CVS HEALTH REPORTS FOURTH QUARTER AND FULL-YEAR 2023 RESULTS
WOONSOCKET, R.I., Feb. 7, 2024 /PRNewswire/ -- CVS Health Corporation (NYSE: CVS) today announced operating results for the three months and year ended December 31, 2023.
FOURTH QUARTER HIGHLIGHTS
-- Total revenues increased to $93.8 billion, up 11.9% compared to prior
year
-- GAAP diluted EPS of $1.58 and Adjusted EPS of $2.12
KEY FINANCIAL DATA
Three Months Ended
December 31,
In millions, except per share amounts 2023 2022 Change
---
Total revenues $93,813 $83,846 $9,967
Operating income 3,373 3,659 (286)
Adjusted operating income (1) 4,227 4,079 148
Diluted earnings per share $1.58 $1.77 $(0.19)
Adjusted EPS (2) $2.12 $2.04 $0.08
FULL-YEAR HIGHLIGHTS
-- Total revenues increased to $357.8 billion, up 10.9% compared to prior
year
-- GAAP diluted EPS of $6.47 and Adjusted EPS of $8.74
-- Generated cash flow from operations of $13.4 billion
Note: Financial information as of and for the three months and year ended December 31, 2022 throughout this press release has been revised to conform with certain current period financial statement changes as described on page 17.
2024 FULL-YEAR GUIDANCE
Upon finalizing the medical cost trend analysis for the fourth quarter of 2023 and recognizing potential implications for elevated medical cost trends in 2024, the Company has:
-- Revised GAAP diluted EPS guidance to at least $7.06 from at least $7.26
-- Revised Adjusted EPS guidance to at least $8.30 from at least $8.50
-- Revised cash flow from operations guidance to at least $12.0 billion
from at least $12.5 billion
CEO Commentary
"With a focus on delivering care and value, we had a strong fourth quarter and full year in 2023 as we build a world of health around every consumer. We will continue to drive affordable access to care when, where, and how people want, while we improve transparency throughout the health care system."
-Karen S. Lynch, CVS Health President and CEO
IN THE SPOTLIGHT
Announced CVS CostVantageTM, which evolves our pharmacy reimbursement model and brings greater transparency and simplicity to the system. CVS CostVantage will define the drug cost and related
reimbursement using a simplified formula built on the cost of the drug, a set markup and a fee that reflects the care and value of pharmacy services. CVS Pharmacy plans to launch CVS CostVantage to
commercial payors in 2025.
Introduced CVS Caremark TrueCostTM, a model innovation that offers client pricing reflecting the true net cost of prescription drugs, with visibility into administrative fees. Simplified pricing
will allow members to have stable access to the Company's national pharmacy network. CVS Caremark plans to launch CVS Caremark TrueCost in 2025.
Launched CVS HealthspireTM, the new name for the Health Services segment, which includes Caremark, CordavisTM, Oak Street Health, Signify Health and MinuteClinic(R). CVS Healthspire will continue to
focus on integration across the Company's assets to deliver connected patient care, pharmacy benefits and innovative provider support solutions.
Announced a 10% increase to the quarterly shareholder dividend, which became effective with the February 1, 2024 dividend distribution. Returned $3.1 billion to shareholders through dividends in
2023.
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" beginning on page 12 and endnotes beginning on page 25 for explanations of non-GAAP financial measures presented in this press release. See pages 14 through 16 and page 24 for reconciliations of each non-GAAP financial measure used in this release to the most directly comparable GAAP financial measure.
Consolidated fourth quarter and full-year results
Three Months Ended Year Ended
December 31, December 31,
In millions, except per share amounts 2023 2022 Change 2023 2022 Change
---
Total revenues $93,813 $83,846 $9,967 $357,776 $322,467 $35,309
Operating income 3,373 3,659 (286) 13,743 7,954 5,789
Adjusted operating income (1) 4,227 4,079 148 17,534 18,037 (503)
Net income 2,047 2,332 (285) 8,368 4,327 4,041
Diluted earnings per share $1.58 $1.77 $(0.19) $6.47 $3.26 $3.21
Adjusted EPS (2) $2.12 $2.04 $0.08 $8.74 $9.03 $(0.29)
For the three months and year ended December 31, 2023 compared to the prior year:
-- Total revenues increased 11.9% and 10.9%, respectively, driven by growth
across all segments.
-- Operating income decreased 7.8% in the three months ended December 31,
2023 compared to the prior year primarily due to $193 million of
acquisition-related transaction and integration costs recorded in the
current year and the absence of a pre-tax gain of $250 million on the
sale of the Company's wholly-owned subsidiary bswift LLC ("bswift")
recorded in the prior year. These decreases were partially offset by the
increases in adjusted operating income described below.
-- Operating income increased 72.8% for the year ended December 31, 2023
compared to the prior year primarily due to the absence of $5.8 billion
of opioid litigation charges and a $2.5 billion loss on assets held for
sale related to the write-down of the Company's Omnicare(®) long-term
care business ("LTC business"), both of which were recorded in the prior
year. These increases were partially offset by $507 million of
restructuring charges and $487 million of acquisition-related
transaction and integration costs recorded in the current year, the
absence of pre-tax gains of $250 million on the sale of bswift and $225
million on the sale of PayFlex Holdings, Inc. ("PayFlex") recorded in
the prior year, as well as the decreases in adjusted operating income
described below.
-- Adjusted operating income increased 3.6% in the three months ended
December 31, 2023 compared to the prior year primarily driven by
increases in the Pharmacy & Consumer Wellness, Health Services and
Corporate/Other segments, partially offset by a decline in the Health
Care Benefits segment. Adjusted operating income decreased 2.8% in the
year ended December 31, 2023 compared to the prior year primarily driven
by decreases in the Health Care Benefits and Pharmacy & Consumer
Wellness segments, partially offset by increases in the Health Services
and Corporate/Other segments. See pages 4 through 6 for additional
discussion of adjusted operating income performance of the Company's
segments.
-- Interest expense increased $138 million, or 25.0%, and $371 million, or
16.2%, respectively, due to higher debt in the three months and year
ended December 31, 2023 to fund the acquisitions of Signify Health, Inc.
("Signify Health") and Oak Street Health, Inc. ("Oak Street Health").
-- The effective income tax rate in the fourth quarter decreased to 24.3%
compared to 26.0% in the prior year primarily due to the impact of
certain discrete tax items in the fourth quarter of 2023. The effective
income tax rate for the full year decreased to 25.1% compared to 25.9%
in the prior year primarily due to the absence of certain nondeductible
legal charges and basis differences on the sale of bswift and PayFlex in
2022. These decreases were partially offset by the absence of the impact
of certain discrete tax items concluded in the year ended December 31,
2022.
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 months and years ended December 31, 2023 and 2022 were as follows:
Three Months Ended
Year Ended
December 31, December 31,
In millions, except percentages 2023 2022 Change 2023 2022 Change
---
Total revenues $26,726 $23,019 $3,707 $105,646 $91,350 $14,296
Adjusted operating income (1) 676 913 (237) 5,577 6,338 (761)
Medical benefit ratio ("MBR") (3) 88.5 % 85.8 % 2.7 % 86.2 % 83.8 % 2.4 %
Medical membership (4) 25.7 24.4 1.3
-- Total revenues increased 16.1% and 15.6% for the three months and year
ended December 31, 2023, respectively, compared to the prior year driven
by growth across all product lines.
-- Adjusted operating income decreased 26.0% for the three months ended
December 31, 2023 compared to the prior year primarily driven by growth
in the individual exchange business, including the related impact of
seasonality, and increased utilization in Medicare Advantage. These
decreases were partially offset by higher net investment income in the
three months ended December 31, 2023 compared to the prior year.
-- Adjusted operating income decreased 12.0% for the year ended December
31, 2023 compared to the prior year primarily driven by increased
utilization in Medicare Advantage when compared with pandemic influenced
utilization levels in the prior year, as well as incremental investments
in the business, including investments in service capabilities and
member experience. These decreases were partially offset by higher net
investment income in the year ended December 31, 2023 compared to the
prior year.
-- The MBR increased from 85.8% to 88.5% in the three months ended December
31, 2023 compared to the prior year and increased from 83.8% to 86.2% in
the year ended December 31, 2023 compared to the prior year. These
increases were primarily driven by increased utilization in Medicare
Advantage, including outpatient and supplemental benefits, when compared
with pandemic influenced utilization levels in the prior year, as well
as Commercial and Medicaid trends returning to normalized levels,
consistent with pricing expectations.
-- Medical membership as of December 31, 2023 of 25.7 million remained
relatively consistent compared with September 30, 2023, as declines in
the Medicaid product line were largely offset by increases in the
Commercial and Medicare product lines.
-- Medical membership as of December 31, 2023 of 25.7 million increased 1.3
million members compared with December 31, 2022, reflecting increases in
the Commercial and Medicare product lines, including an increase of 1.3
million members related to the individual exchange business within the
Commercial product line. These increases were partially offset by a
decline in the Medicaid product line, primarily attributable to the
resumption of Medicaid redeterminations following the expiration of the
public health emergency in May 2023.
-- The segment experienced favorable development of prior-periods' health
care cost estimates in its Government Services and Commercial businesses
during the three months ended December 31, 2023, primarily attributable
to 2023 performance.
-- Prior years' health care costs payable estimates developed favorably by
$675 million during the year ended December 31, 2023. 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 2023 operating results.
See the supplemental information on page 19 for additional information regarding the performance of the Health Care Benefits segment.
Health Services segment
The Health Services segment provides a full range of pharmacy benefit management ("PBM") solutions, delivers health care services in its medical clinics, virtually, and in the home, and offers provider enablement solutions. The segment results for the three months and years ended December 31, 2023 and 2022 were as follows:
Three Months Ended Year Ended
December 31, December 31,
In millions 2023 2022 Change 2023 2022 Change
---
Total revenues $49,146 $43,769 $5,377 $186,843 $169,576 $17,267
Adjusted operating income (1) 1,860 1,785 75 7,312 6,781 531
Pharmacy claims processed (5) (6) 600.8 600.2 0.6 2,344.3 2,335.1 9.2
-- Total revenues increased 12.3% and 10.2% for the three months and year
ended December 31, 2023, respectively, compared to the prior year
primarily driven by pharmacy drug mix, growth in specialty pharmacy,
brand inflation and the acquisitions of Oak Street Health and Signify
Health. These increases were partially offset by continued pharmacy
client price improvements.
-- Adjusted operating income increased 4.2% and 7.8% for the three months
and year ended December 31, 2023, respectively, compared to the prior
year primarily driven by improved purchasing economics, including
increased contributions from the products and services of the Company's
group purchasing organization, as well as growth in specialty pharmacy,
including increased contributions from specialty generics. These
increases were partially offset by continued pharmacy client price
improvements.
-- Pharmacy claims processed increased slightly on a 30-day equivalent
basis for the three months and year ended December 31, 2023 compared to
the prior year primarily driven by net new business and increased
utilization. These increases were largely offset by the impact of a
Medicaid customer contract change that occurred during the second
quarter of 2023 and a decrease in COVID-19 vaccinations.
See the supplemental information on page 20 for additional information regarding the performance of the Health Services segment.
Pharmacy & Consumer Wellness segment
The Pharmacy & Consumer Wellness segment dispenses prescriptions in its retail pharmacies and through its infusion operations, provides ancillary pharmacy services including pharmacy patient care programs, diagnostic testing and vaccination administration, and sells a wide assortment of health and wellness products and general merchandise. The segment also provides pharmacy services to long-term care facilities and pharmacy fulfillment services to support the Health Services segment's specialty and mail order pharmacy offerings. The segment results for the three months and years ended December 31, 2023 and 2022 were as follows:
Three Months Ended Year Ended
December 31, December 31,
In millions 2023 2022 Change 2023 2022 Change
---
Total revenues $31,185 $28,715 $2,470 $116,763 $108,596 $8,167
Adjusted operating income (1) 2,027 1,847 180 5,963 6,531 (568)
Prescriptions filled (5) (6) 431.5 423.4 8.1 1,649.1 1,625.4 23.7
-- Total revenues increased 8.6% and 7.5% for the three months and year
ended December 31, 2023, respectively, compared to the prior year
primarily driven by pharmacy drug mix, increased prescription volume,
brand inflation and increased contributions from vaccinations. These
increases were partially offset by the impact of recent generic
introductions, continued pharmacy reimbursement pressure, a decrease in
store count and decreased contributions from COVID-19 over-the-counter
("OTC") test kits and diagnostic testing.
-- Adjusted operating income increased 9.7% for the three months ended
December 31, 2023 compared to the prior year primarily driven by
improved drug purchasing, increased contributions from vaccinations,
increased prescription volume and lower operating expenses. These
increases were partially offset by continued pharmacy reimbursement
pressure.
-- Adjusted operating income decreased 8.7% for the year ended December 31,
2023 compared to the prior year primarily driven by continued pharmacy
reimbursement pressure and decreased COVID-19 vaccinations and
diagnostic testing. These decreases were partially offset by the
increased prescription volume described above, improved generic drug
purchasing and lower operating expenses in the year ended December 31,
2023.
-- Prescriptions filled increased 1.9% and 1.5% on a 30-day equivalent
basis for the three months and year ended December 31, 2023,
respectively, compared to the prior year primarily driven by increased
utilization, partially offset by a decrease in COVID-19 vaccinations and
the decrease in store count.
See the supplemental information on page 21 for additional information regarding the performance of the Pharmacy & Consumer Wellness segment.
2024 Full-year guidance
The Company revised its full-year 2024 GAAP diluted EPS guidance to at least $7.06 from at least $7.26 and its full-year 2024 Adjusted EPS guidance to at least $8.30 from at least $8.50. The Company also revised its full-year 2024 cash flow from operations guidance to at least $12.0 billion from at least $12.5 billion.
The Company's guidance revision follows a review of its recently finalized medical cost trend analysis for the fourth quarter of 2023 and the potential implications for elevated medical cost trends in 2024. Additional details of the guidance revision can be found in the Q4 2023 Earnings Presentation that can be found on the Investor Relations section of the CVS Health website at http://investors.cvshealth.com.
The adjustments between full-year 2024 GAAP diluted EPS and Adjusted EPS include amortization of intangible assets, acquisition-related integration costs and the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health.
Teleconference and webcast
The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its fourth quarter and full-year 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 the leading health solutions company, delivering care like no one else can. We reach more people and improve the health of communities across America through our local presence, digital channels and over 300,000 dedicated colleagues - including more than 40,000 physicians, pharmacists, nurses and nurse practitioners. Wherever and whenever people need us, we help them with their health - whether that's managing chronic diseases, staying compliant with their medications or accessing affordable health and wellness services in the most convenient ways. We help people navigate the health care system - and their personal health care - by improving access, lowering costs and being a trusted partner for every meaningful moment of health. And we do it all with heart, each and every day. Follow @CVSHealth on social media.
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, but are not limited to, Ms. Lynch's quotation, the information under the headings "2024 Full-year guidance" and "In the spotlight" and the information included in the reconciliations and endnotes. 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 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, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023, June 30, 2023 and September 30, 2023 and our Current Reports on Form 8-K.
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 Year Ended
December 31, December 31,
In millions, except per share amounts 2023 2022 2023 2022
---
Revenues:
Products $65,154 $59,657 $245,138 $226,616
Premiums 25,075 21,436 99,192 85,330
Services 3,316 2,430 12,293 9,683
Net investment income 268 323 1,153 838
Total revenues 93,813 83,846 357,776 322,467
Operating costs:
Cost of products sold 57,419 51,728 217,098 196,892
Health care costs 22,518 18,259 86,247 71,073
Restructuring charges - 507
Opioid litigation charges - 99 5,803
Loss on assets held for sale - 12 349 2,533
Operating expenses 10,503 10,089 39,832 38,212
Total operating costs 90,440 80,187 344,033 314,513
Operating income 3,373 3,659 13,743 7,954
Interest expense 690 552 2,658 2,287
Other income (22) (43) (88) (169)
Income before income tax provision 2,705 3,150 11,173 5,836
Income tax provision 658 818 2,805 1,509
Net income 2,047 2,332 8,368 4,327
Net (income) loss attributable to noncontrolling interests (1) 2 (24) (16)
Net income attributable to CVS Health $2,046 $2,334 $8,344 $4,311
Net income per share attributable to CVS Health:
Basic $1.59 $1.78 $6.49 $3.29
Diluted $1.58 $1.77 $6.47 $3.26
Weighted average shares outstanding:
Basic 1,288 1,310 1,285 1,312
Diluted 1,293 1,319 1,290 1,323
Dividends declared per share $0.605 $0.55 $2.42 $2.20
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
At December 31,
In millions 2023 2022
---
Assets:
Cash and cash equivalents $8,196 $12,945
Investments 3,259 2,778
Accounts receivable, net 35,227 27,276
Inventories 18,025 19,090
Assets held for sale - 908
Other current assets 3,151 2,636
Total current assets 67,858 65,633
Long-term investments 23,019 21,096
Property and equipment, net 13,183 12,873
Operating lease right-of-use assets 17,252 17,872
Goodwill 91,272 78,150
Intangible assets, net 29,234 24,803
Separate accounts assets 3,250 3,228
Other assets 4,660 4,620
Total assets $249,728 $228,275
Liabilities:
Accounts payable $14,897 $14,838
Pharmacy claims and discounts payable 22,874 19,423
Health care costs payable 12,049 10,142
Policyholders' funds 1,326 1,500
Accrued expenses 22,189 18,745
Other insurance liabilities 1,141 1,089
Current portion of operating lease liabilities 1,741 1,678
Short-term debt 200
Current portion of long-term debt 2,772 1,778
Liabilities held for sale - 228
Total current liabilities 79,189 69,421
Long-term operating lease liabilities 16,034 16,800
Long-term debt 58,638 50,476
Deferred income taxes 4,311 4,016
Separate accounts liabilities 3,250 3,228
Other long-term insurance liabilities 5,459 5,835
Other long-term liabilities 6,211 6,730
Total liabilities 173,092 156,506
Shareholders' equity:
Preferred stock -
Common stock and capital surplus 48,992 48,193
Treasury stock (33,838) (31,858)
Retained earnings 61,604 56,398
Accumulated other comprehensive loss (297) (1,264)
Total CVS Health shareholders' equity 76,461 71,469
Noncontrolling interests 175 300
Total shareholders' equity 76,636 71,769
Total liabilities and shareholders' equity $249,728 $228,275
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Year Ended
December 31,
In millions 2023 2022
---
Cash flows from operating activities:
Cash receipts from customers $345,464 $313,662
Cash paid for inventory, prescriptions dispensed and health services rendered (208,848) (189,766)
Insurance benefits paid (84,097) (69,728)
Cash paid to other suppliers and employees (34,735) (32,662)
Interest and investment income received 1,584 1,026
Interest paid (2,418) (2,239)
Income taxes paid (3,524) (4,116)
Net cash provided by operating activities 13,426 16,177
Cash flows from investing activities:
Proceeds from sales and maturities of investments 7,729 6,729
Purchases of investments (9,043) (7,746)
Purchases of property and equipment (3,031) (2,727)
Acquisitions (net of cash and restricted cash acquired) (16,612) (139)
Proceeds from sale of subsidiaries (net of cash and restricted cash sold of $2,854 in - (1,249)
2022)
Other 68 85
Net cash used in investing activities (20,889) (5,047)
Cash flows from financing activities:
Commercial paper borrowings (repayments), net 200
Proceeds from issuance of short-term loan 5,000
Repayment of short-term loan (5,000)
Proceeds from issuance of long-term debt 10,898
Repayments of long-term debt (3,166) (4,211)
Repurchase of common stock (2,012) (3,500)
Dividends paid (3,132) (2,907)
Proceeds from exercise of stock options 277 551
Payments for taxes related to net share settlement of equity awards (181) (370)
Other (201) (79)
Net cash provided by (used in) financing activities 2,683 (10,516)
Net increase (decrease) in cash, cash equivalents and restricted cash (4,780) 614
Cash, cash equivalents and restricted cash at the beginning of the period 13,305 12,691
Cash, cash equivalents and restricted cash at the end of the period $8,525 $13,305
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Year Ended
December 31,
In millions 2023 2022
---
Reconciliation of net income to net cash provided by operating activities:
Net income $8,368 $4,327
Adjustments required to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,366 4,224
Loss on assets held for sale 349 2,533
Stock-based compensation 588 447
Gain on sale of subsidiaries - (475)
Deferred income taxes (676) (2,029)
Other noncash items 416 332
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net (6,260) (2,971)
Inventories 1,233 (1,435)
Other assets (510) (491)
Accounts payable and pharmacy claims and discounts payable 3,618 4,260
Health care costs payable and other insurance liabilities 394 992
Other liabilities 1,540 6,463
Net cash provided by operating activities $13,426 $16,177
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 consolidated 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. Effective January 1, 2023, the Company's non-GAAP financial measures also exclude the impact of net realized capital gains or losses, described in further detail below. Prior period financial information throughout this press release has been revised to conform with the current period presentation.
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 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.
-- The Company's net realized capital gains and losses arise from various
types of transactions, primarily in the course of managing a portfolio
of assets that support the payment of insurance liabilities. Net
realized capital gains and losses are reflected in the condensed
consolidated statements of operations in net investment income (loss)
within each segment. These capital gains and losses are the result of
investment decisions, market conditions and other economic developments
that are unrelated to the performance of the Company's business, and the
amount and timing of these capital gains and losses do 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. Accordingly, the Company believes
excluding net realized capital gains and losses 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.
-- During the three months and year ended December 31, 2023, the
acquisition-related transaction and integration costs relate to the
acquisitions of Signify Health and Oak Street Health. The
acquisition-related transaction and integration costs are reflected in
the Company's condensed consolidated statements of operations in
operating expenses within the Corporate/Other segment.
-- During the year ended December 31, 2023, the restructuring charges
include severance and employee-related costs, asset impairment charges
and a stock-based compensation charge. During the second quarter of
2023, the Company developed an enterprise-wide restructuring plan
intended to streamline and simplify the organization, improve efficiency
and reduce costs. In connection with the development of this plan and
the recently completed acquisitions of Signify Health and Oak Street
Health, the Company also conducted a strategic review of its various
transformation initiatives and determined that it would terminate
certain initiatives. The restructuring charges are reflected within the
Corporate/Other segment.
-- During the three months and years ended December 31, 2023 and 2022, the
office real estate optimization charges primarily relate to the
abandonment of leased real estate and the related right-of-use assets
and property and equipment in connection with the planned reduction of
corporate office real estate space in response to the Company's new
flexible work arrangement. The office real estate optimization charges
are reflected in the Company's condensed consolidated statements of
operations in operating expenses within the Health Care Benefits,
Corporate/Other and Health Services segments.
-- During the year ended December 31, 2023 and the three months and year
ended December 31, 2022, the loss on assets held for sale relates to the
LTC reporting unit within the Pharmacy & Consumer Wellness segment.
During 2022, the Company determined that its LTC business was no longer
a strategic asset and committed to a plan to sell it, at which time the
LTC business met the criteria for held-for-sale accounting and its net
assets were accounted for as assets held for sale. The carrying value of
the LTC business was determined to be greater than its estimated fair
value less costs to sell and, accordingly, the Company recorded a loss
on assets held for sale during the third quarter of 2022. As of December
31, 2022, the net assets of the LTC business continued to meet the
criteria for held-for-sale accounting and during the fourth quarter of
2022, an incremental loss on assets held for sale was recorded to write
down the carrying value of the LTC business to its estimated fair value
less costs to sell. During the first quarter of 2023, an additional loss
on assets held for sale was recorded to write down the carrying value of
the LTC business to the Company's best estimate of the ultimate selling
price which reflected its estimated fair value less costs to sell. As of
September 30, 2023, the Company determined the LTC business no longer
met the criteria for held-for-sale accounting and, accordingly, the net
assets associated with the LTC business were reclassified to held and
used at their respective fair values. During the year ended December 31,
2022, the loss on assets held for sale also relates to the Company's
international health care business domiciled in Thailand ("Thailand
business"), which was included in the Commercial Business reporting unit
in the Health Care Benefits segment. The sale of the Thailand business
closed in the second quarter of 2022, and the ultimate loss on the sale
was not material.
-- During the three months and year ended December 31, 2022, the opioid
litigation charges relate to agreements to resolve substantially all
opioid claims against the Company by certain states and governmental
entities. The opioid litigation charges are reflected within the
Corporate/Other segment.
-- During the three months and year ended December 31, 2022, the gain on
divestiture of subsidiary represents the pre-tax gain on the sale of
bswift, which the Company sold in November 2022. During the year ended
December 31, 2022, the gain on divestiture of subsidiaries also includes
the pre-tax gain on the sale of PayFlex, which the Company sold in June
2022. The gains on divestitures are reflected as a reduction of
operating expenses in the Company's condensed consolidated statement of
operations within the Health Care Benefits segment.
-- 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 adjusted income tax provision also excludes the
impact of certain discrete tax items concluded in the year ended
December 31, 2022.
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 16 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 consolidated operating income (GAAP measure) to consolidated adjusted
operating income, as well as reconciliations of segment GAAP operating income (loss) to segment adjusted operating
income (loss):
Three Months Ended December 31, 2023
In millions Health Care Health Pharmacy & Corporate/ Consolidated
Benefits Services Consumer Other Totals
Wellness
---
Operating income (loss) (GAAP measure) $266 $1,710 $1,961 $(564) $3,373
Amortization of intangible assets 294 149 65 1 509
Net realized capital losses 106 1 45 152
Acquisition-related transaction and integration - 193 193
costs
Office real estate optimization charges 10 1 (11)
Adjusted operating income (loss) (1) $676 $1,860 $2,027 $(336) $4,227
Three Months Ended December 31, 2022
In millions Health Care Health Pharmacy & Corporate/ Consolidated
Benefits Services Consumer Other Totals
Wellness
---
Operating income (loss) (GAAP measure) $758 $1,742 $1,767 $(608) $3,659
Amortization of intangible assets 295 41 68 1 405
Net realized capital losses 13 24 37
Office real estate optimization charges 97 2 18 117
Loss on assets held for sale - 12 12
Opioid litigation charges - 99 99
Gain on divestiture of subsidiary (250) (250)
Adjusted operating income (loss) (1) $913 $1,785 $1,847 $(466) $4,079
Year Ended December 31, 2023
In millions Health Care Health Pharmacy & Corporate/ Consolidated
Benefits Services Consumer Other Totals
Wellness
---
Operating income (loss) (GAAP measure) $3,949 $6,842 $5,349 $(2,397) $13,743
Amortization of intangible assets 1,177 465 260 3 1,905
Net realized capital losses 402 5 90 497
Acquisition-related transaction and integration - 487 487
costs
Restructuring charges - 507 507
Office real estate optimization charges 49 5 (8) 46
Loss on assets held for sale - 349 349
Adjusted operating income (loss) (1) $5,577 $7,312 $5,963 $(1,318) $17,534
Year Ended December 31, 2022
In millions Health Care Health Pharmacy & Corporate/ Consolidated
Benefits Services Consumer Other Totals
Wellness
---
Operating income (loss) (GAAP measure) $5,270 $6,612 $3,560 $(7,488) $7,954
Amortization of intangible assets 1,180 167 435 3 1,785
Net realized capital losses 225 44 51 320
Office real estate optimization charges 97 2 18 117
Loss on assets held for sale 41 2,492 2,533
Opioid litigation charges - 5,803 5,803
Gain on divestiture of subsidiaries (475) (475)
Adjusted operating income (loss) (1) $6,338 $6,781 $6,531 $(1,613) $18,037
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
December 31, 2022
December 31, 2023
In millions, except per share amounts Total Per Total Per
Company Common Company Common
Share Share
---
Net income attributable to CVS Health (GAAP measure) $2,046 $1.58 $2,334 $1.77
Amortization of intangible assets 509 0.39 405 0.31
Net realized capital losses 152 0.12 37 0.03
Acquisition-related transaction and integration costs 193 0.15
Office real estate optimization charges - 117 0.09
Loss on assets held for sale - 12 0.01
Opioid litigation charges - 99 0.08
Gain on divestiture of subsidiary - (250) (0.19)
Tax impact of non-GAAP adjustments (162) (0.12) (68) (0.06)
Adjusted income attributable to CVS Health (2) $2,738 $2.12 $2,686 $2.04
Weighted average diluted shares outstanding 1,293 1,319
Year Ended Year Ended
December 31, 2023 December 31, 2022
In millions, except per share amounts Total Per Total Per
Company Common Company Common
Share Share
---
Net income attributable to CVS Health (GAAP measure) $8,344 $6.47 $4,311 $3.26
Amortization of intangible assets 1,905 1.48 1,785 1.35
Net realized capital losses 497 0.38 320 0.24
Acquisition-related transaction and integration costs 487 0.38
Restructuring charges 507 0.39
Office real estate optimization charges 46 0.04 117 0.09
Loss on assets held for sale 349 0.27 2,533 1.91
Opioid litigation charges - 5,803 4.39
Gain on divestiture of subsidiaries - (475) (0.36)
Tax impact of non-GAAP adjustments (863) (0.67) (2,453) (1.85)
Adjusted income attributable to CVS Health (2) $11,272 $8.74 $11,941 $9.03
Weighted average diluted shares outstanding 1,290 1,323
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. Adjusted operating income 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). Effective for the first quarter of 2023, adjusted operating income also excludes the impact of net realized capital gains or losses. 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.
Segment financial information as of and for the three months and year ended December 31, 2022 has been revised to conform with current period presentation for the following items:
-- Effective for the first quarter of 2023, the Company realigned the
composition of its segments to correspond with changes made to its
operating model and how the business is managed. As a result of this
realignment, the Company formed a new Health Services segment, which in
addition to providing a full range of PBM solutions, also delivers
health care services in the Company's medical clinics, virtually, and in
the home, as well as provider enablement solutions. In addition, the
Company created a new Pharmacy & Consumer Wellness segment, which
includes its retail and long-term care pharmacy operations and related
pharmacy services, as well as its retail front store operations. This
segment will also provide pharmacy fulfillment services to support the
Health Services segment's specialty and mail order pharmacy offerings.
The Company also discontinued its former segment reporting practice for
activity under its Maintenance Choice(®) program as described in Note
(b) of the table on page 17. Following this segment realignment, the
Company's four reportable segments are: Health Care Benefits, Health
Services, Pharmacy & Consumer Wellness and Corporate/Other.
-- Effective January 1, 2023, the Company adopted a new accounting standard
related to the accounting for long-duration insurance contracts using a
modified retrospective transition method. Refer to Note 1 ''Significant
Accounting Policies'' in the Company's Annual Report on Form 10-K for
the year ended December 31, 2023 for further information regarding the
adoption of this accounting standard.
-- Effective January 1, 2023, the Company's non-GAAP financial measures
exclude the impact of net realized capital gains or losses, described in
further detail on page 12.
The impact of these items on segment financial information for the three months and year ended December 31, 2022 is reflected in the "Adjustments" lines of the table on page 17.
The following is a reconciliation of financial measures of the Company's segments to the consolidated totals:
In millions Health Health Pharmacy & Corporate/ Intersegment Consolidated
Care Services
(a) Eliminations
Consumer Other (b) Totals
Benefits
Wellness
---
Three Months Ended
December 31, 2023
Total revenues $26,726 $49,146 $31,185 $75 $(13,319) $93,813
Adjusted operating 676 1,860 2,027 (336) 4,227
income (loss) (1)
December 31, 2022
Total revenues, as $23,033 $43,747 $28,184 $152 $(11,270) $83,846
previously reported
Adjustments (14) 22 531 (539)
Total revenues, as $23,019 $43,769 $28,715 $152 $(11,809) $83,846
adjusted
Adjusted operating $858 $1,988 $1,840 $(508) $(172) $4,006
income (loss), as
previously reported
Adjustments 55 (203) 7 42 172 73
Adjusted operating $913 $1,785 $1,847 $(466)
$ - $4,079
income (loss), as adjusted (1)
Year Ended
December 31, 2023
Total revenues $105,646 $186,843 $116,763 $451 $(51,927) $357,776
Adjusted operating 5,577 7,312 5,963 (1,318) 17,534
income (loss) (1)
December 31, 2022
Total revenues, as $91,409 $169,236 $106,594 $530 $(45,302) $322,467
previously reported
Adjustments (59) 340 2,002 (2,283)
Total revenues, as $91,350 $169,576 $108,596 $530 $(47,585) $322,467
adjusted
Adjusted operating $5,984 $7,356 $6,705 $(1,785) $(728) $17,532
income (loss), as
previously reported
Adjustments 354 (575) (174) 172 728 505
Adjusted operating $6,338 $6,781 $6,531 $(1,613)
$ - $18,037
income (loss), as adjusted (1)
(a) Total revenues of the Health Services segment include approximately $3.0 billion
and $2.8 billion of retail co-payments for the three months ended December 31,
2023 and 2022, respectively, and $13.7 billion and $12.6 billion of retail co-
payments for the years ended December 31, 2023 and 2022, respectively.
(b) Intersegment revenue eliminations relate to intersegment revenue generating
activities that occur between the Health Care Benefits segment, the Health
Services segment, and/or the Pharmacy & Consumer Wellness segment. Prior to
January 1, 2023, intersegment adjusted operating income eliminations occurred
when members of the Health Services segment's clients enrolled in Maintenance
Choice elected to pick up maintenance prescriptions at one of the Company's
retail pharmacies instead of receiving them through the mail. When this
occurred, both the Health Services and Pharmacy & Consumer Wellness segments
recorded the adjusted operating income on a stand-alone basis. Effective
January 1, 2023, the adjusted operating income associated with such transactions
is reported only in the Pharmacy & Consumer Wellness segment, therefore no
adjusted operating income elimination is required.
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 Year Ended Three Months Ended Year Ended
December 31, December 31, December 31, December 31,
2023 vs 2022 2023 vs 2022
In millions, except percentages and 2023 2022 2023 2022
$ %
$ %
basis points ("bps")
---
Revenues:
Premiums $25,065 $21,426 $99,144 $85,274 $3,639 17.0 % $13,870 16.3 %
Services 1,452 1,395 5,737 5,600 57 4.1 % 137 2.4 %
Net investment income 209 198 765 476 11 5.6 % 289 60.7 %
Total revenues 26,726 23,019 105,646 91,350 3,707 16.1 % 14,296 15.6 %
Health care costs 22,175 18,373 85,504 71,473 3,802 20.7 % 14,031 19.6 %
MBR (Health care costs as a % 88.5 % 85.8 % 86.2 % 83.8 % 270 bps 240 bps
of premium revenues) (3)
Loss on assets held for sale
$ -
$ -
$ - $41
$ - - % $(41) (100.0) %
Operating expenses 4,285 3,888 16,193 14,566 397 10.2 % 1,627 11.2 %
Operating expenses as a % of 16.0 % 16.9 % 15.3 % 15.9 %
total revenues
Operating income $266 $758 $3,949 $5,270 $(492) (64.9) % $(1,321) (25.1) %
Operating income as a % of 1.0 % 3.3 % 3.7 % 5.8 %
total revenues
Adjusted operating income (1) $676 $913 $5,577 $6,338 $(237) (26.0) % $(761) (12.0) %
Adjusted operating income as a 2.5 % 4.0 % 5.3 % 6.9 %
% of total revenues
Premium revenues (by business):
Government $17,414 $15,762 $70,094 $63,141 $1,652 10.5 % $6,953 11.0 %
Commercial 7,651 5,664 29,050 22,133 1,987 35.1 % 6,917 31.3 %
The following table summarizes the Health Care Benefits segment's medical membership for the respective periods:
December 31, 2023 September 30, 2023 December 31, 2022
In thousands Insured ASC Total Insured ASC Total Insured ASC Total
---
Medical membership: (4)
Commercial 4,252 14,087 18,339 4,198 14,075 18,273 3,136 13,896 17,032
Medicare Advantage 3,460 3,460 3,438 3,438 3,270 3,270
Medicare Supplement 1,343 1,343 1,352 1,352 1,363 1,363
Medicaid 2,073 444 2,517 2,173 452 2,625 2,234 497 2,731
Total medical membership 11,128 14,531 25,659 11,161 14,527 25,688 10,003 14,393 24,396
Supplemental membership information:
Medicare Prescription Drug Plan (standalone) 6,081 6,092 6,128
The following table summarizes the Health Care Benefits segment's days claims payable for the respective periods:
December 31, 2023 September 30, June 30, March 31,
2023 2023 2023 December 31, 2022
Days Claims Payable
(7) 45.9 50.3 46.9 48.1 51.3
Supplemental Information
(Unaudited)
Health Services segment
The following table summarizes the Health Services segment's performance for the respective periods:
Change
Three Months Year Ended Three Months Ended Year Ended
Ended
December 31, December 31, December 31,
December 31,
2023 vs 2022 2023 vs 2022
In millions, except percentages 2023 2022 2023 2022
$ %
$ %
---
Revenues:
Products $47,237 $43,197 $180,608 $167,019 $4,040 9.4 % $13,589 8.1 %
Services 1,910 572 6,236 2,557 1,338 233.9 % 3,679 143.9 %
Net investment income (loss) (1) (1) (1) (100.0) % (1) (100.0) %
Total revenues 49,146 43,769 186,843 169,576 5,377 12.3 % 17,267 10.2 %
Cost of products sold 45,999 41,463 175,424 160,738 4,536 10.9 % 14,686 9.1 %
Health care costs 612 1,607 612 100.0 % 1,607 100.0 %
Gross profit (8) 2,535 2,306 9,812 8,838 229 9.9 % 974 11.0 %
Gross margin (Gross profit as a 5.2 % 5.3 % 5.3 % 5.2 %
% of total revenues) (8)
Operating expenses $825 $564 $2,970 $2,226 $261 46.3 % $744 33.4 %
Operating expenses as a % of 1.7 % 1.3 % 1.6 % 1.3 %
total revenues
Operating income $1,710 $1,742 $6,842 $6,612 $(32) (1.8) % $230 3.5 %
Operating income as a % of total 3.5 % 4.0 % 3.7 % 3.9 %
revenues
Adjusted operating income (1) $1,860 $1,785 $7,312 $6,781 $75 4.2 % $531 7.8 %
Adjusted operating income as a 3.8 % 4.1 % 3.9 % 4.0 %
% of total revenues
Revenues (by distribution
channel):
Pharmacy network (9) $29,668 $26,610 $112,718 $102,968 $3,058 11.5 % $9,750 9.5 %
Mail & specialty (10) 17,614 16,556 67,992 63,825 1,058 6.4 % 4,167 6.5 %
Other 1,865 603 6,134 2,783 1,262 209.3 % 3,351 120.4 %
Net investment income (loss) (1) (1) (1) (100.0) % (1) (100.0) %
Pharmacy claims processed: (5) (6) (a) 600.8 600.2 2,344.3 2,335.1 0.6 0.1 % 9.2 0.4 %
Generic dispensing rate: (6) (11) (b) 86.2 % 86.4 % 87.6 % 87.4 %
(a) Excluding the impact of COVID-19 vaccinations, pharmacy claims processed
increased 0.3% and 1.0% on a 30-day equivalent basis for the three months and
year ended December 31, 2023, respectively, compared to the prior year.
(b) Excluding the impact of COVID-19 vaccinations, the Health Services segment's
total generic dispensing rate was 87.1% and 87.5% in the three months ended
December 31, 2023 and 2022, respectively, and 87.9% and 88.3% in the years ended
December 31, 2023 and 2022, respectively.
Supplemental Information
(Unaudited)
Pharmacy & Consumer Wellness segment
The following table summarizes the Pharmacy & Consumer Wellness segment's performance for the respective periods:
Change
Three Months Ended Year Ended Three Months Ended Year Ended
December 31, December 31, December 31, December 31,
2023 vs 2022 2023 vs 2022
In millions, except percentages 2023 2022 2023 2022
$ %
$ %
---
Revenues:
Products $30,534 $27,726 $113,976 $104,878 $2,808 10.1 % $9,098 8.7 %
Services 652 989 2,792 3,762 (337) (34.1) % (970) (25.8) %
Net investment income (loss) (1) (5) (44) (1) (100.0) % 39 88.6 %
Total revenues 31,185 28,715 116,763 108,596 2,470 8.6 % 8,167 7.5 %
Cost of products sold 24,146 21,651 91,447 82,063 2,495 11.5 % 9,384 11.4 %
Gross profit (8) 7,039 7,064 25,316 26,533 (25) (0.4) % (1,217) (4.6) %
Gross margin (Gross profit as a 22.6 % 24.6 % 21.7 % 24.4 %
% of total revenues) (8)
Loss on assets held for sale
$ - $12 $349 $2,492 $(12) (100.0) % $(2,143) (86.0) %
Operating expenses 5,078 5,285 19,618 20,481 (207) (3.9) % (863) (4.2) %
Operating expenses as a % of 16.3 % 18.4 % 16.8 % 18.9 %
total revenues
Operating income $1,961 $1,767 $5,349 $3,560 $194 11.0 % $1,789 50.3 %
Operating income as a % of 6.3 % 6.2 % 4.6 % 3.3 %
total revenues
Adjusted operating income (1) $2,027 $1,847 $5,963 $6,531 $180 9.7 % $(568) (8.7) %
Adjusted operating income as a 6.5 % 6.4 % 5.1 % 6.0 %
% of total revenues
Revenues (by major
goods/service lines):
Pharmacy $24,740 $21,984 $92,111 $83,480 $2,756 12.5 % $8,631 10.3 %
Front Store 5,861 6,150 22,458 22,780 (289) (4.7) % (322) (1.4) %
Other 585 581 2,199 2,380 4 0.7 % (181) (7.6) %
Net investment income (loss) (1) (5) (44) (1) (100.0) % 39 88.6 %
Prescriptions filled (5) (6) (a) 431.5 423.4 1,649.1 1,625.4 8.1 1.9 % 23.7 1.5 %
Same store sales increase
(decrease): (12)
Total 11.3 % 7.8 % 10.7 % 9.1 %
Pharmacy 15.5 % 9.1 % 13.6 % 9.5 %
Front Store (3.1) % 3.5 % 0.3 % 7.8 %
Prescription volume (6) 4.4 % 3.1 % 3.9 % 4.0 %
Generic dispensing rate (6) (11) (b) 86.6 % 85.9 % 88.4 % 87.4 %
(a) Excluding the impact of COVID-19 vaccinations, prescriptions filled increased
2.2% and 2.5% on a 30-day equivalent basis for the three months and year ended
December 31, 2023, respectively, compared to the prior year.
(b) Excluding the impact of COVID-19 vaccinations, the Pharmacy & Consumer Wellness
segment's total generic dispensing rate was 88.1% and 87.6% in the three months
ended December 31, 2023 and 2022, respectively, and 89.0% in both the years
ended December 31, 2023 and 2022.
Supplemental Information
(Unaudited)
Corporate/Other segment
The following table summarizes the Corporate/Other segment's performance for the respective periods:
Change
Three Months Ended Year Ended Three Months Ended Year Ended
December 31, December 31, December 31, December 31,
2023 vs 2022 2023 vs 2022
In millions, except percentages 2023 2022 2023 2022
$ %
$ %
---
Revenues:
Premiums $10 $10 $48 $56
$ - - % $(8) (14.3) %
Services 4 17 9 68 (13) (76.5) % (59) (86.8) %
Net investment income 61 125 394 406 (64) (51.2) % (12) (3.0) %
Total revenues 75 152 451 530 (77) (50.7) % (79) (14.9) %
Cost of products sold - 11 1 42 (11) (100.0) % (41) (97.6) %
Health care costs 47 45 210 249 2 4.4 % (39) (15.7) %
Restructuring charges - 507 - % 507 100.0 %
Opioid litigation charges - 99 5,803 (99) (100.0) % (5,803) (100.0) %
Operating expenses 592 605 2,130 1,924 (13) (2.1) % 206 10.7 %
Operating loss (564) (608) (2,397) (7,488) 44 7.2 % 5,091 68.0 %
Adjusted operating loss (1) (336) (466) (1,318) (1,613) 130 27.9 % 295 18.3 %
Supplemental Information
(Unaudited)
The following table shows the components of the change in the consolidated health care costs payable during the
years ended December 31, 2023 and 2022:
Year Ended
December 31,
In millions 2023 2022
---
Health care costs payable, beginning of period $10,142 $8,678
Less: Reinsurance recoverables 5 8
Less: Impact of discount rate on long-duration insurance reserves (a) 8
Health care costs payable, beginning of period, net 10,129 8,670
Acquisition, net 1,098
Add: Components of incurred health care costs
Current year 86,639 71,399
Prior years (b) (685) (654)
Total incurred health care costs (c) 85,954 70,745
Less: Claims paid
Current year 75,529 61,640
Prior years 9,585 7,646
Total claims paid 85,114 69,286
Health care costs payable, end of period, net 12,067 10,129
Add: Reinsurance recoverables 5 5
Add: Impact of discount rate on long-duration insurance reserves (a) (23) 8
Health care costs payable, end of period $12,049 $10,142
(a) Reflects the difference between the current discount rate and the locked-in
discount rate on long-duration insurance reserves which is recorded within
accumulated other comprehensive loss on the condensed consolidated balance
sheets. Refer to Note 1 ''Significant Accounting Policies'' in the Company's
Annual Report on Form 10-K for the year ended December 31, 2023 for further
information related to the adoption of the long-duration insurance contracts
accounting standard.
(b) Negative amounts reported for incurred health care costs related to prior years
result from claims being settled for amounts less than originally estimated.
(c) Total incurred health care costs for the years ended December 31, 2023 and 2022
in the table above exclude $83 million and $79 million, respectively, of health
care costs recorded in the Health Care Benefits segment that are included in
other insurance liabilities on the condensed consolidated balance sheets and
$210 million and $249 million, respectively, of health care costs recorded in
the Corporate/Other segment that are included in other insurance liabilities on
the condensed consolidated balance sheets.
Adjusted Earnings Per Share Guidance
(Unaudited)
The following reconciliation of projected net income attributable to CVS Health 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 for a number of reasons as 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 most recently filed Quarterly Report on Form 10-Q. 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, 2024
At Least
In millions, except per share amounts Total Per
Company Common
Share
---
Net income attributable to CVS Health (GAAP measure) $8,910 $7.06
Non-GAAP adjustments:
Amortization of intangible assets 2,000 1.58
Acquisition-related integration costs 230 0.18
Tax impact of non-GAAP adjustments (662) (0.52)
Adjusted income attributable to CVS Health (2) $10,478 $8.30
Weighted average diluted shares outstanding 1,263
Endnotes
(1) The Company defines adjusted operating income as operating income (GAAP measure) excluding the impact of amortization of intangible assets, net realized capital gains or losses 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 transaction and integration costs, restructuring charges, office real estate optimization charges, losses on assets held for sale, opioid litigation charges and gains/losses on divestitures. 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 consolidated measure is not determined in accordance with GAAP and should not be considered a substitute for, or superior to, the most directly comparable GAAP measure, consolidated operating income. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from consolidated operating income in determining consolidated adjusted operating income.
(2) GAAP diluted earnings per share 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. 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, net realized capital gains or losses 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 transaction and integration costs, restructuring charges, office real estate optimization charges, losses on assets held for sale, opioid litigation charges, gains/losses on divestitures, as well as the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health and certain discrete tax items. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from net income attributable to CVS Health in determining adjusted income attributable to CVS Health.
(3) Medical benefit ratio is calculated by dividing the Health Care Benefits segment's health care costs by premium revenues and represents the percentage of premium revenues spent on medical benefits for the segment'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 segment's insured Health Care Benefits products.
(4) Medical membership represents the number of members covered by the Health Care Benefits segment'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 the Health Care Benefits segment's total revenues and operating results.
(5) Pharmacy claims processed represents the number of prescription claims processed through the Company's pharmacy benefits manager and dispensed by either its retail network pharmacies or the Company's mail and specialty pharmacies. Prescriptions filled represents the number of prescriptions dispensed through the Pharmacy & Consumer Wellness segment's retail and long-term care pharmacies and infusion services operations. 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) 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.
(7) Days claims payable is calculated by dividing the Health Care Benefits segment's health care costs payable at the end of each quarter by its average health care costs per day during such quarter. Management and investors use this metric as an indicator of the adequacy of the Health Care Benefits segment's health care costs payable liability at the end of each quarter and as an indicator of changes in such adequacy over time.
(8) Gross profit is calculated as the segment's total revenues less its cost of products sold, and, for the Health Services segment, health care costs. 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 Health Services and Pharmacy & Consumer Wellness segments.
(9) Health Services pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company's retail pharmacies and LTC pharmacies. Effective January 1, 2023, pharmacy network revenues also include activity associated with Maintenance Choice, which 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. Maintenance Choice activity was previously reflected in mail & specialty revenues. Prior period financial information has been revised to conform with current period presentation.
(10) Health Services mail & specialty revenues relate to specialty mail claims inclusive of Specialty Connect(®) claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment. Effective January 1, 2023, mail & specialty revenues exclude Maintenance Choice activity, which is now reflected within pharmacy network revenues. Prior period financial information has been revised to conform with current period presentation.
(11) Generic dispensing rate is calculated by dividing the segment's generic drug claims processed or prescriptions filled by its total claims processed or prescriptions 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 and prescriptions from LTC and infusion services operations. Effective January 1, 2023, same store sales also include digital sales initiated online or through mobile applications and fulfilled through the Company's distribution centers. Prior period financial information has been revised to conform with current period presentation. 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.
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SOURCE CVS Health Corporation
