Results Center

Q2 2023 Financial Statement Changes

For the three months ended June 30, 2023 compared to the prior year:

Total revenues increased 10.3% driven by growth across all segments.

Operating income decreased 30.7% primarily due to the decrease in adjusted operating income described below, a restructuring charge and acquisition-related transaction and integration costs recorded in the current year, as well as the absence of a $225 million pre-tax gain on the sale of PayFlex Holdings, Inc. (“PayFlex”) recorded in the prior year.

Adjusted operating income decreased 10.4% primarily driven by declines in the Health Care Benefits and Pharmacy & Consumer Wellness segments, partially offset by increases in the Health Services segment.

Interest expense increased $103 million or 17.7%, due to higher debt in the three months ended June 30, 2023 to fund the acquisitions of Signify Health, Inc. (“Signify Health”) and Oak Street Health, Inc. (“Oak Street Health”).

The effective income tax rate decreased to 25.5% compared to 26.4% primarily due to basis differences on the sale of PayFlex in the prior year.

Restructuring program

During the second quarter of 2023, the Company developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with the development of this plan and the recently completed acquisitions of Signify Health and Oak Street Health, the Company also conducted a strategic review of its various transformation initiatives and determined that it would terminate certain initiatives. In connection with the restructuring plan, during the three months ended June 30, 2023, the Company recorded a $496 million pre-tax restructuring charge. The restructuring charge is reflected in the Corporate/Other segment. The restructuring program is expected to be substantially complete by the end of 2023.

The Health Services segment provides a full range of pharmacy benefit management (“PBM”) solutions, delivers health care services in its medical clinics, virtually, and in the home, and offers provider enablement solutions.

The segment results for the three months and six months ended June 30, 2023 and 2022 were as follows:

Total revenues increased 7.6% for the three months ended June 30, 2023 compared to the prior year primarily driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street Health and Signify Health. These increases were partially offset by continued pharmacy client price improvements.

Adjusted operating income increased 3.5% for the three months ended June 30, 2023 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. These increases were partially offset by continued pharmacy client price improvements and decreased COVID-19 diagnostic testing in the segment’s MinuteClinic® walk-in medical clinics compared to the prior year.

Pharmacy claims processed decreased slightly on a 30-day equivalent basis for the three months ended June 30, 2023 compared to the prior year, reflecting an expected Medicaid customer contract change during the three months ended June 30, 2023 and a decrease in COVID-19 vaccinations. The decrease was largely offset by net new business.

The Pharmacy & Consumer Wellness segment dispenses prescriptions in its retail pharmacies and through its infusion operations, provides ancillary pharmacy services including pharmacy patient care programs, diagnostic testing and vaccination administration, and sells a wide assortment of health and wellness products and general merchandise. The segment also provides pharmacy services to long-term care facilities and pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings.

The segment results for the three and six months ended June 30, 2023 and 2022 were as follows:

Total revenues increased 7.6% for the three months ended June 30, 2023 compared to the prior year primarily driven by pharmacy drug mix, increased prescription volume and brand inflation. These increases were partially offset by the impact of recent generic introductions, decreased COVID-19 vaccinations, diagnostic testing and over-thecounter (“OTC”) test kit sales, continued pharmacy reimbursement pressure and a decrease in store count.

Adjusted operating income decreased 17.4% for the three months ended June 30, 2023 compared to the prior year primarily driven by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing, as well as lower front store volume, including the impact of a weaker cough, cold and flu season compared to the prior year and decreased contributions from COVID-19 OTC test kits. These decreases were partially offset by the increased prescription volume described above and improved generic drug purchasing.

Prescriptions filled increased 1.1% on a 30-day equivalent basis for the three months ended June 30, 2023 compared to the prior year primarily driven by increased utilization, partially offset by a decrease in COVID-19 vaccinations and the decrease in store count. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 2.4% on a 30-day equivalent basis for the three months ended June 30, 2023 compared to the prior year.

Same store prescription volume(6)(12) increased 3.6% on a 30-day equivalent basis for the three months ended June 30, 2023 compared to the prior year, or 4.9% excluding the impact of COVID-19 vaccinations.

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, 2023 and 2022 were as follows:

Total revenues increased 17.6% for the three months ended June 30, 2023 compared to the prior year driven by growth across all product lines.

Adjusted operating income decreased 19.9% for the three months ended June 30, 2023 compared to the prior year, reflecting increased outpatient utilization in Medicare Advantage when compared with pandemic influenced utilization levels in the prior year, as well as the impact of lower year-over-year prior period development. These decreases were partially offset by higher net investment income in the three months ended June 30, 2023 compared to the prior year and the continuing benefit of operating expense leverage.

The MBR increased to 86.2% in the three months ended June 30, 2023 compared to 82.7% in the prior year driven by increased outpatient utilization in Medicare Advantage when compared with pandemic influenced utilization levels in the prior year, as well as the impact of lower year-over-year prior period development.

Medical membership as of June 30, 2023 of 25.6 million increased 121 thousand members compared with March 31, 2023, reflecting increases in the Commercial and Medicare product lines. These increases were partially offset by a decline in the Medicaid product line, primarily attributable to the resumption of Medicaid redeterminations following the expiration of the public health emergency.

The segment experienced unfavorable development of prior-periods’ health care cost estimates in its Government Services business during the three months ended June 30, 2023, primarily attributable to first quarter 2023 Medicare Advantage performance. This was partially offset by favorable development of prior-periods’ health care cost estimates in the segment’s Commercial business during the three months ended June 30, 2023.

Prior years’ health care costs payable estimates developed favorably by $612 million during the six months ended June 30, 2023. 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 2023 operating results.

The Company revised its full-year 2023 GAAP diluted EPS guidance range to $6.53 to $6.75 from $6.90 to $7.12 and confirmed its full-year 2023 Adjusted EPS guidance range of $8.50 to $8.70. The Company also confirmed its full-year 2023 cash flow from operations guidance range of $12.5 billion to $13.5 billion.

The adjustments between full-year 2023 GAAP diluted EPS and Adjusted EPS include amortization of intangible assets, net realized capital losses, acquisition-related transaction and integration costs related to the acquisitions of Signify Health and Oak Street Health, a restructuring charge, office real estate optimization charges, a loss on assets held for sale and the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health.