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CVS Health

Revenues

$81.2b

Adjusted EPS

$2.09

For the three months ended 09.30.22

Consolidated

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.

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 tribal entity 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 tribal entities 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.

Pharmacy Services Segment

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.

Retail/LTC Segment

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.

Health Care Benefits Segment

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 June 30, 2022, primarily attributable to first quarter 2022 performance.

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.

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.