Nov 6, 2020 SOURCE: PR NewsWire
CVS Health Reports Third Quarter Results With Diversified Assets Delivering Strong Enterprise Performance
WOONSOCKET, R.I., Nov. 6, 2020 /PRNewswire/ --
Continued Responsiveness to COVID-19:
-- Ongoing support for employees, consumers and communities across the
country
-- Doubled the number of test sites to more than 4,000 CVS Pharmacy
locations nationwide
-- Selected to administer vaccines to long-term care facilities
-- Consumer-driven health care model increases access to products and
services
Third Quarter Highlights:
-- Total revenues increased to $67.1 billion, up 3.5% compared to prior
year
-- GAAP diluted earnings per share of $0.93 and GAAP operating income of
$3.2 billion
-- Adjusted EPS of $1.66 and adjusted operating income of $3.6 billion
-- Results reflect significant planned investments benefiting our
customers, members, clients and colleagues
Year-to-date Highlights:
-- Generated cash flow from operations of $12.3 billion
2020 Full Year Guidance:
-- Raised GAAP diluted EPS guidance range to $5.60 to $5.70 from $5.16 to
$5.29
-- Raised Adjusted EPS guidance range to $7.35 to $7.45 from $7.14 to $7.27
-- Raised cash flow from operations guidance range to $12.75 billion to
$13.25 billion from $11.0 billion to $11.5 billion
CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended September 30, 2020.
CVS Health President and CEO Larry J. Merlo stated, "Our strong third quarter results demonstrate continued execution of our long-term strategic plan that is transforming the way health care is delivered. As an integrated health services provider, we're developing holistic and innovative solutions that meet the needs of our customers in the community, in the home or in the palm of their hand.
"Our comprehensive pandemic response shows the power of a diverse and agile enterprise. We've opened more than 4,000 COVID-19 test sites across the country since March, and have administered over six million tests. We're helping businesses and universities safely reopen and we were recently selected to administer COVID-19 vaccinations in long-term care facilities. We'll continue to play a vital role in our nation's recovery thanks to the tireless efforts of our nearly 300,000 employees."
A summary of the Company's response to the COVID-19 pandemic is included on page six.
(_____________________________________________)
The Company presents both GAAP and
non-GAAP financial measures in
this press release to assist in
the comparison of the Company's
past financial performance with
its current financial performance.
See "Non-GAAP Financial
Information" on pages 12 through
13 and endnotes on page 25 for
explanations of non-GAAP
financial measures presented in
this press release. See pages 14
through 17 and page 24 for
reconciliations of each non-GAAP
financial measure to the most
directly comparable GAAP financial
measure.
Consolidated Third Quarter Results
Three Months Ended
Nine Months Ended
September 30,
September 30,
In millions, except per share amounts 2020 2019 Change 2020 2019 Change
---
Total revenues $
67,056 $
64,810 $
2,246 $
199,152 $
189,887 $
9,265
Operating income 3,249 2,928 321 11,387 8,950 2,437
Adjusted operating income (1) 3,622 3,947 (325) 13,063 11,573 1,490
Net income 1,219 1,529 (310) 6,217 4,887 1,330
Diluted earnings per share $
0.93 $
1.17 $
(0.24) $
4.72 $
3.75 $
0.97
Adjusted EPS (2) $
1.66 $
1.84 $
(0.18) $
6.21 $
5.35 $
0.86
Enterprise prescriptions (3) (4) 727.7 703.6 24.1 2,164.6 2,068.9 95.7
-- Total revenues increased 3.5% in the three months ended September 30,
2020 compared to the prior year driven by growth in the Health Care
Benefits and Retail/LTC segments.
-- Operating income increased 11.0% in the three months ended September 30,
2020 compared to the prior year primarily due to a $271 million pre-tax
gain on the sale of the Company's Coventry Health Care Workers'
Compensation business ("Workers' Compensation business"), which occurred
on July 31, 2020, as well as the absence of a $205 million pre-tax loss
on the sale of the Company's Brazilian subsidiary, Drogaria Onofre Ltda.
("Onofre") and a $96 million store rationalization charge, both recorded
in the three months ended September 30, 2019. This increase was
partially offset by the decrease in adjusted operating income described
below.
-- Adjusted operating income decreased 8.2% in the three months ended
September 30, 2020 compared to the prior year. The decrease in adjusted
operating income was primarily due to declines in the Health Care
Benefits segment, largely attributable to the impact of planned COVID-19
related investments benefiting customers and members, and continued
reimbursement pressure in the Retail/LTC segment. These decreases were
partially offset by improved purchasing economics in the Pharmacy
Services segment and the favorable impact of enterprise-wide cost
savings initiatives in the three months ended September 30, 2020.
-- Net income decreased 20.3% in the three months ended September 30, 2020
compared to the prior year primarily due to an increase in the loss on
early extinguishment of debt to $766 million in the three months ended
September 30, 2020, compared to $79 million in the three months ended
September 30, 2019. The decrease was partially offset by the higher
operating income in the three months ended September 30, 2020 described
above.
-- The effective income tax rate was 32.5% for the three months ended
September 30, 2020 compared to 28.3% for the three months ended
September 30, 2019. The increase in the effective income tax rate was
primarily attributable to basis differences on the sale of the Workers'
Compensation business in the three months ended September 30, 2020 and
the reinstatement of the non-deductible Health Insurer Fee ("HIF") for
2020. These increases were partially offset by the absence of the impact
of the sale of Onofre in the three months ended September 30, 2019.
Pharmacy Services Segment
The Pharmacy Services segment provides a full range of pharmacy benefit management solutions to employers, health plans, government employee groups and government sponsored programs. The segment results for the three and nine months ended September 30, 2020 and 2019 were as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
In millions 2020 2019 Change 2020 2019 Change
---
Total revenues $
35,711 $
36,018 $
(307) $
105,583 $
104,418 $
1,165
Operating income 1,564 1,340 224 3,949 3,387 562
Adjusted
operating
income (1) 1,619 1,439 180 4,127 3,682 445
Total pharmacy
claims
processed (4)
(5) 528.2 509.5 18.7 1,575.0 1,480.3 94.7
Pharmacy network
(6) 447.7 430.2 17.5 1,333.9 1,250.0 83.9
Mail choice (7) 80.5 79.3 1.2 241.1 230.3 10.8
-- Total revenues decreased 0.9% in the three months ended September 30,
2020 compared to the prior year primarily driven by previously disclosed
client losses and continued price compression, partially offset by
growth in specialty pharmacy and brand inflation.
-- Total pharmacy claims processed increased 3.7% on a 30-day equivalent
basis in the three months ended September 30, 2020 compared to the prior
year primarily driven by net new business, partially offset by reduced
new therapy prescriptions in the three months ended September 30, 2020
as a result of COVID-19.
-- Operating income and adjusted operating income increased 16.7% and
12.5%, respectively, in the three months ended September 30, 2020
compared to the prior year primarily driven by improved purchasing
economics and growth in specialty pharmacy. The increase was partially
offset by continued price compression and previously disclosed client
losses. The increase in operating income also was driven by lower
amortization expense in the three months ended September 30, 2020.
See the supplemental information on page 19 for additional information regarding the performance of the Pharmacy Services segment.
Retail/LTC Segment
The Retail/LTC segment fulfills prescriptions for medications, provides patient care programs, sells a wide assortment of general merchandise, provides health care services through walk-in medical clinics, provides medical diagnostic testing and provides services to long-term care facilities. The segment results for the three and nine months ended September 30, 2020 and 2019 were as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
In millions 2020 2019 Change 2020 2019 Change
---
Total revenues $
22,725 $
21,466 $
1,259 $
67,136 $
64,028 $
3,108
Operating income 1,283 1,095 188 3,996 3,884 112
Adjusted operating
income (1) 1,412 1,516 (104) 4,371 4,674 (303)
Prescriptions
filled (4) (5) 368.4 352.3 16.1 1,088.9 1,048.2 40.7
-- Total revenues increased 5.9% in the three months ended September 30,
2020 compared to the prior year primarily driven by increased
prescription volume, higher front store revenues, increased diagnostic
testing and brand inflation. These increases were partially offset by
continued reimbursement pressure and the impact of recent generic
introductions.
-- Front store revenues increased 2.7% in the three months ended September
30, 2020 compared to the prior year. The increase was primarily due to
strength in consumer health sales and an increase in basket size,
partially offset by decreased customer traffic in the segment's retail
pharmacies as a result of the COVID-19 pandemic.
-- Prescriptions filled increased 4.6% on a 30-day equivalent basis in the
three months ended September 30, 2020 compared to the prior year
primarily driven by the continued adoption of patient care programs.
Prescriptions filled in the three months ended September 30, 2020 were
adversely impacted by the COVID-19 pandemic, which resulted in reduced
new therapy prescriptions, partially offset by greater use of 90-day
prescriptions and increased immunizations.
-- Operating income increased 17.2% in the three months ended September 30,
2020 compared to the prior year primarily driven by the absence of the
$205 million pre-tax loss on the sale of Onofre and the $96 million
store rationalization charge primarily related to operating lease
right-of-use asset impairment charges in connection with the planned
closure of underperforming retail pharmacy stores, both recorded in the
three months ended September 30, 2019. This increase was partially
offset by the decrease in adjusted operating income described below.
-- Adjusted operating income decreased 6.9% in the three months ended
September 30, 2020 compared to the prior year. The decrease in adjusted
operating income was primarily due to continued reimbursement pressure,
incremental operating expenses associated with the Company's COVID-19
pandemic response efforts in the three months ended September 30, 2020
and declines in long-term care. These decreases were partially offset by
the increased pharmacy and front store volume described above, improved
generic drug purchasing and increased diagnostic testing in response to
the COVID-19 pandemic in the three months ended September 30, 2020.
See the supplemental information on page 20 for additional information regarding the performance of the Retail/LTC segment.
Health Care Benefits Segment
The Health Care Benefits segment offers a full range of insured and self-insured ("ASC") medical, pharmacy, dental and behavioral health products and services. The segment results for the three and nine months ended September 30, 2020 and 2019 were as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
In millions, except percentages 2020 2019 Change 2020 2019 Change
---
Total revenues $
18,698 $
17,181 $
1,517 $
56,364 $
52,454 $
3,910
Operating income 949 1,036 (87) 5,110 3,253 1,857
Adjusted operating income (1) 1,080 1,423 (343) 6,035 4,423 1,612
Medical benefit ratio ("MBR") (8) 84.0 83.3 0.7 78.9 83.7 (4.8)
% % % % % %
Medical membership (9) 23.3 22.8 0.5
-- Total revenues increased 8.8% in the three months ended September 30,
2020 compared to the prior year primarily driven by membership growth in
the Health Care Benefits segment's Government products and the favorable
impact of the reinstatement of the HIF for 2020. These increases were
partially offset by the divestitures of Aetna's standalone Medicare Part
D prescription drug plans (which the Company retained the financial
results of through 2019) and Workers Compensation business, membership
declines in the segment's Commercial products and planned COVID-19
related investments benefiting customers and members in the three months
ended September 30, 2020.
-- Operating income and adjusted operating income decreased 8.4% and 24.1%,
respectively, in the three months ended September 30, 2020, compared to
the prior year. The decrease in both operating income and adjusted
operating income was primarily driven by the planned COVID-19 related
investments described above and the divestitures of Aetna's standalone
Medicare Part D prescription drug plans ("PDPs") and Workers'
Compensation business. The decrease in operating income was partially
offset by the $271 million pre-tax gain on the sale of the Workers'
Compensation business.
-- The Health Care Benefits segment's MBR increased 70 basis points in the
three months ended September 30, 2020 compared to the prior year
primarily driven by the planned COVID-19 related investments described
above, shifts in business mix and the divestiture of Aetna's standalone
PDPs, partially offset by the reinstatement of the HIF for 2020.
-- Medical membership as of September 30, 2020 of 23.3 million decreased
316 thousand members compared with June 30, 2020, primarily reflecting a
decline in Commercial products, partially offset by increases in
Medicaid and Medicare products.
-- The Health Care Benefits segment experienced favorable development of
prior-periods' health care cost estimates during the three months ended
September 30, 2020 driven by favorable development in its Government
businesses, primarily attributable to second quarter 2020 performance,
and development in its Commercial business largely in-line with its
reserve estimated at June 30, 2020.
-- Prior years' health care costs payable estimates developed favorably by
$448 million during the nine months ended September 30, 2020. This
development is reported on a basis consistent with the prior years'
development reported in the health care costs payable table in the
Company's annual audited financial statements and does not directly
correspond to an increase in 2020 operating results.
See the supplemental information on page 21 for additional information regarding the performance of the Health Care Benefits segment.
COVID-19 Response
CVS Health is uniquely positioned to help the country through the COVID-19 pandemic. The Company has focused its resources on the wellbeing and safety of employees, consumers and the communities it serves. The following are key actions taken to date:
Employees
-- Providing regular supply of personal protective equipment and adding
safety features to retail stores.
-- Provided enhanced benefits, including bonuses to frontline employees,
dependent care, paid sick leave for part-time employees and paid time
off to employees who test positive or are quarantined due to exposure.
-- Hired over 76,000 new and existing full time, part time and temporary
roles, to date.
Consumers and members
-- Sent care packages to members diagnosed with COVID-19 through Aetna's
Healing Better program and Caring for You kits to Medicare members
enrolled on or before August 1, 2020.
-- Proactively reached out to more than 825,000 most at-risk members for
COVID-19.
-- Waived member cost sharing for COVID-19 diagnostic testing for insured
members.
-- Opened crisis response line for members experiencing anxiety related to
COVID-19 and expanded 24/7 access to Aetna Nurse Medical line for Aetna
and Caremark members.
-- Extended waivers for out-of-pocket costs for inpatient hospital
admissions for treatment or health complications associated with
COVID-19 for Commercial and Medicare Advantage members through December
31, 2020.
-- Extended waivers for cost-sharing for in-network telemedicine visits by
Commercial members for outpatient behavioral and mental health
counseling services through December 31, 2020.
-- Waived Medicare Advantage member out-of-pocket costs for all in-network
primary care and specialist telehealth visits, including outpatient
behavioral and mental health counseling services, whether done in-office
or via telehealth through December 31, 2020.
-- For Commercial members, waived cost sharing for minor acute care
evaluation, care management services and certain behavioral health
services rendered via telephone through December 31, 2020.
-- Expanded telehealth options ("E-Clinic") offered by MinuteClinic to help
patients access safe, affordable and convenient non-emergency care.
-- Extended maintenance prescriptions and waived early refill limits to
support medication adherence.
-- Waived fees associated with prescription home delivery and associated
front store products.
Plan Sponsors
-- Launched Return Ready, a comprehensive configurable and integrated
end-to-end COVID-19 testing solution to assist employers and
universities with the return of their employees, students and staff.
-- Provided assistance through premium credits.
Providers
-- Waived advance approvals, streamlined credentialing process, relaxed
telemedicine policies and removed prior authorization requirements.
Offering flexible plan designs to help reduce financial burdens.
Communities
-- Administered more than six million COVID-19 tests nationwide to date.
-- Doubled the number of COVID-19 testing sites at CVS Pharmacy locations
to more than 4,000, with more than 50% located in communities with
significant need for support according to the CDC Social Vulnerability
Index. Testing is available to children 10 years and older at these
sites.
-- In coordination with the U.S. Department of Health and Human Services
("HHS"), opened 11 testing sites serving communities disproportionately
impacted by COVID-19.
-- Selected to administer COVID-19 vaccines to long-term care facilities.
-- Launched critical diagnostic testing for the vulnerable senior
population in long-term care facilities in partnership with three
states.
-- Expanded Coram infusion services to help transition eligible IV-therapy
patients to home-based care, freeing up hospital capacity.
-- Investing more than $50 million directly and through the Company's
foundations to address food insecurity, lack of access to telehealth
services for the underserved, personal protective equipment, mental
health support for front-line workers and community resilience.
-- Donating nearly $40 million in products to community organizations
around the country.
-- Launched collaboration with Lyft through Aetna to provide access to
rides for families to help get children safely to school during the
pandemic.
-- Served over one million meals to vulnerable populations.
-- Working with public organizations, including the Centers for Disease
Control and Prevention, to boost awareness of CVS Health's preparedness
efforts and capabilities.
-- Returned all $43 million in funds received from the Coronavirus Aid,
Relief, and Economic Security Act provider relief fund to HHS.
2020 Full Year Guidance
The Company raised its full year 2020 GAAP diluted EPS guidance range to $5.60 to $5.70 from $5.16 to $5.29 and its full year 2020 Adjusted EPS guidance range to $7.35 to $7.45 from $7.14 to $7.27. The Company also raised its full year 2020 cash flow from operations guidance range to $12.75 billion to $13.25 billion from $11.0 billion to $11.5 billion. While providing these updates to its full year guidance, the Company continues to acknowledge the inherent and unprecedented uncertainty surrounding the ongoing COVID-19 pandemic and its impact.
The adjustments between GAAP diluted EPS and Adjusted EPS include adding back amortization of intangible assets, integration costs related to the Company's acquisition (the "Aetna Acquisition") of Aetna Inc. ("Aetna"), gain on divestiture of the Workers' Compensation business, receipt of amounts owed to the Company under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "ACA") risk corridor program during October 2020 that were previously fully reserved and loss on early extinguishment of debt.
Teleconference and Webcast
The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its third quarter results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Health website at http://investors.cvshealth.com. This webcast will be archived and available on the website for a one-year period following the conference call.
About CVS Health
CVS Health is a different kind of health care company. We are a diversified health services company with nearly 300,000 employees united around a common purpose of helping people on their path to better health. In an increasingly connected and digital world, we are meeting people wherever they are and changing health care to meet their needs. Built on a foundation of unmatched community presence, our diversified model engages one in three Americans each year. From our innovative new services at HealthHUB(®) locations, to transformative programs that help manage chronic conditions, we are making health care more accessible, more affordable...and simply better. Learn more about how we're transforming health at www.cvshealth.com.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of CVS Health Corporation. Statements in this press release that are forward-looking include Mr. Merlo's quotation, the information under the heading "2020 Full Year Guidance" and the information included in the endnotes and reconciliations. By their nature, all forward-looking statements are not guarantees of future performance or results and are subject to risks and uncertainties that are difficult to predict and/or quantify. Actual results may differ materially from those contemplated by the forward-looking statements due to the risks and uncertainties related to the COVID-19 pandemic, the geographies impacted and the severity and duration of the pandemic, the pandemic's impact on the U.S. and global economies and consumer behavior and health care utilization patterns, and the timing, scope and impact of stimulus legislation and other federal, state and local governmental responses to the pandemic, as well as the risks and uncertainties described in our Securities and Exchange Commission ("SEC") filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020.
You are cautioned not to place undue reliance on CVS Health's forward looking statements. CVS Health's forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. CVS Health does not assume any duty to update or revise forward-looking statements, whether as a result of new information, future events, uncertainties or otherwise.
- Tables Follow -
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30,
September 30,
---
In millions, except per share amounts 2020 2019 2020 2019
--- ---
Revenues:
Products $
47,738 $
47,149 $
141,096 $
136,023
Premiums 17,182 15,539 51,749 47,612
Services 1,932 1,859 5,757 5,447
Net investment income 204 263 550 805
Total revenues 67,056 64,810 199,152 189,887
Operating costs:
Cost of products sold 40,940 40,437 121,529 116,654
Benefit costs 14,396 12,850 40,534 39,396
Operating expenses 8,471 8,595 25,702 24,887
Total operating costs 63,807 61,882 187,765 180,937
Operating income 3,249 2,928 11,387 8,950
Interest expense 731 747 2,229 2,301
Loss on early extinguishment of debt 766 79 766 79
Other income (54) (31) (153) (93)
Income before income tax provision 1,806 2,133 8,545 6,663
Income tax provision 587 604 2,328 1,776
Net income 1,219 1,529 6,217 4,887
Net (income) loss attributable to noncontrolling interests 5 1 (11)
Net income attributable to CVS Health $
1,224 $
1,530 $
6,206 $
4,887
Net income per share attributable to CVS Health:
Basic $
0.93 $
1.17 $
4.74 $
3.76
Diluted $
0.93 $
1.17 $
4.72 $
3.75
Weighted average shares outstanding:
Basic 1,310 1,302 1,308 1,300
Diluted 1,315 1,305 1,314 1,303
Dividends declared per share $
0.50 $
0.50 $
1.50 $
1.50
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
In millions September 30, December 31,
2020 2019
--- ---
Assets:
Cash and cash equivalents $
9,256 $
5,683
Investments 2,831 2,373
Accounts receivable, net 23,816 19,617
Inventories 17,478 17,516
Other current assets 5,830 5,113
Total current assets 59,211 50,302
Long-term investments 20,216 17,314
Property and equipment,
net 12,349 12,044
Operating lease right-of-
use assets 20,484 20,860
Goodwill 79,579 79,749
Intangible assets, net 31,697 33,121
Separate accounts assets 4,793 4,459
Other assets 4,569 4,600
Total assets $
232,898 $
222,449
Liabilities:
Accounts payable $
11,677 $
10,492
Pharmacy claims and
discounts payable 15,722 13,601
Health care costs payable 7,593 6,879
Policyholders' funds 3,964 2,991
Accrued expenses 14,329 12,133
Other insurance
liabilities 1,527 1,830
Current portion of
operating lease
liabilities 1,789 1,596
Current portion of long-
term debt 5,443 3,781
Total current liabilities 62,044 53,303
Long-term operating lease
liabilities 18,489 18,926
Long-term debt 61,552 64,699
Deferred income taxes 7,253 7,294
Separate accounts
liabilities 4,793 4,459
Other long-term insurance
liabilities 7,135 7,436
Other long-term
liabilities 2,520 2,162
Total liabilities 163,786 158,279
Shareholders' equity:
Preferred stock -
Common stock and capital
surplus 46,388 45,972
Treasury stock (28,164) (28,235)
Retained earnings 49,328 45,108
Accumulated other
comprehensive income 1,255 1,019
Total CVS Health
shareholders' equity 68,807 63,864
Noncontrolling interests 305 306
Total shareholders' equity 69,112 64,170
Total liabilities and
shareholders' equity $
232,898 $
222,449
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
In millions 2020 2019
--- ---
Cash flows from operating activities:
Cash receipts from
customers $
195,554 $
184,519
Cash paid for
inventory and
prescriptions
dispensed by retail
network pharmacies (116,590) (109,958)
Insurance benefits
paid (40,221) (38,812)
Cash paid to other
suppliers and
employees (22,185) (21,411)
Interest and
investment income
received 622 756
Interest paid (2,517) (2,675)
Income taxes paid (2,365) (2,205)
Net cash provided by
operating activities 12,298 10,214
Cash flows from investing activities:
Proceeds from sales
and maturities of
investments 3,790 5,616
Purchases of
investments (6,377) (6,011)
Purchases of property
and equipment (1,724) (1,890)
Acquisitions (net of
cash acquired) (828) (361)
Proceeds from sale of
subsidiary 834
Other 5 16
Net cash used in
investing activities (4,300) (2,630)
Cash flows from financing activities:
Net borrowings of
short-term debt - 350
Proceeds from
issuance of long-
term debt 7,919 3,458
Repayments of long-
term debt (10,493) (8,350)
Derivative
settlements (7) (25)
Dividends paid (1,980) (1,952)
Proceeds from
exercise of stock
options 249 183
Payments for taxes
related to net share
settlement of equity
awards (75) (85)
Other (33) 11
Net cash used in
financing activities (4,420) (6,410)
Net increase in cash,
cash equivalents and
restricted cash 3,578 1,174
Cash, cash
equivalents and
restricted cash at
the beginning of the
period 5,954 4,295
Cash, cash
equivalents and
restricted cash at
the end of the
period $
9,532 $
5,469
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
In millions 2020 2019
--- ---
Reconciliation of net income to net cash
provided by operating activities:
Net income $
6,217 $
4,887
Adjustments required to reconcile net income
to net cash provided by operating
activities:
Depreciation and
amortization 3,302 3,275
Stock-based compensation 288 355
(Gain) loss on sale of
subsidiary (271) 205
Loss on early extinguishment
of debt 766 79
Deferred income taxes and
other noncash items (25) (38)
Change in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable, net (3,564) (2,312)
Inventories 45 413
Other assets (211) (374)
Accounts payable and
pharmacy claims and
discounts payable 3,495 2,330
Health care costs payable
and other insurance
liabilities (474) 535
Other liabilities 2,730 859
Net cash provided by
operating activities $
12,298 $
10,214
Non-GAAP Financial Information
The Company uses non-GAAP financial measures to analyze underlying business performance and trends. The Company believes that providing these non-GAAP financial measures enhances the Company's and investors' ability to compare the Company's past financial performance with its current performance. These non-GAAP financial measures are provided as supplemental information to the financial measures presented in this press release that are calculated and presented in accordance with GAAP. Non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. The Company's definitions of its non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies.
Non-GAAP financial measures such as adjusted operating income, adjusted earnings per share (EPS) and adjusted income attributable to CVS Health exclude from the relevant GAAP metrics, as applicable: amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance.
For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because the Company believes they neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance:
-- The Company's acquisition activities have resulted in the recognition of
intangible assets as required under the acquisition method of accounting
which consist primarily of trademarks, customer contracts/relationships,
covenants not to compete, technology, provider networks and value of
business acquired. Definite-lived intangible assets are amortized over
their estimated useful lives and are tested for impairment when events
indicate that the carrying value may not be recoverable. The
amortization of intangible assets is reflected in the Company's
unaudited GAAP condensed consolidated statements of operations in
operating expenses within each segment. Although intangible assets
contribute to the Company's revenue generation, the amortization of
intangible assets does not directly relate to the underwriting of the
Company's insurance products, the services performed for the Company's
customers or the sale of the Company's products or services.
Additionally, intangible asset amortization expense typically fluctuates
based on the size and timing of the Company's acquisition activity.
Accordingly, the Company believes excluding the amortization of
intangible assets enhances the Company's and investors' ability to
compare the Company's past financial performance with its current
performance and to analyze underlying business performance and trends.
Intangible asset amortization excluded from the related non-GAAP
financial measure represents the entire amount recorded within the
Company's GAAP financial statements, and the revenue generated by the
associated intangible assets has not been excluded from the related
non-GAAP financial measure. Intangible asset amortization is excluded
from the related non-GAAP financial measure because the amortization,
unlike the related revenue, is not affected by operations of any
particular period unless an intangible asset becomes impaired or the
estimated useful life of an intangible asset is revised.
-- During the three and nine months ended September 30, 2020 and 2019,
acquisition-related integration costs relate to the Aetna Acquisition.
The acquisition-related integration costs are reflected in the Company's
unaudited GAAP condensed consolidated statements of operations in
operating expenses within the Corporate/Other segment.
-- During the three and nine months ended September 30, 2020, the gain on
divestiture of subsidiary represents the pre-tax gain on the sale of the
Workers' Compensation business, which the Company sold on July 31, 2020
for approximately $850 million. The gain on divestiture is reflected as
a reduction in operating expenses in the Company's unaudited GAAP
condensed consolidated statements of operations within the Health Care
Benefits segment. During the three and nine months ended September 30,
2019, the loss on divestiture of subsidiary represents the pre-tax loss
on the sale of Onofre, which occurred on July 1, 2019. The loss on
divestiture primarily relates to the elimination of the cumulative
translation adjustment from accumulated other comprehensive income and
is reflected in operating expenses in the Company's unaudited GAAP
condensed consolidated statements of operations within the Retail/LTC
segment.
-- During the three and nine months ended September 30, 2019, the store
rationalization charges relate to the planned closure of 22
underperforming retail pharmacy stores in the first quarter of 2020.
During the nine months ended September 30, 2019, the store
rationalization charges also relate to the planned closure of 46
underperforming retail pharmacy stores in the second quarter of 2019.
The store rationalization charges primarily relate to operating lease
right-of-use asset impairment charges and are reflected in the Company's
unaudited GAAP condensed consolidated statements of operations in
operating expenses within the Retail/LTC segment.
-- During the three and nine months ended September 30, 2020, the loss on
early extinguishment of debt relates to the Company's repayment of $6.0
billion of its outstanding senior notes in August 2020 pursuant to its
tender offers for such senior notes. During the three and nine months
ended September 30, 2019, the loss on early extinguishment of debt
relates to the Company's repayment of $4.0 billion of its outstanding
senior notes in August 2019 pursuant to its tender offers for such
senior notes.
-- The corresponding tax benefit or expense related to the items excluded
from adjusted income attributable to CVS Health and Adjusted EPS above.
The nature of each non-GAAP adjustment is evaluated to determine whether
a discrete adjustment should be made to the adjusted income tax
provision.
The Company's full year 2020 guidance reconciliation also reflects the receipt of $313 million owed to the Company under the ACA's risk corridor program during October 2020 that was previously fully reserved for as payment was uncertain. After considering offsetting items such as the ACA's minimum medical loss ratio ("MLR") rebate requirements and premium taxes, the Company expects to recognize pre-tax income of approximately $305 million and after-tax income of approximately $220 million during the fourth quarter of 2020. This amount has been excluded from projected full year Adjusted EPS because the Company believes this amount neither relates to the ordinary course of the Company's business nor reflects the Company's underlying business performance.
See endnotes (1) and (2) on page 25 for definitions of non-GAAP financial measures. Reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure are presented on pages 14 through 17 and page 24.
Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Adjusted Operating Income
(Unaudited)
The following are reconciliations of operating income to adjusted operating income:
Three Months Ended September 30, 2020
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services LTC Benefits Other Eliminations Totals
--- ---
Operating income (loss)
(GAAP measure) $
1,564 $
1,283 $
949 $
(361) $
(186) $
3,249
Non-GAAP adjustments:
Amortization of
intangible assets 55 129 402 1 587
Acquisition-related
integration costs - 57 57
Gain on divestiture of
subsidiary - (271) (271)
Adjusted operating
income (loss) (1) $
1,619 $
1,412 $
1,080 $
(303) $
(186) $
3,622
Three Months Ended September 30, 2019
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services LTC Benefits Other Eliminations Totals
--- ---
Operating income (loss)
(GAAP measure) $
1,340 $
1,095 $
1,036 $
(364) $
(179) $
2,928
Non-GAAP adjustments:
Amortization of
intangible assets 99 120 387 1 607
Acquisition-related
integration costs - 111 111
Loss on divestiture of
subsidiary - 205 205
Store rationalization
charge - 96 96
Adjusted operating
income (loss) (1) $
1,439 $
1,516 $
1,423 $
(252) $
(179) $
3,947
Nine Months Ended September 30, 2020
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services LTC Benefits Other Eliminations Totals
--- ---
Operating income (loss)
(GAAP measure) $
3,949 $
3,996 $
5,110 $
(1,129) $
(539) $
11,387
Non-GAAP adjustments:
Amortization of
intangible assets 178 375 1,196 2 1,751
Acquisition-related
integration costs - 196 196
Gain on divestiture of
subsidiary - (271) (271)
Adjusted operating
income (loss) (1) $
4,127 $
4,371 $
6,035 $
(931) $
(539) $
13,063
Nine Months Ended September 30, 2019
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services LTC Benefits Other Eliminations Totals
--- ---
Operating income (loss)
(GAAP measure) $
3,387 $
3,884 $
3,253 $
(1,053) $
(521) $
8,950
Non-GAAP adjustments:
Amortization of
intangible assets 295 354 1,170 3 1,822
Acquisition-related
integration costs - 365 365
Loss on divestiture of
subsidiary - 205 205
Store rationalization
charges - 231 231
Adjusted operating
income (loss) (1) $
3,682 $
4,674 $
4,423 $
(685) $
(521) $
11,573
Adjusted Earnings Per Share
(Unaudited)
The following are reconciliations of net income attributable to CVS Health to adjusted income attributable to CVS Health and calculations of GAAP diluted EPS and Adjusted EPS:
Three Months Ended Three Months Ended
September 30, 2020 September 30, 2019
---
In millions, except per share amounts Total Per Total Per
Company Company
Common Common
Share Share
--- ---
Net income (GAAP measure) $
1,219 $
1,529
Net loss attributable to noncontrolling interests (GAAP measure) 5 1
Net income attributable to CVS Health (GAAP measure) 1,224 $
0.93 1,530 $
1.17
Non-GAAP adjustments:
Amortization of intangible assets 587 0.44 607 0.46
Acquisition-related integration costs 57 0.04 111 0.09
(Gain) loss on divestiture of subsidiary (271) (0.20) 205 0.16
Store rationalization charge - 96 0.07
Loss on early extinguishment of debt 766 0.58 79 0.06
Income tax benefit (182) (0.13) (220) (0.17)
Income allocable to participating securities, net of tax (a) - (1)
Adjusted income attributable to CVS Health (2) $
2,181 $
1.66 $
2,407 $
1.84
Weighted average diluted shares outstanding 1,315 1,305
(a) Represents the
corresponding
impact to
income
allocable to
participating
securities,
net of tax,
related to the
items above
excluded from
income from
continuing
operations
attributable
to CVS Health
in determining
adjusted
income from
continuing
operations
attributable
to CVS Health
and
calculating
Adjusted EPS
above.
Nine Months Ended Nine Months Ended
September 30, 2020 September 30, 2019
In millions, except per share amounts Total Per Total Per
Company Company
Common Common
Share Share
---
Net income (GAAP measure) $
6,217 $
4,887
Net income attributable to noncontrolling interests (GAAP measure) (11)
Income allocable to participating securities (GAAP measure) (3)
Net income attributable to CVS Health (GAAP measure) 6,206 $
4.72 4,884 $
3.75
Non-GAAP adjustments:
Amortization of intangible assets 1,751 1.33 1,822 1.40
Acquisition-related integration costs 196 0.15 365 0.28
(Gain) loss on divestiture of subsidiary (271) (0.20) 205 0.16
Store rationalization charges 231 0.17
Loss on early extinguishment of debt 766 0.58 79 0.06
Income tax benefit (497) (0.37) (611) (0.47)
Income allocable to participating securities, net of tax (a) (2)
Adjusted income attributable to CVS Health (2) $
8,151 $
6.21 $
6,973 $
5.35
Weighted average diluted shares outstanding 1,314 1,303
(a) Represents the
corresponding
impact to
income
allocable to
participating
securities,
net of tax,
related to the
items above
excluded from
income from
continuing
operations
attributable
to CVS Health
in determining
adjusted
income from
continuing
operations
attributable
to CVS Health
and
calculating
Adjusted EPS
above.
Supplemental Information
(Unaudited)
The Company's segments maintain separate financial information, and the Company's chief operating decision maker (the "CODM") evaluates the segments' operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM
evaluates the performance of the Company's segments based on adjusted operating income, which is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor
reflect the Company's underlying business performance as further described in endnote (1). The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company's ability to compare past financial performance with current performance and analyze
underlying business performance and trends.
The following is a reconciliation of financial measures of the Company's segments to the consolidated totals:
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services (a) LTC Benefits Other Eliminations (b) Totals
--- ---
Three Months Ended
September 30, 2020
Total revenues $
35,711 $
22,725 $
18,698 $
116 $
(10,194) $
67,056
Operating
income (loss) 1,564 1,283 949 (361) (186) 3,249
Adjusted
operating
income (loss)
(1) 1,619 1,412 1,080 (303) (186) 3,622
September 30, 2019
Total revenues 36,018 21,466 17,181 152 (10,007) 64,810
Operating
income (loss) 1,340 1,095 1,036 (364) (179) 2,928
Adjusted
operating
income (loss)
(1) 1,439 1,516 1,423 (252) (179) 3,947
Nine Months Ended
September 30, 2020
Total revenues $
105,583 $
67,136 $
56,364 $
292 $
(30,223) $
199,152
Operating
income (loss) 3,949 3,996 5,110 (1,129) (539) 11,387
Adjusted
operating
income (loss)
(1) 4,127 4,371 6,035 (931) (539) 13,063
September 30, 2019
Total revenues 104,418 64,028 52,454 423 (31,436) 189,887
Operating
income (loss) 3,387 3,884 3,253 (1,053) (521) 8,950
Adjusted
operating
income (loss)
(1) 3,682 4,674 4,423 (685) (521) 11,573
(a) Total revenues
of the
Pharmacy
Services
segment
include
approximately
$2.5 billion
and $2.7
billion of
retail co-
payments for
the three
months ended
September 30,
2020 and 2019,
respectively,
and $8.5
billion and
$8.9 billion
of retail co-
payments for
the nine
months ended
September 30,
2020 and 2019,
respectively.
(b) Intersegment
eliminations
relate to
intersegment
revenue
generating
activities
that occur
between the
Pharmacy
Services
segment, the
Retail/LTC
segment and/
or the Health
Care Benefits
segment.
Supplemental Information
(Unaudited)
Pharmacy Services Segment
The following table summarizes the Pharmacy Services segment's performance for the respective periods:
Change
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30,
September 30, September 30, September 30,
2020 vs 2019 2020 vs 2019
---
In millions, except percentages 2020 2019 2020 2019
$ %
$ %
--- ---
Revenues:
Products $
35,461 $
35,883 $
104,802 $
104,056 $
(422) (1.2)
%
% $
746 0.7
Services 250 135 781 362 115 85.2 419 115.7
%
%
---
Total revenues 35,711 36,018 105,583 104,418 (307) (0.9)
%
% 1,165 1.1
Cost of products sold 33,809 34,300 100,583 99,918 (491) (1.4)
%
% 665 0.7
Gross profit (10) 1,902 1,718 5,000 4,500 184 10.7 500 11.1
% %
Gross margin (Gross profit as a % of total revenues) (10) 5.3
% 4.8
% 4.7
% 4.3
%
Operating expenses $
338 $
378 $
1,051 $
1,113 $
(40) (10.6) $
(62) (5.6)
%
%
Operating expenses as a % of total revenues 0.9
% 1.0
% 1.0
% 1.1
%
Operating income $
1,564 $
1,340 $
3,949 $
3,387 $
224 16.7 $
562 16.6
% %
Operating income as a % of total revenues 4.4
% 3.7
% 3.7
% 3.2
%
Adjusted operating income (1) $
1,619 $
1,439 $
4,127 $
3,682 $
180 12.5 $
445 12.1
% %
Adjusted operating income as a % of total revenues 4.5
% 4.0
% 3.9
% 3.5
%
Revenues (by distribution channel):
Pharmacy network (6) (14) $
21,473 $
22,411 $
63,109 $
65,917 $
(938) (4.2) $
(2,808) (4.3)
% %
Mail choice (7) (14) 14,032 13,461 41,815 38,066 571 4.2 3,749 9.8
% %
Other 206 146 659 435 60 41.1 224 51.5
% %
Pharmacy claims processed: (4) (5)
Total 528.2 509.5 1,575.0 1,480.3 18.7 3.7 94.7 6.4
% %
Pharmacy network (6) 447.7 430.2 1,333.9 1,250.0 17.5 4.1 83.9 6.7
% %
Mail choice (7) 80.5 79.3 241.1 230.3 1.2 1.5 10.8 4.7
% %
Generic dispensing rate: (4) (11)
Total 87.9 88.1 88.5
% 88.3
% % %
Pharmacy network (6) 88.3 88.7 89.0
% 88.9
% % %
Mail choice (7) 85.7 85.3 85.7
% 85.1
% % %
Supplemental Information
(Unaudited)
Retail/LTC Segment
The following table summarizes the Retail/LTC segment's performance for the respective periods:
Change
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30,
September 30, September 30, September 30,
2020 vs 2019 2020 vs 2019
---
In millions, except percentages 2020 2019 2020 2019
$ %
$ %
--- ---
Revenues:
Products $
22,424 $
21,273 $
66,422 $
63,403 $
1,151 5.4 $
3,019 4.8
%
%
Services 301 193 714 625 108 56.0 89 14.2
%
%
---
Total revenues 22,725 21,466 67,136 64,028 1,259 5.9 3,108 4.9
%
%
Cost of products sold 16,899 15,656 49,697 46,504 1,243 7.9 3,193 6.9
%
%
Gross profit (10) 5,826 5,810 17,439 17,524 16 0.3 (85) (0.5)
%
%
Gross margin (Gross profit as a % of total revenues) (10) 25.6 27.1 26.0 27.4
% % % %
Operating expenses $
4,543 $
4,715 $
13,443 $
13,640 $
(172) (3.6) $
(197) (1.4)
% %
Operating expenses as a % of total revenues 20.0 22.0 20.0 21.3
% % % %
Operating income $
1,283 $
1,095 $
3,996 $
3,884 $
188 17.2 $
112 2.9
%
%
Operating income as a % of total revenues 5.6
% 5.1
% 6.0
% 6.1
%
Adjusted operating income (1) $
1,412 $
1,516 $
4,371 $
4,674 $
(104) (6.9) $
(303) (6.5)
% %
Adjusted operating income as a % of total revenues 6.2
% 7.1
% 6.5
% 7.3
%
Revenues (by major goods/service lines):
Pharmacy $
17,608 $
16,687 $
51,833 $
49,197 $
921 5.5 $
2,636 5.4
%
%
Front Store 4,740 4,614 14,601 14,288 126 2.7 313 2.2
%
%
Other 377 165 702 543 212 128.5 159 29.3
% %
Prescriptions filled (4) (5) 368.4 352.3 1,088.9 1,048.2 16.1 4.6 40.7 3.9
%
%
Same store sales increase: (12)
Total 5.7
% 3.6
% 5.7
% 3.9
%
Pharmacy 6.7
% 4.5
% 6.8
% 4.7
%
Front Store 2.2
% 0.6
% 1.9
% 1.3
%
Prescription volume (4) 5.8
% 7.8
% 5.4
% 7.3
%
Generic dispensing rate (4) (11) 87.7 88.2 88.7 88.7
% % % %
Supplemental Information
(Unaudited)
Health Care Benefits Segment
The following table summarizes the Health Care Benefits segment's performance for the respective periods:
Change
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30,
September 30, September 30, September 30,
2020 vs 2019 2020 vs 2019
---
In millions, except percentages 2020 2019 2020 2019
$ %
$ %
and basis points ("bps")
--- ---
Revenues:
Premiums $
17,165 $
15,507 $
51,699 $
47,543 $
1,658 10.7 $
4,156 8.7
% %
Services 1,412 1,528 4,324 4,453 (116) (7.6) (129) (2.9)
% %
Net investment income 121 146 341 458 (25) (17.1) (117) (25.5)
% %
---
Total revenues 18,698 17,181 56,364 52,454 1,517 8.8 3,910 7.5
% %
Benefit costs 14,416 12,914 40,816 39,815 1,502 11.6 1,001 2.5
% %
MBR (Benefit costs as a % of premium revenues) (8) 84.0 83.3 78.9 83.7
% % % % 70 bps (480) bps
Operating expenses $
3,333 $
3,231 $
10,438 $
9,386 $
102 3.2 $
1,052 11.2
% %
Operating expenses as a % of total revenues 17.8 18.8 18.5 17.9
% % % %
Operating income $
949 $
1,036 $
5,110 $
3,253 $
(87) (8.4)
%
% $
1,857 57.1
Operating income as a % of total revenues 5.1
% 6.0
% 9.1
% 6.2
%
Adjusted operating income (1) $
1,080 $
1,423 $
6,035 $
4,423 $
(343) (24.1) $
1,612 36.4
% %
Adjusted operating income as a % of total revenues 5.8
% 8.3
% 10.7
% 8.4
%
Premium revenues (by business):
Government $
12,181 $
10,247 $
36,626 $
31,598 $
1,934 18.9 $
5,028 15.9
% %
Commercial 4,984 5,260 $
15,073 15,945 (276) (5.2) (872) (5.5)
% %
The following table summarizes the Health Care Benefits segment's medical membership for the respective periods:
September 30, 2020
June 30, 2020 December 31, 2019 September 30, 2019
---
In thousands Insured ASC Total Insured ASC Total Insured ASC Total Insured ASC Total
--- ---
Medical membership: (9)
Commercial 3,268 13,671 16,939 3,298 14,179 17,477 3,591 14,159 17,750 3,560 14,159 17,719
Medicare Advantage 2,689 2,689 2,651 2,651 2,321 2,321 2,304 2,304
Medicare Supplement 1,009 1,009 954 954 881 881 842 842
Medicaid 2,028 605 2,633 1,918 586 2,504 1,398 558 1,956 1,382 562 1,944
Total medical
membership 8,994 14,276 23,270 8,821 14,765 23,586 8,191 14,717 22,908 8,088 14,721 22,809
Supplemental membership information:
Medicare Prescription Drug Plan (standalone) (a) 5,540 5,575 5,994 5,998
(a) Represents the
Company's
SilverScript(R)
PDP membership
only. Excludes
2.5 million
members as of
both December
31, 2019 and
September 30,
2019 related
to Aetna's
standalone
PDPs that were
sold effective
December 31,
2018. The
Company
retained the
financial
results of the
divested plans
through 2019
through a
reinsurance
agreement.
Subsequent to
2019, the
Company no
longer retains
the financial
results of the
divested
plans.
Supplemental Information
(Unaudited)
The following table shows the components of the change in health care costs payable during the nine
months ended September 30, 2020 and 2019:
Nine Months Ended
September 30,
In millions 2020 2019
--- ---
Health care costs
payable, beginning
of period $
6,879 $
6,147
Less: Reinsurance
recoverables 5 4
Health care costs
payable, beginning
of period, net 6,874 6,143
Acquisition 444
Add: Components of incurred health
care costs
Current year 40,777 39,657
Prior years (a) (448) (511)
Total incurred health
care costs (b) 40,329 39,146
Less: Claims paid
Current year 34,198 33,032
Prior years 5,865 5,253
Total claims paid 40,063 38,285
Add: Premium
deficiency reserve 1 6
Health care costs
payable, end of
period, net 7,585 7,010
Add: Reinsurance
recoverables 8 4
Health care costs
payable, end of
period $
7,593 $
7,014
(a) Negative amounts
reported for
incurred health
care costs
related to
prior years
result from
claims being
settled for
amounts less
than originally
estimated.
(b) Total incurred
health care
costs for the
nine months
ended September
30, 2020 and
2019 in the
table above
exclude (i) $1
million and $6
million,
respectively,
related to a
premium
deficiency
reserve related
to the
Company's
Medicaid
products, (ii)
$31 million and
$31 million,
respectively,
of benefit
costs recorded
in the Health
Care Benefits
segment that
are included in
other insurance
liabilities on
the Company's
unaudited
condensed
consolidated
balance sheets
and (iii) $173
million and
$213 million,
respectively,
of benefit
costs recorded
in the
Corporate/
Other segment
that are
included in
other insurance
liabilities on
the Company's
unaudited
condensed
consolidated
balance sheets.
The following table summarizes the Health Care Benefits segment's days claims payable for the respective periods:
September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019
---
Days
Claims
Payable
(13) 49 57 48 48 51
Supplemental Information
(Unaudited)
Corporate/Other Segment
The following table summarizes the Corporate/Other segment's performance for the respective periods:
Change
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30,
September 30, September 30, September 30,
2020 vs 2019
2020 vs 2019
---
In millions, except percentages 2020 2019 2020 2019
$ %
$ %
--- ---
Revenues:
Premiums $
17 $
32 $
50 $
69 $
(15) (46.9) $
(19) (27.5)
% %
Services 16 3 33 7 13 433.3 26 371.4
% %
Net investment income 83 117 209 347 (34) (29.1) (138) (39.8)
% %
Total revenues 116 152 292 423 (36) (23.7) (131) (31.0)
% %
Benefit costs 54 77 173 213 (23) (29.9) (40) (18.8)
% %
Operating expenses 423 439 1,248 1,263 (16) (3.6) (15) (1.2)
% %
Operating loss (361) (364) (1,129) (1,053) 3 0.8 (76) (7.2)
%
%
Adjusted operating loss (1) (303) (252) (931) (685) (51) (20.2) (246) (35.9)
% %
Adjusted Earnings Per Share Guidance
(Unaudited)
The following reconciliations of projected net income to projected adjusted income attributable to CVS Health and calculations of projected GAAP diluted EPS and projected Adjusted EPS contain forward-looking information. All forward-looking
information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information due to the risks and uncertainties related to the COVID-19 pandemic, the geographies impacted and
the severity and duration of the pandemic, the pandemic's impact on the U.S. and global economies and consumer behavior and health care utilization patterns, and the timing, scope and impact of stimulus legislation and other federal, state and
local governmental responses to the pandemic, as well as the risks and uncertainties described in our SEC filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking
Statements" in our most recently filed Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020. See "Non-GAAP Financial Information" earlier in this press release and endnote (2)
later in this press release for more information on how we calculate Adjusted EPS.
Year Ending December 31, 2020
Low
High
---
In millions, except per share amounts Total Per Total Per
Company Common Company Common
Share Share
--- ---
Net income attributable to CVS Health (GAAP measure) $
7,400 $
5.60 $
7,530 $
5.70
Non-GAAP adjustments:
Amortization of intangible assets 2,340 1.77 2,340 1.77
Acquisition-related integration costs 350 0.27 350 0.27
Gain on divestiture of subsidiary (271) (0.20) (271) (0.20)
Receipt of fully reserved ACA risk corridor receivable (305) (0.23) (305) (0.23)
Loss on early extinguishment of debt 766 0.58 766 0.58
Income tax benefit (580) (0.44) (580) (0.44)
Adjusted income attributable to CVS Health (2) $
9,700 $
7.35 $
9,830 $
7.45
Weighted average diluted shares outstanding 1,320 1,320
Endnotes
(1) The Company defines adjusted operating income as
operating income (GAAP measure) excluding the impact
of amortization of intangible assets and other items,
if any, that neither relate to the ordinary course of
the Company's business nor reflect the Company's
underlying business performance, such as acquisition-
related integration costs, gains/losses on
divestitures, store rationalization charges, receipt
of amounts owed to the Company under the ACA risk
corridor program and any other items specifically
identified herein. See "Non-GAAP Financial
Information" earlier in this press release for
additional information regarding the items excluded
from operating income.
(2) The Company defines adjusted income attributable
to CVS Health as net income attributable to CVS Health
(GAAP measure) excluding the impact of amortization of
intangible assets and other items, if any, that
neither relate to the ordinary course of the Company's
business nor reflect the Company's underlying business
performance, such as acquisition-related integration
costs, gains/losses on divestitures, store
rationalization charges, receipt of amounts owed to
the Company under the ACA risk corridor program,
losses on early extinguishment of debt, the
corresponding income tax benefit or expense related to
the items excluded from adjusted income attributable
to CVS Health, the corresponding impact to income
allocable to participating securities, net of tax,
related to the items excluded from net income
attributable to CVS Health in determining adjusted
income attributable to CVS Health, and any other items
specifically identified herein. GAAP diluted EPS and
Adjusted EPS, respectively, are calculated by dividing
net income attributable to CVS Health and adjusted
income attributable to CVS Health by the Company's
weighted average diluted shares outstanding. See "Non-
GAAP Financial Information" earlier in this press
release for additional information regarding the items
excluded from net income attributable to CVS Health
and GAAP diluted EPS.
(3) Enterprise prescriptions include prescriptions
dispensed through the Company's retail pharmacies,
long-term care pharmacies, and mail order pharmacies
as well as prescription claims managed through our
pharmacy benefits manager, with an elimination for
managed prescription claims filled through CVS Health
dispensing channels. Management uses this metric to
analyze the total prescription volume across the
Company including variances between actual
prescriptions and expected amounts as well as trends
in period-over-period results. This metric provides
management and investors with information useful in
understanding the impact of prescription volume on
total revenues and operating results.
(4) Includes an adjustment to convert 90-day
prescriptions to the equivalent of three 30-day
prescriptions. This adjustment reflects the fact that
these prescriptions include approximately three times
the amount of product days supplied compared to a
normal prescription.
(5) Total pharmacy claims processed represents the
number of prescription claims processed through our
pharmacy benefits manager and dispensed by either our
retail network pharmacies or our own mail and
specialty pharmacies. Prescriptions filled represents
the number of prescriptions dispensed through the
Retail/LTC segment's pharmacies. Management uses
these metrics to understand variances between actual
claims processed and prescriptions dispensed,
respectively, and expected amounts as well as trends
in period-over-period results. These metrics provide
management and investors with information useful in
understanding the impact of pharmacy claim volume and
prescription volume, respectively, on segment total
revenues and operating results.
(6) Pharmacy network is defined as claims filled at
retail and specialty retail pharmacies, including the
Company's retail pharmacies and long-term care
pharmacies, but excluding Maintenance Choice activity,
which is included within the mail choice category.
Maintenance Choice permits eligible client plan
members to fill their maintenance prescriptions
through mail order delivery or at a CVS Pharmacy
retail store for the same price as mail order.
(7) Mail choice is defined as claims filled at a
Pharmacy Services mail order facility, which includes
specialty mail claims inclusive of Specialty
Connect(R) claims picked up at a retail pharmacy, as
well as prescriptions filled at the Company's retail
pharmacies under the Maintenance Choice program.
(8) Medical benefit ratio is calculated as benefit
costs divided by premium revenues and represents the
percentage of premium revenues spent on medical
benefits for the Company's insured members. Management
uses MBR to assess the underlying business performance
and underwriting of its insurance products, understand
variances between actual results and expected results
and identify trends in period-over-period results.
MBR provides management and investors with information
useful in assessing the operating results of the
Company's insured Health Care Benefits products.
(9) Medical membership represents the number of
members covered by the Company's insured and ASC
medical products and related services at a specified
point in time. Management uses this metric to
understand variances between actual medical membership
and expected amounts as well as trends in period-
over-period results. This metric provides management
and investors with information useful in understanding
the impact of medical membership on segment total
revenues and operating results.
(10) Gross profit is calculated as the segment's total
revenues less its cost of products sold. Gross margin
is calculated by dividing the segment's gross profit
by its total revenues and represents the percentage of
total revenues that remains after incurring direct
costs associated with the segment's products sold and
services provided. Gross margin provides investors
with information that may be useful in assessing the
operating results of the Company's Pharmacy Services
and Retail/LTC segments.
(11) Generic dispensing rate is calculated by dividing
the segment's generic drug prescriptions processed or
filled by its total prescriptions processed or filled.
Management uses this metric to evaluate the
effectiveness of the business at encouraging the use
of generic drugs when they are available and
clinically appropriate, which aids in decreasing costs
for client members and retail customers. This metric
provides management and investors with information
useful in understanding trends in segment total
revenues and operating results.
(12) Same store sales and prescription volume
represent the change in revenues and prescriptions
filled in the Company's retail pharmacy stores that
have been operating for greater than one year,
expressed as a percentage that indicates the increase
or decrease relative to the comparable prior period.
Same store metrics exclude revenues from
MinuteClinic(R), revenues and prescriptions from LTC
operations and, in 2019, revenues and prescriptions
from stores in Brazil. Management uses these metrics
to evaluate the performance of existing stores on a
comparable basis and to inform future decisions
regarding existing stores and new locations. Same-
store metrics provide management and investors with
information useful in understanding the portion of
current revenues and prescriptions resulting from
organic growth in existing locations versus the
portion resulting from opening new stores.
(13) Days claims payable is calculated by dividing the
health care costs payable at the end of each quarter
by the average health care costs per day during such
quarter. Management and investors use this metric as
an indicator of the adequacy of the Company's health
care costs payable liability at the end of each
quarter and as an indicator of changes in such
adequacy over time.
(14) Certain prior year amounts have been reclassified
for consistency with the current period presentation.
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SOURCE CVS Health Corporation
