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Comprehensive Financial Data

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Next Results Announcement

05.06.2020

CVS Health

Revenues

$66.9b

Adjusted EPS

$1.73

For the three months ended 12.31.19

Consolidated

Total revenues and adjusted revenues(3) increased 22.9% and 23.1%, respectively, for the three months ended December 31, 2019 compared to the prior year. Total revenues and adjusted revenues increased 32.0% and 32.3%, respectively, for the year ended December 31, 2019 compared to the prior year. Revenue growth in both periods was primarily due to the impact of the acquisition (the “Aetna Acquisition”) of Aetna Inc. (“Aetna”), which the Company acquired on November 28, 2018 (the “Aetna Acquisition Date”), as well as increased volume and brand inflation in both the Pharmacy Services and Retail/LTC segments. The revenue increase in both periods was partially offset by continued price compression in the Pharmacy Services segment, continued reimbursement pressure in the Retail/LTC segment and an increased generic dispensing rate.

Operating expenses increased 30.9% and 57.0% for the three months and year ended December 31, 2019, respectively, compared to the prior year primarily due to the impact of the Aetna Acquisition, including increased intangible asset amortization. The increase for the year ended December 31, 2019 was also due to the $231 million of store rationalization charges and the $205 million pre-tax loss on the sale of the Company’s Brazilian subsidiary, Drogaria Onofre Ltda. (“Onofre”), both recorded in the year ended December 31, 2019. The increase for the three months ended December 31, 2019 was partially offset by lower acquisition-related transaction and integration costs.

Adjusted operating expenses(4) increased 35.2% and 52.9% for the three months and year ended December 31, 2019, respectively, compared to the prior year primarily due to the addition of Aetna.

Operating income increased $2.2 billion and $8.0 billion for the three months and year ended December 31, 2019, respectively, compared to the prior year. The increase in both periods was primarily due to the increase in adjusted operating income described below and the absence of the goodwill impairment charges recorded within the Retail/LTC segment in 2018, partially offset by an increase in intangible asset amortization primarily related to the Aetna Acquisition. The increase for the three months ended December 31, 2019 was also due to lower acquisition-related transaction and integration costs. The increase for the year ended December 31, 2019 was partially offset by the absence of $536 million in interest income on the proceeds from the financing for the Aetna Acquisition recorded in the year ended December 31, 2018 and the year ended December 31, 2019 reflecting $231 million of store rationalization charges and the $205 million pre-tax loss on the sale of Onofre.

Adjusted operating income increased 1.3% and 36.2% for the three months and year ended December 31, 2019, respectively, compared to the prior year. The increase in both periods was primarily due to the Aetna Acquisition as well as increased volume and improved purchasing economics in the Pharmacy Services and Retail/LTC segments, partially offset by continued reimbursement pressure in the Retail/LTC segment and continued price compression in the Pharmacy Services segment.

Net income increased $2.2 billion and $7.2 billion for the three months and year ended December 31, 2019, respectively, 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 increase for the year ended December 31, 2019 was also partially offset by higher interest expense primarily due to financing activity associated with the Aetna Acquisition and the assumption of Aetna’s debt as of the Aetna Acquisition Date.

The effective income tax rate was 25.3% and 26.3% for the three months and year ended December 31, 2019, respectively, compared to 513.7% and 142.4% for the three months and year ended December 31, 2018, respectively. The decrease in the effective income tax rate for both periods was primarily due to the absence of the goodwill impairment charges recognized during 2018, the majority of which were not deductible for income tax purposes.

(3) The Company defines adjusted revenues as total revenues (GAAP measure) excluding the impact of certain items that neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance, such as interest income on financings associated with proposed acquisitions (for periods prior to the acquisition) and any other items specifically identified herein. See “Non-GAAP Financial Information” earlier in this press release for additional information regarding the items excluded from total revenues.

(4) The Company defines adjusted operating expenses as operating expenses (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 acquisition-related transaction and integration costs, store rationalization charges, gains/losses on divestitures, impairment of long-lived assets and any other items specifically identified herein. See “Non-GAAP Financial Information” earlier in this press release for additional information regarding the items excluded from operating expenses.

Pharmacy Services Segment

Total revenues increased 6.2% and 5.0% for the three months and year ended December 31, 2019, respectively, compared to the prior year primarily due to brand inflation as well as increased total pharmacy claims volume, partially offset by continued price compression and an increased generic dispensing rate.

Total pharmacy claims processed increased 10.2% and 6.6%, on a 30-day equivalent basis, for the three months and year ended December 31, 2019, respectively, compared to the prior year primarily driven by net new business and the continued adoption of Maintenance Choice® offerings.

Operating income and adjusted operating income increased 0.7% and 1.5%, respectively, for the three months ended December 31, 2019 compared to the prior year. Operating income and adjusted operating income increased 2.8% and 3.5%, respectively, for the year ended December 31, 2019 compared to the prior year. The increase in operating income and adjusted operating income in both periods was primarily driven by increased claims volume, the addition of Aetna’s mail order and specialty pharmacy operations and improved purchasing economics, partially offset by continued price compression. The increase in operating income in both periods also was partially offset by increased intangible asset amortization related to Aetna’s mail order and specialty pharmacy operations.

Retail/LTC Segment

Total revenues increased 2.5% and 3.1% for the three months and year ended December 31, 2019, respectively, compared to the prior year primarily driven by increased prescription volume and brand inflation, partially offset by continued reimbursement pressure and an increased generic dispensing rate.

Front store revenues represented approximately 22.7% and 22.4% of total Retail/LTC segment revenues in the three months and year ended December 31, 2019, respectively. Front store revenues increased in the three months and year ended December 31, 2019 compared to the prior year primarily driven by increases in health and beauty product sales.

Total prescription volume grew 5.6% and 5.8%, on a 30-day equivalent basis, for the three months and year ended December 31, 2019, respectively, compared to the prior year. The growth was driven primarily by (i) continued adoption of patient care programs, (ii) collaborations with PBMs and (iii) the Company’s preferred status in a number of Medicare Part D networks.

Operating income increased $2.2 billion and $5.2 billion for the three months and year ended December 31, 2019, respectively, compared to the prior year. The increase was primarily due to the absence of the $2.2 billion and $6.1 billion of pre-tax goodwill impairment charges related to the LTC reporting unit recorded in the three months and year ended December 31, 2018, respectively, partially offset by the decrease in adjusted operating income described below. The increase for the year ended December 31, 2019 was also partially offset by the $231 million of store rationalization charges primarily related to operating lease right-of-use asset impairment charges in connection with the planned closure of underperforming retail pharmacy stores and the $205 million pre-tax loss on the sale of Onofre, both recorded in the year ended December 31, 2019.

Adjusted operating income decreased 4.4% and 9.4% for the three months and year ended December 31, 2019, respectively, compared to the prior year. The decrease was primarily due to continued reimbursement pressure, partially offset by increased prescription volume, an increased generic dispensing rate and improved purchasing economics. The decrease for the year ended December 31, 2019 was also due to increased operating expenses primarily driven by the investment of a portion of the savings from tax reform in wages and benefits.

Health Care Benefits Segment

Total revenues increased $10.9 billion and $60.6 billion, respectively, for the three months and year ended December 31, 2019 compared to the prior year primarily due to the Aetna Acquisition.

Operating income decreased $46 million and increased $3.3 billion for the three months and year ended December 31, 2019, respectively, compared to the prior year primarily due to the Aetna Acquisition. Operating income in both periods reflects increased intangible asset amortization related to the Aetna Acquisition, which more than offset the increases in adjusted operating income described below for the three months ended December 31, 2019.

Adjusted operating income increased $189 million and $4.7 billion for the three months and year ended December 31, 2019, respectively, compared to the prior year primarily due to the Aetna Acquisition.

Medical membership as of December 31, 2019 of 22.9 million increased compared with September 30, 2019, reflecting increases in Medicare, Medicaid and Commercial products.

The Health Care Benefits segment experienced favorable development of prior-periods’ health care cost estimates in its Commercial and Government businesses in the three months ended December 31, 2019, primarily attributable to third quarter 2019 performance.

Prior years’ health care costs payable estimates developed favorably by $524 million during the year ended December 31, 2019. 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 financial statements and does not directly correspond to an increase in 2019 operating results.

Guidance

(Issued on February 12, 2020, in connection with the announcement of results for 2019)

The Company’s full year 2020 consolidated GAAP operating income is projected to be in the range of $12.8 billion to $13.0 billion and full year 2020 adjusted operating income is projected to be in the range of $15.5 billion to $15.8 billion. Full year 2020 GAAP diluted EPS from continuing operations is projected to be in the range of $5.47 to $5.60, and full year 2020 Adjusted EPS is projected to be in the range of $7.04 to $7.17.

The adjustments between GAAP operating income and GAAP diluted EPS from continuing operations and adjusted operating income and Adjusted EPS include, as applicable, adding back amortization of intangible assets and integration costs related to the Aetna Acquisition.