CVS Health Reports First Quarter Results, Provides Update On COVID-19 Response 2020 Full Year EPS Guidance Remains Unchanged

WOONSOCKET, R.I., May 6, 2020 /PRNewswire/ --

Swift and Decisive Response to COVID-19:

• Support for employees, clients and communities across the country
• Testing thousands every day in collaboration with federal, state and local officials
• Consumer-driven health care model increases access to goods and services

First Quarter Year-over-Year Highlights:

• Total revenues increased 8.3% to $66.8 billion
• GAAP operating income increased 28.6% to $3.5 billion
• Adjusted operating income ⁽¹⁾ increased 14.4% to $4.1 billion
• GAAP diluted earnings per share of $1.53
• Adjusted EPS ⁽²⁾ of $1.91
• Generated cash flow from operations of $3.3 billion

2020 Full Year Guidance:

• GAAP diluted EPS guidance range of $5.47 to $5.60 and Adjusted EPS ⁽²⁾ guidance range of $7.04 to $7.17 remain unchanged
• Cash flow from operations guidance range of $10.5 billion to $11.0 billion remains unchanged
• Given the likelihood of significant variability in the impact of COVID-19 on the Company's financial statement line items and related ratios, 2020 additional detailed guidance not noted above is withdrawn

CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended March 31, 2020.

CVS Health President and CEO Larry J. Merlo stated, "We have a presence in communities across the country and interact with one in three Americans every year. We have a leading consumer brand with a diversified portfolio of essential health care businesses.

"When facing any health crisis, including this pandemic, we're uniquely positioned to understand consumer and patient needs and how to address them. This includes increasing access to medicine and virtual care, and testing thousands for the virus every day to ready our country to reopen safely. We're utilizing our innovation-driven health care model, scale and unique capabilities to benefit consumers across the health care system, and none of this could be done without the tireless dedication of our colleagues."

A summary of the Company's response to the COVID-19 pandemic is included on page six.

Consolidated First Quarter Results

• Total revenues increased 8.3% for the three months ended March 31, 2020 compared to the prior year primarily driven by strong underlying core growth across all segments. Revenues in the Retail/LTC and Pharmacy Services segments in the three months ended March 31, 2020 also increased as a result of the COVID-19 pandemic, which resulted in greater use of 90-day prescriptions and early refills of maintenance medications, as well as increased front store volume in the Retail/LTC segment.
• Operating income increased 28.6% for the three months ended March 31, 2020 compared to the prior year primarily due to the increase in adjusted operating income described below, the absence of the $135 million store rationalization charge recorded in the three months ended March 31, 2019 and a decrease in acquisition-related integration costs of $79 million in the three months ended March 31, 2020 compared to the prior period.
• Adjusted operating income increased 14.4% for the three months ended March 31, 2020 compared to the prior year. The increase in adjusted operating income was primarily due to increased volume across all segments, improved purchasing economics in the Pharmacy Services segment and the favorable impact of cost savings initiatives. These increases were partially offset by a decline in operating income in the Health Care Benefits segment, continued reimbursement pressure in the Retail/LTC segment and continued price compression in the Pharmacy Services segment. The COVID-19 pandemic increased adjusted operating income in the three months ended March 31, 2020 due to increased volume in the Retail/LTC segment, as well as reduced benefit costs due to the deferral of elective procedures and other discretionary utilization in the Health Care Benefits segment, partially offset by lower net investment income.
• Net income increased 41.0% for the three months ended March 31, 2020 compared to the prior year primarily due to the higher operating income described above and lower interest expense primarily due to lower average debt in the three months ended March 31, 2020, partially offset by higher income tax expense associated with the increase in pre-tax income and the reinstatement of the non-deductible Health Insurer Fee ("HIF") for 2020.
• The effective income tax rate was 27.6% for the three months ended March 31, 2020 compared to 26.4% for the three months ended March 31, 2019. The increase in the effective income tax rate was primarily due to the reinstatement of the non-deductible HIF for 2020.

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 months ended March 31, 2020 and 2019 were as follows:

• Total revenues increased 4.2% for the three months ended March 31, 2020 compared to the prior year primarily due to growth in specialty pharmacy, brand inflation and increased total pharmacy claims volume, including greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for the COVID-19 pandemic. The increase was partially offset by previously disclosed client losses, continued price compression and an increased generic dispensing rate.
• Total pharmacy claims processed increased 12.4% on a 30-day equivalent basis for the three months ended March 31, 2020 compared to the prior year primarily driven by increased claims under the Company's agreement with IngenioRx, which began in the second quarter of 2019, and greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for the COVID-19 pandemic.
• Operating income and adjusted operating income increased 31.1% and 24.7%, respectively, for the three months ended March 31, 2020 compared to the prior year primarily driven by growth in specialty pharmacy, improved purchasing economics and an increased generic dispensing rate, partially offset by previously disclosed client losses and continued price compression. The increase in operating income also was driven by lower amortization expense in the three months ended March 31, 2020.

See the supplemental information on page 16 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 general merchandise, provides health care services through walk-in medical clinics and provides services to long-term care facilities. The segment results for the three months ended March 31, 2020 and 2019 were as follows:

• Total revenues increased 7.7% for the three months ended March 31, 2020 compared to the prior year primarily driven by increased prescription volume, higher front store revenues and brand inflation, partially offset by continued reimbursement pressure and an increased generic dispensing rate. Total revenues in the three months ended March 31, 2020 reflected the greater use of 90-day prescriptions, early refills of maintenance medications and increased front store volume as consumers prepared for the COVID-19 pandemic, as well as the impact of the additional day in 2020 due to the leap year.
• Front store revenues increased 8.5% in the three months ended March 31, 2020 compared to the prior year, including an 8.0% increase in same store sales. The growth was primarily due to strength in consumer health and general merchandise sales, which was primarily driven by COVID-19 related sales; the expansion of the CarePass^® program; and the impact of the additional day in 2020 due to the leap year.
• Prescriptions filled grew 8.2% on a 30-day equivalent basis for the three months ended March 31, 2020 compared to the prior year, including a 9.8% increase in same store prescription volume. The growth was primarily driven by the continued adoption of patient care programs, greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for COVID-19, and the impact of the additional day in 2020 due to the leap year.
• Operating income and adjusted operating income increased 43.8% and 27.7%, respectively, for the three months ended March 31, 2020. The increase in both operating income and adjusted operating income was primarily due to the increased pharmacy and front store volume described above, improved generic drug purchasing, the impact of cost savings initiatives and the favorable resolution of certain legal matters in the three months ended March 31, 2020, partially offset by continued reimbursement pressure. The increase in operating income was also due to the absence of the $135 million store rationalization charge primarily related to operating lease right-of-use asset impairment charges in connection with the planned closure of underperforming retail pharmacy stores recorded in the three months ended March 31, 2019.

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 months ended March 31, 2020 and 2019 were as follows:

• Total revenues increased 7.4% for the three months ended March 31, 2020 compared to the prior year primarily driven by membership growth in the Health Care Benefits segment's Government products and the favorable impact of the reinstatement of the HIF for 2020. These increases were partially offset by the absence of the financial results of Aetna's standalone Medicare Part D prescription drug plans, which the Company retained through 2019, membership declines in the segment's Commercial insured products, as well as a decline in net investment income due to lower interest rates and the capital markets volatility associated with the COVID-19 pandemic.
• Operating income and adjusted operating income decreased 5.2% and 4.5%, respectively, for the three months ended March 31, 2020, compared to the prior year. The decrease was primarily driven by membership declines in the segment's Commercial insured products including the migration of Commercial customers from insured to ASC products, higher Medicaid benefit costs in certain states and incremental operating expenses to onboard additional Medicaid members. This decrease was partially offset by membership growth in the segment's Government products and increased integration synergies. The COVID-19 pandemic had a modest impact on operating income and adjusted operating income in the three months ended March 31, 2020, as the reduction in benefit costs primarily related to the deferral of elective procedures and other discretionary utilization was largely offset by lower net investment income due to lower interest rates and the capital markets volatility associated with the COVID-19 pandemic.
• The Health Care Benefits segment's MBR decreased 160 basis points for the three months ended March 31, 2020 compared to the prior year primarily due to the reinstatement of the HIF for 2020.
• Medical membership as of March 31, 2020 of 23.5 million increased compared with December 31, 2019, primarily reflecting increases in Medicare and Medicaid products, partially offset by a decline in Commercial insured products.
• The Health Care Benefits segment experienced favorable development of prior-years' health care cost estimates in its Commercial and Government businesses during the three months ended March 31, 2020, primarily attributable to fourth quarter 2019 performance.
• Prior years' health care costs payable estimates developed favorably by $464 million during the three months ended March 31, 2020. 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 2020 operating results.

See the supplemental information on page 18 for additional information regarding the performance of the Health Care Benefits segment.

COVID-19 Response

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. Key actions taken to date include:

2020 Full Year Guidance

While acknowledging the inherent and unprecedented uncertainty surrounding the ongoing COVID-19 pandemic and its impact, the Company's full year 2020 GAAP diluted EPS guidance range of $5.47 to $5.60, its full year 2020 Adjusted EPS guidance range of $7.04 to $7.17 and its full year 2020 cash flow from operations guidance range of $10.5 billion to $11.0 billion remain unchanged.

Given the likelihood of significant variability in the impact of COVID-19 on its financial statement line items (and related ratios), the Company is withdrawing all other previously issued 2020 additional detailed guidance.

The adjustments between GAAP diluted EPS and Adjusted EPS include adding back amortization of intangible assets and integration costs related to the Company's acquisition (the "Aetna Acquisition") of Aetna Inc. ("Aetna").

Teleconference and Webcast

The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its first quarter results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Health website at http://investors.cvshealth.com. This webcast will be archived and available on the website for a one-year period following the conference call.

About CVS Health

CVS Health employees are united around a common goal of becoming the most consumer-centric health company in the world. 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 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 March 31, 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.

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Company Codes: NYSE:CVS