Full Press Release Details
| CVS HEALTH REPORTS THIRD QUARTER RESULTS |
| WOONSOCKET, RHODE ISLAND, November 2, 2022 - CVS Health Corporation (NYSE CVS) today announced operating results for the three months ended September 30, 2022. |
Total revenues increased to $81.2 billion, up 10.0% compared to prior year
GAAP loss per share of $(2.60), inclusive of $5.2 billion pre-tax opioid litigation charges and a $2.5 billion pre-tax loss on assets held for sale related to the Omnicare long-term care business ("LTC business")
Adjusted EPS of $2.09
Total revenues increased to $238.6 billion, up 10.7% compared to prior year
GAAP diluted EPS of $1.40
Adjusted EPS of $6.71
Generated cash flow from operations of $18.1 billion
Repaid $4.1 billion of long-term debt
| Three Months Ended September 30, | |||||||||||
| In millions, except per share amounts | 2022 | 2021 | Change | ||||||||
| Total revenues | $ | 81,159 | $ | 73,794 | $ | 7,365 | |||||
| Operating income (loss) | (3,931) | 3,061 | (6,992) | ||||||||
| Adjusted operating income (1) | 4,233 | 4,073 | 160 | ||||||||
| Diluted earnings (loss) per share | $ | (2.60) | $ | 1.20 | $ | (3.80) | |||||
| Adjusted EPS (2) | $ | 2.09 | $ | 1.97 | $ | 0.12 |
| 2022 FULL-YEAR GUIDANCE |
| Revised GAAP diluted EPS guidance range to $3.12 to $3.22 from $7.23 to $7.43 Raised Adjusted EPS guidance range to $8.55 to $8.65 from $8.40 to $8.60 Raised cash flow from operations guidance range to $13.5 billion to $14.5 billion from $12.5 billion to $13.5 billion |
On September 2, 2022, the Company entered into a definitive agreement to acquire Signify Health, Inc. ("Signify Health") for $30.50 per share in cash, representing a total transaction value of approximately $8 billion. The transaction is expected to close in the first half of 2023.
Appointed Dr. Jeffrey R. Balser to serve on the Board of Directors, effective September 13, 2022, and appointed Dr. Amar Desai as President, Health Care Delivery, effective October 17, 2022.
Repaid $2.6 billion of long-term debt, while returning $726 million to shareholders through dividends during the three months ended September 30, 2022. Since the close of the acquisition of Aetna Inc. in November 2018, the Company has repaid a net $25.2 billion of long-term debt.
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 12 and endnotes beginning on page 23 for explanations of non-GAAP financial measures presented in this press release. See pages 14 through 15 and page 22 for reconciliations of each non-GAAP financial measure used in this release to the most directly comparable GAAP financial measure.
Consolidated Third Quarter Results
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| In millions, except per share amounts | 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||
| Total revenues | $ | 81,159 | $ | 73,794 | $ | 7,365 | $ | 238,621 | $ | 215,507 | $ | 23,114 | |||||||||||
| Operating income (loss) | (3,931) | 3,061 | (6,992) | 4,128 | 10,964 | (6,836) | |||||||||||||||||
| Adjusted operating income (1) | 4,233 | 4,073 | 160 | 13,526 | 13,165 | 361 | |||||||||||||||||
| Net income (loss) | (3,409) | 1,587 | (4,996) | 1,865 | 6,602 | (4,737) | |||||||||||||||||
| Diluted earnings (loss) per share | $ | (2.60) | $ | 1.20 | $ | (3.80) | $ | 1.40 | $ | 4.98 | $ | (3.58) | |||||||||||
| Adjusted EPS (2) | $ | 2.09 | $ | 1.97 | $ | 0.12 | $ | 6.71 | $ | 6.43 | $ | 0.28 |
For the three months ended September 30, 2022 compared to the prior year
Total revenues increased 10.0% driven by growth across all segments.
During the three months ended September 30, 2022, the Company incurred an operating loss of $3.9 billion compared to $3.1 billion of operating income in the prior year. The difference was primarily driven by $5.2 billion in opioid litigation charges and a $2.5 billion loss on assets held for sale to write-down the Company's LTC business in the current year, partially offset by the absence of a $431 million goodwill impairment charge on the remaining goodwill of the LTC reporting unit recorded in the prior year.
Adjusted operating income increased $160 million in the three months ended September 30, 2022 compared to the prior year. The increase in adjusted operating income was primarily driven by increases in the Health Care Benefits and Pharmacy Services segments, largely offset by a decline in the Retail LTC segment. See pages 3 through 5 for additional discussion of adjusted operating income performance of the Company's segments.
Interest expense decreased $36 million, or 6.0%, due to lower debt in the three months ended September 30, 2022.
Due to the pre-tax loss in the three months ended September 30, 2022, the Company recorded an income tax benefit of 23.5%, compared to an income tax expense of 26.0% for the three months ended September 30, 2021. The difference in the tax rate was primarily due to certain nondeductible legal charges recorded in the three months ended September 30, 2022.
Opioid Litigation Developments
During the third quarter, the Company entered into settlement agreements with two states and a tribe to settle all opioid claims against it. In October 2022, the Company agreed in principle to a global settlement framework which, if all conditions are satisfied and the non-monetary terms are finalized, would result in the settlement of substantially all opioid lawsuits and claims filed by other states, political subdivisions and tribes against the Company to be paid over 10 years, beginning in 2023. In the third quarter of 2022, the Company recorded a pre-tax charge of $5.2 billion related to the estimated liability for opioid-related claims.
Health Care Benefits Segment
The Health Care Benefits segment offers a full range of insured and self-insured ("ASC") medical, pharmacy, dental and behavioral health products and services. The segment results for the three and nine months ended September 30, 2022 and 2021 were as follows
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| In millions, except percentages | 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||
| Total revenues | $ | 22,511 | $ | 20,479 | $ | 2,032 | $ | 68,376 | $ | 61,487 | $ | 6,889 | |||||
| Adjusted operating income (1) | 1,544 | 1,106 | 438 | 5,126 | 4,502 | 624 | |||||||||||
| Medical benefit ratio ("MBR") (3) | 83.5 | % | 85.8 | % | (2.3) | % | 83.3% | 84.4 | % | (1.1) | % | ||||||
| Medical membership (4) | 24.3 | 23.7 | 0.6 |
Total revenues increased 9.9% for the three months ended September 30, 2022 compared to the prior year driven by growth across all product lines.
Adjusted operating income increased 39.6% for the three months ended September 30, 2022 compared to the prior year primarily driven by the net favorable impact of COVID-19 compared to the prior year and strong underlying performance, including higher favorable development of prior-periods' health care cost estimates in the three months ended September 30, 2022 compared to the prior year. These increases were partially offset by incremental investments to support growth in the business and net realized capital losses.
The MBR decreased to 83.5% in the three months ended September 30, 2022 compared to 85.8% in the prior year reflective of the net favorable impact of COVID-19 compared to the prior year and strong underlying performance, including higher favorable development of prior-periods' health care cost estimates in the three months ended September 30, 2022 compared to the prior year.
Medical membership as of September 30, 2022 of 24.3 million increased 590,000 members compared with September 30, 2021, reflecting increases in Medicare and Commercial membership, partially offset by a decline in Medicaid membership. The decline in Medicaid membership reflects the expected loss of a large customer during the three months ended September 30, 2022.
Medical membership as of September 30, 2022 of 24.3 million decreased 145,000 members compared with June 30, 2022, reflecting a decline in Medicaid membership, as a result of the expected loss of a large customer, partially offset by increases in Medicare and Commercial membership.
The segment experienced favorable development of prior-periods' health care cost estimates in its Government Services and Commercial businesses during the three months ended September 30, 2022, primarily attributable to second quarter 2022 performance.
Prior years' health care costs payable estimates developed favorably by $670 million during the nine months ended September 30, 2022. 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 2022 operating results.
See the supplemental information on page 17 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 and nine months ended September 30, 2022 and 2021 were as follows
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| In millions | 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||
| Total revenues | $ | 43,216 | $ | 39,046 | $ | 4,170 | $ | 125,489 | $ | 113,681 | $ | 11,808 | |||||||||||
| Adjusted operating income (1) | 1,877 | 1,773 | 104 | 5,368 | 5,035 | 333 | |||||||||||||||||
| Total pharmacy claims processed (5) (6) | 584.9 | 564.4 | 20.5 | 1,736.2 | 1,662.5 | 73.7 | |||||||||||||||||
| Pharmacy network (7) | 502.3 | 481.1 | 21.2 | 1,485.7 | 1,415.8 | 69.9 | |||||||||||||||||
| Mail choice (8) | 82.6 | 83.3 | (0.7) | 250.5 | 246.7 | 3.8 |
Total revenues increased 10.7% for the three months ended September 30, 2022 compared to the prior year primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued client price improvements.
Adjusted operating income increased 5.9% for the three months ended September 30, 2022 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, partially offset by continued client price improvements.
Total pharmacy claims processed increased 3.6% on a 30-day equivalent basis for the three months ended September 30, 2022 compared to the prior year. The increase was primarily driven by net new business and increased utilization, partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 4.5% on a 30-day equivalent basis for the three months ended September 30, 2022 compared to the prior year.
See the supplemental information on page 19 for additional information regarding the performance of the Pharmacy Services 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 pharmacy services to long-term care facilities. The segment results for the three and nine months ended September 30, 2022 and 2021 were as follows
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| In millions | 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||
| Total revenues | $ | 26,706 | $ | 24,992 | $ | 1,714 | $ | 78,410 | $ | 72,994 | $ | 5,416 | |||||||||||
| Adjusted operating income (1) | 1,398 | 1,723 | (325) | 4,865 | 5,166 | (301) | |||||||||||||||||
| Prescriptions filled (5) (6) | 405.3 | 398.0 | 7.3 | 1,200.7 | 1,167.8 | 32.9 |
Total revenues increased 6.9% for the three months ended September 30, 2022 compared to the prior year primarily driven by increased prescription and front store volume, including the sale of COVID-19 over-the-counter test kits, as well as pharmacy drug mix and brand inflation. These increases were partially offset by decreased COVID-19 diagnostic testing and vaccinations, the impact of recent generic introductions and continued pharmacy reimbursement pressure.
Adjusted operating income decreased 18.9% for the three months ended September 30, 2022 compared to the prior year primarily driven by decreased COVID-19 diagnostic testing and vaccinations, continued pharmacy reimbursement pressure, as well as increased investments in the segment's operations and capabilities. These decreases were partially offset by the increased prescription and front store volume described above, improved generic drug purchasing and the favorable impact of business initiatives in the three months ended September 30, 2022.
Prescriptions filled increased 1.8% on a 30-day equivalent basis for the three months ended September 30, 2022 compared to the prior year primarily driven by increased utilization, partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 3.6% on a 30-day equivalent basis for the three months ended September 30, 2022 compared to the prior year.
See the supplemental information on page 20 for additional information regarding the performance of the Retail LTC segment.
2022 Full-Year Guidance
The Company revised its full-year 2022 GAAP diluted EPS guidance range to $3.12 to $3.22 from $7.23 to $7.43 and raised its full-year 2022 Adjusted EPS guidance range to $8.55 to $8.65 from $8.40 to $8.60. The Company also raised its full-year 2022 cash flow from operations guidance range to $13.5 billion to $14.5 billion from $12.5 billion to $13.5 billion.
The adjustments between full-year 2022 GAAP diluted EPS and Adjusted EPS include amortization of intangible assets, opioid litigation charges, losses on assets held for sale, the gain on the divestiture of PayFlex Holdings, Inc. ("PayFlex"), the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health and the impact of certain discrete tax items concluded in the first quarter of 2022.
Teleconference and Webcast
The Company will be holding a conference call today for investors at 8 00 a.m. (Eastern Time) to discuss its third quarter results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Health website at http investors.cvshealth.com. This webcast will be archived and available on the website for a one-year period following the conference call.
In addition, on November 9, 2022, CVS Health's Executive Vice President and Chief Financial Officer, Shawn Guertin, will participate in a fireside chat with investors at the 31st Annual Credit Suisse Healthcare Conference at approximately 11 35 a.m. (Eastern Time).
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 "2022 Full-Year Guidance" and "Q3 In The Spotlight" and the information included in the endnotes and reconciliations. By their nature, all forward-looking statements are not guarantees of future performance or results and are subject to risks and uncertainties that are difficult to predict and or quantify. Actual results may differ materially from those contemplated by the forward-looking statements due to the risks and uncertainties related to the COVID-19 pandemic, including the potential emergence of additional variants, vaccine and testing protocols, government testing initiatives, the geographies impacted by and the severity and duration of the pandemic, the pandemic's impact on the U.S. and global economies and consumer behavior and health care utilization patterns, and the timing, scope and impact of stimulus legislation and other federal, state and local governmental responses to the pandemic.
Certain risks and uncertainties related to CVS Health's proposed acquisition of Signify Health include, but are not limited to, the occurrence of any event, change or other circumstance that could give rise to the right of CVS Health or Signify Health or both of them to terminate the merger agreement, including circumstances requiring a party to pay the other party a termination fee pursuant to the merger agreement failure to obtain applicable regulatory approval in a timely manner or otherwise the risk that the acquisition may not close in the anticipated timeframe or at all due to one or more of the other closing conditions to the transaction not being satisfied or waived risks related
to the ability of CVS Health to successfully integrate the businesses and achieve the expected synergies and operating efficiencies within the expected timeframes or at all and the possibility that such integration may be more difficult, time consuming or costly than expected risks related to disruption of management time from ongoing business operations due to the proposed transaction the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of CVS Health's common stock, credit ratings or operating results the risk that the proposed transaction and its announcement could have an adverse effect on the ability of CVS Health to retain customers and maintain relationships with each of its business partners, suppliers and customers and on its operating results and businesses generally the risk of litigation and or regulatory actions related to the proposed acquisition and other business effects, including the effects of industry, market, economic, political or regulatory conditions. Certain additional risks and uncertainties are 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 September 30, 2022 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 September 30, | Nine Months Ended September 30, | ||||||||||||||
| In millions, except per share amounts | 2022 | 2021 | 2022 | 2021 | |||||||||||
| Revenues | |||||||||||||||
| Products | $ | 57,643 | $ | 51,853 | $ | 166,959 | $ | 149,765 | |||||||
| Premiums | 21,003 | 18,984 | 63,894 | 56,927 | |||||||||||
| Services | 2,312 | 2,711 | 7,253 | 7,983 | |||||||||||
| Net investment income | 201 | 246 | 515 | 832 | |||||||||||
| Total revenues | 81,159 | 73,794 | 238,621 | 215,507 | |||||||||||
| Operating costs | |||||||||||||||
| Cost of products sold | 50,365 | 45,011 | 145,164 | 129,425 | |||||||||||
| Benefit costs | 17,419 | 16,081 | 52,976 | 47,686 | |||||||||||
| Opioid litigation charges | 5,220 | - | 5,704 | - | |||||||||||
| Loss on assets held for sale | 2,480 | - | 2,521 | - | |||||||||||
| Goodwill impairment | - | 431 | - | 431 | |||||||||||
| Operating expenses | 9,606 | 9,210 | 28,128 | 27,001 | |||||||||||
| Total operating costs | 85,090 | 70,733 | 234,493 | 204,543 | |||||||||||
| Operating income (loss) | (3,931) | 3,061 | 4,128 | 10,964 | |||||||||||
| Interest expense | 566 | 602 | 1,735 | 1,895 | |||||||||||
| Loss on early extinguishment of debt | - | 363 | - | 363 | |||||||||||
| Other income | (41) | (49) | (126) | (144) | |||||||||||
| Income (loss) before income tax provision | (4,456) | 2,145 | 2,519 | 8,850 | |||||||||||
| Income tax provision (benefit) | (1,047) | 558 | 654 | 2,248 | |||||||||||
| Net income (loss) | (3,409) | 1,587 | 1,865 | 6,602 | |||||||||||
| Net (income) loss attributable to noncontrolling interests | (7) | 11 | (18) | 2 | |||||||||||
| Net income (loss) attributable to CVS Health | $ | (3,416) | $ | 1,598 | $ | 1,847 | $ | 6,604 | |||||||
| Net income (loss) per share attributable to CVS Health | |||||||||||||||
| Basic | $ | (2.60) | $ | 1.21 | $ | 1.41 | $ | 5.01 | |||||||
| Diluted | $ | (2.60) | $ | 1.20 | $ | 1.40 | $ | 4.98 | |||||||
| Weighted average shares outstanding | |||||||||||||||
| Basic | 1,315 | 1,321 | 1,313 | 1,318 | |||||||||||
| Diluted | 1,315 | 1,329 | 1,324 | 1,326 | |||||||||||
| Dividends declared per share | $ | 0.55 | $ | 0.50 | $ | 1.65 | $ | 1.50 |
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
| In millions | September 30, 2022 | December 31, 2021 | |||||
| Assets | |||||||
| Cash and cash equivalents | $ | 17,197 | $ | 9,408 | |||
| Investments | 2,792 | 3,117 | |||||
| Accounts receivable, net | 26,317 | 24,431 | |||||
| Inventories | 18,058 | 17,760 | |||||
| Assets held for sale | 1,498 | - | |||||
| Other current assets | 2,479 | 5,292 | |||||
| Total current assets | 68,341 | 60,008 | |||||
| Long-term investments | 20,565 | 23,025 | |||||
| Property and equipment, net | 12,626 | 12,896 | |||||
| Operating lease right-of-use assets | 18,270 | 19,122 | |||||
| Goodwill | 78,086 | 79,121 | |||||
| Intangible assets, net | 25,157 | 29,026 | |||||
| Separate accounts assets | 3,318 | 5,087 | |||||
| Other assets | 4,849 | 4,714 | |||||
| Total assets | $ | 231,212 | $ | 232,999 | |||
| Liabilities | |||||||
| Accounts payable | $ | 13,925 | $ | 12,544 | |||
| Pharmacy claims and discounts payable | 19,161 | 17,330 | |||||
| Health care costs payable | 10,351 | 8,808 | |||||
| Policyholders' funds | 1,642 | 4,301 | |||||
| Accrued expenses | 19,423 | 17,670 | |||||
| Other insurance liabilities | 4,561 | 1,303 | |||||
| Current portion of operating lease liabilities | 1,687 | 1,646 | |||||
| Current portion of long-term debt | 1,363 | 4,205 | |||||
| Liabilities held for sale | 296 | - | |||||
| Total current liabilities | 72,409 | 67,807 | |||||
| Long-term operating lease liabilities | 17,174 | 18,177 | |||||
| Long-term debt | 50,848 | 51,971 | |||||
| Deferred income taxes | 3,508 | 6,270 | |||||
| Separate accounts liabilities | 3,318 | 5,087 | |||||
| Other long-term insurance liabilities | 6,175 | 6,402 | |||||
| Other long-term liabilities | 6,769 | 1,904 | |||||
| Total liabilities | 160,201 | 157,618 | |||||
| Shareholders' equity | |||||||
| Preferred stock | - | - | |||||
| Common stock and capital surplus | 48,047 | 47,377 | |||||
| Treasury stock | (30,326) | (28,173) | |||||
| Retained earnings | 54,571 | 54,906 | |||||
| Accumulated other comprehensive income (loss) | (1,609) | 965 | |||||
| Total CVS Health shareholders' equity | 70,683 | 75,075 | |||||
| Noncontrolling interests | 328 | 306 | |||||
| Total shareholders' equity | 71,011 | 75,381 | |||||
| Total liabilities and shareholders' equity | $ | 231,212 | $ | 232,999 |
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
| Nine Months Ended September 30, | |||||||
| In millions | 2022 | 2021 | |||||
| Cash flows from operating activities | |||||||
| Cash receipts from customers | $ | 235,395 | $ | 209,104 | |||
| Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (138,785) | (122,129) | |||||
| Insurance benefits paid | (51,434) | (46,965) | |||||
| Cash paid to other suppliers and employees | (22,368) | (21,840) | |||||
| Interest and investment income received | 327 | 582 | |||||
| Interest paid | (1,936) | (2,095) | |||||
| Income taxes paid | (3,070) | (2,397) | |||||
| Net cash provided by operating activities | 18,129 | 14,260 | |||||
| Cash flows from investing activities | |||||||
| Proceeds from sales and maturities of investments | 5,535 | 5,559 | |||||
| Purchases of investments | (6,439) | (7,417) | |||||
| Purchases of property and equipment | (2,039) | (1,923) | |||||
| Acquisitions (net of cash acquired) | (131) | (135) | |||||
| Proceeds from sale of subsidiaries (net of cash and restricted cash sold of $2,808 and $0) | (1,928) | - | |||||
| Other | 74 | 95 | |||||
| Net cash used in investing activities | (4,928) | (3,821) | |||||
| Cash flows from financing activities | |||||||
| Proceeds from issuance of long-term debt | - | 987 | |||||
| Repayments of long-term debt | (4,195) | (7,823) | |||||
| Repurchase of common stock | (2,000) | - | |||||
| Dividends paid | (2,188) | (1,965) | |||||
| Proceeds from exercise of stock options | 510 | 440 | |||||
| Payments for taxes related to net share settlement of equity awards | (337) | (161) | |||||
| Other | (119) | 80 | |||||
| Net cash used in financing activities | (8,329) | (8,442) | |||||
| Net increase in cash, cash equivalents and restricted cash | 4,872 | 1,997 | |||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 12,691 | 11,043 | |||||
| Cash, cash equivalents and restricted cash at the end of the period | $ | 17,563 | $ | 13,040 |
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
| Nine Months Ended September 30, | |||||||
| In millions | 2022 | 2021 | |||||
| Reconciliation of net income to net cash provided by operating activities | |||||||
| Net income | $ | 1,865 | $ | 6,602 | |||
| Adjustments required to reconcile net income to net cash provided by operating activities | |||||||
| Depreciation and amortization | 3,198 | 3,397 | |||||
| Loss on assets held for sale | 2,521 | - | |||||
| Goodwill impairment | - | 431 | |||||
| Stock-based compensation | 341 | 346 | |||||
| Gain on sale of subsidiary | (225) | - | |||||
| Loss on early extinguishment of debt | - | 363 | |||||
| Deferred income taxes and other noncash items | (2,250) | (645) | |||||
| Change in operating assets and liabilities, net of effects from acquisitions | |||||||
| Accounts receivable, net | (2,009) | (3,504) | |||||
| Inventories | (415) | 1,097 | |||||
| Other assets | (311) | (88) | |||||
| Accounts payable and pharmacy claims and discounts payable | 3,350 | 3,973 | |||||
| Health care costs payable and other insurance liabilities | 4,687 | 348 | |||||
| Other liabilities | 7,377 | 1,940 | |||||
| Net cash provided by operating activities | $ | 18,129 | $ | 14,260 |
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 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.
During the three and nine months ended September 30, 2022 the opioid litigation charges relate to agreements to resolve substantially all opioid claims against the Company by certain states and governmental entities. The opioid litigation charges are reflected within the Corporate Other segment.
During the three and nine months ended September 30, 2022, the loss on assets held for sale relates to the LTC reporting unit within the Retail LTC segment. The Company continually evaluates its portfolio for nonstrategic assets. The Company determined that its LTC business was no longer a strategic asset and during the third quarter of 2022 committed to a plan to sell the LTC business. As of September 30, 2022, the LTC business met the criteria for held-for-sale accounting and the net assets were accounted for as assets held for sale. The carrying value of the LTC business was determined to be greater than its fair value and a loss on assets held for sale was recorded during the third quarter of 2022. During the nine months ended September 30, 2022, the loss on assets held for sale also relates to the Commercial Business reporting unit within the Health Care Benefits segment. In March 2022, the Company reached an agreement to sell its international health care business domiciled in Thailand ("Thailand business"), which was included in the Commercial Business reporting unit. At that time, a portion of the Commercial Business goodwill was specifically allocated to the Thailand business. The net assets of the Thailand business were accounted for as assets held for sale at March 31, 2022. The
carrying value of the Thailand business was determined to be greater than its fair value and a loss on assets held for sale was recorded during the first quarter of 2022. The sale closed in the second quarter of 2022, and the ultimate loss on the sale was not material.
During the nine months ended September 30, 2022, the gain on divestiture of subsidiary represents the pre-tax gain on the sale of PayFlex, which the Company sold in June 2022, for approximately $775 million. The gain on divestiture is reflected as a reduction in operating expenses in the Company's unaudited condensed consolidated statement of operations within the Health Care Benefits segment.
During the three and nine months ended September 30, 2021, acquisition-related integration costs relate to the acquisition of Aetna Inc. The acquisition-related integration costs are reflected in the unaudited condensed consolidated statements of operations in operating expenses within the Corporate Other segment.
During the three and nine months ended September 30, 2021, the goodwill impairment charge relates to an impairment of the remaining goodwill of the LTC reporting unit within the Retail LTC segment.
During the three and nine months ended September 30, 2021, the loss on early extinguishment of debt relates to the Company's repayment of approximately $2.0 billion of its outstanding senior notes in August 2021 pursuant to its tender offers for such senior notes.
In June 2021, the Company received $61 million related to a purchase price working capital adjustment for an acquisition completed during the first quarter of 2020. The resolution of this matter occurred subsequent to the acquisition accounting measurement period and is reflected in the Company's unaudited condensed consolidated statement of operations for the nine months ended September 30, 2021 as a reduction of operating expenses within the Health Care Benefits segment.
The corresponding tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health and Adjusted EPS above. The nature of each non-GAAP adjustment is evaluated to determine whether a discrete adjustment should be made to the adjusted income tax provision. During the nine months ended September 30, 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) and (2) 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 14 through 15 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 (loss) (GAAP measure) to consolidated adjusted operating income, as well as reconciliations of segment GAAP operating income (loss) to segment adjusted operating income
| Three Months Ended September 30, 2022 | |||||||||||||||||||||||
| In millions | Health Care Benefits | Pharmacy Services | Retail LTC | Corporate Other | Intersegment Eliminations | Consolidated Totals | |||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 1,244 | $ | 1,836 | $ | (1,205) | $ | (5,637) | $ | (169) | $ | (3,931) | |||||||||||
| Amortization of intangible assets | 300 | 41 | 123 | - | - | 464 | |||||||||||||||||
| Opioid litigation charges | - | - | - | 5,220 | - | 5,220 | |||||||||||||||||
| Loss on assets held for sale | - | - | 2,480 | - | - | 2,480 | |||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 1,544 | $ | 1,877 | $ | 1,398 | $ | (417) | $ | (169) | $ | 4,233 |
| Three Months Ended September 30, 2021 | |||||||||||||||||||||||
| In millions | Health Care Benefits | Pharmacy Services | Retail LTC | Corporate Other | Intersegment Eliminations | Consolidated Totals | |||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 716 | $ | 1,730 | $ | 1,165 | $ | (364) | $ | (186) | $ | 3,061 | |||||||||||
| Amortization of intangible assets | 390 | 43 | 127 | 1 | - | 561 | |||||||||||||||||
| Acquisition-related integration costs | - | - | - | 20 | - | 20 | |||||||||||||||||
| Goodwill impairment | - | - | 431 | - | - | 431 | |||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 1,106 | $ | 1,773 | $ | 1,723 | $ | (343) | $ | (186) | $ | 4,073 |
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| In millions | Health Care Benefits | Pharmacy Services | Retail LTC | Corporate Other | Intersegment Eliminations | Consolidated Totals | |||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 4,407 | $ | 5,242 | $ | 2,018 | $ | (6,983) | $ | (556) | $ | 4,128 | |||||||||||
| Amortization of intangible assets | 903 | 126 | 367 | 2 | - | 1,398 | |||||||||||||||||
| Opioid litigation charges | - | - | - | 5,704 | - | 5,704 | |||||||||||||||||
| Loss on assets held for sale | 41 | - | 2,480 | - | - | 2,521 | |||||||||||||||||
| Gain on divestiture of subsidiary | (225) | - | - | - | - | (225) | |||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 5,126 | $ | 5,368 | $ | 4,865 | $ | (1,277) | $ | (556) | $ | 13,526 |
| Nine Months Ended September 30, 2021 | |||||||||||||||||||||||
| In millions | Health Care Benefits | Pharmacy Services | Retail LTC | Corporate Other | Intersegment Eliminations | Consolidated Totals | |||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 3,369 | $ | 4,887 | $ | 4,349 | $ | (1,118) | $ | (523) | $ | 10,964 | |||||||||||
| Amortization of intangible assets | 1,194 | 148 | 386 | 2 | - | 1,730 | |||||||||||||||||
| Acquisition-related integration costs | - | - | - | 101 | - | 101 | |||||||||||||||||
| Goodwill impairment | - | - | 431 | - | - | 431 | |||||||||||||||||
| Acquisition purchase price adjustment outside of measurement period | (61) | - | - | - | - | (61) | |||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 4,502 | $ | 5,035 | $ | 5,166 | $ | (1,015) | $ | (523) | $ | 13,165 |
Adjusted Earnings Per Share
The following are reconciliations of net income (loss) attributable to CVS Health to adjusted income attributable to CVS Health and calculations of GAAP diluted earnings (loss) and Adjusted EPS
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | ||||||||||||||
| In millions, except per share amounts | Total Company | Per Common Share | Total Company | Per Common Share | |||||||||||
| Net income (loss) attributable to CVS Health (GAAP measure) | $ | (3,416) | $ | (2.60) | $ | 1,598 | $ | 1.20 | |||||||
| Amortization of intangible assets | 464 | 0.36 | 561 | 0.42 | |||||||||||
| Opioid litigation charges | 5,220 | 3.95 | - | - | |||||||||||
| Loss on assets held for sale | 2,480 | 1.88 | - | - | |||||||||||
| Acquisition-related integration costs | - | - | 20 | 0.02 | |||||||||||
| Goodwill impairment | - | - | 431 | 0.33 | |||||||||||
| Loss on early extinguishment of debt | - | - | 363 | 0.27 | |||||||||||
| Tax impact of non-GAAP adjustments | (1,985) | (1.50) | (350) | (0.27) | |||||||||||
| Adjusted income attributable to CVS Health (2) | $ | 2,763 | $ | 2.09 | $ | 2,623 | $ | 1.97 | |||||||
| Weighted average diluted shares outstanding (GAAP) (2) | 1,315 | 1,329 | |||||||||||||
| Adjusted weighted average diluted shares outstanding (non-GAAP) (2) | 1,323 | 1,329 |