prior year.
Nearly half of this growth was attributable to net new 2021 business with COVID vaccine administration and new therapy prescriptions also contributing to the year-over-year growth.
Note that new therapy prescriptions were adversely impacted in the third quarter 2020 due to the pandemic.
Pharmacy adjusted operating income exceeded expectations in the quarter, up more than $150 million or 9.5% year over year.
The three major drivers of this increase remain consistent with the second quarter.
Improved purchasing economics reflecting the products and services of our group purchasing organization launched in the second quarter of 2020; continued strength in our specialty pharmacy business driven by 340B administration and increased pharmacy claims volumes, both of which were partially tempered by ongoing but stable client pricing pressure.
Our retail business delivered strong results this quarter, again exceeding expectations.
Total revenue of just under $25 billion increased by $2.3 billion or 10% year over year.
There are two main components to this increase.
Approximately half or $1.2 billion is attributable to the contributions from the more than 11 million COVID vaccines and over 8 million COVID tests we administered combined with strong front store sales driven by demand for over-the-counter COVID test kits and related treatment categories.
With this quarter's results, we are now on pace to deliver about 44 million to 49 million COVID vaccines and 28 million to 33 million COVID tests for full year 2021.
The remaining half or 1.1 billion was driven by a combination of sustained pharmacy growth and broad strength in front store trends across a range of categories, partially offset by continued pharmacy reimbursement pressure.
This strong revenue growth, combined with a 70-basis-point improvement in adjusted operating margin, produced adjusted operating income that exceeded our forecast and drove a year-over-year increase of $300 million.
This adjusted operating income growth driven by COVID testing vaccines and front store sales was partially tempered by continued pharmacy reimbursement pressure, business investments, including the minimum wage increase and other performance incentives, and increased staffing to provide expanded levels of service.
Turning to cash flows and the balance sheet.
Our liquidity and capital position remained excellent at the end of the third quarter with cash from operations of $5.5 billion for the quarter and $14.3 billion year to date.
Through our proactive liability management transaction in August, we paid down $1.1 billion in net long-term debt in the quarter.
As of the end of the third quarter 2021, we have repaid a net total of $18.7 billion in long-term debt since the close of the Aetna transaction.
In addition, we returned over $650 million to shareholders through our quarterly dividend.
Let me now discuss our updated 2021 guidance.
This increase reflects the strong performance in pharmacy services and retail, partially offset by expected COVID pressure in our healthcare benefits business, specifically in the commercial block.
We are raising our total revenue outlook to $286.5 billion to $290.3 billion and adjusted operating income outlook to $16.4 billion to $16.6 billion.
We are also increasing expected full year cash flow from operations to a range of $13 billion to $13.5 billion.
Note that this increased cash flow forecast is actually lower than our September year-to-date figure, reflecting expected payments in the fourth quarter that were accrued in 2020, including FICA taxes and increased minimum loss ratio rebates, as well as the timing of receipts and payments between the third and fourth quarters.
I'll now highlight some key items related to the segments and full year guidance.
For the healthcare benefits segment, we are lowering our full year adjusted operating income guidance from $5.25 billion to $5.35 billion to $4.9 billion to $5 billion.
We expect the full year medical benefit ratio to be in a range of 84.4% to 85.6% or an increase of 30 basis points from our prior range.
This reflects the higher-than-expected commercial COVID medical costs observed in the third quarter and our expectation that these will continue, although at a lower level into the fourth quarter.
Emerging October operational data indicate that COVID inpatient admissions are tracking at approximately half the levels of September.
Again, it is important to remember the degree to which testing costs are driving expenses.
So while we expect Q4 testing expenses to be lower than Q3, we do not anticipate they will decline as much as inpatient expense.
Finally, recall the normal seasonality of the healthcare benefits segment with fourth quarter operating income typically the lowest of the year driven by deductible satisfaction producing the highest quarterly medical costs.
For pharmacy services, given the continued strength in the quarter and our visibility to the remainder of the year, we are increasing full year 2021 adjusted operating income guidance to $6.85 billion to $6.94 billion, representing year-over-year growth of 20.5% to 22%.
We anticipate that the strength in third quarter pharmacy services results will largely continue into the fourth quarter.
In the retail/long-term care segment, we are also increasing our full year 2021 adjusted operating income guidance to $6.98 billion to $7.07 billion.
As you consider the fourth quarter, I would note that we currently expect vaccinations to continue, although at a lower rate than the third quarter.
We have also contemplated the impact of the CDC's COVID booster recommendations, as well as a modest impact from pediatric vaccinations.
We expect testing to decline modestly in comparison with the levels experienced during the third quarter.
Given retail's Q3 outperformance and Q4 outlook, we now expect the full year 2021 COVID impact to be neutral.
This compares to our prior guidance in August for an overall modest negative net impact.
As we closed the third quarter, we are very pleased with the performance of our businesses, which provides us with a strong foundation as we now look ahead to 2022.
While we plan to share more details with you at our upcoming investor day in early December in New York, I want to update you on our thoughts regarding the 2022 outlook.
While there are still many factors to play out, we believe that current analyst estimates for 2022 adjusted earnings per share of approximately $8.20 are within our anticipated initial guidance range.
As we discussed last quarter, there are some significant moving pieces to keep in mind in determining an appropriate baseline for 2021.
Second, in 2022, we will incur a full year of expense related to our minimum wage increase announced last quarter.
We estimate these factors combined represent approximately $0.40 per share.
Using the midpoint of our updated 2021 adjusted earnings per share guidance range, which is $7.95, these adjustments create a 2021 baseline of $7.55.
The other significant factor in considering 2022 performance is the effect that COVID will have on our retail and healthcare benefits businesses.
For retail, we expect that COVID-19 vaccine and testing volume, which is expected to generate over $3 billion of revenue in 2021, will decline significantly in 2022 to 30% to 40% of the volume we administered in 2021.
In addition, we expect COVID-driven front store sales to decline in 2022.
For HCB, we expect to see a significant improvement in results in 2022, as treatment and testing costs decline with COVID cost estimates and improved risk-adjusted revenue reflected in our pricing.
Overall, we estimate the COVID-driven impact in HCB will largely be offset by the expected decline in COVID-related retail performance.
It is important to note that forecasts of future COVID impacts to our business remain extremely difficult and are subject to change as circumstances dictate.
Beyond these considerations, Other factors affecting our growth for 2022 remain consistent with the commentary we provided last quarter regarding headwinds and tailwinds.
With all of this in mind, the current consensus of analyst estimates of approximately $8.20 for adjusted earnings per share would represent about an 8% increase over the 2021 baseline.
To conclude, the strong performance of CVS Health in the first half of 2021 continued in the third quarter, producing strong revenue, adjusted operating income, and cash flow results, and we are pleased to again raise our full year 2021 adjusted earnings per share guidance.
During the pandemic, we have solidified our opportunity to become a national leader in healthcare delivery, which at its core, starts and ends with lowering the cost of care, improving access and convenience, ultimately enabling people to live healthier and more fulfilling lives.
During our investor day in a few weeks, we look forward to sharing with you more about our path over the coming years to deliver on this ambition and to position CVS Health to generate sustainable, low double-digit adjusted earnings per share growth.

user
compname posts q3 adjusted earnings per share $1.97.
q3 adjusted earnings per share $1.97 .
sees fy adjusted earnings per share $7.90 to $8.00.
qtrly total revenues increased to $73.8 billion, up 10.0% compared to prior year.
raised 2021 cash flow from operations guidance range to $13.0 billion to $13.5 billion from $12.5 billion to $13.0 billion.
qtrly adjusted operating income increased 12.5% primarily due to administration of covid-19 vaccinations and diagnostic testing.
administered more than 8 million covid-19 tests and more than 11 million covid-19 vaccines nationwide in q3.

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