Full Press Release Details
| CVS HEALTH REPORTS FIRST QUARTER RESULTS, COMPLETES ACQUISITIONS OF SIGNIFY HEALTH AND OAK STREET HEALTH |
| WOONSOCKET, RHODE ISLAND, May 3, 2023 - CVS Health Corporation (NYSE CVS) today announced operating results for the three months ended March 31, 2023. |
Total revenues increased to $85.3 billion, up 11.0% compared to prior year
GAAP diluted EPS of $1.65 and Adjusted EPS of $2.20
Generated cash flow from operations of $7.4 billion
| Three Months Ended March 31, | |||||||||||
| In millions, except per share amounts | 2023 | 2022 | Change | ||||||||
| Total revenues | $ | 85,278 | $ | 76,826 | $ | 8,452 | |||||
| Operating income | 3,446 | 3,545 | (99) | ||||||||
| Adjusted operating income (1) | 4,370 | 4,607 | (237) | ||||||||
| Diluted earnings per share | $ | 1.65 | $ | 1.77 | $ | (0.12) | |||||
| Adjusted EPS (2) | $ | 2.20 | $ | 2.30 | $ | (0.10) |
| Note Financial information for the three months ended March 31, 2022 throughout this press release has been revised to conform with certain current period financial statement changes as described on page 2. |
| 2023 FULL-YEAR GUIDANCE |
| Revised GAAP diluted EPS guidance range to $6.90 to $7.12 from $7.73 to $7.93 Revised Adjusted EPS guidance range to $8.50 to $8.70 from $8.70 to $8.90 Confirmed cash flow from operations guidance range of $12.5 billion to $13.5 billion |
On March 29, 2023, completed the acquisition of Signify Health for approximately $7.8 billion, adding best-in-class capabilities for in-home services and a platform to accelerate growth in value-based care, representing a critical step in advancing the Company's health care services strategy.
On May 2, 2023, completed the acquisition of Oak Street Health for approximately $10.6 billion, adding a leading multi-payor, value-based primary care company with approximately 600 primary care providers and more than 170 medical centers across 21 states.
Realigned the composition of the Company's segments including the creation of a Health Services segment, comprised of the Company's pharmacy benefit management operations, health care services and provider enablement solutions, as well as a Pharmacy Consumer Wellness segment, comprised of enterprise pharmacy fulfillment and retail front store operations.
Returned $779 million to shareholders through dividends and repurchased 22.8 million shares of common stock.
Investor Contact Larry McGrath Senior Vice President Business Development and Investor Relations (800) 201-0938
Media Contact T.J. Crawford Vice President External Affairs (212) 457-0583
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 23 for explanations of non-GAAP financial measures presented in this press release. See pages 13 through 14 and page 22 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 | 2023 | 2022 | Change | ||||||||||||||
| Total revenues | $ | 85,278 | $ | 76,826 | $ | 8,452 | |||||||||||
| Operating income | 3,446 | 3,545 | (99) | ||||||||||||||
| Adjusted operating income (1) | 4,370 | 4,607 | (237) | ||||||||||||||
| Net income | 2,142 | 2,355 | (213) | ||||||||||||||
| Diluted earnings per share | $ | 1.65 | $ | 1.77 | $ | (0.12) | |||||||||||
| Adjusted EPS (2) | $ | 2.20 | $ | 2.30 | $ | (0.10) |
Q1 2023 Financial Statement Changes
The Company's financial information for the three months ended March 31, 2023 reflects 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 pharmacy benefit management ("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 within the supplemental information beginning on page 15. 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 Quarterly Report on Form 10-Q for the period ended March 31, 2023 for further information regarding the adoption of this accounting standard.
Effective for the first quarter of 2023, the impact of net realized capital gains or losses are excluded from adjusted operating income as further described on page 11.
Prior period financial information has been revised to conform with the current period presentation.
Q1 2023 Financial Results
For the three months ended March 31, 2023 compared to the prior year
Total revenues increased 11.0% driven by growth across all segments.
Operating income decreased 2.8% primarily due to the write-down of the Company's Omnicare long-term care business ("LTC business"), the decrease in adjusted operating income described below and an increase in acquisition-related transaction and integration costs compared to the prior year. The decrease in operating income was partially offset by the absence of a $484 million opioid litigation charge recorded in the prior year and a decrease in amortization of intangible assets compared to the prior year.
Adjusted operating income decreased 5.1% primarily driven by declines in the Pharmacy Consumer Wellness segment, partially offset by increases in the Health Services segment. See pages 3 through 5 for additional discussion of adjusted operating income performance of the Company's segments.
Interest expense remained relatively consistent, increasing to $589 million from $586 million.
The effective income tax rate increased to 25.6% compared to 21.5% primarily due to the absence of the impact of certain discrete tax items concluded in the first quarter of 2022. The Company's adjusted effective income tax rate (3) remained relatively consistent compared to prior year.
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, 2023 and 2022 were as follows
| Three Months Ended March 31, | ||||||||||||||
| In millions, except percentages | 2023 | 2022 | Change | |||||||||||
| Total revenues | $ | 25,877 | $ | 23,094 | $ | 2,783 | ||||||||
| Adjusted operating income (1) | 1,824 | 1,861 | (37) | |||||||||||
| Medical benefit ratio ("MBR") (4) | 84.6 | % | 83.4 | % | 1.2 | % | ||||||||
| Medical membership (5) | 25.5 | 24.5 | 1.0 |
Total revenues increased 12.1% for the three months ended March 31, 2023 compared to the prior year driven by growth across all product lines.
Adjusted operating income decreased slightly in the three months ended March 31, 2023 compared to the prior year primarily driven by the continued progression towards normalized utilization and lower impact from favorable development of prior-years' health care cost estimates in the three months ended March 31, 2023 compared to the prior year. These decreases were largely offset by higher net investment income and membership growth across all product lines in the three months ended March 31, 2023.
The MBR increased to 84.6% in the three months ended March 31, 2023 compared to 83.4% in the prior year reflective of the continued progression towards normalized utilization and lower impact from favorable development of prior-years' health care cost estimates in the three months ended March 31, 2023 compared to the prior year.
Medical membership as of March 31, 2023 of 25.5 million increased 1.1 million members compared with December 31, 2022, reflecting increases across all product lines including an increase of approximately 900,000 members related to the individual exchange business within the Commercial product line.
The segment experienced favorable development of prior-years' health care cost estimates in its Government Services and Commercial businesses during the three months ended March 31, 2023, primarily attributable to fourth quarter 2022 performance.
Prior years' health care costs payable estimates developed favorably by $693 million during the three months ended March 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 17 for additional information regarding the performance of the Health Care Benefits segment.
Health Services Segment (formerly Pharmacy Services Segment)
The Health Services segment provides a full range of 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 ended March 31, 2023 and 2022 were as follows
| Three Months Ended March 31, | |||||||||||||||||
| In millions | 2023 | 2022 | Change | ||||||||||||||
| Total revenues | $ | 44,591 | $ | 39,615 | $ | 4,976 | |||||||||||
| Adjusted operating income (1) | 1,680 | 1,471 | 209 | ||||||||||||||
| Pharmacy claims processed (6) (7) | 587.3 | 566.5 | 20.8 |
Total revenues increased 12.6% for the three months ended March 31, 2023 compared to the prior year primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued pharmacy client price improvements.
Adjusted operating income increased 14.2% for the three months ended March 31, 2023 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, and increased pharmacy claims volume. These increases were partially offset by continued pharmacy client price improvements and decreased COVID-19 diagnostic testing in the segment's MinuteClinic walk-in medical clinics compared to the prior year.
Pharmacy claims processed increased 3.7% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year. The increase was primarily driven by net new business, increased utilization and the impact of an elevated cough, cold and flu season compared to the prior year. These increases were partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, pharmacy claims processed increased 4.8% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year.
See the supplemental information on page 19 for additional information regarding the performance of the Health Services segment.
Pharmacy Consumer Wellness Segment (formerly Retail LTC 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 ended March 31, 2023 and 2022 were as follows
| Three Months Ended March 31, | |||||||||||||||||
| In millions | 2023 | 2022 | Change | ||||||||||||||
| Total revenues | $ | 27,922 | $ | 25,898 | $ | 2,024 | |||||||||||
| Adjusted operating income (1) | 1,134 | 1,573 | (439) | ||||||||||||||
| Prescriptions filled (6) (7) | 404.8 | 395.1 | 9.7 |
Total revenues increased 7.8% for the three months ended March 31, 2023 compared to the prior year primarily driven by increased prescription and front store volume, pharmacy drug mix and brand inflation. These increases were partially offset by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing and the impact of recent generic introductions.
Adjusted operating income decreased 27.9% for the three months ended March 31, 2023 compared to the prior year primarily driven by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing and increased investments in the segment's operations and capabilities. These decreases were partially offset by the increased prescription volume described above and improved generic drug purchasing.
Prescriptions filled increased 2.5% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year primarily driven by increased utilization and the impact of an elevated cough, cold and flu season compared to the prior year. These increases were partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 4.5% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year.
See the supplemental information on page 20 for additional information regarding the performance of the Pharmacy Consumer Wellness segment.
2023 Full-Year Guidance
The Company revised its full-year 2023 GAAP diluted EPS guidance range to $6.90 to $7.12 from $7.73 to $7.93 and its full-year 2023 Adjusted EPS guidance range to $8.50 to $8.70 from $8.70 to $8.90. The Company also confirmed its full-year 2023 cash flow from operations guidance range of $12.5 billion to $13.5 billion.
The adjustments between full-year 2023 GAAP diluted EPS and Adjusted EPS include amortization of intangible assets, net realized capital losses, a loss on assets held for sale, acquisition-related transaction and integration costs related to the acquisitions of Signify Health, Inc. ("Signify Health") and Oak Street Health, Inc. ("Oak Street Health"), office real estate optimization charges 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 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.
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 "2023 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 related to the impact of COVID-19 and CVS Health's acquisitions of Signify Health and Oak Street Health as well as additional risks and uncertainties 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, our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 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.
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Operations
| Three Months Ended March 31, | |||||||||||
| In millions, except per share amounts | 2023 | 2022 | |||||||||
| Revenues | |||||||||||
| Products | $ | 58,147 | $ | 52,522 | |||||||
| Premiums | 24,352 | 21,631 | |||||||||
| Services | 2,445 | 2,505 | |||||||||
| Net investment income | 334 | 168 | |||||||||
| Total revenues | 85,278 | 76,826 | |||||||||
| Operating costs | |||||||||||
| Cost of products sold | 51,455 | 45,509 | |||||||||
| Benefit costs | 20,448 | 17,923 | |||||||||
| Opioid litigation charge | - | 484 | |||||||||
| Loss on assets held for sale | 349 | 41 | |||||||||
| Operating expenses | 9,580 | 9,324 | |||||||||
| Total operating costs | 81,832 | 73,281 | |||||||||
| Operating income | 3,446 | 3,545 | |||||||||
| Interest expense | 589 | 586 | |||||||||
| Other income | (22) | (42) | |||||||||
| Income before income tax provision | 2,879 | 3,001 | |||||||||
| Income tax provision | 737 | 646 | |||||||||
| Net income | 2,142 | 2,355 | |||||||||
| Net income attributable to noncontrolling interests | (6) | (1) | |||||||||
| Net income attributable to CVS Health | $ | 2,136 | $ | 2,354 | |||||||
| Net income per share attributable to CVS Health | |||||||||||
| Basic | $ | 1.66 | $ | 1.79 | |||||||
| Diluted | $ | 1.65 | $ | 1.77 | |||||||
| Weighted average shares outstanding | |||||||||||
| Basic | 1,283 | 1,312 | |||||||||
| Diluted | 1,291 | 1,328 | |||||||||
| Dividends declared per share | $ | 0.605 | $ | 0.55 |
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
| In millions | March 31, 2023 | December 31, 2022 | |||||
| Assets | |||||||
| Cash and cash equivalents | $ | 14,618 | $ | 12,945 | |||
| Investments | 3,102 | 2,778 | |||||
| Accounts receivable, net | 28,331 | 27,276 | |||||
| Inventories | 18,263 | 19,090 | |||||
| Assets held for sale | 625 | 908 | |||||
| Other current assets | 3,767 | 2,636 | |||||
| Total current assets | 68,706 | 65,633 | |||||
| Long-term investments | 21,612 | 21,096 | |||||
| Property and equipment, net | 12,872 | 12,873 | |||||
| Operating lease right-of-use assets | 17,660 | 17,872 | |||||
| Goodwill | 84,057 | 78,150 | |||||
| Intangible assets, net | 26,368 | 24,803 | |||||
| Separate accounts assets | 3,231 | 3,228 | |||||
| Other assets | 4,824 | 4,620 | |||||
| Total assets | $ | 239,330 | $ | 228,275 | |||
| Liabilities | |||||||
| Accounts payable | $ | 12,527 | $ | 14,838 | |||
| Pharmacy claims and discounts payable | 20,047 | 19,423 | |||||
| Health care costs payable | 10,895 | 10,142 | |||||
| Policyholders' funds | 1,426 | 1,500 | |||||
| Accrued expenses | 21,515 | 18,745 | |||||
| Other insurance liabilities | 4,974 | 1,089 | |||||
| Current portion of operating lease liabilities | 1,679 | 1,678 | |||||
| Current portion of long-term debt | 1,778 | 1,778 | |||||
| Liabilities held for sale | 213 | 228 | |||||
| Total current liabilities | 75,054 | 69,421 | |||||
| Long-term operating lease liabilities | 16,571 | 16,800 | |||||
| Long-term debt | 56,450 | 50,476 | |||||
| Deferred income taxes | 4,095 | 4,016 | |||||
| Separate accounts liabilities | 3,231 | 3,228 | |||||
| Other long-term insurance liabilities | 5,678 | 5,835 | |||||
| Other long-term liabilities | 6,671 | 6,730 | |||||
| Total liabilities | 167,750 | 156,506 | |||||
| Shareholders' equity | |||||||
| Preferred stock | - | - | |||||
| Common stock and capital surplus | 48,306 | 48,193 | |||||
| Treasury stock | (33,802) | (31,858) | |||||
| Retained earnings | 57,753 | 56,398 | |||||
| Accumulated other comprehensive loss | (875) | (1,264) | |||||
| Total CVS Health shareholders' equity | 71,382 | 71,469 | |||||
| Noncontrolling interests | 198 | 300 | |||||
| Total shareholders' equity | 71,580 | 71,769 | |||||
| Total liabilities and shareholders' equity | $ | 239,330 | $ | 228,275 |
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
| Three Months Ended March 31, | |||||||
| In millions | 2023 | 2022 | |||||
| Cash flows from operating activities | |||||||
| Cash receipts from customers | $ | 87,798 | $ | 74,192 | |||
| Cash paid for prescriptions dispensed and health services rendered | (50,223) | (44,365) | |||||
| Insurance benefits paid | (19,757) | (16,616) | |||||
| Cash paid to other suppliers and employees | (9,958) | (8,969) | |||||
| Interest and investment income received | 426 | 199 | |||||
| Interest paid | (773) | (782) | |||||
| Income taxes paid | (75) | (96) | |||||
| Net cash provided by operating activities | 7,438 | 3,563 | |||||
| Cash flows from investing activities | |||||||
| Proceeds from sales and maturities of investments | 1,891 | 2,570 | |||||
| Purchases of investments | (2,358) | (3,474) | |||||
| Purchases of property and equipment | (984) | (1,051) | |||||
| Acquisitions (net of cash acquired) | (7,094) | (7) | |||||
| Other | 31 | (31) | |||||
| Net cash used in investing activities | (8,514) | (1,993) | |||||
| Cash flows from financing activities | |||||||
| Proceeds from issuance of long-term debt | 5,951 | - | |||||
| Repayments of long-term debt | (362) | (14) | |||||
| Repurchase of common stock | (2,018) | (2,000) | |||||
| Dividends paid | (779) | (722) | |||||
| Proceeds from exercise of stock options | 96 | 297 | |||||
| Payments for taxes related to net share settlement of equity awards | (34) | (62) | |||||
| Other | (128) | (149) | |||||
| Net cash provided by (used in) financing activities | 2,726 | (2,650) | |||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 1,650 | (1,080) | |||||
| 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 | $ | 14,955 | $ | 11,611 |
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
| Three Months Ended March 31, | |||||||
| In millions | 2023 | 2022 | |||||
| Reconciliation of net income to net cash provided by operating activities | |||||||
| Net income | $ | 2,142 | $ | 2,355 | |||
| Adjustments required to reconcile net income to net cash provided by operating activities | |||||||
| Depreciation and amortization | 1,001 | 1,049 | |||||
| Stock-based compensation | 103 | 89 | |||||
| Deferred income taxes and other noncash items | 155 | (175) | |||||
| Change in operating assets and liabilities, net of effects from acquisitions | |||||||
| Accounts receivable, net | (751) | (1,967) | |||||
| Inventories | 828 | (400) | |||||
| Other assets | (1,255) | (348) | |||||
| Accounts payable and pharmacy claims and discounts payable | (1,203) | 1,974 | |||||
| Health care costs payable and other insurance liabilities | 4,382 | 1,430 | |||||
| Other liabilities | 2,036 | (444) | |||||
| Net cash provided by operating activities | $ | 7,438 | $ | 3,563 |
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.
The Company's Non-GAAP adjusted effective income tax rate excludes from the relevant GAAP metric the corresponding tax benefit or expense related to the 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 and certain discrete tax items.
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 unaudited 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 unaudited 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 ended March 31, 2023, the loss on assets held for sale relates to the Company's long-term care ("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. As of March 31, 2023, the net assets of the LTC business continued to meet the criteria for held-for-sale accounting and during the first quarter of 2023, a 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 reflects its estimated fair value less costs to sell. During the three months ended March 31, 2022, the loss on assets held for sale 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 ended March 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 unaudited condensed consolidated statement of operations in operating expenses within the Corporate Other segment.
During the three months ended March 31, 2023, 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 unaudited condensed consolidated statement of operations in operating expenses within the Health Care Benefits, Corporate Other and Health Services segments.
During the three months ended March 31, 2022, the opioid litigation charge relates to an agreement to resolve substantially all opioid claims against the Company by the State of Florida. The opioid litigation charge is reflected 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. During the three months ended March 31, 2022, the Company's adjusted income tax provision also excludes the impact of certain discrete tax items concluded in the first quarter of 2022.
See endnotes (1), (2) and (3) on page 23 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 13 through 14 and page 22.
Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Adjusted Operating Income
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, 2023 | |||||||||||||||||||
| In millions | Health Care Benefits | Health Services | Pharmacy Consumer Wellness | Corporate Other | Consolidated Totals | ||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 1,408 | $ | 1,638 | $ | 717 | $ | (317) | $ | 3,446 | |||||||||
| Amortization of intangible assets | 295 | 41 | 65 | 1 | 402 | ||||||||||||||
| Net realized capital losses | 99 | - | 3 | 3 | 105 | ||||||||||||||
| Loss on assets held for sale | - | - | 349 | - | 349 | ||||||||||||||
| Acquisition-related transaction and integration costs | - | - | - | 43 | 43 | ||||||||||||||
| Office real estate optimization charges | 22 | 1 | - | 2 | 25 | ||||||||||||||
| Adjusted operating income (loss) (1) | $ | 1,824 | $ | 1,680 | $ | 1,134 | $ | (268) | $ | 4,370 |
| Three Months Ended March 31, 2022 | |||||||||||||||||||||
| In millions | Health Care Benefits | Health Services | Pharmacy Consumer Wellness | Corporate Other | Consolidated Totals | ||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 1,467 | $ | 1,427 | $ | 1,435 | $ | (784) | $ | 3,545 | |||||||||||
| Amortization of intangible assets | 295 | 44 | 122 | 1 | 462 | ||||||||||||||||
| Net realized capital losses | 58 | - | 16 | 1 | 75 | ||||||||||||||||
| Loss on assets held for sale | 41 | - | - | - | 41 | ||||||||||||||||
| Opioid litigation charge | - | - | - | 484 | 484 | ||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 1,861 | $ | 1,471 | $ | 1,573 | $ | (298) | $ | 4,607 |
Adjusted Earnings Per Share
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, 2023 | Three Months Ended March 31, 2022 | ||||||||||||||
| In millions, except per share amounts | Total Company | Per Common Share | Total Company | Per Common Share | |||||||||||
| Net income attributable to CVS Health (GAAP measure) | $ | 2,136 | $ | 1.65 | $ | 2,354 | $ | 1.77 | |||||||
| Amortization of intangible assets | 402 | 0.31 | 462 | 0.35 | |||||||||||
| Net realized capital losses | 105 | 0.08 | 75 | 0.06 | |||||||||||
| Loss on assets held for sale | 349 | 0.27 | 41 | 0.03 | |||||||||||
| Acquisition-related transaction and integration costs | 43 | 0.03 | - | - | |||||||||||
| Office real estate optimization charges | 25 | 0.02 | - | - | |||||||||||
| Opioid litigation charge | - | - | 484 | 0.36 | |||||||||||
| Tax impact of non-GAAP adjustments | (221) | (0.16) | (368) | (0.27) | |||||||||||
| Adjusted income attributable to CVS Health (2) | $ | 2,839 | $ | 2.20 | $ | 3,048 | $ | 2.30 | |||||||
| Weighted average diluted shares outstanding | 1,291 | 1,328 |
Adjusted Effective Income Tax Rate
The following are reconciliations of the effective income tax rate (GAAP measure) to the adjusted effective income tax rate
| Three Months Ended March 31, | |||||
| 2023 | 2022 | ||||
| Effective income tax rate (GAAP measure) | 25.6 | % | 21.5 | % | |
| Impact of non-GAAP adjustments | (0.4) | 3.5 | |||
| Adjusted effective income tax rate (3) | 25.2 | % | 25.0 | % |
Supplemental Information
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.