Full Press Release Details
| Investor | Valerie Haertel | Media | T.J. Crawford |
| Contact: | Senior Vice President | Contact: | Vice President |
| Investor Relations | External Affairs | ||
| (401) 770-4050 | (212) 457-0583 |
CVS HEALTH REPORTS SECOND QUARTER RESULTS; DIVERSIFIED ASSETS DELIVER STRONG ENTERPRISE RESULTS
2020 FULL YEAR EPS AND CASH FLOW FROM OPERATIONS GUIDANCE RANGES RAISED
Continued Responsiveness to COVID-19:
Second Quarter Year-over-Year Highlights:
Year-to-date Highlights:
2020 Full Year Guidance:
WOONSOCKET, RHODE ISLAND, August 5, 2020 - CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended June 30, 2020.
CVS Health President and CEO Larry J. Merlo stated, "We're a health innovation company that is built to meet the evolving needs of the millions we serve every day. That's been made clear as we continue to navigate the health, social and economic impacts of COVID-19. Our earnings in this environment demonstrate the strength of our strategy and the power of our diversified business model.
"We have a strong foundation of clinical expertise, data analytics and digital capabilities, and unmatched consumer and community reach which has allowed us to rapidly bring our strategy to life at an unprecedented time. The environment surrounding COVID-19 is accelerating our transformation, giving us new opportunities to demonstrate the power of our integrated offerings and the ability to deliver care to consumers in the community, in the home and in the palm of their hand which has never been more important. We have stayed true to our purpose of helping people on their path to better health, and we remain focused on creating value for all our stakeholders."
A summary of the Company's response to the COVID-19 pandemic is included on page six.
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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 12 and endnotes (1) and (2) on page 22 for explanations of non-GAAP financial measures presented in this press release. See pages 13 through 14 and page 21 for reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure.
Consolidated Second Quarter Results
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| In millions, except per share amounts | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||
| Total revenues | $ | 65,341 | $ | 63,431 | $ | 1,910 | $ | 132,096 | $ | 125,077 | $ | 7,019 | |||||||||||
| Operating income | 4,680 | 3,332 | 1,348 | 8,138 | 6,022 | 2,116 | |||||||||||||||||
| Adjusted operating income (1) | 5,328 | 4,031 | 1,297 | 9,441 | 7,626 | 1,815 | |||||||||||||||||
| Net income | 2,986 | 1,931 | 1,055 | 4,998 | 3,358 | 1,640 | |||||||||||||||||
| Diluted earnings per share | $ | 2.26 | $ | 1.49 | $ | 0.77 | $ | 3.79 | $ | 2.58 | $ | 1.21 | |||||||||||
| Adjusted EPS (2) | $ | 2.64 | $ | 1.89 | $ | 0.75 | $ | 4.55 | $ | 3.51 | $ | 1.04 | |||||||||||
| Enterprise prescriptions (3) (4) | 690.3 | 685.5 | 4.8 | 1,436.9 | 1,365.3 | 71.6 |
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 six months ended June 30, 2020 and 2019 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| In millions | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||
| Total revenues | $ | 34,889 | $ | 34,842 | $ | 47 | $ | 69,872 | $ | 68,400 | $ | 1,472 | |||||||||||
| Operating income | 1,271 | 1,197 | 74 | 2,385 | 2,047 | 338 | |||||||||||||||||
| Adjusted operating income (1) | 1,327 | 1,296 | 31 | 2,508 | 2,243 | 265 | |||||||||||||||||
| Total pharmacy claims processed (4) (5) | 505.4 | 489.0 | 16.4 | 1,046.8 | 970.8 | 76.0 | |||||||||||||||||
| Pharmacy network (6) | 425.1 | 412.1 | 13.0 | 886.2 | 819.8 | 66.4 | |||||||||||||||||
| Mail choice (7) | 80.3 | 76.9 | 3.4 | 160.6 | 151.0 | 9.6 |
See the supplemental information on page 16 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 general merchandise, provides health care services through walk-in medical clinics, provides medical diagnostic testing and provides services to long-term care facilities. The segment results for the three and six months ended June 30, 2020 and 2019 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| In millions | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||
| Total revenues | $ | 21,662 | $ | 21,447 | $ | 215 | $ | 44,411 | $ | 42,562 | $ | 1,849 | |||||||||||
| Operating income | 933 | 1,551 | (618 | ) | 2,713 | 2,789 | (76 | ) | |||||||||||||||
| Adjusted operating income (1) | 1,057 | 1,669 | (612 | ) | 2,959 | 3,158 | (199 | ) | |||||||||||||||
| Prescriptions filled (4) (5) | 345.4 | 349.1 | (3.7 | ) | 720.5 | 695.9 | 24.6 |
See the supplemental information on page 17 for additional information regarding the performance of the Retail/LTC segment.
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 six months ended June 30, 2020 and 2019 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| In millions, except percentages | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||
| Total revenues | $ | 18,468 | $ | 17,403 | $ | 1,065 | $ | 37,666 | $ | 35,273 | $ | 2,393 | |||||||||||
| Operating income | 3,066 | 1,062 | 2,004 | 4,161 | 2,217 | 1,944 | |||||||||||||||||
| Adjusted operating income (1) | 3,464 | 1,438 | 2,026 | 4,955 | 3,000 | 1,955 | |||||||||||||||||
| Medical benefit ratio ("MBR") (8) | 70.3 | % | 84.0 | % | (13.7 | )% | 76.4 | % | 84.0 | % | (7.6 | )% | |||||||||||
| Medical membership (9) | 23.6 | 22.8 | 0.8 |
See the supplemental information on page 18 for additional information regarding the performance of the Health Care Benefits segment.
CVS Health is uniquely positioned to help the country through the COVID-19 pandemic. The Company has focused its resources on the wellbeing and safety of employees, consumers and the communities it serves. The following are key actions taken to date:
Consumers and members
2020 Full Year Guidance
While acknowledging the inherent and unprecedented uncertainty surrounding the ongoing COVID-19 pandemic and its impact, the Company raised its full year 2020 GAAP diluted EPS guidance range to $5.59 to $5.72 from $5.47 to $5.60 and its full year 2020 Adjusted EPS guidance range to $7.14 to $7.27 from $7.04 to $7.17, reflecting an update to its estimated full year effective income tax rate. The Company projects higher utilization in its Health Care Benefits segment in the second half of 2020 than in the first half of 2020 and continued significant COVID-19 related investments, including operating costs, in the remainder of the year. The Company also raised its full year 2020 cash flow from operations guidance range to $11.0 billion to $11.5 billion from $10.5 billion to $11.0 billion.
The adjustments between GAAP diluted EPS and Adjusted EPS include adding back amortization of intangible assets, integration costs related to the Company's acquisition (the "Aetna Acquisition") of Aetna Inc. ("Aetna") and expected gains/losses on divestitures.
Teleconference and Webcast
The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its second 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 employees are united around a common goal of becoming the most consumer-centric health company. We're evolving based on changing consumer needs and meeting people where they are, whether that's in the community at one of our nearly 10,000 local touchpoints, in the home, or in the palm of their hand. Our newest offerings - from HealthHUB locations that are redefining what a pharmacy can be, to innovative programs that help manage chronic conditions - are designed to create a higher-quality, simpler and more affordable experience. Learn more about how we're transforming health at www.cvshealth.com.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of CVS Health Corporation. Statements in this press release that are forward-looking include Mr. Merlo's quotation, the information under the heading "2020 Full Year Guidance" and the information included in the endnotes and reconciliations. By their nature, all forward-looking statements are not guarantees of future performance or results and are subject to risks and uncertainties that are difficult to predict and/or quantify. Actual results may differ materially from those contemplated by the forward-looking statements due to the risks and uncertainties related to the COVID-19 pandemic, the geographies impacted 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, as well as the risks and uncertainties described in our Securities and Exchange Commission ("SEC") filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 and our recently filed 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 June 30, | Six Months Ended June 30, | ||||||||||||||
| In millions, except per share amounts | 2020 | 2019 | 2020 | 2019 | |||||||||||
| Revenues: | |||||||||||||||
| Products | $ | 46,355 | $ | 45,531 | $ | 93,358 | $ | 88,874 | |||||||
| Premiums | 16,927 | 15,791 | 34,567 | 32,073 | |||||||||||
| Services | 1,875 | 1,816 | 3,825 | 3,588 | |||||||||||
| Net investment income | 184 | 293 | 346 | 542 | |||||||||||
| Total revenues | 65,341 | 63,431 | 132,096 | 125,077 | |||||||||||
| Operating costs: | |||||||||||||||
| Cost of products sold | 40,242 | 38,970 | 80,589 | 76,217 | |||||||||||
| Benefit costs | 11,751 | 13,087 | 26,138 | 26,546 | |||||||||||
| Operating expenses | 8,668 | 8,042 | 17,231 | 16,292 | |||||||||||
| Total operating costs | 60,661 | 60,099 | 123,958 | 119,055 | |||||||||||
| Operating income | 4,680 | 3,332 | 8,138 | 6,022 | |||||||||||
| Interest expense | 765 | 772 | 1,498 | 1,554 | |||||||||||
| Other income | (45 | ) | (31 | ) | (99 | ) | (62 | ) | |||||||
| Income before income tax provision | 3,960 | 2,591 | 6,739 | 4,530 | |||||||||||
| Income tax provision | 974 | 660 | 1,741 | 1,172 | |||||||||||
| Net income | 2,986 | 1,931 | 4,998 | 3,358 | |||||||||||
| Net (income) loss attributable to noncontrolling interests | (11 | ) | 5 | (16 | ) | (1 | ) | ||||||||
| Net income attributable to CVS Health | $ | 2,975 | $ | 1,936 | $ | 4,982 | $ | 3,357 | |||||||
| Net income per share attributable to CVS Health: | |||||||||||||||
| Basic | $ | 2.27 | $ | 1.49 | $ | 3.81 | $ | 2.58 | |||||||
| Diluted | $ | 2.26 | $ | 1.49 | $ | 3.79 | $ | 2.58 | |||||||
| Weighted average shares outstanding: | |||||||||||||||
| Basic | 1,309 | 1,301 | 1,307 | 1,299 | |||||||||||
| Diluted | 1,314 | 1,302 | 1,313 | 1,302 | |||||||||||
| Dividends declared per share | $ | 0.50 | $ | 0.50 | $ | 1.00 | $ | 1.00 |
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
| In millions | June 30, 2020 | December 31, 2019 | |||||
| Assets: | |||||||
| Cash and cash equivalents | $ | 14,869 | $ | 5,683 | |||
| Investments | 2,596 | 2,373 | |||||
| Accounts receivable, net | 22,520 | 19,617 | |||||
| Inventories | 16,519 | 17,516 | |||||
| Other current assets | 6,002 | 5,113 | |||||
| Total current assets | 62,506 | 50,302 | |||||
| Long-term investments | 18,594 | 17,314 | |||||
| Property and equipment, net | 12,221 | 12,044 | |||||
| Operating lease right-of-use assets | 20,571 | 20,860 | |||||
| Goodwill | 80,057 | 79,749 | |||||
| Intangible assets, net | 32,225 | 33,121 | |||||
| Separate accounts assets | 4,639 | 4,459 | |||||
| Other assets | 4,682 | 4,600 | |||||
| Total assets | $ | 235,495 | $ | 222,449 | |||
| Liabilities: | |||||||
| Accounts payable | $ | 9,919 | $ | 10,492 | |||
| Pharmacy claims and discounts payable | 15,541 | 13,601 | |||||
| Health care costs payable | 7,362 | 6,879 | |||||
| Policyholders' funds | 3,636 | 2,991 | |||||
| Accrued expenses | 15,634 | 12,133 | |||||
| Other insurance liabilities | 1,644 | 1,830 | |||||
| Current portion of operating lease liabilities | 1,766 | 1,596 | |||||
| Current portion of long-term debt | 8,192 | 3,781 | |||||
| Total current liabilities | 63,694 | 53,303 | |||||
| Long-term operating lease liabilities | 18,612 | 18,926 | |||||
| Long-term debt | 63,481 | 64,699 | |||||
| Deferred income taxes | 7,136 | 7,294 | |||||
| Separate accounts liabilities | 4,639 | 4,459 | |||||
| Other long-term insurance liabilities | 7,270 | 7,436 | |||||
| Other long-term liabilities | 2,308 | 2,162 | |||||
| Total liabilities | 167,140 | 158,279 | |||||
| Shareholders' equity: | |||||||
| Preferred stock | - | - | |||||
| Common stock and capital surplus | 46,276 | 45,972 | |||||
| Treasury stock | (28,235 | ) | (28,235 | ) | |||
| Retained earnings | 48,768 | 45,108 | |||||
| Accumulated other comprehensive income | 1,213 | 1,019 | |||||
| Total CVS Health shareholders' equity | 68,022 | 63,864 | |||||
| Noncontrolling interests | 333 | 306 | |||||
| Total shareholders' equity | 68,355 | 64,170 | |||||
| Total liabilities and shareholders' equity | $ | 235,495 | $ | 222,449 |
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
| Six Months Ended June 30, | |||||||
| In millions | 2020 | 2019 | |||||
| Cash flows from operating activities: | |||||||
| Cash receipts from customers | $ | 129,218 | $ | 120,808 | |||
| Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (76,381 | ) | (70,567 | ) | |||
| Insurance benefits paid | (26,483 | ) | (25,992 | ) | |||
| Cash paid to other suppliers and employees | (14,688 | ) | (14,497 | ) | |||
| Interest and investment income received | 395 | 512 | |||||
| Interest paid | (1,407 | ) | (1,502 | ) | |||
| Income taxes paid | (230 | ) | (1,476 | ) | |||
| Net cash provided by operating activities | 10,424 | 7,286 | |||||
| Cash flows from investing activities: | |||||||
| Proceeds from sales and maturities of investments | 2,710 | 3,786 | |||||
| Purchases of investments | (3,688 | ) | (4,062 | ) | |||
| Purchases of property and equipment | (1,190 | ) | (1,289 | ) | |||
| Acquisitions (net of cash acquired) | (768 | ) | (250 | ) | |||
| Other | 6 | 14 | |||||
| Net cash used in investing activities | (2,930 | ) | (1,801 | ) | |||
| Cash flows from financing activities: | |||||||
| Net repayments of short-term debt | - | (275 | ) | ||||
| Proceeds from issuance of long-term debt | 3,946 | - | |||||
| Repayments of long-term debt | (1,016 | ) | (1,899 | ) | |||
| Dividends paid | (1,315 | ) | (1,306 | ) | |||
| Proceeds from exercise of stock options | 166 | 111 | |||||
| Payments for taxes related to net share settlement of equity awards | (68 | ) | (80 | ) | |||
| Other | (16 | ) | 7 | ||||
| Net cash provided by (used in) financing activities | 1,697 | (3,442 | ) | ||||
| Net increase in cash, cash equivalents and restricted cash | 9,191 | 2,043 | |||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 5,954 | 4,295 | |||||
| Cash, cash equivalents and restricted cash at the end of the period | $ | 15,145 | $ | 6,338 |
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
| Six Months Ended June 30, | |||||||
| In millions | 2020 | 2019 | |||||
| Reconciliation of net income to net cash provided by operating activities: | |||||||
| Net income | $ | 4,998 | $ | 3,358 | |||
| Adjustments required to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 2,188 | 2,183 | |||||
| Stock-based compensation | 179 | 226 | |||||
| Deferred income taxes and other noncash items | (101 | ) | (42 | ) | |||
| Change in operating assets and liabilities, net of effects from acquisitions: | |||||||
| Accounts receivable, net | (2,233 | ) | (681 | ) | |||
| Inventories | 1,003 | 939 | |||||
| Other assets | (560 | ) | (314 | ) | |||
| Accounts payable and pharmacy claims and discounts payable | 1,671 | 917 | |||||
| Health care costs payable and other insurance liabilities | (415 | ) | 496 | ||||
| Other liabilities | 3,694 | 204 | |||||
| Net cash provided by operating activities | $ | 10,424 | $ | 7,286 |
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 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 full year 2020 guidance reconciliation also reflects an estimated gain on divestiture of the Company's Coventry Health Care Workers Compensation business, which the Company sold on July 31, 2020 for approximately $850 million. The Company expects to recognize a pretax gain on this divestiture of approximately $225 million within the Health Care Benefits segment in the third quarter of 2020. This amount has been excluded from the projected full year Adjusted EPS because the Company believes this amount neither relates to the ordinary course of the Company's business nor reflects the Company's underlying business performance.
See endnotes (1) and (2) on page 22 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 21.
Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Adjusted Operating Income
The following are reconciliations of operating income to adjusted operating income:
| Three Months Ended June 30, 2020 | |||||||||||||||||||||||
| In millions | Pharmacy Services | Retail/ LTC | Health Care Benefits | Corporate/ Other | Intersegment Eliminations | Consolidated Totals | |||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 1,271 | $ | 933 | $ | 3,066 | $ | (413 | ) | $ | (177 | ) | $ | 4,680 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Amortization of intangible assets | 56 | 124 | 398 | - | - | 578 | |||||||||||||||||
| Acquisition-related integration costs | - | - | - | 70 | - | 70 | |||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 1,327 | $ | 1,057 | $ | 3,464 | $ | (343 | ) | $ | (177 | ) | $ | 5,328 |
| Three Months Ended June 30, 2019 | |||||||||||||||||||||||
| In millions | Pharmacy Services | Retail/ LTC | Health Care Benefits | Corporate/ Other | Intersegment Eliminations | Consolidated Totals | |||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 1,197 | $ | 1,551 | $ | 1,062 | $ | (308 | ) | $ | (170 | ) | $ | 3,332 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Amortization of intangible assets | 99 | 118 | 376 | - | - | 593 | |||||||||||||||||
| Acquisition-related integration costs | - | - | - | 106 | - | 106 | |||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 1,296 | $ | 1,669 | $ | 1,438 | $ | (202 | ) | $ | (170 | ) | $ | 4,031 |
| Six Months Ended June 30, 2020 | |||||||||||||||||||||||
| In millions | Pharmacy Services | Retail/ LTC | Health Care Benefits | Corporate/ Other | Intersegment Eliminations | Consolidated Totals | |||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 2,385 | $ | 2,713 | $ | 4,161 | $ | (768 | ) | $ | (353 | ) | $ | 8,138 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Amortization of intangible assets | 123 | 246 | 794 | 1 | - | 1,164 | |||||||||||||||||
| Acquisition-related integration costs | - | - | - | 139 | - | 139 | |||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 2,508 | $ | 2,959 | $ | 4,955 | $ | (628 | ) | $ | (353 | ) | $ | 9,441 |
| Six Months Ended June 30, 2019 | |||||||||||||||||||||||
| In millions | Pharmacy Services | Retail/ LTC | Health Care Benefits | Corporate/ Other | Intersegment Eliminations | Consolidated Totals | |||||||||||||||||
| Operating income (loss) (GAAP measure) | $ | 2,047 | $ | 2,789 | $ | 2,217 | $ | (689 | ) | $ | (342 | ) | $ | 6,022 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Amortization of intangible assets | 196 | 234 | 783 | 2 | - | 1,215 | |||||||||||||||||
| Acquisition-related integration costs | - | - | - | 254 | - | 254 | |||||||||||||||||
| Store rationalization charge | - | 135 | - | - | - | 135 | |||||||||||||||||
| Adjusted operating income (loss) (1) | $ | 2,243 | $ | 3,158 | $ | 3,000 | $ | (433 | ) | $ | (342 | ) | $ | 7,626 |
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 June 30, 2020 | Three Months Ended June 30, 2019 | ||||||||||||||
| In millions, except per share amounts | Total Company | Per Common Share | Total Company | Per Common Share | |||||||||||
| Net income (GAAP measure) | $ | 2,986 | $ | 1,931 | |||||||||||
| Net (income) loss attributable to noncontrolling interests (GAAP measure) | (11 | ) | 5 | ||||||||||||
| Income allocable to participating securities (GAAP measure) | - | (1 | ) | ||||||||||||
| Net income attributable to CVS Health (GAAP measure) | 2,975 | $ | 2.26 | 1,935 | $ | 1.49 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||
| Amortization of intangible assets | 578 | 0.44 | 593 | 0.45 | |||||||||||
| Acquisition-related integration costs | 70 | 0.06 | 106 | 0.08 | |||||||||||
| Income tax benefit | (155 | ) | (0.12 | ) | (172 | ) | (0.13 | ) | |||||||
| Adjusted income attributable to CVS Health (2) | $ | 3,468 | $ | 2.64 | $ | 2,462 | $ | 1.89 | |||||||
| Weighted average diluted shares outstanding | 1,314 | 1,302 |
| Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||||||
| In millions, except per share amounts | Total Company | Per Common Share | Total Company | Per Common Share | |||||||||||
| Net income (GAAP measure) | $ | 4,998 | $ | 3,358 | |||||||||||
| Net income attributable to noncontrolling interests (GAAP measure) | (16 | ) | (1 | ) | |||||||||||
| Income allocable to participating securities (GAAP measure) | - | (3 | ) | ||||||||||||
| Net income attributable to CVS Health (GAAP measure) | 4,982 | $ | 3.79 | 3,354 | $ | 2.58 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||
| Amortization of intangible assets | 1,164 | 0.89 | 1,215 | 0.93 | |||||||||||
| Acquisition-related integration costs | 139 | 0.11 | 254 | 0.20 | |||||||||||
| Store rationalization charge | - | - | 135 | 0.10 | |||||||||||
| Income tax benefit | (315 | ) | (0.24 | ) | (391 | ) | (0.30 | ) | |||||||
| Adjusted income attributable to CVS Health (2) | $ | 5,970 | $ | 4.55 | $ | 4,567 | $ | 3.51 | |||||||
| Weighted average diluted shares outstanding | 1,313 | 1,302 |
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, which is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance as further described in endnote (1). The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company's ability to compare past financial performance with current performance and analyze underlying business performance and trends.
The following is a reconciliation of financial measures of the Company's segments to the consolidated totals:
| In millions | Pharmacy Services (a) | Retail/ LTC | Health Care Benefits | Corporate/ Other | Intersegment Eliminations (b) | Consolidated Totals | |||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||
| June 30, 2020 | |||||||||||||||||||||||
| Total revenues | $ | 34,889 | $ | 21,662 | $ | 18,468 | $ | 86 | $ | (9,764 | ) | $ | 65,341 | ||||||||||
| Operating income (loss) | 1,271 | 933 | 3,066 | (413 | ) | (177 | ) | 4,680 | |||||||||||||||
| Adjusted operating income (loss) (1) | 1,327 | 1,057 | 3,464 | (343 | ) | (177 | ) | 5,328 | |||||||||||||||
| June 30, 2019 | |||||||||||||||||||||||
| Total revenues | 34,842 | 21,447 | 17,403 | 161 | (10,422 | ) | 63,431 | ||||||||||||||||
| Operating income (loss) | 1,197 | 1,551 | 1,062 | (308 | ) | (170 | ) | 3,332 | |||||||||||||||
| Adjusted operating income (loss) (1) | 1,296 | 1,669 | 1,438 | (202 | ) | (170 | ) | 4,031 | |||||||||||||||
| Six Months Ended | |||||||||||||||||||||||
| June 30, 2020 | |||||||||||||||||||||||
| Total revenues | $ | 69,872 | $ | 44,411 | $ | 37,666 | $ | 176 | $ | (20,029 | ) | $ | 132,096 | ||||||||||
| Operating income (loss) | 2,385 | 2,713 | 4,161 | (768 | ) | (353 | ) | 8,138 | |||||||||||||||
| Adjusted operating income (loss) (1) | 2,508 | 2,959 | 4,955 | (628 | ) | (353 | ) | 9,441 | |||||||||||||||
| June 30, 2019 | |||||||||||||||||||||||
| Total revenues | 68,400 | 42,562 | 35,273 | 271 | (21,429 | ) | 125,077 | ||||||||||||||||
| Operating income (loss) | 2,047 | 2,789 | 2,217 | (689 | ) | (342 | ) | 6,022 | |||||||||||||||
| Adjusted operating income (loss) (1) | 2,243 | 3,158 | 3,000 | (433 | ) | (342 | ) | 7,626 |
_____________________________________________
Supplemental Information
Pharmacy Services Segment
The following table summarizes the Pharmacy Services segment's performance for the respective periods:
| Change | |||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, 2020 vs 2019 | Six Months Ended June 30, 2020 vs 2019 | ||||||||||||||||||||||||||
| In millions, except percentages | 2020 | 2019 | 2020 | 2019 | $ | % | $ | % | |||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Products | $ | 34,595 | $ | 34,723 | $ | 69,341 | $ | 68,173 | $ | (128 | ) | (0.4 | )% | $ | 1,168 | 1.7 | % | ||||||||||||
| Services | 294 | 119 | 531 | 227 | 175 | 147.1 | % | 304 | 133.9 | % | |||||||||||||||||||
| Total revenues | 34,889 | 34,842 | 69,872 | 68,400 | 47 | 0.1 | % | 1,472 | 2.2 | % | |||||||||||||||||||
| Cost of products sold | 33,271 | 33,279 | 66,774 | 65,618 | (8 | ) | - | % | 1,156 | 1.8 | % | ||||||||||||||||||
| Gross margin (10) | 1,618 | 1,563 | 3,098 | 2,782 | 55 | 3.5 | % | 316 | 11.4 | % | |||||||||||||||||||
| Gross margin as a % of total revenues (10) | 4.6 | % | 4.5 | % | 4.4 | % | 4.1 | % | |||||||||||||||||||||
| Operating expenses | 347 | 366 | 713 | 735 | (19 | ) | (5.2 | )% | (22 | ) | (3.0 | )% | |||||||||||||||||
| Operating expenses as a % of total revenues | 1.0 | % | 1.1 | % | 1.0 | % | 1.1 | % | |||||||||||||||||||||
| Operating income | $ | 1,271 | $ | 1,197 | $ | 2,385 | $ | 2,047 | $ | 74 | 6.2 | % | $ | 338 | 16.5 | % | |||||||||||||
| Operating income as a % of total revenues | 3.6 | % | 3.4 | % | 3.4 | % | 3.0 | % | |||||||||||||||||||||
| Adjusted operating income (1) | $ | 1,327 | $ | 1,296 | $ | 2,508 | $ | 2,243 | $ | 31 | 2.4 | % | $ | 265 | 11.8 | % | |||||||||||||
| Adjusted operating income as a % of total revenues | 3.8 | % | 3.7 | % | 3.6 | % | 3.3 | % | |||||||||||||||||||||
| Revenues (by distribution channel): | |||||||||||||||||||||||||||||
| Pharmacy network (6) (14) | $ | 20,536 | $ | 21,974 | $ | 41,636 | $ | 43,506 | $ | (1,438 | ) | (6.5 | )% | $ | (1,870 | ) | (4.3 | )% | |||||||||||
| Mail choice (7) (14) | 14,109 | 12,724 | 27,783 | 24,605 | 1,385 | 10.9 | % | 3,178 | 12.9 | % | |||||||||||||||||||
| Other | 244 | 144 | 453 | 289 | 100 | 69.4 | % | 164 | 56.7 | % | |||||||||||||||||||
| Pharmacy claims processed: (4) (5) | |||||||||||||||||||||||||||||
| Total | 505.4 | 489.0 | 1,046.8 | 970.8 | 16.4 | 3.4 | % | 76.0 | 7.8 | % | |||||||||||||||||||
| Pharmacy network (6) | 425.1 | 412.1 | 886.2 | 819.8 | 13.0 | 3.2 | % | 66.4 | 8.1 | % | |||||||||||||||||||
| Mail choice (7) | 80.3 | 76.9 | 160.6 | 151.0 | 3.4 | 4.4 | % | 9.6 | 6.4 | % | |||||||||||||||||||
| Generic dispensing rate: (4) (11) | |||||||||||||||||||||||||||||
| Total | 88.7 | % | 88.5 | % | 88.8 | % | 88.4 | % | |||||||||||||||||||||
| Pharmacy network (6) | 89.3 | % | 89.1 | % | 89.4 | % | 89.0 | % | |||||||||||||||||||||
| Mail choice (7) | 85.7 | % | 85.2 | % | 85.7 | % | 85.0 | % |
Supplemental Information
The following table summarizes the Retail/LTC segment's performance for the respective periods:
| Change | |||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, 2020 vs 2019 | Six Months Ended June 30, 2020 vs 2019 | ||||||||||||||||||||||||||
| In millions, except percentages | 2020 | 2019 | 2020 | 2019 | $ | % | $ | % | |||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Products | $ | 21,476 | $ | 21,230 | $ | 43,998 | $ | 42,130 | $ | 246 | 1.2 | % | $ | 1,868 | 4.4 | % | |||||||||||||
| Services | 186 | 217 | 413 | 432 | (31 | ) | (14.3 | )% | (19 | ) | (4.4 | )% | |||||||||||||||||
| Total revenues | 21,662 | 21,447 | 44,411 | 42,562 | 215 | 1.0 | % | 1,849 | 4.3 | % | |||||||||||||||||||
| Cost of products sold | 16,220 | 15,551 | 32,798 | 30,848 | 669 | 4.3 | % | 1,950 | 6.3 | % | |||||||||||||||||||
| Gross margin (10) | 5,442 | 5,896 | 11,613 | 11,714 | (454 | ) | (7.7 | )% | (101 | ) | (0.9 | )% | |||||||||||||||||
| Gross margin as a % of total revenues (10) | 25.1 | % | 27.5 | % | 26.1 | % | 27.5 | % | |||||||||||||||||||||
| Operating expenses | 4,509 | 4,345 | 8,900 | 8,925 | 164 | 3.8 | % | (25 | ) | (0.3 | )% | ||||||||||||||||||
| Operating expenses as a % of total revenues | 20.8 | % | 20.3 | % | 20.0 | % | 21.0 | % | |||||||||||||||||||||
| Operating income | $ | 933 | $ | 1,551 | $ | 2,713 | $ | 2,789 | $ | (618 | ) | (39.8 | )% | $ | (76 | ) | (2.7 | )% | |||||||||||
| Operating income as a % of total revenues | 4.3 | % | 7.2 | % | 6.1 | % | 6.6 | % | |||||||||||||||||||||
| Adjusted operating income (1) | $ | 1,057 | $ | 1,669 | $ | 2,959 | $ | 3,158 | $ | (612 | ) | (36.7 | )% | $ | (199 | ) | (6.3 | )% | |||||||||||
| Adjusted operating income as a % of total revenues | 4.9 | % | 7.8 | % | 6.7 | % | 7.4 | % | |||||||||||||||||||||
| Revenues (by major goods/service lines): | |||||||||||||||||||||||||||||
| Pharmacy | $ | 16,870 | $ | 16,392 | $ | 34,225 | $ | 32,510 | $ | 478 | 2.9 | % | $ | 1,715 | 5.3 | % | |||||||||||||
| Front Store | 4,653 | 4,875 | 9,861 | 9,674 | (222 | ) | (4.6 | )% | 187 | 1.9 | % | ||||||||||||||||||
| Other | 139 | 180 | 325 | 378 | (41 | ) | (22.8 | )% | (53 | ) | (14.0 | )% | |||||||||||||||||
| Prescriptions filled (4) (5) | 345.4 | 349.1 | 720.5 | 695.9 | (3.7 | ) | (1.1 | )% | 24.6 | 3.5 | % | ||||||||||||||||||
| Same store sales increase (decrease): (12) | |||||||||||||||||||||||||||||
| Total | 2.4 | % | 4.2 | % | 5.7 | % | 4.0 | % | |||||||||||||||||||||
| Pharmacy | 4.6 | % | 4.7 | % | 6.9 | % | 4.8 | % | |||||||||||||||||||||
| Front Store | (4.5 | )% | 2.9 | % | 1.7 | % | 1.6 | % | |||||||||||||||||||||
| Prescription volume (4) | 0.6 | % | 7.2 | % | 5.2 | % | 7.0 | % | |||||||||||||||||||||
| Generic dispensing rate (4) (11) | 89.1 | % | 89.0 | % | 89.2 | % | 88.9 | % |
Supplemental Information
Health Care Benefits Segment
The following table summarizes the Health Care Benefits segment's performance for the respective periods:
| Change | |||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, 2020 vs 2019 | Six Months Ended June 30, 2020 vs 2019 | ||||||||||||||||||||||||||
| In millions, except percentages and basis points ("bps") | 2020 | 2019 | 2020 | 2019 | $ | % | $ | % | |||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Premiums | $ | 16,913 | $ | 15,777 | $ | 34,534 | $ | 32,036 | $ | 1,136 | 7.2 | % | $ | 2,498 | 7.8 | % | |||||||||||||
| Services | 1,428 | 1,478 | 2,912 | 2,925 | (50 | ) | (3.4 | )% | (13 | ) | (0.4 | )% | |||||||||||||||||
| Net investment income | 127 | 148 | 220 | 312 | (21 | ) | (14.2 | )% | (92 | ) | (29.5 | )% | |||||||||||||||||
| Total revenues | 18,468 | 17,403 | 37,666 | 35,273 | 1,065 | 6.1 | % | 2,393 | 6.8 | % | |||||||||||||||||||
| Benefit costs | 11,884 | 13,246 | 26,400 | 26,901 | (1,362 | ) | (10.3 | )% | (501 | ) | (1.9 | )% | |||||||||||||||||
| MBR (Benefit costs as a % of premium revenues) (8) | 70.3 | % | 84.0 | % | 76.4 | % | 84.0 | % | (1,370 | ) | bps | (760 | ) | bps | |||||||||||||||
| Operating expenses | $ | 3,518 | $ | 3,095 | $ | 7,105 | $ | 6,155 | $ | 423 | 13.7 | % | $ | 950 | 15.4 | % | |||||||||||||
| Operating expenses as a % of total revenues | 19.0 | % | 17.8 | % | 18.9 | % | 17.4 | % | |||||||||||||||||||||
| Operating income | $ | 3,066 | $ | 1,062 | $ | 4,161 | $ | 2,217 | $ | 2,004 | 188.7 | % | $ | 1,944 | 87.7 | % | |||||||||||||
| Operating income as a % of total revenues | 16.6 | % | 6.1 | % | 11.0 | % | 6.3 | % | |||||||||||||||||||||
| Adjusted operating income (1) | $ | 3,464 | $ | 1,438 | $ | 4,955 | $ | 3,000 | $ | 2,026 | 140.9 | % | $ | 1,955 | 65.2 | % | |||||||||||||
| Adjusted operating income as a % of total revenues | 18.8 | % | 8.3 | % | 13.2 | % | 8.5 | % |
The following table summarizes the Health Care Benefits segment's medical membership for the respective periods:
| June 30, 2020 | March 31, 2020 | December 31, 2019 | June 30, 2019 | ||||||||||||||||||||||||||||||||
| In thousands | Insured | ASC | Total | Insured | ASC | Total | Insured | ASC | Total | Insured | ASC | Total | |||||||||||||||||||||||
| Medical membership: (9) | |||||||||||||||||||||||||||||||||||
| Commercial | 3,298 | 14,179 | 17,477 | 3,372 | 14,206 | 17,578 | 3,591 | 14,159 | 17,750 | 3,571 | 14,276 | 17,847 | |||||||||||||||||||||||
| Medicare Advantage | 2,651 | - | 2,651 | 2,584 | - | 2,584 | 2,321 | - | 2,321 | 2,264 | - | 2,264 | |||||||||||||||||||||||
| Medicare Supplement | 954 | - | 954 | 913 | - | 913 | 881 | - | 881 | 819 | - | 819 | |||||||||||||||||||||||
| Medicaid | 1,918 | 586 | 2,504 | 1,835 | 552 | 2,387 | 1,398 | 558 | 1,956 | 1,344 | 562 | 1,906 | |||||||||||||||||||||||
| Total medical membership | 8,821 | 14,765 | 23,586 | 8,704 | 14,758 | 23,462 | 8,191 | 14,717 | 22,908 | 7,998 | 14,838 | 22,836 | |||||||||||||||||||||||
| Supplemental membership information: | |||||||||||||||||||||||||||||||||||
| Medicare Prescription Drug Plan (standalone) (a) | 5,575 | 5,624 | 5,994 | 6,004 |
_____________________________________________
Supplemental Information
The following table shows the components of the change in health care costs payable during the six months ended June 30, 2020 and 2019:
| Six Months Ended June 30, | |||||||
| In millions | 2020 | 2019 | |||||
| Health care costs payable, beginning of period | $ | 6,879 | $ | 6,147 | |||
| Less: Reinsurance recoverables | 5 | 4 | |||||
| Health care costs payable, beginning of period, net | 6,874 | 6,143 | |||||
| Acquisition | 412 | - | |||||
| Add: Components of incurred health care costs | |||||||
| Current year | 26,390 | 26,864 | |||||
| Prior years (a) | (420 | ) | (489 | ) | |||
| Total incurred health care costs (b) | 25,970 | 26,375 | |||||
| Less: Claims paid | |||||||
| Current year | 20,223 | 20,552 | |||||
| Prior years | 5,704 | 5,095 | |||||
| Total claims paid | 25,927 | 25,647 | |||||
| Add: Premium deficiency reserve | 29 | 14 | |||||
| Health care costs payable, end of period, net | 7,358 | 6,885 | |||||
| Add: Reinsurance recoverables | 4 | 4 | |||||
| Health care costs payable, end of period | $ | 7,362 | $ | 6,889 |
_____________________________________________
The following table summarizes the Health Care Benefits segment's days claims payable for the respective periods:
| June 30, 2020 | March 31, 2020 | December 31, 2019 | June 30, 2019 | ||||||||
| Days Claims Payable (13) | 57 | 48 | 48 | 48 |
Supplemental Information
Corporate/Other Segment
The following table summarizes the Corporate/Other segment's performance for the respective periods:
| Change | |||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, 2020 vs 2019 | Six Months Ended June 30, 2020 vs 2019 | ||||||||||||||||||||||||||
| In millions, except percentages | 2020 | 2019 | 2020 | 2019 | $ | % | $ | % | |||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Premiums | $ | 14 | $ | 14 | $ | 33 | $ | 37 | $ | - | - | % | $ | (4 | ) | (10.8 | )% | ||||||||||||
| Services | 15 | 2 | 17 | 4 | 13 | 650.0 | % | 13 | 325.0 | % | |||||||||||||||||||
| Net investment income | 57 | 145 | 126 | 230 | (88 | ) | (60.7 | )% | (104 | ) | (45.2 | )% | |||||||||||||||||
| Total revenues | 86 | 161 | 176 | 271 | (75 | ) | (46.6 | )% | (95 | ) | (35.1 | )% | |||||||||||||||||
| Benefit costs | 51 | 57 | 119 | 136 | (6 | ) | (10.5 | )% | (17 | ) | (12.5 | )% | |||||||||||||||||
| Operating expenses | 448 | 412 | 825 | 824 | 36 | 8.7 | % | 1 | 0.1 | % | |||||||||||||||||||
| Operating loss | (413 | ) | (308 | ) | (768 | ) | (689 | ) | (105 | ) | (34.1 | )% | (79 | ) | (11.5 | )% | |||||||||||||
| Adjusted operating loss (1) | (343 | ) | (202 | ) | (628 | ) | (433 | ) | (141 | ) | (69.8 | )% | (195 | ) | (45.0 | )% |
Adjusted Earnings Per Share Guidance
The following reconciliations of projected net income to projected adjusted income attributable to CVS Health and calculations of projected GAAP diluted EPS and projected Adjusted EPS contain forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information due to the risks and uncertainties related to the COVID-19 pandemic, 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, as well as the risks and uncertainties described in our SEC filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 and our recently filed Current Reports on Form 8-K. See "Non-GAAP Financial Information" earlier in this press release and endnote (2) later in this press release for more information on how we calculate Adjusted EPS.
| Year Ending December 31, 2020 | |||||||||||||||
| Low | High | ||||||||||||||
| In millions, except per share amounts | Total Company | Per Common Share | Total Company | Per Common Share | |||||||||||
| Net income attributable to CVS Health (GAAP measure) | 7,375 | $ | 5.59 | 7,545 | $ | 5.72 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||
| Amortization of intangible assets | 2,320 | 1.76 | 2,320 | 1.76 | |||||||||||
| Acquisition-related integration costs | 450 | 0.34 | 450 | 0.34 | |||||||||||
| Gain on divestiture of subsidiary | (225 | ) | (0.17 | ) | (225 | ) | (0.17 | ) | |||||||
| Income tax benefit | (495 | ) | (0.38 | ) | (495 | ) | (0.38 | ) | |||||||
| Adjusted income attributable to CVS Health (2) | $ | 9,425 | $ | 7.14 | $ | 9,595 | $ | 7.27 | |||||||
| Weighted average diluted shares outstanding | 1,320 | 1,320 |
(1) The Company defines adjusted operating income as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance, such as acquisition-related integration costs, store rationalization charges, gains/losses on divestitures and any other items specifically identified herein. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from operating income.
(2) The Company defines adjusted income attributable to CVS Health as net income attributable to CVS Health (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance, such as acquisition-related integration costs, store rationalization charges, gains/losses on divestitures, the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health, and any other items specifically identified herein. GAAP diluted EPS and Adjusted EPS, respectively, are calculated by dividing net income attributable to CVS Health and adjusted income attributable to CVS Health by the Company's weighted average diluted shares outstanding. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from net income attributable to CVS Health and GAAP diluted EPS.