CVS Health Reports Strong First Quarter Results

WOONSOCKET, R.I., May 4, 2021 /PRNewswire/ — CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended…

WOONSOCKET, R.I., May 4, 2021 /PRNewswire/ — CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended March 31, 2021.

First Quarter Highlights:

  • Total revenues increased to $69.1 billion, up 3.5% compared to prior year
  • GAAP diluted EPS of $1.68, up 9.8% compared to prior year
  • Adjusted EPS of $2.04, up 6.8% compared to prior year
  • Generated cash flow from operations of $2.9 billion

2021 Full Year Guidance:

  • Raised GAAP diluted EPS guidance range to $6.24 to $6.36 from $6.06 to $6.22
  • Raised Adjusted EPS guidance range to $7.56 to $7.68 from $7.39 to $7.55
  • Confirmed cash flow from operations guidance range of $12.0 billion to $12.5 billion

«We delivered strong first quarter results and improved our outlook for the year,» said CVS Health President and CEO Karen S. Lynch. «We continue to execute on our strategy while simultaneously managing through a pandemic, helping the country on the road to recovery. Our unmatched assets and strength of our brand are driving results as we work toward improving care delivery and driving growth.»

_____________________________________________

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 11 and endnotes beginning on page 21 for explanations of non-GAAP financial measures presented in this press release. See pages 12, 13 and 20 for reconciliations of each non-GAAP financial measure used in this release to the most directly comparable GAAP financial measure.

Consolidated First Quarter Results


Three Months Ended

March 31,

In millions, except per share amounts

2021


2020


Change

Total revenues 

$

69,097



$

66,755



$

2,342


Operating income

3,577



3,458



119


Adjusted operating income (1)

4,205



4,113



92


Net income

2,224



2,012



212


Diluted earnings per share

$

1.68



$

1.53



$

0.15


Adjusted EPS (2)

$

2.04



$

1.91



$

0.13


Enterprise prescriptions (3) (4)

738.4



746.6



(8.2)


  • Total revenues increased 3.5% for the three months ended March 31, 2021 compared to the prior year driven by growth across all segments.
  • Operating income and adjusted operating income increased 3.4% and 2.2%, respectively, for the three months ended March 31, 2021 compared to the prior year. The increase in both operating income and adjusted operating income was primarily due to growth in the Pharmacy Services and Health Care Benefits segments, partially offset by declines in the Retail/LTC segment.
  • Interest expense decreased 10.4% for the three months ended March 31, 2021 compared to the prior year primarily due to lower debt in the three months ended March 31, 2021.
  • The effective income tax rate was 25.1% for the three months ended March 31, 2021 compared to 27.6% for the three months ended March 31, 2020. The decrease in the effective income tax rate was primarily due to the repeal of the non-deductible health insurer fee («HIF») for 2021.

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 ended March 31, 2021 and 2020 were as follows:


Three Months Ended

March 31,

In millions, except percentages

2021


2020


Change

Total revenues

$

20,483


$

19,198


$

1,285

Adjusted operating income (1)

1,782


1,491


291

Medical benefit ratio («MBR») (5)

83.2%


82.4%


0.8%

Medical membership (6)

23.6


23.5


0.1













  • Total revenues increased 6.7% for the three months ended March 31, 2021 compared to the prior year primarily driven by growth in the Government Services business, partially offset by the unfavorable impact of the repeal of the HIF for 2021.
  • Adjusted operating income increased 19.5% for the three months ended March 31, 2021 compared to the prior year. The increase in adjusted operating income was primarily driven by improved performance in the Government Services business and the impact of cost savings initiatives.
  • The MBR increased 80 basis points for the three months ended March 31, 2021 compared to the prior year primarily driven by the repeal of the HIF for 2021 and lower Medicare risk adjustment revenue. These increases were partially offset by improved performance in the Company’s Medicaid products and favorable development of prior-years’ health care cost estimates.
  • Medical membership as of March 31, 2021 of 23.6 million increased 214,000 members compared with December 31, 2020, primarily reflecting increases in Medicare and Medicaid products, partially offset by a decline in Commercial products.
  • The segment experienced favorable development of prior-years’ health care cost estimates in its Commercial and Government Services businesses during the three months ended March 31, 2021, primarily attributable to fourth quarter 2020 performance.
  • Prior years’ health care costs payable estimates developed favorably by $652 million during the three months ended March 31, 2021. 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 2021 operating results.

See the supplemental information on page 15 for additional information regarding the performance of the Health Care Benefits segment.

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 months ended March 31, 2021 and 2020 were as follows:


Three Months Ended

March 31,

In millions

2021


2020


Change

Total revenues

$

36,321



$

34,983



$

1,338


Adjusted operating income (1)

1,507



1,181



326


Total pharmacy claims processed (4) (7)

535.9



541.4



(5.5)


Pharmacy network (8)

455.4



461.1



(5.7)


Mail choice (9)

80.5



80.3



0.2


  • Total revenues increased 3.8% for the three months ended March 31, 2021 compared to the prior year primarily driven by net new business, growth in specialty pharmacy, product mix and brand inflation, partially offset by continued price compression and a weak cough, cold and flu season.
  • Adjusted operating income increased 27.6% for the three months ended March 31, 2021 compared to the prior year primarily driven by improved purchasing economics and growth in specialty pharmacy, partially offset by continued price compression.
  • Total pharmacy claims processed decreased 1.0% on a 30-day equivalent basis for the three months ended March 31, 2021 compared to the prior year primarily driven by a weak cough, cold and flu season, partially offset by net new business in the three months ended March 31, 2021.

See the supplemental information on page 17 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 health and wellness products and general merchandise, provides health care services through walk-in medical clinics, provides medical diagnostic testing, administers vaccinations and provides services to long-term care facilities. The segment results for the three months ended March 31, 2021 and 2020 were as follows:


Three Months Ended

March 31,

In millions

2021


2020


Change

Total revenues

$

23,274



$

22,749



$

525


Adjusted operating income (1)

1,394



1,902



(508)


Prescriptions filled (4) (7)

375.4



375.1



0.3


  • Total revenues increased 2.3% for the three months ended March 31, 2021 compared to the prior year primarily driven by increased COVID-19 diagnostic testing and vaccinations and brand inflation. These increases were partially offset by lower front store revenues, primarily due to the acceleration of demand in March 2020 as consumers prepared for the COVID-19 pandemic and a weak cough, cold and flu season; continued reimbursement pressure and the impact of recent generic introductions.
  • Adjusted operating income decreased 26.7% for the three months ended March 31, 2021 compared to the prior year primarily driven by continued reimbursement pressure and the lower front store volume described above. These decreases were partially offset by increased COVID-19 diagnostic testing in the three months ended March 31, 2021.
  • Prescriptions filled remained relatively consistent on a 30-day equivalent basis for the three months ended March 31, 2021 compared to the prior year, with COVID-19 vaccinations and the continued adoption of patient care programs largely offset by the impact of a weak cough, cold and flu season, the acceleration of demand in March 2020 as consumers prepared for the COVID-19 pandemic and decreased long-term care prescription volume.

See the supplemental information on page 18 for additional information regarding the performance of the Retail/LTC segment.

2021 Full Year Guidance

The Company raised its full year 2021 GAAP diluted EPS guidance range to $6.24 to $6.36 from $6.06 to $6.22 and its full year 2021 Adjusted EPS guidance range to $7.56 to $7.68 from $7.39 to $7.55 and confirmed its full year 2021 cash flow from operations guidance range of $12.0 billion to $12.5 billion.

The adjustments between GAAP diluted EPS and Adjusted EPS include, as applicable, adding back amortization of intangible assets, as well as integration costs related to the Company’s acquisition (the «Aetna Acquisition») of Aetna Inc. («Aetna»).

Teleconference and Webcast

The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its first 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

We are a diversified health services company with more than 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 makes us an integral part of people’s everyday health. From our innovative new services at HealthHUBTM 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, but are not limited to, Ms. Lynch’s quotation, the information under the heading «2021 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 for a number of reasons as 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 March 31, 2021.

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

March 31,

In millions, except per share amounts

2021


2020

Revenues:




Products

$

47,387



$

47,003


Premiums

18,960



17,640


Services

2,453



1,950


Net investment income

297



162


Total revenues

69,097



66,755


Operating costs:




Cost of products sold

40,894



40,347


Benefit costs

15,704



14,387


Operating expenses

8,922



8,563


Total operating costs

65,520



63,297


Operating income

3,577



3,458


Interest expense

657



733


Other income

(50)



(54)


Income before income tax provision

2,970



2,779


Income tax provision

746



767


Net income

2,224



2,012


Net income attributable to noncontrolling interests

(1)



(5)


Net income attributable to CVS Health

$

2,223



$

2,007






Net income per share attributable to CVS Health:




Basic

$

1.69



$

1.54


Diluted

$

1.68



$

1.53


Weighted average shares outstanding:




Basic

1,313



1,306


Diluted

1,322



1,312


Dividends declared per share

$

0.50



$

0.50


 

CVS HEALTH CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)


In millions

March 31,

2021


December 31,

2020

Assets:




Cash and cash equivalents

$

5,598



$

7,854


Investments

3,190



3,000


Accounts receivable, net

23,855



21,742


Inventories

17,618



18,496


Other current assets

5,458



5,277


Total current assets

55,719



56,369


Long-term investments

21,025



20,812


Property and equipment, net

12,611



12,606


Operating lease right-of-use assets

20,542



20,729


Goodwill

79,552



79,552


Intangible assets, net

30,639



31,142


Separate accounts assets

4,692



4,881


Other assets

4,826



4,624


Total assets

$

229,606



$

230,715






Liabilities:




Accounts payable

$

10,804



$

11,138


Pharmacy claims and discounts payable

16,282



15,795


Health care costs payable

8,272



7,936


Policyholders’ funds

4,440



4,270


Accrued expenses

14,312



14,243


Other insurance liabilities

1,534



1,557


Current portion of operating lease liabilities

1,786



1,638


Short-term debt

252




Current portion of long-term debt

2,422



5,440


Total current liabilities

60,104



62,017


Long-term operating lease liabilities

18,587



18,757


Long-term debt

59,270



59,207


Deferred income taxes

6,610



6,794


Separate accounts liabilities

4,692



4,881


Other long-term insurance liabilities

6,870



7,007


Other long-term liabilities

2,309



2,351


Total liabilities

158,442



161,014






Shareholders’ equity:




Preferred stock




Common stock and capital surplus

46,727



46,513


Treasury stock

(28,102)



(28,178)


Retained earnings

51,203



49,640


Accumulated other comprehensive income

1,022



1,414


Total CVS Health shareholders’ equity

70,850



69,389


Noncontrolling interests

314



312


Total shareholders’ equity

71,164



69,701


Total liabilities and shareholders’ equity

$

229,606



$

230,715


 

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Three Months Ended

March 31,

In millions

2021


2020

Cash flows from operating activities:




Cash receipts from customers

$

66,487



$

63,751


Cash paid for inventory and prescriptions dispensed by retail network pharmacies

(39,171)



(36,969)


Insurance benefits paid

(15,456)



(14,303)


Cash paid to other suppliers and employees

(8,270)



(8,187)


Interest and investment income received

222



206


Interest paid

(876)



(1,128)


Income taxes paid

(44)



(65)


Net cash provided by operating activities

2,892



3,305






Cash flows from investing activities:




Proceeds from sales and maturities of investments

2,177



1,288


Purchases of investments

(3,131)



(1,535)


Purchases of property and equipment

(829)



(742)


Acquisitions (net of cash acquired)

(84)



(613)


Other



5


Net cash used in investing activities

(1,867)



(1,597)






Cash flows from financing activities:




Net borrowings of short-term debt

252



255


Proceeds from issuance of long-term debt



3,946


Repayments of long-term debt

(3,049)



(1,008)


Dividends paid

(656)



(652)


Proceeds from exercise of stock options

212



154


Payments for taxes related to net share settlement of equity awards

(3)



(16)


Other



(4)


Net cash provided by (used in) financing activities

(3,244)



2,675


Net increase (decrease) in cash, cash equivalents and restricted cash

(2,219)



4,383


Cash, cash equivalents and restricted cash at the beginning of the period

8,130



5,954


Cash, cash equivalents and restricted cash at the end of the period

$

5,911



$

10,337


 

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Three Months Ended

March 31,

In millions

2021


2020

Reconciliation of net income to net cash provided by operating activities:




Net income

$

2,224



$

2,012


Adjustments required to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

1,126



1,086


Stock-based compensation

87



96


Deferred income taxes and other noncash items

(166)



(35)


Change in operating assets and liabilities, net of effects from acquisitions:




Accounts receivable, net

(2,093)



(2,715)


Inventories

879



541


Other assets

(223)



(1,119)


Accounts payable and pharmacy claims and discounts payable

576



1,928


Health care costs payable and other insurance liabilities

294



139


Other liabilities

188



1,372


Net cash provided by operating activities

$

2,892



$

3,305


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.

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 months ended March 31, 2021 and 2020, 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.
  • 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.

See endnotes (1) and (2) on page 21 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 12, 13 and 20.

 

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 to segment adjusted operating income:



Three Months Ended March 31, 2021

In millions

Health Care

Benefits


Pharmacy

Services


Retail/

LTC


Corporate/

Other


Intersegment

Eliminations


Consolidated

Totals

Operating income (loss) (GAAP measure)

$

1,380



$

1,452



$

1,265



$

(345)



$

(175)



$

3,577


Amortization of intangible assets

402



55



129



1





587


Acquisition-related integration costs







41





41


Adjusted operating income (loss) (1)

$

1,782



$

1,507



$

1,394



$

(303)



$

(175)



$

4,205


 


Three Months Ended March 31, 2020

In millions

Health Care

Benefits


Pharmacy

Services


Retail/

LTC


Corporate/

Other


Intersegment

Eliminations


Consolidated

Totals

Operating income (loss) (GAAP measure)

$

1,095



$

1,114



$

1,780



$

(355)



$

(176)



$

3,458


Amortization of intangible assets

396



67



122



1





586


Acquisition-related integration costs







69





69


Adjusted operating income (loss) (1)

$

1,491



$

1,181



$

1,902



$

(285)



$

(176)



$

4,113


 

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

March 31, 2021


Three Months Ended

March 31, 2020

In millions, except per share amounts

Total

Company


Per

Common

Share


Total

Company


Per

Common

Share

Net income attributable to CVS Health (GAAP measure)

$

2,223



$

1.68



$

2,007



$

1.53


Amortization of intangible assets

587



0.44



586



0.45


Acquisition-related integration costs

41



0.03



69



0.05


Tax impact of non-GAAP adjustments

(154)



(0.11)



(160)



(0.12)


Adjusted income attributable to CVS Health (2)

$

2,697



$

2.04



$

2,502



$

1.91










Weighted average diluted shares outstanding



1,322





1,312


 

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

Health Care

Benefits


Pharmacy

Services (a)


Retail/

LTC


Corporate/

Other


Intersegment

Eliminations


Consolidated

Totals

Three Months Ended












March 31, 2021












Total revenues

$

20,483



$

36,321



$

23,274



$

135



$

(11,116)



$

69,097


Adjusted operating income (loss) (1)

1,782



1,507



1,394



(303)



(175)



4,205


March 31, 2020












Total revenues

19,198



34,983



22,749



90



(10,265)



66,755


Adjusted operating income (loss) (1)

1,491



1,181



1,902



(285)



(176)



4,113


_____________________________________________

(a)

Total revenues of the Pharmacy Services segment include approximately $3.4 billion of retail co-payments in each of the three-month periods ended March 31, 2021 and 2020.

 

Supplemental Information

(Unaudited)


Health Care Benefits Segment


The following table summarizes the Health Care Benefits segment’s performance for the respective periods:



Three Months Ended

March 31,


Change

In millions, except percentages and basis points («bps»)

2021


2020


$


%

Revenues:








Premiums

$

18,942


$

17,621


$

1,321



7.5

%

Services

1,393


1,484


(91)



(6.1)

%

Net investment income

148


93


55



59.1

%

Total revenues

20,483


19,198


1,285



6.7

%

Benefit costs

15,757


14,516


1,241



8.5

%

MBR (Benefit costs as a % of premium revenues) (5)

83.2%


82.4%


80


bps

Operating expenses

$

3,346


$

3,587


$

(241)



(6.7)

%

Operating expenses as a % of total revenues

16.3%


18.7%





Operating income

$

1,380


$

1,095


$

285



26.0

%

Operating income as a % of total revenues

6.7%


5.7%





Adjusted operating income (1)

$

1,782


$

1,491


$

291



19.5

%

Adjusted operating income as a % of total revenues

8.7%


7.8%





Premium revenues (by business):








Government

$

13,917


$

12,469


$

1,448



11.6

%

Commercial

5,025


5,152


(127)



(2.5)

%
















 

The following table summarizes the Health Care Benefits segment’s medical membership for the respective periods:



March 31, 2021


December 31, 2020


March 31, 2020

In thousands

Insured


ASC


Total


Insured


ASC


Total


Insured


ASC


Total

Medical membership: (6)


















Commercial

3,201



13,584



16,785



3,258



13,644



16,902



3,372



14,206



17,578


Medicare Advantage

2,874





2,874



2,705





2,705



2,584





2,584


Medicare Supplement

1,146





1,146



1,082





1,082



913





913


Medicaid

2,184



637



2,821



2,100



623



2,723



1,835



552



2,387


Total medical membership

9,405



14,221



23,626



9,145



14,267



23,412



8,704



14,758



23,462




















Supplemental membership information:















Medicare Prescription Drug Plan (standalone)

5,694







5,490







5,624


 

Supplemental Information

(Unaudited)


The following table shows the components of the change in health care costs payable during the three months ended March 31, 2021 and 2020:



Three Months Ended

March 31,

In millions

2021


2020

Health care costs payable, beginning of period

$

7,936



$

6,879


Less: Reinsurance recoverables

10



5


Health care costs payable, beginning of period, net

7,926



6,874


Acquisition



412


Add: Components of incurred health care costs




Current year

16,291



14,764


Prior years (a)

(652)



(464)


Total incurred health care costs (b)

15,639



14,300


Less: Claims paid




Current year

9,538



8,773


Prior years

5,767



5,242


Total claims paid

15,305



14,015


Add: Premium deficiency reserve

7



10


Health care costs payable, end of period, net

8,267



7,581


Add: Reinsurance recoverables

5



4


Health care costs payable, end of period

$

8,272



$

7,585


_____________________________________________

(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 three months ended March 31, 2021 and 2020 in the table above exclude (i) $7 million and $10 million, respectively, related to a premium deficiency reserve related to the Company’s Medicaid products, (ii) $13 million and $9 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) $45 million and $68 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:



March 31, 2021


December 31, 2020


March 31, 2020

Days Claims Payable (10)

48


48


48










 

Supplemental Information

(Unaudited)


Pharmacy Services Segment


The following table summarizes the Pharmacy Services segment’s performance for the respective periods:



Three Months Ended

March 31,


Change

In millions, except percentages

2021


2020


$


%

Revenues:








Products

$

36,067


$

34,746


$

1,321



3.8

%

Services

254


237


17



7.2

%

Total revenues

36,321


34,983


1,338



3.8

%

Cost of products sold

34,523


33,503


1,020



3.0

%

Gross profit (11)

1,798


1,480


318



21.5

%

Gross margin (Gross profit as a % of total revenues) (11)

5.0%


4.2%





Operating expenses

$

346


$

366


$

(20)



(5.5)

%

Operating expenses as a % of total revenues

1.0%


1.0%





Operating income

$

1,452


$

1,114


$

338



30.3

%

Operating income as a % of total revenues

4.0%


3.2%





Adjusted operating income (1)

$

1,507


$

1,181


$

326



27.6

%

Adjusted operating income as a % of total revenues

4.1%


3.4%





Revenues (by distribution channel):








Pharmacy network (8)

$

21,893


$

21,100


$

793



3.8

%

Mail choice (9)

14,248


13,674


574



4.2

%

Other

180


209


(29)



(13.9)

%

Pharmacy claims processed: (4) (7)








Total

535.9


541.4


(5.5)



(1.0)

%

Pharmacy network (8)

455.4


461.1


(5.7)



(1.2)

%

Mail choice (9)

80.5


80.3


0.2



0.2

%

Generic dispensing rate: (4) (12)








Total

88.1%


89.0%





Pharmacy network (8)

88.5%


89.5%





Mail choice (9)

85.7%


85.7%




















 

Supplemental Information

(Unaudited)


Retail/LTC Segment


The following table summarizes the Retail/LTC segment’s performance for the respective periods:



Three Months Ended

March 31,


Change

In millions, except percentages

2021


2020


$


%

Revenues:








Products

$

22,394


$

22,522


$

(128)



(0.6)

%

Services

834


227


607



267.4

%

Net investment income

46



46



100.0

%

Total revenues

23,274


22,749


525



2.3

%

Cost of products sold

17,042


16,578


464



2.8

%

Gross profit (11)

6,232


6,171


61



1.0

%

Gross margin (Gross profit as a % of total revenues) (11)

26.8%


27.1%





Operating expenses

$

4,967


$

4,391


$

576



13.1

%

Operating expenses as a % of total revenues

21.3%


19.3%





Operating income

$

1,265


$

1,780


$

(515)



(28.9)

%

Operating income as a % of total revenues

5.4%


7.8%





Adjusted operating income (1)

$

1,394


$

1,902


$

(508)



(26.7)

%

Adjusted operating income as a % of total revenues

6.0%


8.4%





Revenues (by major goods/service lines):








Pharmacy

$

17,885


$

17,355


$

530



3.1

%

Front Store

4,642


5,208


(566)



(10.9)

%

Other

701


186


515



276.9

%

Net investment income

46



46



100.0

%

Prescriptions filled (4) (7)

375.4


375.1


0.3



0.1

%

Same store sales increase (decrease): (13)








Total

0.4%


9.0%





Pharmacy

4.1%


9.3%





Front Store

(11.4)%


8.0%





Prescription volume (4)

1.0%


9.8%





Generic dispensing rate (4) (12)

87.4%


89.3%




















 

Supplemental Information

(Unaudited)


Corporate/Other Segment


The following table summarizes the Corporate/Other segment’s performance for the respective periods:



Three Months Ended

March 31,


Change

In millions, except percentages

2021


2020


$


%

Revenues:








Premiums

$

18



$

19



$

(1)



(5.3)

%

Services

14



2



12



600.0

%

Net investment income

103



69



34



49.3

%

Total revenues

135



90



45



50.0

%

Cost of products sold

8





8



100.0

%

Benefit costs

45



68



(23)



(33.8)

%

Operating expenses

427



377



50



13.3

%

Operating loss

(345)



(355)



10



2.8

%

Adjusted operating loss (1)

(303)



(285)



(18)



(6.3)

%

 

Adjusted Earnings Per Share Guidance

(Unaudited)


The following reconciliations 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 Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021. 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, 2021


Low


High

In millions, except per share amounts

Total

Company


Per

Common

Share


Total

Company


Per

Common

Share

Net income attributable to CVS Health (GAAP measure)

$

8,295



$

6.24



$

8,455



$

6.36


Amortization of intangible assets

2,300



1.73



2,300



1.73


Acquisition-related integration costs

130



0.10



130



0.10


Tax impact of non-GAAP adjustments

(675)



(0.51)



(675)



(0.51)


Adjusted income attributable to CVS Health (2)

$

10,050



$

7.56



$

10,210



$

7.68










Weighted average diluted shares outstanding



1,330





1,330


 

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. 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)    

Adjusted EPS is calculated by dividing 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 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 and the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health. 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) 

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) 

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. 

(6) 

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.

(7) 

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.

(8) 

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.

(9) 

Mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program. 

(10) 

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.

(11) 

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.

(12) 

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. 

(13) 

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® and revenues and prescriptions from LTC operations. 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.

 

CVS Health logo (PRNewsFoto/CVS Health)

 

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SOURCE CVS Health Corporation