Date of Report (Date of earliest event reported): | May 1, 2019 |
Delaware | 001-01011 | 05-0494040 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
One CVS Drive, Woonsocket, Rhode Island | 02895 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: | (401) 765-1500 |
Former name or former address, if changed since last report: | N/A |
Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o |
CVS HEALTH CORPORATION | ||
Date: May 1, 2019 | By: | /s/ Eva C. Boratto |
Eva C. Boratto | ||
Executive Vice President and Chief Financial Officer | ||
Investor | Joe Krocheski | Media | T.J. Crawford |
Contact: | Vice President | Contact: | Vice President |
Investor Relations | External Affairs | ||
(860) 273-0896 | (212) 457-0583 |
• | Revenues increased 34.8% to $61.6 billion |
• | GAAP operating income increased 34.8% to $2.7 billion |
• | Adjusted operating income increased 56.8% to $3.6 billion |
• | GAAP diluted earnings per share of $1.09 |
• | Adjusted EPS (a) of $1.62 |
• | Generated cash flow from operations of $1.9 billion |
• | Revised GAAP operating income guidance range to $11.8 billion to $12.0 billion from $11.7 billion to $12.1 billion |
• | Narrowed and raised the mid-point of the guidance range for adjusted operating income (1) to $15.0 billion to $15.2 billion from $14.8 billion to $15.2 billion |
• | Narrowed GAAP diluted EPS guidance range to $4.90 to $5.05 from $4.88 to $5.08 |
• | Raised Adjusted EPS (2) guidance range to $6.75 to $6.90 from $6.68 to $6.88 |
• | Confirmed cash flow from operations guidance range of $9.8 billion to $10.3 billion |
(a) | The Company presents both GAAP and non-GAAP financial measures in this press release to assist in the comparison of the Company’s past financial performance with its current financial performance. See “Non-GAAP Financial Information” on page 11 and endnotes (1) through (4) on page 23 for explanations of non-GAAP financial measures presented in this press release. See pages 12 through 14 and 21 through 22 for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure. |
Three Months Ended | |||||||||||
March 31, | |||||||||||
In millions, except per share amounts | 2019 | 2018 | Change | ||||||||
Revenues | $ | 61,646 | $ | 45,743 | $ | 15,903 | |||||
Operating income | 2,690 | 1,996 | 694 | ||||||||
Adjusted operating income (1) | 3,595 | 2,293 | 1,302 | ||||||||
Net income | 1,427 | 998 | 429 | ||||||||
Diluted earnings per share | $ | 1.09 | $ | 0.98 | $ | 0.11 | |||||
Adjusted EPS (2) | $ | 1.62 | $ | 1.48 | $ | 0.14 | |||||
Enterprise prescriptions (5) (6) | 679.8 | 659.1 | 20.7 | ||||||||
• | Effective for the first quarter of 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and how the business is managed. As a result of this realignment, the Company’s SilverScript® Medicare Part D prescription drug plan (“PDP”) moved from the Pharmacy Services segment to the Health Care Benefits segment. In addition, the Company moved the mail order and specialty pharmacy operations of Aetna Inc. (“Aetna”), which it acquired on November 28, 2018 (the “Aetna Acquisition”), from the Health Care Benefits segment to the Pharmacy Services segment. Prior period segment financial information has been retrospectively adjusted to conform with the current period presentation. |
• | Revenues and adjusted revenues (3) increased 34.8% and 34.9%, respectively, for the three months ended March 31, 2019 compared to the prior year. Revenue growth was primarily driven by the Aetna Acquisition, as well as increased volume and brand name drug price inflation in both the Pharmacy Services and Retail/LTC segments. The increase was partially offset by continued price compression in the Pharmacy Services segment, reimbursement pressure in the Retail/LTC segment and an increased generic dispensing rate. |
• | Operating expenses and adjusted operating expenses (4) increased 67.9% and 60.6%, respectively, for the three months ended March 31, 2019 compared to the prior year. The increase in both operating expenses and adjusted operating expenses was primarily driven by the impact of the Aetna Acquisition. The increase in operating expenses was also due to an increase in intangible amortization related to the Aetna Acquisition, a $135 million store rationalization charge recorded during the first quarter of 2019 primarily related to operating lease right-of-use asset impairment charges in connection with the planned closure of 46 underperforming retail pharmacy stores in the second quarter of 2019, and an increase in acquisition-related integration costs. The increase in operating expenses was partially offset by the absence of the $86 million pre-tax loss associated with the divestiture of the Company's RxCrossroads subsidiary recorded in the three months ended March 31, 2018. |
• | Operating income and adjusted operating income increased 34.8% and 56.8%, respectively, for the three months ended March 31, 2019 compared to the prior year. The increase in both operating income and adjusted operating income was primarily due to the Aetna Acquisition, partially offset by reimbursement pressure and the investment of a portion of the savings from tax reform in wages and benefits in the Retail/LTC segment and continued price compression in the Pharmacy Services segment. The increase in operating income was also partially offset by the other increases in operating expenses described above. |
• | Net income increased 43.0% for the three months ended March 31, 2019 compared to the prior year primarily due to higher operating income described above, partially offset by higher interest expense primarily due to financing activity associated with the Aetna Acquisition. |
• | The effective income tax rate was 26.4% for the three months ended March 31, 2019 compared to 32.1% for the three months ended March 31, 2018. The decrease in the effective income tax rate compared to the prior year was primarily due to the impact of the non-deductible goodwill included in the loss associated with the divestiture of the Company’s RxCrossroads subsidiary during the three months ended March 31, 2018. |
Three Months Ended | |||||||||||
March 31, | |||||||||||
In millions | 2019 | 2018 | Change | ||||||||
Total revenues | $ | 33,558 | $ | 32,546 | $ | 1,012 | |||||
Operating income | 850 | 901 | (51 | ) | |||||||
Adjusted operating income (1) | 947 | 987 | (40 | ) | |||||||
Total pharmacy claims processed (6) | 481.8 | 468.8 | 13.0 | ||||||||
Pharmacy network | 407.7 | 399.5 | 8.2 | ||||||||
Mail choice | 74.1 | 69.3 | 4.8 | ||||||||
• | Total revenues increased 3.1% for the three months ended March 31, 2019 compared to the prior year primarily due to brand name drug price inflation as well as increased total pharmacy claims volume, partially offset by continued price compression and an increased generic dispensing rate. |
• | Total pharmacy claims processed increased 2.8% on a 30-day equivalent basis, for the three months ended March 31, 2019 compared to the prior year primarily driven by net new business and the continued adoption of Maintenance Choice® offerings. |
• | Operating income and adjusted operating income decreased 5.7% and 4.2%, respectively, for the three months ended March 31, 2019 compared to the prior year primarily driven by continued price compression and investments related to the Company’s agreement with Anthem Inc. during the three months ended March 31, 2019. The decrease in operating income also was due to increased intangible amortization related to Aetna’s mail order and specialty pharmacy operations. |
Three Months Ended | |||||||||||
March 31, | |||||||||||
In millions | 2019 | 2018 | Change | ||||||||
Total revenues | $ | 21,115 | $ | 20,432 | $ | 683 | |||||
Operating income | 1,238 | 1,624 | (386 | ) | |||||||
Adjusted operating income (1) | 1,489 | 1,836 | (347 | ) | |||||||
Prescriptions filled (6) | 346.8 | 328.8 | 18.0 | ||||||||
• | Total revenues increased 3.3% for the three months ended March 31, 2019 compared to the prior year. The increase was primarily driven by increased prescription volume and brand name drug price inflation, partially offset by continued reimbursement pressure and the impact of generic drug introductions. |
• | Front store revenues represent approximately 22.7% of total Retail/LTC segment revenues. Front store revenues increased in the three months ended March 31, 2019 compared to the prior year primarily driven by increases in health product sales. |
• | Total prescription volume grew 5.5%, on a 30-day equivalent basis, for the three months ended March 31, 2019 compared to the prior year. The growth was driven mainly by the continued adoption of patient care programs, collaborations with PBMs and the Company’s preferred status in a number of Medicare Part D networks. |
• | Operating income and adjusted operating income decreased 23.8% and 18.9%, respectively, for the three months ended March 31, 2019. The decrease in both operating income and adjusted operating income was primarily due to (i) continued reimbursement pressure, (ii) increased operating expenses primarily driven by the investment of a portion of the savings from tax reform in wages and benefits and higher legal costs and (iii) declining year-over-year performance in our long-term care business. The decrease in operating income also was driven by the $135 million store rationalization charge recorded during the first quarter of 2019 described above, partially offset by the absence of the $86 million pre-tax loss associated with the divestiture of the Company’s RxCrossroads subsidiary recorded in the three months ended March 31, 2018. |
Three Months Ended | |||||||||||
March 31, | |||||||||||
In millions, except percentages | 2019 | 2018 | Change | ||||||||
Total revenues | $ | 17,870 | $ | 1,318 | $ | 16,552 | |||||
Operating income (loss) | 1,155 | (138 | ) | 1,293 | |||||||
Adjusted operating income (loss) (1) | 1,562 | (137 | ) | 1,699 | |||||||
Medical benefit ratio (“MBR”) (a) | 84.0 | % | NM | ||||||||
Medical membership as of March 31, 2019 | 22.8 | ||||||||||
(a) | The Health Care Benefits segment for the three months ended March 31, 2018 consisted solely of the Company’s SilverScript PDP business. Accordingly, the MBR for the three months ended March 31, 2018 is not meaningful and not directly comparable to the MBR for the three months ended March 31, 2019. |
• | Total revenues increased $16.6 billion for the three months ended March 31, 2019 compared to the prior year primarily driven by the Aetna Acquisition. Revenues for the three months ended March 31, 2019 reflect strong membership growth in the Health Care Benefits segment’s Medicare products. |
• | Operating income and adjusted operating income increased $1.3 billion and $1.7 billion, respectively, for the three months ended March 31, 2019 compared to the prior year primarily driven by the Aetna Acquisition. The increase in operating income was partially offset by an increase in intangible amortization related to the Aetna Acquisition. Operating loss and adjusted operating loss for the three months ended March 31, 2018 reflect the seasonality of earnings for the Company’s SilverScript PDP business. The quarterly earnings of the Company’s SilverScript PDP business generally increase as the year progresses. |
• | Medical membership as of March 31, 2019 increased compared with December 31, 2018, reflecting increases in Medicare, Commercial ASC and Medicaid products, partially offset by declines in Commercial Insured products. |
• | The Health Care Benefits segment experienced favorable development of prior-years’ health care cost estimates in its Commercial, Medicare and Medicaid products, primarily attributable to fourth quarter 2018 performance and provider recoveries. |
• | Prior years’ health care costs payable estimates developed favorably by $446 million during the first quarter of 2019. 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 2019 operating results. |
Three Months Ended | |||||||
March 31, | |||||||
In millions, except per share amounts | 2019 | 2018 | |||||
Revenues: | |||||||
Products | $ | 43,343 | $ | 44,049 | |||
Premiums | 16,282 | 1,306 | |||||
Services | 1,772 | 338 | |||||
Net investment income | 249 | 50 | |||||
Total revenues | 61,646 | 45,743 | |||||
Operating costs: | |||||||
Cost of products sold | 37,247 | 37,505 | |||||
Benefit costs | 13,459 | 1,329 | |||||
Operating expenses | 8,250 | 4,913 | |||||
Total operating costs | 58,956 | 43,747 | |||||
Operating income | 2,690 | 1,996 | |||||
Interest expense | 782 | 523 | |||||
Other expense (income) | (31 | ) | 3 | ||||
Income before income tax provision | 1,939 | 1,470 | |||||
Income tax provision | 512 | 472 | |||||
Net income | 1,427 | 998 | |||||
Net income attributable to noncontrolling interests | (6 | ) | — | ||||
Net income attributable to CVS Health | $ | 1,421 | $ | 998 | |||
Net income per share attributable to CVS Health: | |||||||
Basic | $ | 1.09 | $ | 0.98 | |||
Diluted | $ | 1.09 | $ | 0.98 | |||
Weighted average shares outstanding: | |||||||
Basic | 1,298 | 1,016 | |||||
Diluted | 1,302 | 1,019 | |||||
Dividends declared per share | $ | 0.50 | $ | 0.50 | |||
March 31, | December 31, | ||||||
In millions | 2019 | 2018 | |||||
Assets: | |||||||
Cash and cash equivalents | $ | 5,896 | $ | 4,059 | |||
Investments | 2,426 | 2,522 | |||||
Accounts receivable, net | 19,509 | 17,631 | |||||
Inventories | 15,448 | 16,450 | |||||
Other current assets | 4,578 | 4,581 | |||||
Total current assets | 47,857 | 45,243 | |||||
Long-term investments | 16,410 | 15,732 | |||||
Property and equipment, net | 11,348 | 11,349 | |||||
Operating lease right-of-use assets | 20,992 | — | |||||
Goodwill | 79,075 | 78,678 | |||||
Intangible assets, net | 35,147 | 36,524 | |||||
Separate accounts assets | 4,074 | 3,884 | |||||
Other assets | 4,865 | 5,046 | |||||
Total assets | $ | 219,768 | $ | 196,456 | |||
Liabilities: | |||||||
Accounts payable | $ | 8,290 | $ | 8,925 | |||
Pharmacy claims and discounts payable | 11,827 | 11,365 | |||||
Health care costs payable | 6,701 | 6,147 | |||||
Policyholders’ funds | 2,732 | 2,939 | |||||
Accrued expenses | 10,443 | 10,711 | |||||
Other insurance liabilities | 1,937 | 1,937 | |||||
Current portion of operating lease liabilities | 1,803 | — | |||||
Short-term debt | 3,005 | 720 | |||||
Current portion of long-term debt | 3,893 | 1,265 | |||||
Total current liabilities | 50,631 | 44,009 | |||||
Long-term operating lease liabilities | 18,961 | — | |||||
Long-term debt | 67,888 | 71,444 | |||||
Deferred income taxes | 7,540 | 7,677 | |||||
Separate accounts liabilities | 4,074 | 3,884 | |||||
Other long-term insurance liabilities | 8,052 | 8,119 | |||||
Other long-term liabilities | 2,616 | 2,780 | |||||
Total liabilities | 159,762 | 137,913 | |||||
Shareholders’ equity: | |||||||
Preferred stock | — | — | |||||
Common stock and capital surplus | 45,615 | 45,440 | |||||
Treasury stock | (28,221 | ) | (28,228 | ) | |||
Retained earnings | 41,859 | 40,911 | |||||
Accumulated other comprehensive income | 433 | 102 | |||||
Total CVS Health shareholders’ equity | 59,686 | 58,225 | |||||
Noncontrolling interests | 320 | 318 | |||||
Total shareholders’ equity | 60,006 | 58,543 | |||||
Total liabilities and shareholders’ equity | $ | 219,768 | $ | 196,456 |
Three Months Ended | |||||||
March 31, | |||||||
In millions | 2019 | 2018 | |||||
Cash flows from operating activities: | |||||||
Cash receipts from customers | $ | 58,873 | $ | 43,369 | |||
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (35,645 | ) | (35,102 | ) | |||
Insurance benefits paid | (12,951 | ) | (1,093 | ) | |||
Cash paid to other suppliers and employees | (7,403 | ) | (4,271 | ) | |||
Interest and investment income received | 250 | 50 | |||||
Interest paid | (1,123 | ) | (545 | ) | |||
Income taxes paid | (53 | ) | (53 | ) | |||
Net cash provided by operating activities | 1,948 | 2,355 | |||||
Cash flows from investing activities: | |||||||
Proceeds from sales and maturities of investments | 1,986 | 10 | |||||
Purchases of investments | (2,047 | ) | (33 | ) | |||
Purchases of property and equipment | (716 | ) | (482 | ) | |||
Acquisitions (net of cash acquired) | (124 | ) | (353 | ) | |||
Proceeds from sale of subsidiary | — | 725 | |||||
Other | 10 | 2 | |||||
Net cash used in investing activities | (891 | ) | (131 | ) | |||
Cash flows from financing activities: | |||||||
Net borrowings (repayments) of short-term debt | 2,285 | (1,276 | ) | ||||
Proceeds from issuance of long-term debt | — | 39,376 | |||||
Repayments of long-term debt | (882 | ) | (1 | ) | |||
Derivative settlements | — | 446 | |||||
Dividends paid | (649 | ) | (508 | ) | |||
Proceeds from exercise of stock options | 101 | 107 | |||||
Payments for taxes related to net share settlement of equity awards | (44 | ) | (4 | ) | |||
Other | 5 | — | |||||
Net cash provided by financing activities | 816 | 38,140 | |||||
Net increase in cash, cash equivalents and restricted cash | 1,873 | 40,364 | |||||
Cash, cash equivalents and restricted cash at the beginning of the period | 4,295 | 1,900 | |||||
Cash, cash equivalents and restricted cash at the end of the period | $ | 6,168 | $ | 42,264 | |||
Three Months Ended | |||||||
March 31, | |||||||
In millions | 2019 | 2018 | |||||
Reconciliation of net income to net cash provided by operating activities: | |||||||
Net income | $ | 1,427 | $ | 998 | |||
Adjustments required to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 1,111 | 644 | |||||
Stock-based compensation | 114 | 55 | |||||
Deferred income taxes and other noncash items | 153 | 62 | |||||
Change in operating assets and liabilities, net of effects from acquisitions: | |||||||
Accounts receivable, net | (1,989 | ) | (857 | ) | |||
Inventories | 1,001 | 464 | |||||
Other assets | (389 | ) | (57 | ) | |||
Accounts payable and pharmacy claims and discounts payable | (22 | ) | (178 | ) | |||
Health care costs payable and other insurance liabilities | 553 | 236 | |||||
Other liabilities | (11 | ) | 988 | ||||
Net cash provided by operating activities | $ | 1,948 | $ | 2,355 | |||
• | 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. |
• | Intangible assets relate to the Company’s acquisition activities and are amortized over their useful lives. The amortization of intangible assets is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within each segment. The amortization of intangible assets is not directly related to the core performance of the Company’s business operations. |
• | During the three months ended March 31, 2019, acquisition-related integration costs relate to the Aetna Acquisition. During the three months ended March 31, 2018, acquisition-related transaction and integration costs relate to the acquisitions of Aetna and Omnicare, Inc. The acquisition-related transaction and integration costs are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses primarily within the Corporate/Other segment. |
• | During the three months ended March 31, 2019, the store rationalization charge primarily relates to operating lease right-of-use asset impairment charges in connection with the planned closure of 46 underperforming retail pharmacy stores in the second quarter of 2019. The store rationalization charge is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within the Retail/LTC segment. |
• | During the three months ended March 31, 2018, the loss on divestiture of subsidiary represents the pre-tax loss on the sale of the Company’s RxCrossroads subsidiary for $725 million and is reflected in operating expenses in the Company’s unaudited GAAP condensed consolidated statement of operations within the Retail/LTC segment. |
• | During the three months ended March 31, 2018, the Company recorded interest expense of $273 million related to bridge financing costs and interest expense on the $40 billion of senior notes issued on March 9, 2018 (“2018 Notes”). The interest expense was reduced by related interest income of $42 million on the proceeds of the 2018 Notes. All amounts are for the periods prior to the close of the Aetna Acquisition, which occurred on November 28, 2018, and were recorded within the Corporate/Other segment. |
• | The corresponding tax benefit or expense related to the items excluded from adjusted net 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. |
Three Months Ended March 31, 2019 | |||||||||||||||||||||||
Pharmacy | Retail/ | Health Care | Corporate/ | Intersegment | Consolidated | ||||||||||||||||||
In millions | Services | LTC | Benefits | Other | Eliminations | Totals | |||||||||||||||||
Operating income (GAAP measure) | $ | 850 | $ | 1,238 | $ | 1,155 | $ | (381 | ) | $ | (172 | ) | $ | 2,690 | |||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Amortization of intangible assets | 97 | 116 | 407 | 2 | — | 622 | |||||||||||||||||
Acquisition-related integration costs | — | — | — | 148 | — | 148 | |||||||||||||||||
Store rationalization charge | — | 135 | — | — | — | 135 | |||||||||||||||||
Adjusted operating income (1) | $ | 947 | $ | 1,489 | $ | 1,562 | $ | (231 | ) | $ | (172 | ) | $ | 3,595 | |||||||||
Three Months Ended March 31, 2018 | |||||||||||||||||||||||
Pharmacy | Retail/ | Health Care | Corporate/ | Intersegment | Consolidated | ||||||||||||||||||
In millions | Services | LTC | Benefits | Other | Eliminations | Totals | |||||||||||||||||
Operating income (GAAP measure) | $ | 901 | $ | 1,624 | $ | (138 | ) | $ | (216 | ) | $ | (175 | ) | $ | 1,996 | ||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Amortization of intangible assets | 86 | 123 | 1 | — | — | 210 | |||||||||||||||||
Acquisition-related transaction and integration costs | — | 3 | — | 40 | — | 43 | |||||||||||||||||
Loss on divestiture of subsidiary | — | 86 | — | — | — | 86 | |||||||||||||||||
Interest income on financing for the Aetna Acquisition | — | — | — | (42 | ) | — | (42 | ) | |||||||||||||||
Adjusted operating income (1) | $ | 987 | $ | 1,836 | $ | (137 | ) | $ | (218 | ) | $ | (175 | ) | $ | 2,293 | ||||||||
Three Months Ended | Three Months Ended | ||||||||||||||
March 31, 2019 | March 31, 2018 | ||||||||||||||
In millions, except per share amounts | Total Company | Per Common Share | Total Company | Per Common Share | |||||||||||
Net income (GAAP measure) | $ | 1,427 | $ | 998 | |||||||||||
Net income attributable to noncontrolling interests (GAAP measure) | (6 | ) | — | ||||||||||||
Income allocable to participating securities (GAAP measure) | (2 | ) | (2 | ) | |||||||||||
Net income attributable to CVS Health (GAAP measure) | 1,419 | $ | 1.09 | 996 | $ | 0.98 | |||||||||
Non-GAAP adjustments: | |||||||||||||||
Amortization of intangible assets | 622 | 0.48 | 210 | 0.21 | |||||||||||
Acquisition-related transaction and integration costs | 148 | 0.11 | 43 | 0.04 | |||||||||||
Store rationalization charge | 135 | 0.10 | — | — | |||||||||||
Loss on divestiture of subsidiary | — | — | 86 | 0.08 | |||||||||||
Net interest expense on financing for the Aetna Acquisition | — | — | 231 | 0.23 | |||||||||||
Income tax benefit | (219 | ) | (0.16 | ) | (61 | ) | (0.06 | ) | |||||||
Income allocable to participating securities, net of tax (a) | — | — | (1 | ) | — | ||||||||||
Adjusted net income attributable to CVS Health (2) | $ | 2,105 | $ | 1.62 | $ | 1,504 | $ | 1.48 | |||||||
Weighted average diluted shares outstanding | 1,302 | 1,019 |
Three Months Ended | |||||||
March 31, | |||||||
In millions | 2019 | 2018 | |||||
Total revenues (GAAP measure) | $ | 61,646 | $ | 45,743 | |||
Non-GAAP adjustment: | |||||||
Interest income on financing for the Aetna Acquisition | — | (42 | ) | ||||
Adjusted revenues (3) | $ | 61,646 | $ | 45,701 | |||
Three Months Ended | ||||||||
March 31, | ||||||||
In millions | 2019 | 2018 | ||||||
Operating expenses (GAAP measure) | $ | 8,250 | — | $ | 4,913 | |||
Non-GAAP adjustments: | ||||||||
Amortization of intangible assets | (622 | ) | (210 | ) | ||||
Acquisition-related transaction and integration costs | (148 | ) | (43 | ) | ||||
Store rationalization charge | (135 | ) | — | |||||
Loss on divestiture of subsidiary | — | (86 | ) | |||||
Adjusted operating expenses (4) | $ | 7,345 | $ | 4,574 | ||||
Three Months Ended March 31, 2018 | |||||||||||||||||||||||
Pharmacy | Retail/ | Health Care | Corporate/ | Intersegment | Consolidated | ||||||||||||||||||
In millions | Services | LTC | Benefits | Other | Eliminations | Totals | |||||||||||||||||
Revenues, as previously reported | $ | 32,220 | $ | 20,432 | $ | — | $ | 48 | $ | (6,957 | ) | $ | 45,743 | ||||||||||
Adjustments | 326 | — | 1,318 | — | (1,644 | ) | — | ||||||||||||||||
Revenues, as adjusted | $ | 32,546 | $ | 20,432 | $ | 1,318 | $ | 48 | $ | (8,601 | ) | $ | 45,743 | ||||||||||
Cost of products sold (a) | $ | 29,751 | $ | 14,516 | $ | — | $ | — | $ | (6,762 | ) | $ | 37,505 | ||||||||||
Adjustments | 1,556 | — | — | — | (1,556 | ) | — | ||||||||||||||||
Cost of products sold, as adjusted | $ | 31,307 | $ | 14,516 | $ | — | $ | — | (8,318 | ) | $ | 37,505 | |||||||||||
Benefit costs (a) | $ | 1,329 | $ | — | $ | — | $ | — | $ | — | $ | 1,329 | |||||||||||
Adjustments | (1,329 | ) | — | 1,329 | — | — | — | ||||||||||||||||
Benefit costs, as adjusted | $ | — | $ | — | $ | 1,329 | $ | — | $ | — | $ | 1,329 | |||||||||||
Operating expenses, as previously reported | $ | 377 | $ | 4,292 | $ | — | $ | 264 | $ | (20 | ) | $ | 4,913 | ||||||||||
Adjustments | (39 | ) | — | 127 | — | (88 | ) | — | |||||||||||||||
Operating expenses, as adjusted | $ | 338 | $ | 4,292 | $ | 127 | $ | 264 | $ | (108 | ) | $ | 4,913 | ||||||||||
Operating income (loss), as previously reported | $ | 763 | $ | 1,624 | $ | — | $ | (216 | ) | $ | (175 | ) | $ | 1,996 | |||||||||
Adjustments | 138 | — | (138 | ) | — | — | — | ||||||||||||||||
Operating income (loss), as adjusted | 901 | 1,624 | (138 | ) | (216 | ) | (175 | ) | 1,996 | ||||||||||||||
Adjustments | 86 | 212 | 1 | (2 | ) | — | 297 | ||||||||||||||||
Adjusted operating income (loss) | $ | 987 | $ | 1,836 | $ | (137 | ) | $ | (218 | ) | $ | (175 | ) | $ | 2,293 |
Pharmacy | Retail/ | Health Care | Corporate/ | Intersegment | Consolidated | ||||||||||||||||||
In millions | Services(a) | LTC | Benefits | Other | Eliminations(b) | Totals | |||||||||||||||||
Three Months Ended | |||||||||||||||||||||||
March 31, 2019 | |||||||||||||||||||||||
Total revenues | $ | 33,558 | $ | 21,115 | $ | 17,870 | $ | 110 | $ | (11,007 | ) | $ | 61,646 | ||||||||||
Operating income (loss) | 850 | 1,238 | 1,155 | (381 | ) | (172 | ) | 2,690 | |||||||||||||||
Adjusted operating income (loss) (1) | 947 | 1,489 | 1,562 | (231 | ) | (172 | ) | 3,595 | |||||||||||||||
March 31, 2018 | |||||||||||||||||||||||
Total revenues | 32,546 | 20,432 | 1,318 | 48 | (8,601 | ) | 45,743 | ||||||||||||||||
Operating income (loss) | 901 | 1,624 | (138 | ) | (216 | ) | (175 | ) | 1,996 | ||||||||||||||
Adjusted operating income (loss) (1) | 987 | 1,836 | (137 | ) | (218 | ) | (175 | ) | 2,293 | ||||||||||||||
(a) | Revenues of the Pharmacy Services segment include approximately $3.3 billion of retail co-payments for each of the three-month periods ended March 31, 2019 and 2018. |
(b) | Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services segment and the Retail/LTC segment for the three months ended March 31, 2018. Effective November 28, 2018, intersegment eliminations also relate to intersegment revenue generating activities that occur between the Health Care Benefits segment and the Pharmacy Services segment and/or the Retail/LTC segment. |
Three Months Ended | |||||||
March 31, | |||||||
In millions, except percentages | 2019 | 2018 | |||||
Revenues: | |||||||
Products | $ | 33,450 | $ | 32,431 | |||
Services | 108 | 115 | |||||
Total revenues | 33,558 | 32,546 | |||||
Cost of products sold | 32,339 | 31,307 | |||||
Operating expenses | 369 | 338 | |||||
Operating expenses as a % of revenues | 1.1 | % | 1.0 | % | |||
Operating income | $ | 850 | $ | 901 | |||
Operating income as a % of revenues | 2.5 | % | 2.8 | % | |||
Adjusted operating income (1) | $ | 947 | $ | 987 | |||
Adjusted operating income as a % of revenues | 2.8 | % | 3.0 | % | |||
Revenues (by distribution channel): | |||||||
Pharmacy network (7) | $ | 21,574 | $ | 21,198 | |||
Mail choice (8) | 11,839 | 11,208 | |||||
Other | 145 | 140 | |||||
Pharmacy claims processed: (6) | |||||||
Total | 481.8 | 468.8 | |||||
Pharmacy network (7) | 407.7 | 399.5 | |||||
Mail choice (8) | 74.1 | 69.3 | |||||
Generic dispensing rate: (6) | |||||||
Total | 88.3 | % | 87.6 | % | |||
Pharmacy network (7) | 88.9 | % | 88.3 | % | |||
Mail choice (8) | 84.8 | % | 83.9 | % | |||
Mail choice penetration rate (6) | 15.4 | % | 14.8 | % |
Three Months Ended | |||||||
March 31, | |||||||
In millions, except percentages | 2019 | 2018 | |||||
Revenues: | |||||||
Products | $ | 20,900 | $ | 20,219 | |||
Services | 215 | 213 | |||||
Total revenues | 21,115 | 20,432 | |||||
Cost of products sold | 15,297 | 14,516 | |||||
Operating expenses | 4,580 | 4,292 | |||||
Operating expenses as a % of revenues | 21.7 | % | 21.0 | % | |||
Operating income | $ | 1,238 | $ | 1,624 | |||
Operating income as a % of revenues | 5.9 | % | 7.9 | % | |||
Adjusted operating income (1) | $ | 1,489 | $ | 1,836 | |||
Adjusted operating income as a % of revenues | 7.1 | % | 9.0 | % | |||
Revenues (by major goods/service lines): | |||||||
Pharmacy | $ | 16,118 | $ | 15,500 | |||
Front Store | 4,799 | 4,726 | |||||
Other | 198 | 206 | |||||
Prescriptions filled (6) | 346.8 | 328.8 | |||||
Revenues increase: | |||||||
Total | 3.3 | % | 5.6 | % | |||
Pharmacy | 4.0 | % | 7.4 | % | |||
Front Store | 1.5 | % | 2.3 | % | |||
Total prescription volume increase (6) | 5.5 | % | 8.5 | % | |||
Same store sales increase: (9) | |||||||
Total | 3.8 | % | 5.8 | % | |||
Pharmacy | 4.9 | % | 7.3 | % | |||
Front Store | 0.4 | % | 1.6 | % | |||
Prescription volume (6) | 6.7 | % | 8.5 | % | |||
Generic dispensing rate (6) | 88.7 | % | 88.1 | % | |||
Three Months Ended | |||||||
March 31, | |||||||
In millions, except percentages | 2019 | 2018 | |||||
Revenues: | |||||||
Premiums | $ | 16,259 | $ | 1,306 | |||
Services | 1,447 | 10 | |||||
Net investment income | 164 | 2 | |||||
Total revenues | 17,870 | 1,318 | |||||
Benefit costs | 13,655 | 1,329 | |||||
MBR (Benefit costs as a % of premium revenues) (a) | 84.0 | % | NM | ||||
Operating expenses | $ | 3,060 | $ | 127 | |||
Operating expenses as a % of revenues | 17.1 | % | 9.6 | % | |||
Operating income (loss) | $ | 1,155 | $ | (138 | ) | ||
Operating income (loss) as a % of revenues | 6.5 | % | NM | ||||
Adjusted operating income (loss) (1) | $ | 1,562 | $ | (137 | ) | ||
Adjusted operating income (loss) as a % of revenues | 8.7 | % | NM | ||||
(a) | The Health Care Benefits segment for the three months ended March 31, 2018 consisted solely of the Company’s SilverScript PDP business. Accordingly, the MBR for the three months ended March 31, 2018 is not meaningful and not directly comparable to the MBR for the three months ended March 31, 2019. |
March 31, 2019 | December 31, 2018 | ||||||||||||||||
In thousands | Insured | ASC | Total | Insured | ASC | Total | |||||||||||
Medical membership: | |||||||||||||||||
Commercial | 3,611 | 14,302 | 17,913 | 3,871 | 13,888 | 17,759 | |||||||||||
Medicare Advantage | 2,231 | — | 2,231 | 1,758 | — | 1,758 | |||||||||||
Medicare Supplement | 804 | — | 804 | 793 | — | 793 | |||||||||||
Medicaid | 1,315 | 571 | 1,886 | 1,128 | 663 | 1,791 | |||||||||||
Total medical membership | 7,961 | 14,873 | 22,834 | 7,550 | 14,551 | 22,101 | |||||||||||
Supplementary membership information: | |||||||||||||||||
Medicare Prescription Drug Plan (standalone) (a) | 6,044 | 6,134 | |||||||||||||||
(a) | Represents the Company’s SilverScript PDP membership only. Excludes 2.4 million and 2.3 million members as of March 31, 2019 and December 31, 2018, respectively, related to Aetna’s standalone PDPs that were sold effective December 31, 2018. The Company will retain the financial results of the divested plans through 2019 through a reinsurance agreement. |
In millions | |||
Health care costs payable, beginning of period | $ | 6,147 | |
Less: Reinsurance recoverables | 4 | ||
Health care costs payable, beginning of period, net | 6,143 | ||
Add: Components of incurred health care costs | |||
Current year | 13,804 | ||
Prior years (a) | (446 | ) | |
Total incurred health care costs (b) | 13,358 | ||
Less: Claims paid | |||
Current year | 8,004 | ||
Prior years | 4,812 | ||
Total claims paid | 12,816 | ||
Add: Premium deficiency reserve | 11 | ||
Health care costs payable, end of period, net | 6,696 | ||
Add: Reinsurance recoverables | 5 | ||
Health care costs payable, end of period | $ | 6,701 | |
(a) | Negative amounts reported for incurred health care costs related to prior years result from claims being settled for less than originally estimated. |
(b) | Total incurred health care costs during the three months ended March 31, 2019 in the table above exclude (i) $11 million related to a premium deficiency reserve for the 2019 coverage year related to the Company’s Medicaid products, (ii) $10 million of benefit costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets and (iii) $80 million of benefit costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets. |
Days Claims Payable (Unaudited) | ||
March 31, 2019 | ||
Days Claims Payable (a) | 45 |
(a) | Days claims payable is calculated by dividing the health care costs payable at each quarter end by the average health care costs per day during each respective quarter. Days claims payable is not directly comparable to the legacy Aetna metric due to the addition of 6.0 million SilverScript standalone Medicare PDP members to the Health Care Benefits segment as a result of the segment realignment in the first quarter of 2019. |
Year Ending | |||||||
December 31, 2019 | |||||||
In millions | Low | High | |||||
Operating income (GAAP measure) | $ | 11,765 | $ | 11,975 | |||
Non-GAAP adjustments: | |||||||
Amortization of intangible assets | 2,520 | 2,520 | |||||
Acquisition-related integration costs | 550 | 550 | |||||
Store rationalization charge | 135 | 135 | |||||
Adjusted operating income (1) | $ | 14,970 | $ | 15,180 | |||
Year Ending December 31, 2019 | |||||||||||||||
Low | High | ||||||||||||||
In millions, except per share amounts | Total Company | Per Common Share | Total Company | Per Common Share | |||||||||||
Net income (GAAP measure) | $ | 6,420 | $ | 6,620 | |||||||||||
Net income attributable to noncontrolling interests (GAAP measure) | (10 | ) | (10 | ) | |||||||||||
Income allocable to participating securities (GAAP measure) | (5 | ) | (5 | ) | |||||||||||
Net income attributable to CVS Health (GAAP measure) | 6,405 | $ | 4.90 | 6,605 | $ | 5.05 | |||||||||
Non-GAAP adjustments: | |||||||||||||||
Amortization of intangible assets | 2,520 | 1.93 | 2,520 | 1.93 | |||||||||||
Acquisition-related integration costs | 550 | 0.42 | 550 | 0.42 | |||||||||||
Store rationalization charge | 135 | 0.10 | 135 | 0.10 | |||||||||||
Income tax benefit | (785 | ) | (0.60 | ) | (785 | ) | (0.60 | ) | |||||||
Income allocable to participating securities, net of tax (a) | — | — | — | — | |||||||||||
Adjusted net income attributable to CVS Health (2) | $ | 8,825 | $ | 6.75 | $ | 9,025 | $ | 6.90 | |||||||
Weighted average diluted shares outstanding | 1,308 | 1,308 |
Three Months Ending June 30, 2019 | |||||||||||||||
Low | High | ||||||||||||||
In millions, except per share amounts | Total Company | Per Common Share | Total Company | Per Common Share | |||||||||||
Net income (GAAP measure) | $ | 1,570 | $ | 1,620 | |||||||||||
Net income attributable to noncontrolling interests (GAAP measure) | — | — | |||||||||||||
Income allocable to participating securities (GAAP measure) | — | — | |||||||||||||
Net income attributable to CVS Health (GAAP measure) | 1,570 | $ | 1.20 | 1,620 | $ | 1.24 | |||||||||
Non-GAAP adjustments: | |||||||||||||||
Amortization of intangible assets | 630 | 0.48 | 630 | 0.48 | |||||||||||
Acquisition-related integration costs | 190 | 0.15 | 190 | 0.15 | |||||||||||
Income tax benefit | (200 | ) | (0.15 | ) | (200 | ) | (0.15 | ) | |||||||
Income allocable to participating securities, net of tax (a) | — | — | — | — | |||||||||||
Adjusted net income attributable to CVS Health (2) | $ | 2,190 | $ | 1.68 | $ | 2,240 | $ | 1.72 | |||||||
Weighted average diluted shares outstanding | 1,304 | 1,304 |
(a) | Represents the corresponding impact to income allocable to participating securities, net of tax, related to the items above excluded from net income attributable to CVS Health in determining adjusted net income attributable to CVS Health and calculating Adjusted EPS above. |