2020 full year EPS guidance remains unchanged
 

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the Company’s financial statement line items and related ratios, 2020 additional detailed guidance not noted above is withdrawn
   

WOONSOCKET, RHODE ISLAND, May 6, 2020 — 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.

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.

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:

Employees

• Within retail stores distributed personal protective equipment and installed protective panels at pharmacy counters and front store checkout stations

• Implemented social distancing practices and enhanced cleaning protocols

• Provided enhanced benefits including bonuses to frontline employees, extended paid sick leave to part-time employees and provided paid time off to employees who test positive for COVID-19 or are quarantined due to exposure

• Provided enhanced resources including dependent care support through employee assistance programs

Providers

• Enabled Aetna-contracted healthcare providers to focus on patient care by streamlining processes, including:

  • Changed prior authorization requirements for post-acute hospitals and long-term acute hospitals nationally to help hospitals make room for more patients

  • Streamlined provider credentialing process so there can be more health care professionals caring for patients

  • Committed to timely and accurate payment of claims, and

  • Enhanced telemedicine policies to enable more providers to visit patients virtually

Consumers and members

• Waived copays for COVID-19 related diagnostic testing for all insured members

• For Commercial and Medicare Advantage members, waived out-of-pocket costs for COVID-19 related inpatient admissions and covered all telehealth visits with in-network providers through early June

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

• Addressing mental and emotional health impacts through Aetna’s employee assistance program, Resources For Living®

• Proactively reaching out to Aetna members most at risk for COVID-19 to inform them about protection measures, where to get information about the virus and where to get tested

• Through Aetna’s Healing Better program, members diagnosed with COVID-19 receive a care package to support the healing process

• CVS Pharmacy waived fees associated with home delivery for prescriptions and accompanying front store products

Communities

• Opened large-scale COVID-19 testing sites across five states in collaboration with federal, state and local officials

• Establishing additional testing sites; targeting up to 1,000 locations across the country by the end of May

• In partnership with hospitals and providers, expanded Coram infusion services to help transition eligible IV-therapy patients to home-based care, freeing up hospital capacity

• Well positioned to provide medication therapies and vaccines, when available, at our retail pharmacy locations nationwide

Charitable contributions

• Investing nearly $50 million through our Company and foundations to support key priorities, including addressing food insecurity among vulnerable populations, access to telehealth for the underserved, personal protective equipment and mental health support for front-line workers and investments in community resilience funds

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.

– Tables Follow –

CVS HEALTH CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)

CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Non-GAAP Financial Information

The Company uses non-GAAP financial measures to analyze underlying business performance and trends. The Company believes that providing these non-GAAP financial measures enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance. These non-GAAP financial measures are provided as supplemental information to the financial measures presented in this press release that are calculated and presented in accordance with GAAP. Non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. The Company’s definitions of its non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies.

Non-GAAP financial measures such as adjusted operating income, adjusted earnings per share (EPS) and adjusted income attributable to CVS Health exclude from the relevant GAAP metrics, as applicable: 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.

For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because the Company believes they neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance:

• The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.

• During the three months ended March 31, 2020 and 2019, acquisition-related integration costs relate to the Aetna Acquisition. The acquisition-related integration costs are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within the Corporate/Other segment.

• During the three months ended March 31, 2019, the store rationalization charge primarily relates to operating lease right-of-use asset impairment charges in connection with the planned closure of 46 underperforming retail pharmacy stores in the second quarter of 2019. The store rationalization charge is reflected in the Company’s unaudited GAAP condensed consolidated statement of operations in operating expenses within the Retail/LTC segment.

• The corresponding tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health and Adjusted EPS above. The nature of each non-GAAP adjustment is evaluated to determine whether a discrete adjustment should be made to the adjusted income tax provision.

See endnotes (1) and (2) on page 22 for definitions of non-GAAP financial measures. Reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure are presented on pages 13 through 14 and page 21.

Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

Adjusted Operating Income
(Unaudited)

The following are reconciliations of operating income to adjusted operating income:

Adjusted Earnings Per Share
(Unaudited)

The following are reconciliations of net income attributable to CVS Health to adjusted income attributable to CVS Health and calculations of GAAP diluted EPS and Adjusted EPS:

Supplemental Information
(Unaudited)

The Company’s segments maintain separate financial information, and the Company’s chief operating decision maker (the “CODM”) evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income, which is defined as operating income (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 as further described in endnote (1). The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying business performance and trends.

The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals:

Supplemental Information
(Unaudited)
Pharmacy Services Segment

The following table summarizes the Pharmacy Services segment’s performance for the respective periods:

Supplemental Information
(Unaudited)
Retail/LTC Segment

The following table summarizes the Retail/LTC segment’s performance for the respective periods:

Supplemental Information
(Unaudited)
Health Care Benefits Segment

The following table summarizes the Health Care Benefits segment’s performance for the respective periods:

The following table summarizes the Health Care Benefits segment’s medical membership for the respective periods:

Supplemental Information
(Unaudited)

The following table shows the components of the change in health care costs payable during the three months ended March 31, 2020 and 2019:

The following table summarizes the Health Care Benefits segment’s days claims payable for the respective periods:

Supplemental Information
(Unaudited)
Corporate/Other Segment

The following table summarizes the Corporate/Other segment’s performance for the respective periods:

Adjusted Earnings Per Share Guidance
(Unaudited)

The following reconciliations of projected net income to projected adjusted income attributable to CVS Health and calculations of projected GAAP diluted EPS and projected Adjusted EPS contain forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information 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 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. See “Non-GAAP Financial Information” earlier in this press release and endnote (2) later in this press release for more information on how we calculate Adjusted EPS.

Endnotes

(1) The Company defines adjusted operating income as operating income (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 integration costs, store rationalization charges, 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 income.

(2) The Company defines adjusted income attributable to CVS Health as net income attributable to CVS Health (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 integration costs, store rationalization charges, the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health, the corresponding impact to income allocable to participating securities, net of tax, related to the items excluded from net income attributable to CVS Health in determining adjusted income attributable to CVS Health, and any other items specifically identified herein. GAAP diluted EPS and Adjusted EPS, respectively, are calculated by dividing net income attributable to CVS Health and adjusted income attributable to CVS Health by the Company’s weighted average diluted shares outstanding. See “Non-GAAP Financial Information” earlier in this press release for additional information regarding the items excluded from net income attributable to CVS Health and GAAP diluted EPS.

(3) Enterprise prescriptions include prescriptions dispensed through the Company’s retail pharmacies, long-term care pharmacies, and mail order pharmacies as well as prescription claims managed through our pharmacy benefits manager, with an elimination for managed prescription claims filled through CVS Health dispensing channels. Management uses this metric to analyze the total prescription volume across the Company including variances between actual prescriptions and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of prescription volume on total revenues and operating results.

(4) Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

(5) Total pharmacy claims processed represents the number of prescription claims processed through our pharmacy benefits manager and dispensed by either our retail network pharmacies or our own mail and specialty pharmacies. Prescriptions filled represents the number of prescriptions dispensed through the Retail/LTC segment’s pharmacies. Management uses these metrics to understand variances between actual claims processed and prescriptions dispensed, respectively, and expected amounts as well as trends in period-over-period results. These metrics provide management and investors with information useful in understanding the impact of pharmacy claim volume and prescription volume, respectively, on segment revenues and operating results.

(6) Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity, which is included within the mail choice category. Maintenance Choice permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order.

(7) Mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.

(8) Medical benefit ratio is calculated as benefit costs divided by premium revenues and represents the percentage of premium revenues spent on medical benefits for the Company’s insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Company’s insured Health Care Benefits products.

(9) Medical membership represents the number of members covered by the Company’s insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on total revenues and operating results.

(10) Generic dispensing rate is calculated by dividing the segment’s generic drug prescriptions processed or filled by its total prescriptions processed or filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.

(11) Same store sales and prescription volume represent the change in revenues and prescriptions filled in the Company’s retail pharmacy stores that have been operating for greater than one year, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues from MinuteClinic®, revenues and prescriptions from LTC operations and, in 2019, revenues and prescriptions from stores in Brazil. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.

(12) Days claims payable is calculated by dividing the health care costs payable at the end of each quarter by the average health care costs per day during such quarter. Management and investors use this metric as an indicator of the adequacy of the Company’s health care costs payable liability at the end of each quarter and as an indicator of changes in such adequacy over time.

(13) Certain prior year amounts have been reclassified for consistency with the current period presentation.

2019 EPS Guidance Raised And Narrowed, Reflecting Strong Execution of Strategic Long-Term Plan

Third Quarter Year-over-Year Highlights:

• Total revenues increased 36.5% to $64.8 billion

• GAAP operating income increased 13.8% to $2.9 billion

• Adjusted operating income⁽¹⁾ increased 48.9% to $3.9 billion

• GAAP diluted earnings per share from continuing operations of $1.17

• Adjusted EPS⁽²⁾ of $1.84

Year-to-date Highlights:

• Generated cash flow from operations of $10.2 billion

2019 Full Year Guidance:

• Revised GAAP operating income guidance range to $11.77 billion to $11.95 billion from $11.82 billion to $12.02 billion

• Raised and narrowed adjusted operating income⁽¹⁾ guidance range to $15.22 billion to $15.40 billion from $15.16 billion to $15.36 billion

• Revised GAAP diluted EPS from continuing operations guidance range to $4.90 to $4.98 from $4.93 to $5.04

• Raised and narrowed Adjusted EPS⁽²⁾ guidance range to $6.97 to $7.05 from $6.89 to $7.00

• Confirmed cash flow from operations guidance range of $10.1 billion to $10.6 billion

WOONSOCKET, RHODE ISLAND, November 6, 2019 — CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended September 30, 2019.

President and Chief Executive Officer Larry Merlo stated, “Our third quarter results build on the positive momentum we have seen across the company since the beginning of the year. All of our core businesses performed in line with or above expectations, reflecting strong operational execution. As a result, we delivered strong growth and generated robust operating cash flow, which enabled us to continue to delever while returning capital to our shareholders.”

Merlo continued, “Based on strong year-to-date performance, we are raising and narrowing our full-year 2019 Adjusted EPS guidance range to $6.97 to $7.05. As we approach the first anniversary of the Aetna acquisition, we are increasingly confident in the strength of our broad and differentiated assets as a combined company and our ability to deliver compelling value to our customers and the communities we serve. Looking ahead, we remain focused on successful execution of our strategic priorities and integration plans to unleash the full potential of our consumer-centric health care model and create value for all stakeholders.”

Consolidated Third Quarter Results

• Total revenues and adjusted revenues⁽³⁾ increased 36.5% and 37.1%, respectively, for the three months ended September 30, 2019 compared to the prior year. Revenue growth was primarily driven by 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 name drug price inflation in both the Pharmacy Services and Retail/LTC segments. The revenue increase was partially offset by continued price compression in the Pharmacy Services segment, reimbursement pressure in the Retail/LTC segment and an increased generic dispensing rate.

• Operating expenses and adjusted operating expenses⁽⁴⁾ increased 72.8% and 61.5%, respectively, for the three months ended September 30, 2019 compared to the prior year. The increase in both operating expenses and adjusted operating expenses was primarily driven by the impact of the Aetna Acquisition. The increase in operating expenses also was due to (i) an increase in intangible asset amortization primarily related to the Aetna Acquisition, (ii) a $205 million pre-tax loss on the sale of the Company’s Brazilian subsidiary, Drogaria Onofre Ltda. (“Onofre”), which occurred on July 1, 2019 and (iii) a $96 million store rationalization charge recorded in the three months ended September 30, 2019 primarily related to operating lease right-of-use asset impairment charges in connection with the planned closure of 22 underperforming retail pharmacy stores in the first quarter of 2020.

• Operating income and adjusted operating income increased 13.8% and 48.9%, respectively, for the three months ended September 30, 2019 compared to the prior year. The increase in both operating income and adjusted operating income was primarily due to the impact of the Aetna Acquisition as well as increased claims volume and improved purchasing economics in the Pharmacy Services segment. These increases were partially offset by continued reimbursement pressure in the Retail/LTC segment and continued price compression in the Pharmacy Services segment. The increase in operating income was also partially offset by (i) an increase in intangible asset amortization primarily related to the Aetna Acquisition, (ii) the $205 million pre-tax loss on the sale of Onofre recorded in the three months ended September 30, 2019, (iii) the $96 million store rationalization charge recorded in the three months ended September 30, 2019 and (iv) the absence of $209 million in interest income on the proceeds from the financing for the Aetna Acquisition recorded in the three months ended September 30, 2018.

• Net income increased 10.0% for the three months ended September 30, 2019 compared to the prior year primarily due to the higher operating income described above, partially offset by (i) higher interest expense primarily due to the assumption of Aetna’s debt as of the Aetna Acquisition Date, (ii) the loss on early extinguishment of debt of $79 million related to the Company’s repayment of $4.0 billion of its outstanding senior notes pursuant to its tender offers for such senior notes in August 2019 and (iii) higher income tax expense associated with the increase in pre-tax income.

• The effective income tax rate was 28.3% for the three months ended September 30, 2019 compared to 26.8% for the three months ended September 30, 2018. The increase in the effective income tax rate was primarily due to the impact of the sale of Onofre in the three months ended September 30, 2019.

Pharmacy Services Segment

The Pharmacy Services segment provides a full range of pharmacy benefit management services to employers, health plans, government employee groups and government sponsored programs. The segment results for the three and nine months ended September 30, 2019 and 2018 were as follows:

• Total revenues increased 6.4% for the three months ended September 30, 2019 compared to the prior year primarily due to brand name drug price 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 9.3% on a 30-day equivalent basis for the three months ended September 30, 2019 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 5.1% and 5.7%, respectively, for the three months ended September 30, 2019 compared to the prior year 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 also was partially offset by increased intangible asset amortization related to Aetna’s mail order and specialty pharmacy operations.

See the supplemental information on page 21 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 clinics and provides services to long-term care facilities. The segment results for the three and nine months ended September 30, 2019 and 2018 were as follows:

• Total revenues increased 2.9% for the three months ended September 30, 2019 compared to the prior year. The increase was primarily driven by increased prescription volume and brand name drug price inflation, partially offset by continued reimbursement pressure and an increased generic dispensing rate.

• Front store revenues represent approximately 21.5% of total Retail/LTC segment revenues. Front store revenues increased in the three months ended September 30, 2019 compared to the prior year primarily driven by increases in health and beauty product sales, which benefited from continued strength in cough and cold products.

• Total prescription volume grew 6.4% on a 30-day equivalent basis for the three months ended September 30, 2019 compared to the prior year. The growth was driven primarily by the continued adoption of patient care programs.

• Operating income and adjusted operating income decreased 26.6% and 6.5%, respectively, for the three months ended September 30, 2019. Operating income and adjusted operating income were both negatively impacted by continued reimbursement pressure, partially offset by increased prescription volume and improved front store margin. The decrease in operating income also was driven by the $205 million pre-tax loss on the sale of Onofre and the $96 million store rationalization charge, each recorded in the three months ended September 30, 2019.

See the supplemental information on page 22 for additional information regarding the performance of the Retail/LTC segment.

Health Care Benefits Segment

The Health Care Benefits segment provides a full range of insured and self-insured (“ASC”) medical, pharmacy, dental and behavioral health products and services. For periods prior to the Aetna Acquisition Date, the Health Care Benefits segment consisted solely of the Company’s SilverScript^® Medicare Part D prescription drug plan (“PDP”) business. The segment results for the three and nine months ended September 30, 2019 and 2018 were as follows:

• Total revenues increased $16.5 billion for the three months ended September 30, 2019 compared to the prior year primarily driven by the Aetna Acquisition.

• Operating income and adjusted operating income increased $962 million and $1.3 billion, respectively, for the three months ended September 30, 2019, compared to the prior year primarily driven by the Aetna Acquisition. The increase in operating income was partially offset by an increase in intangible asset amortization related to the Aetna Acquisition.

• Medical membership as of September 30, 2019 of 22.8 million remained consistent compared with June 30, 2019, reflecting increases in Medicare and Medicaid products, offset by declines in Commercial products.

• The Health Care Benefits segment experienced favorable development of prior-periods’ health care cost estimates in its Commercial and Government businesses, primarily attributable to second quarter 2019 performance.

• Prior years’ health care costs payable estimates developed favorably by $511 million during the nine months ended September 30, 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 audited financial statements and does not directly correspond to an increase in 2019 operating results.

See the supplemental information on page 23 for additional information regarding the performance of the Health Care Benefits segment.

2019 Full Year Guidance

The Company revised its full year 2019 GAAP operating income guidance range to $11.77 billion to $11.95 billion from $11.82 billion to $12.02 billion and raised and narrowed its guidance range for full year 2019 adjusted operating income to $15.22 billion to $15.40 billion from $15.16 billion to $15.36 billion. The Company revised its full year 2019 GAAP diluted EPS from continuing operations guidance range to $4.90 to $4.98 from $4.93 to $5.04, and raised and narrowed its full year 2019 Adjusted EPS guidance range to $6.97 to $7.05 from $6.89 to $7.00.

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, integration costs related to the Aetna Acquisition, store rationalization charges, gains/losses on divestitures and losses on early extinguishment of debt.

Teleconference and Webcast

The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern time) to discuss its third 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 the Company

CVS Health is the nation’s premier health innovation company helping people on their path to better health. Whether in one of its pharmacies or through its health services and plans, CVS Health is pioneering a bold new approach to total health by making quality care more affordable, accessible, simple and seamless. CVS Health is community-based and locally focused, engaging consumers with the care they need when and where they need it. The Company has approximately 9,900 retail locations, approximately 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 102 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year and expanding specialty pharmacy services. CVS Health also serves an estimated 38 million people through traditional, voluntary and consumer-directed health insurance products and related services, including rapidly expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan. The Company believes its innovative health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs. Find more information about how CVS Health is shaping the future of health at https://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 the information under the heading “2019 Full Year Guidance” and the related endnotes and reconciliations and the information in Mr. Merlo’s quoted statement. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our Securities and Exchange Commission (“SEC”) filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and in our most recently filed Quarterly Report on Form 10-Q.

You are cautioned not to place undue reliance on CVS Health’s forward looking statements. These 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 or otherwise, as of any future date.

– Tables Follow –

CVS HEALTH CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)

CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Non-GAAP Financial Information

The Company uses non-GAAP financial measures to analyze underlying business performance and trends. The Company believes that providing these non-GAAP financial measures enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance. These non-GAAP financial measures are provided as supplemental information to the financial measures presented in this press release that are calculated and presented in accordance with GAAP. Non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. The Company’s definitions of its non-GAAP financial measures may not be comparable to similarly titled measurements reported by other companies.

Non-GAAP financial measures such as adjusted operating income, adjusted earnings per share (EPS), adjusted income from continuing operations attributable to CVS Health, adjusted revenues and adjusted operating expenses exclude from the relevant GAAP metrics, as applicable: 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.

For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because the Company believes they neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance:

• The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in the Company’s statements of operations in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.

• During the three and nine months ended September 30, 2019 and 2018, acquisition-related transaction and integration costs relate to the Aetna Acquisition. During the nine months ended September 30, 2018, acquisition-related integration costs also relate to the acquisition of Omnicare, Inc. The acquisition-related transaction and integration costs are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses primarily within the Corporate/Other segment.

• During the three and nine months ended September 30, 2019, the store rationalization charges relate to the planned closure of 22 underperforming retail pharmacy stores in the first quarter of 2020. During the nine months ended September 30, 2019, the store rationalization charges also relate to the planned closure of 46 underperforming retail pharmacy stores in the second quarter of 2019. The store rationalization charges primarily relate to operating lease right-of-use asset impairment charges and are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within the Retail/LTC segment.

• During the three and nine months ended September 30, 2019, the loss on divestiture of subsidiary represents the pre-tax loss on the sale of Onofre, which occurred on July 1, 2019. The loss on divestiture primarily relates to the elimination of the cumulative translation adjustment from accumulated other comprehensive income and is reflected in operating expenses in the Company’s unaudited GAAP condensed consolidated statements of operations within the Retail/LTC segment. During the nine months ended September 30, 2018, the loss on divestiture of subsidiary represents the pre-tax loss on the sale of the Company’s RxCrossroads subsidiary for $725 million and is reflected in operating expenses in the Company’s unaudited GAAP condensed consolidated statements of operations within the Retail/LTC segment.

• During the three and nine months ended September 30, 2019, the loss on early extinguishment of debt relates to the Company’s repayment of $4.0 billion of its outstanding senior notes in August 2019 pursuant to its tender offers for such senior notes.

• During the nine months ended September 30, 2018, the goodwill impairment charge relates to the LTC reporting unit within the Retail/LTC segment.

• During the three and nine months ended September 30, 2018, the Company recorded interest expense of $436 million and $1.2 billion, respectively, related to bridge financing costs and interest expense on the $40 billion of its unsecured senior notes issued on March 9, 2018 (“2018 Notes”). The interest expense was reduced by related interest income of $209 million and $453 million, during the three and nine months ended September 30, 2018, respectively, on the proceeds of the 2018 Notes. All amounts are for the periods prior to the close of the Aetna Acquisition and were recorded within the Corporate/Other segment.

• The corresponding tax benefit or expense related to the items excluded from adjusted income from continuing operations attributable to CVS Health and Adjusted EPS above. The nature of each non-GAAP adjustment is evaluated to determine whether a discrete adjustment should be made to the adjusted income tax provision.

See endnotes (1) through (4) for definitions of non-GAAP financial measures. Reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure are presented on pages 13 through 17 and 25 through 26.

Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

Adjusted Operating Income
(Unaudited)

The following are reconciliations of operating income to adjusted operating income:

Adjusted Earnings Per Share
(Unaudited)

The following are reconciliations of income (loss) from continuing operations attributable to CVS Health to adjusted income from continuing operations attributable to CVS Health and calculations of GAAP diluted EPS from continuing operations and Adjusted EPS:

Adjusted Revenues and Adjusted Operating Expenses
(Unaudited)

The following is a reconciliation of total revenues to adjusted revenues:

The following is a reconciliation of operating expenses to adjusted operating expenses:

Supplemental Information
(Unaudited)

The Company’s segments maintain separate financial information, and the Company’s chief operating decision maker (the “CODM”) evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income. Effective for the first quarter of 2019, adjusted operating income is defined as operating income (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 as further described in endnote (1). Segment financial information for the three and nine months ended September 30, 2018 has been retrospectively adjusted to conform with the current period presentation. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying business performance and trends.

Effective for the first quarter of 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and reflect how the CODM reviews information and manages the business. As a result of this realignment, the Company’s SilverScript PDP moved from the Pharmacy Services segment to the Health Care Benefits segment. In addition, the Company moved Aetna’s mail order and specialty pharmacy operations from the Health Care Benefits segment to the Pharmacy Services segment. Segment financial information for the three and nine months ended September 30, 2018, has been retrospectively adjusted to reflect these changes as shown below:

The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals:

Supplemental Information
(Unaudited)

Pharmacy Services Segment

The following table summarizes the Pharmacy Services segment’s performance for the respective periods:

Supplemental Information
(Unaudited)

Retail/LTC Segment

The following table summarizes the Retail/LTC segment’s performance for the respective periods:

Supplemental Information
(Unaudited)

Health Care Benefits Segment

The following table summarizes the Health Care Benefits segment’s performance for the respective periods:

The following table summarizes the Health Care Benefits segment’s medical membership for the respective periods:

Supplemental Information
(Unaudited)

The following table shows the components of the change in health care costs payable during the nine months ended September 30, 2019:

Days Claims Payable (Unaudited)

Adjusted Operating Income Guidance
(Unaudited)

The following reconciliation of projected operating income to projected adjusted operating income contains forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our SEC filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and in our most recently filed Quarterly Report on Form 10-Q. See the discussion at “Non-GAAP Financial Information” earlier in this press release and endnote (1) later in this press release for more information on how we calculate adjusted operating income.

Adjusted Earnings Per Share Guidance
(Unaudited)

The following reconciliations of projected income from continuing operations to projected adjusted income from continuing operations attributable to CVS Health and calculation of projected GAAP diluted EPS from continuing operations and projected Adjusted EPS contain forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our SEC filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and in our most recently filed Quarterly Report on Form 10-Q. See the discussion at “Non-GAAP Financial Information” earlier in this press release and endnote (2) later in this press release for more information on how we calculate Adjusted EPS.

Endnotes

⁽¹⁾ The Company defines adjusted operating income as operating income (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, goodwill impairments, 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 operating income.

⁽²⁾ The Company defines adjusted income from continuing operations attributable to CVS Health as income (loss) from continuing operations attributable to CVS Health (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, losses on early extinguishment of debt, goodwill impairments, net interest expense on financings associated with proposed acquisitions (for periods prior to the acquisition), the corresponding income tax benefit or expense related to the items excluded from adjusted income from continuing operations attributable to CVS Health, the corresponding impact to income allocable to participating securities, net of tax, related to the items excluded from income from continuing operations attributable to CVS Health in determining adjusted income from continuing operations attributable to CVS Health, and any other items specifically identified herein. GAAP diluted EPS from continuing operations and Adjusted EPS, respectively, are calculated by dividing income from continuing operations attributable to CVS Health and adjusted income from continuing operations attributable to CVS Health by the Company’s weighted average diluted shares outstanding.

Adjusted EPS for the nine months ended September 30, 2018 is calculated utilizing adjusted weighted average diluted shares outstanding, which includes 2 million potential common equivalent shares, as the impact of these shares was dilutive. The potential common equivalent shares were excluded from the calculation of GAAP loss per share from continuing operations for the nine months ended September 30, 2018, as these shares would have had an anti-dilutive effect as a result of the GAAP net loss incurred. See “Non-GAAP Financial Information” earlier in this press release for additional information regarding the items excluded from income from continuing operations attributable to CVS Health and GAAP diluted EPS.

⁽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 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.

⁽⁵⁾ Enterprise prescriptions include prescriptions dispensed through the Company’s retail pharmacies, long-term care pharmacies, and mail order pharmacies as well as prescription claims managed through our pharmacy benefit manager, with an elimination for managed prescription claims filled through CVS Health dispensing channels.

⁽⁶⁾ Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

⁽⁷⁾ Pharmacy network revenues, pharmacy claims processed and generic dispensing rate do not include Maintenance Choice^® activity, which is included within the mail choice category. Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity. Maintenance Choice permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order.

⁽⁸⁾ Mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect^® claims picked up at a retail pharmacy, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.

⁽⁹⁾ Same store sales and prescription volume exclude revenues from MinuteClinic, and revenues and prescriptions from stores in Brazil and LTC operations.

Investor Contact

Valerie Haertel
Senior Vice President
Investor Relations
401-770-4050

Media Contact

T.J. Crawford
Vice President
External Affairs
212-457-0583