CVS Health reports second quarter results; diversified assets deliver strong enterprise results

2020 full year EPS and cash flow from operations guidance ranges raised

August 20, 2020, /EmailWire/ -- 2020 full year EPS and cash flow from operations guidance ranges raised

 

Continued Responsiveness to COVID-19:

Ongoing support for employees, clients and communities across the country

 

Opened more than 1,800 test sites at drive-thru locations to date and continue to partner with federal, state and local officials

 

Launched Return Ready℠, a comprehensive COVID-19 business-to-business testing program

 

Consumer-driven health care model increases access to products and services

 

Second Quarter Year-over-Year Highlights:

Total revenues increased 3.0% to $65.3 billion

 

GAAP operating income increased 40.5% to $4.7 billion

 

Adjusted operating income (1) increased 32.2% to $5.3 billion

 

GAAP diluted earnings per share of $2.26

 

Adjusted EPS (2) of $2.64

 

Year-to-date Highlights:

Generated cash flow from operations of $10.4 billion

 

2020 Full Year Guidance:

Raised GAAP diluted EPS guidance range to $5.59 to $5.72 from $5.47 to $5.60

 

Raised Adjusted EPS (2) guidance range to $7.14 to $7.27 from $7.04 to $7.17

 

Raised cash flow from operations guidance range to $11.0 billion to $11.5 billion from $10.5 billion to $11.0 billion

 

WOONSOCKET, Rhode Island — 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.

 

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.

 

Total revenues increased 3.0% in the three months ended June 30, 2020 compared to the prior year driven by growth across all segments. Total revenues in the three months ended June 30, 2020 were impacted by the COVID-19 pandemic, which adversely affected revenues in the Retail/LTC and Pharmacy Services segments primarily as a result of reduced new therapy prescriptions due to lower provider visits in the three months ended June 30, 2020, as well as reduced front store revenues in the Retail/LTC segment due to shelter-in-place orders.

 

Operating income and adjusted operating income increased 40.5% and 32.2%, respectively, in the three months ended June 30, 2020 compared to the prior year. The increase in both operating income and adjusted operating income was primarily due to the impact of the COVID-19 pandemic, which resulted in reduced benefit costs due to the deferral of elective procedures and other discretionary utilization in the Health Care Benefits segment, partially offset by reduced volume and increased operating expenses associated with the Company’s COVID-19 pandemic response efforts in the Retail/LTC segment.

 

Net income increased 54.6% in the three months ended June 30, 2020 compared to the prior year primarily due to the higher operating income described above, partially offset by higher income tax expense associated with the increase in pre-tax income.

 

The effective income tax rate was 24.6% for the three months ended June 30, 2020 compared to 25.5% for the three months ended June 30, 2019. The decrease in the effective income tax rate was primarily due to the favorable resolution of several state and local income tax matters in the three months ended June 30, 2020, partially offset by the reinstatement of the non-deductible Health Insurer Fee (“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 and six months ended June 30, 2020 and 2019 were as follows:

 

Total revenues increased $47 million in the three months ended June 30, 2020 compared to the prior year, as growth in specialty pharmacy and brand inflation were largely offset by previously disclosed client losses and continued price compression.

 

Total pharmacy claims processed increased 3.4% on a 30-day equivalent basis in the three months ended June 30, 2020 compared to the prior year primarily driven by net new business, partially offset by reduced new therapy prescriptions due to lower provider visits in the three months ended June 30, 2020.

 

Operating income and adjusted operating income increased 6.2% and 2.4%, respectively, in the three months ended June 30, 2020 compared to the prior year primarily driven by growth in specialty pharmacy and improved purchasing economics. The increase was partially offset by continued price compression and previously disclosed client losses. The increase in operating income also was driven by lower amortization expense in the three months ended June 30, 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, 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:

 

Total revenues increased 1.0% in the three months ended June 30, 2020 compared to the prior year primarily driven by pharmacy drug mix, growth in retail pharmacy prescription volume and brand inflation. These increases were partially offset by continued reimbursement pressure, the impact of recent generic introductions, decreased long-term care prescription volume and lower front store revenues.

 

Front store revenues decreased 4.6% in the three months ended June 30, 2020 compared to the prior year. The decrease was primarily due to reduced customer traffic in the segment’s retail pharmacies due to shelter-in-place orders in response to the COVID-19 pandemic.

Prescriptions filled decreased 1.1% on a 30-day equivalent basis in the three months ended June 30, 2020 compared to the prior year. The decrease was primarily driven by reduced new therapy prescriptions due to lower provider visits in the three months ended June 30, 2020 and decreased long-term care prescription volume, partially offset by the continued adoption of patient care programs.

 

Operating income and adjusted operating income decreased 39.8% and 36.7%, respectively, in the three months ended June 30, 2020 compared to the prior year. The decrease in both operating income and adjusted operating income was primarily due to the impact of the COVID-19 pandemic, which resulted in incremental operating expenses associated with the Company’s COVID-19 pandemic response efforts, decreased front store volume and reduced new therapy prescriptions, as well as continued reimbursement pressure. These decreases were partially offset by improved generic drug purchasing in the three months ended June 30, 2020.

 

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:

Total revenues increased 6.1% in the three months ended June 30, 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 (“PDPs”), which the Company retained through 2019, and membership declines in the segment’s Commercial insured products.

 

Operating income and adjusted operating income increased 188.7% and 140.9%, respectively, in the three months ended June 30, 2020, compared to the prior year. The increase was primarily driven by reduced benefit costs due to the deferral of elective procedures and other discretionary utilization in response to the COVID-19 pandemic, growth in the segment’s Government products and the impact of cost reduction efforts, including integration synergies. These increases were partially offset by membership declines in the segment’s Commercial insured products.

 

The Health Care Benefits segment’s MBR decreased 1,370 basis points from 84.0% to 70.3% in the three months ended June 30, 2020 compared to the prior year primarily due to the deferral of elective procedures and other discretionary utilization related to COVID-19 described above and the reinstatement of the HIF for 2020.

Medical membership as of June 30, 2020 of 23.6 million increased 124 thousand members compared with March 31, 2020, primarily reflecting increases in Medicare and Medicaid products, partially offset by a decline in Commercial products.

 

The Health Care Benefits segment experienced favorable development of prior-periods’ health care cost estimates in its Commercial and Government businesses during the three months ended June 30, 2020, primarily attributable to first quarter 2020 performance.

 

Prior years’ health care costs payable estimates developed favorably by $420 million during the six months ended June 30, 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. The following are key actions taken to date:

 

Employees

Providing regular supply of personal protective equipment and adding safety features to retail stores.

 

Provided enhanced benefits, including bonuses to frontline employees, paid sick leave for part-time employees and paid time off to employees who test positive or are quarantined due to exposure.

 

Announced intention to hire 50,000 additional full-time, part time and temporary roles; over 40,000 hires to date.

 

Consumers and members

Waived cost sharing for COVID-19 diagnosis and treatment, including inpatient hospital admissions, for insured members.

 

Opened crisis response line for members experiencing anxiety related to COVID-19 and expanded 24/7 access to Aetna Nurse Medical line for Aetna and Caremark members.

 

Extended waivers for out-of-pocket costs for Aetna insured members for inpatient admissions for treatment or health complications associated with COVID-19 through September 30, 2020.

 

Extended waivers for cost-sharing for in-network telemedicine visits by Medicare Advantage members for outpatient behavioral and mental health counseling services through September 30, 2020.

 

Waived Medicare Advantage member out-of-pocket costs for all in-network primary care visits, whether done in-office or via telehealth, for any reason through September 30, 2020.

 

For Commercial members, waived cost sharing for minor acute care evaluation, care management services and certain behavioral health services rendered via telephone through December 31, 2020.

 

Expanded telehealth options (“E-Clinic”) offered by MinuteClinic to help patients access safe, affordable and convenient non-emergency care.

 

Extended maintenance prescriptions and waived early refill limits to support medication adherence.

 

Waived fees associated with prescription home delivery and associated front store products. Testing autonomous vehicle prescription delivery in collaboration with Nuro.

 

Sent care packages to members diagnosed with COVID-19 through Aetna’s Healing Better program

 

Plan Sponsors

Launched Return Ready, a comprehensive customizable and integrated end-to-end COVID-19 testing solution to assist employers and universities with the safe return of their employees, students and staff.

 

Provided assistance through premium credits.

 

Providers

Waived advance approvals, streamlined credentialing process, relaxed telemedicine policies and removed prior authorization requirements. Offering flexible plan designs to help reduce financial burdens.

 

Communities

Offering COVID-19 testing at over 1,800 CVS drive-thru locations, with more than 50% located in communities with significant need for support according to the CDC Social Vulnerability Index.

 

In coordination with the U.S. Department of Health and Human Services (“HHS”), opened 11 testing sites serving communities disproportionately impacted by the pandemic.

 

Launched critical diagnostic testing for the vulnerable senior population in long-term care facilities in partnership with 3 states.

 

Administered nearly 2 million COVID-19 tests nationwide through end of July.

 

Expanded Coram infusion services to help transition eligible IV-therapy patients to home-based care, freeing up hospital capacity.

 

Investing nearly $50 million directly and through the Company’s foundations to address food insecurity, lack of access to telehealth services for the underserved, personal protective equipment, mental health support for front-line workers and community resilience.

 

Returned all $43 million in funds received from the Coronavirus Aid, Relief, and Economic Security Act provider relief fund to HHS.

 

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.

 

About CVS Health

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.

 

– Tables Follow –

 

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)