WOONSOCKET, R.I., Nov. 2, 2022 /PRNewswire/ -- CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended September 30, 2022.

THIRD QUARTER RESULTS

  • 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

KEY FINANCIAL DATA


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

YEAR-TO-DATE RESULTS

  • 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

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 

CEO Commentary

"We delivered another outstanding quarter, and have raised full-year guidance as a result. We continue to execute on our strategy with a focus on expanding capabilities in health care delivery, and the announced acquisition of Signify Health will further strengthen our engagement with consumers."
-Karen S. Lynch, CVS Health President and CEO

Q3 IN THE SPOTLIGHT

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.

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 13 and endnotes beginning on page 24 for explanations of non-GAAP financial measures presented in this press release. See pages 15 through 16 and page 23 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 18 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 20 for additional information regarding the performance of the Pharmacy Services segment.

Retail/LTC Segment

The Retail/LTC segment fulfills prescriptions for medications, provides patient care programs, sells a wide assortment of health and wellness products and general merchandise, provides health care services through walk-in medical clinics, provides medical diagnostic testing, administers vaccinations and provides 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 21 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).

About CVS Health

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.

 

- Tables Follow -

 

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)



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

(Unaudited)



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

(Unaudited)



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

(Unaudited)



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 24 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 15 through 16 and page 23.

 

Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures


Adjusted Operating Income

(Unaudited)


The following are reconciliations of consolidated operating income (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

(Unaudited)


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

 


Nine Months Ended

September 30, 2022


Nine Months Ended

September 30, 2021

In millions, except per share amounts

Total
Company


Per
Common
Share


Total
Company


Per
Common
Share

Net income attributable to CVS Health (GAAP measure)

$      1,847


$        1.40


$      6,604


$        4.98

Amortization of intangible assets

1,398


1.06


1,730


1.30

Opioid litigation charges

5,704


4.31



Loss on assets held for sale

2,521


1.90



Gain on divestiture of subsidiary

(225)


(0.17)



Acquisition-related integration costs



101


0.08

Goodwill impairment



431


0.33

Acquisition purchase price adjustment outside of measurement period



(61)


(0.05)

Loss on early extinguishment of debt



363


0.27

Tax impact of non-GAAP adjustments

(2,365)


(1.79)


(642)


(0.48)

Adjusted income attributable to CVS Health (2)

$      8,880


$        6.71


$      8,526


$        6.43









Weighted average diluted shares outstanding (GAAP) (2)



1,324




1,326

Adjusted weighted average diluted shares outstanding (non-GAAP) (2)



1,324




1,326

 

Supplemental Information

(Unaudited)

The Company's segments maintain separate financial information, and the Company's chief operating decision maker (the "CODM") evaluates the segments' operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company's segments based on adjusted operating income, which is defined as operating income (loss) (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance as further described in endnote (1). The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company's ability to compare past financial performance with current performance and analyze underlying business performance and trends.

The following is a reconciliation of financial measures of the Company's segments to the consolidated totals:

In millions

Health Care

Benefits


Pharmacy

Services (a)


Retail/

LTC


Corporate/

Other


Intersegment

Eliminations (b)


Consolidated

Totals

Three Months Ended












September 30, 2022












Total revenues

$     22,511


$   43,216


$ 26,706


$        142


$        (11,416)


$      81,159

Adjusted operating income (loss) (1)

1,544


1,877


1,398


(417)


(169)


4,233

September 30, 2021












Total revenues

20,479


39,046


24,992


171


(10,894)


73,794

Adjusted operating income (loss) (1)

1,106


1,773


1,723


(343)


(186)


4,073













Nine Months Ended












September 30, 2022












Total revenues

$     68,376


$ 125,489


$ 78,410


$        378


$        (34,032)


$     238,621

Adjusted operating income (loss) (1)

5,126


5,368


4,865


(1,277)


(556)


13,526

September 30, 2021












Total revenues

61,487


113,681


72,994


488


(33,143)


215,507

Adjusted operating income (loss) (1)

4,502


5,035


5,166


(1,015)


(523)


13,165












(a)   

Total revenues of the Pharmacy Services segment include approximately $2.9 billion and $2.8 billion of retail co-payments for the three months ended September 30, 2022 and 2021, respectively, and $9.8 billion and $9.0 billion of retail co-payments for the nine months ended September 30, 2022 and 2021, respectively.

(b)   

Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Pharmacy Services segment, and/or the Retail/LTC segment. Intersegment adjusted operating income eliminations occur when members of Pharmacy Services Segment clients ("PSS members") enrolled in Maintenance Choice® elect to pick up maintenance prescriptions at one of the Company's retail pharmacies instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail/LTC segments record the adjusted operating income on a stand-alone basis.

 

Supplemental Information

(Unaudited)


Health Care Benefits Segment


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







Change


Three Months Ended

September 30,


Nine Months Ended

September 30,


Three Months Ended

September 30,

2022 vs 2021


Nine Months Ended

September 30,

2022 vs 2021

In millions, except percentages and basis points ("bps")

2022


2021


2022


2021


$


%


$


%

Revenues:
















Premiums

$ 20,989


$  18,959


$ 63,848


$ 56,869


$    2,030


10.7 %


$    6,979


12.3 %

Services

1,421


1,373


4,250


4,186


48


3.5 %


64


1.5 %

Net investment income

101


147


278


432


(46)


(31.3) %


(154)


(35.6) %

Total revenues

22,511


20,479


68,376


61,487


2,032


9.9 %


6,889


11.2 %

Benefit costs

17,531


16,260


53,191


47,971


1,271


7.8 %


5,220


10.9 %

MBR (Benefit costs as a % of premium revenues) (3)

83.5 %


85.8 %


83.3 %


84.4 %


(230)


bps


(110)


bps

Loss on assets held for sale

$         —


$         —


$         41


$         —


$        —


— %


$        41


100.0 %

Operating expenses

3,736


3,503


10,737


10,147


233


6.7 %


590


5.8 %

Operating expenses as a % of total revenues

16.6 %


17.1 %


15.7 %


16.5 %









Operating income

$    1,244


$       716


$    4,407


$    3,369


$       528


73.7 %


$    1,038


30.8 %

Operating income as a % of total revenues

5.5 %


3.5 %


6.4 %


5.5 %









Adjusted operating income (1)

$    1,544


$    1,106


$    5,126


$    4,502


$       438


39.6 %


$       624


13.9 %

Adjusted operating income as a % of total revenues

6.9 %


5.4 %


7.5 %


7.3 %









Premium revenues (by business):
















Government

$ 15,433


$  13,903


$ 47,379


$ 41,717


$    1,530


11.0 %


$   5,662


13.6 %

Commercial

5,556


5,056


16,469


15,152


500


9.9 %


1,317


8.7 %

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


September 30, 2022


June 30, 2022


December 31, 2021


September 30, 2021

In thousands

Insured


ASC


Total


Insured


ASC


Total


Insured


ASC


Total


Insured


ASC


Total

Medical membership: (4)
























Commercial

3,159


13,852


17,011


3,158


13,835


16,993


3,258


13,530


16,788


3,224


13,529


16,753

Medicare Advantage

3,260



3,260


3,216



3,216


2,971



2,971


2,953



2,953

Medicare Supplement

1,345



1,345


1,314



1,314


1,285



1,285


1,242



1,242

Medicaid

2,181


490


2,671


2,425


484


2,909


2,333


471


2,804


2,289


460


2,749

Total medical membership

9,945


14,342


24,287


10,113


14,319


24,432


9,847


14,001


23,848


9,708


13,989


23,697

























Supplemental membership information:





















Medicare Prescription Drug Plan (stand-alone)

6,090






6,051






5,777






5,740

 

Supplemental Information

(Unaudited)


The following table shows the components of the change in health care costs payable during the nine months ended September 30, 2022 and 2021:



Nine Months Ended

September 30,

In millions

2022


2021

Health care costs payable, beginning of period

$         8,808


$         7,936

Less: Reinsurance recoverables

8


10

Health care costs payable, beginning of period, net

8,800


7,926

Add: Components of incurred health care costs




Current year

53,311


48,243

Prior years (a)

(670)


(771)

Total incurred health care costs (b)

52,641


47,472

Less: Claims paid




Current year

43,632


39,887

Prior years

7,468


6,639

Total claims paid

51,100


46,526

Add: Premium deficiency reserve

5


1

Health care costs payable, end of period, net

10,346


8,873

Add: Reinsurance recoverables

5


4

Health care costs payable, end of period

$       10,351


$         8,877












(a)  

Negative amounts reported for incurred health care costs related to prior years result from claims being settled for amounts less than originally estimated.

(b)   

Total incurred health care costs for the nine months ended September 30, 2022 and 2021 in the table above exclude (i) $5 million and $1 million, respectively, for premium deficiency reserves related to the Company's Medicaid products, (ii) $56 million and $45 million, respectively, of benefit costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the  unaudited condensed consolidated balance sheets and (iii) $274 million and $168 million, respectively, of benefit costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets.

The following table summarizes the Health Care Benefits segment's days claims payable for the respective periods:


September 30, 2022


June 30, 2022


March 31, 2022


December 31, 2021

September 30, 2021

Days Claims Payable (9)

54.9


54.3


51.7


49.1

51.1

 

Supplemental Information

(Unaudited)


Pharmacy Services Segment


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









Change


Three Months Ended

September 30,


Nine Months Ended

September 30,


Three Months Ended

September 30,

2022 vs 2021


Nine Months Ended

September 30,

2022 vs 2021

In millions, except percentages

2022


2021


2022


2021


$


%


$


%

Revenues:
















Products

$  42,905


$  38,739


$  124,623


$  112,816


$    4,166


10.8 %


$ 11,807


10.5 %

Services

311


307


866


865


4


1.3 %


1


0.1 %

Total revenues

43,216


39,046


125,489


113,681


4,170


10.7 %


11,808


10.4 %

Cost of products sold

40,998


36,925


119,028


107,714


4,073


11.0 %


11,314


10.5 %

Gross profit (10)

2,218


2,121


6,461


5,967


97


4.6 %


494


8.3 %

Gross margin (Gross profit as a % of total revenues) (10)

5.1 %


5.4 %


5.1 %


5.2 %









Operating expenses

$       382


$       391


$    1,219


$    1,080


$          (9)


(2.3) %


$       139


12.9 %

Operating expenses as a % of total revenues

0.9 %


1.0 %


1.0 %


1.0 %









Operating income

$    1,836


$    1,730


$    5,242


$    4,887


$       106


6.1 %


$       355


7.3 %

Operating income as a % of total revenues

4.2 %


4.4 %


4.2 %


4.3 %









Adjusted operating income (1)

$    1,877


$    1,773


$    5,368


$    5,035


$       104


5.9 %


$       333


6.6 %

Adjusted operating income as a % of total revenues

4.3 %


4.5 %


4.3 %


4.4 %









Revenues (by distribution channel):
















Pharmacy network (7)

$  25,012


$  23,665


$  72,373


$  68,476


$    1,347


5.7 %


$   3,897


5.7 %

Mail choice (8)

17,935


15,202


52,339


44,685


2,733


18.0 %


7,654


17.1 %

Other

269


179


777


520


90


50.3 %


257


49.4 %

Pharmacy claims processed: (5) (6)
















Total (a)

584.9


564.4


1,736.2


1,662.5


20.5


3.6 %


73.7


4.4 %

Pharmacy network (7)

502.3


481.1


1,485.7


1,415.8


21.2


4.4 %


69.9


4.9 %

Mail choice (8)

82.6


83.3


250.5


246.7


(0.7)


(0.8) %


3.8


1.5 %

Generic dispensing rate: (6) (11)
















Total (b)

87.5 %


87.1 %


87.7 %


87.3 %









Pharmacy network (7)

87.8 %


87.4 %


88.1 %


87.6 %









Mail choice (8)

85.4 %


85.5 %


85.5 %


85.6 %




















(a) 

Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 4.5% and 5.2% on a 30-day equivalent basis for the three and nine months ended September 30, 2022, respectively, compared to the prior year.

(b)   

Excluding the impact of COVID-19 vaccinations, the Pharmacy Services segment's total generic dispensing rate was 88.1% and 88.4% in the three months ended September 30, 2022 and 2021, respectively, and 88.6% and 88.8% in the nine months ended September 30, 2022 and 2021, respectively.

 

Supplemental Information

(Unaudited)


Retail/LTC Segment


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









Change


Three Months Ended

September 30,


Nine Months Ended

September 30,


Three Months Ended

September 30,

2022 vs 2021


Nine Months Ended

September 30,

2022 vs 2021

In millions, except percentages

2022


2021


2022


2021


$


%


$


%

Revenues:
















Products

$  26,115


$  23,971


$  76,248


$  69,974


$    2,144


8.9 %


$    6,274


9.0 %

Services

601


1,054


2,206


3,007


(453)


(43.0) %


(801)


(26.6) %

Net investment income (loss)

(10)


(33)


(44)


13


23


69.7 %


(57)


(438.5) %

Total revenues

26,706


24,992


78,410


72,994


1,714


6.9 %


5,416


7.4 %

Cost of products sold

20,272


18,381


58,591


53,375


1,891


10.3 %


5,216


9.8 %

Gross profit (10)

6,434


6,611


19,819


19,619


(177)


(2.7) %


200


1.0 %

Gross margin (Gross profit as a % of total revenues) (10)

24.1 %


26.5 %


25.3 %


26.9 %









Loss on assets held for sale

$    2,480


$       —


$    2,480


$       —


$    2,480


100.0 %


$    2,480


100.0 %

Goodwill impairment


431



431


(431)


(100.0) %


(431)


(100.0) %

Operating expenses

5,159


5,015


15,321


14,839


144


2.9 %


482


3.2 %

Operating expenses as a % of total revenues

19.3 %


20.1 %


19.5 %


20.3 %









Operating income (loss)

$ (1,205)


$    1,165


$    2,018


$    4,349


$  (2,370)


(203.4) %


$  (2,331)


(53.6) %

Operating income (loss) as a % of total revenues

(4.5) %


4.7 %


2.6 %


6.0 %









Adjusted operating income (1)

$    1,398


$    1,723


$    4,865


$    5,166


$     (325)


(18.9) %


$     (301)


(5.8) %

Adjusted operating income as a % of total revenues

5.2 %


6.9 %


6.2 %


7.1 %









Revenues (by major goods/service lines):
















Pharmacy

$  20,759


$  19,023


$  60,308


$  55,781


$    1,736


9.1 %


$    4,527


8.1 %

Front Store

5,581


5,359


16,630


15,255


222


4.1 %


1,375


9.0 %

Other

376


643


1,516


1,945


(267)


(41.5) %


(429)


(22.1) %

Net investment income (loss)

(10)


(33)


(44)


13


23


69.7 %


(57)


(438.5) %

Prescriptions filled (5) (6) (a)

405.3


398.0


1,200.7


1,167.8


7.3


1.8 %


32.9


2.8 %

Same store sales increase: (12)
















Total

9.9 %


9.6 %


9.5 %


7.3 %









Pharmacy

11.3 %


8.8 %


9.7 %


8.4 %









Front Store

5.1 %


12.3 %


9.0 %


3.7 %









Prescription volume (6)

3.8 %


9.0 %


4.3 %


8.1 %









Generic dispensing rate (6) (11) (b)

88.0 %


86.6 %


88.0 %


86.6 %




















(a)  

Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 3.6% and 4.5% on a 30-day equivalent basis for the three and nine months ended September 30, 2022, respectively, compared to the prior year.

(b)   

Excluding the impact of COVID-19 vaccinations, the Retail/LTC segment's total generic dispensing rate was 88.9% and 89.1% in the three months ended September 30, 2022 and 2021, respectively, and 89.5% and 89.4% in the nine months ended September 30, 2022 and 2021, respectively.

 

Supplemental Information

(Unaudited)


Corporate/Other Segment


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









Change


Three Months Ended

September 30,


Nine Months Ended

September 30,


Three Months Ended

September 30,

2022 vs 2021


Nine Months Ended

September 30,

2022 vs 2021

In millions, except percentages

2022


2021


2022


2021


$


%


$


%

Revenues:
















Premiums

$          14


$          25


$          46


$          58


$        (11)


(44.0) %


$       (12)


(20.7) %

Services

18


14


51


43


4


28.6 %


8


18.6 %

Net investment income

110


132


281


387


(22)


(16.7) %


(106)


(27.4) %

Total revenues

142


171


378


488


(29)


(17.0) %


(110)


(22.5) %

Cost of products sold

11


11


31


27



— %


4


14.8 %

Benefit costs

53


69


274


168


(16)


(23.2) %


106


63.1 %

Opioid litigation charges

5,220



5,704



5,220


100.0 %


5,704


100.0 %

Operating expenses

495


455


1,352


1,411


40


8.8 %


(59)


(4.2) %

Operating loss

(5,637)


(364)


(6,983)


(1,118)


(5,273)


(1,448.6) %


(5,865)


(524.6) %

Adjusted operating loss (1)

(417)


(343)


(1,277)


(1,015)


(74)


(21.6) %


(262)


(25.8) %

 

Adjusted Earnings Per Share Guidance

(Unaudited)

The following reconciliations of projected net income attributable to CVS Health to projected adjusted income attributable to CVS Health and calculations of projected GAAP diluted EPS and projected Adjusted EPS contain forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our SEC filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022. 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, 2022


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)

$     4,142


$       3.12


$     4,277


$       3.22

Non-GAAP adjustments:








Amortization of intangible assets

1,860


1.40


1,860


1.40

Opioid litigation charges

5,704


4.30


5,704


4.30

Loss on assets held for sale

2,521


1.90


2,521


1.90

Gain on divestiture of subsidiary

(225)


(0.17)


(225)


(0.17)

Tax impact of non-GAAP adjustments

(2,652)


(2.00)


(2,652)


(2.00)

Adjusted income attributable to CVS Health (2)

$   11,350


$       8.55


$   11,485


$       8.65









Weighted average diluted shares outstanding



1,327




1,327

 

Endnotes

(1)  The Company defines adjusted operating income as operating income (loss) (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 opioid litigation charges, losses on assets held for sale, gains/losses on divestitures, acquisition-related integration costs, goodwill impairments and acquisition purchase price adjustments outside of the acquisition accounting measurement period. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company's ability to compare past financial performance with current performance and analyze underlying business performance and trends. The consolidated measure is not determined in accordance with GAAP and should not be considered a substitute for, or superior to, the most directly comparable GAAP measure, consolidated operating income (loss). See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from consolidated operating income (loss) in determining consolidated adjusted operating income.

(2)  The Company defines adjusted income attributable to CVS Health as net income (loss) 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 opioid litigation charges, losses on assets held for sale, gains/losses on divestitures, acquisition-related integration costs, goodwill impairments, acquisition purchase price adjustments outside of the acquisition accounting measurement period, losses on early extinguishment of debt, as well as the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health and certain discrete tax items. GAAP diluted earnings (loss) per share and Adjusted EPS, respectively, are calculated by dividing net income (loss) attributable to CVS Health and adjusted income attributable to CVS Health by the Company's weighted average diluted shares outstanding.

Adjusted EPS for the three months ended September 30, 2022 is calculated utilizing adjusted weighted average diluted shares outstanding, which includes 8 million potential common equivalent shares, as the impact of these shares was dilutive. The potential common equivalent shares were excluded from the calculation of GAAP loss per share for the three months ended September 30, 2022, as these shares would have had an anti-dilutive effect as a result of the GAAP net loss incurred. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from net income (loss) attributable to CVS Health in determining adjusted income attributable to CVS Health.

(3)  Medical benefit ratio is calculated as benefit costs divided by premium revenues and represents the percentage of premium revenues spent on medical benefits for the Company's insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Company's insured Health Care Benefits products.

(4)  Medical membership represents the number of members covered by the Company's insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on segment total revenues and operating results.

(5)  Total pharmacy claims processed represents the number of prescription claims processed through the Company's pharmacy benefits manager and dispensed by either its retail network pharmacies or its own mail and specialty pharmacies. Prescriptions filled represents the number of prescriptions dispensed through the Retail/LTC segment's pharmacies. Management uses these metrics to understand variances between actual claims processed and prescriptions dispensed, respectively, and expected amounts as well as trends in period-over-period results. These metrics provide management and investors with information useful in understanding the impact of pharmacy claim volume and prescription volume, respectively, on segment total revenues and operating results.

(6)  Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription. 

(7)  Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company's retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity, which is included within the mail choice category. Maintenance Choice permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order.

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

(9)  Days claims payable is calculated by dividing the health care costs payable at the end of each quarter by the average health care costs per day during such quarter. Management and investors use this metric as an indicator of the adequacy of the Company's health care costs payable liability at the end of each quarter and as an indicator of changes in such adequacy over time.

(10)  Gross profit is calculated as the segment's total revenues less its cost of products sold. Gross margin is calculated by dividing the segment's gross profit by its total revenues and represents the percentage of total revenues that remains after incurring direct costs associated with the segment's products sold and services provided. Gross margin provides investors with information that may be useful in assessing the operating results of the Company's Pharmacy Services and Retail/LTC segments.

(11)  Generic dispensing rate is calculated by dividing the segment's generic drug prescriptions processed or filled by its total prescriptions processed or filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.  

(12)  Same store sales and prescription volume represent the change in revenues and prescriptions filled in the Company's retail pharmacy stores that have been operating for greater than one year, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues from MinuteClinic and revenues and prescriptions from LTC operations. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.

 

 

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