CVS HEALTH CORPORATION REPORTS THIRD QUARTER 2024 RESULTS
Financial Highlights
Third quarter total revenues increased to $95.4 billion, up 6.3% compared to the prior year
Third quarter GAAP diluted EPS of $0.07 and Adjusted EPS of $1.09
Third quarter GAAP diluted EPS and Adjusted EPS include charges to record premium deficiency reserves of approximately $1.1 billion ($0.63 per share) in the Health Care Benefits segment
Generated year-to-date cash flow from operations of $7.2 billion
CEO Commentary "Our integrated model accelerates our ability to uniquely do what is most important to today's health care consumers: deliver lower cost of care, a simpler experience and better outcomes. Our third quarter results reflect strong performance in the Health Services and Pharmacy & Consumer Wellness segments, and also highlight the continued need to work across our enterprise and address macro challenges to the Health Care Benefits segment. My commitment to our CVS Health colleagues and our customers is to drive focused execution of our integrated strategy to improve the health of the 185 million people we are privileged to serve.", David Joyner, CVS Health President and CEO
WOONSOCKET, R.I., Nov. 6, 2024 /PRNewswire/ -- CVS Health Corporation (NYSE:CVS) today announced operating results for the three months ended September 30, 2024.
Financial Results Summary
Three Months Ended
September 30,
In millions, except per share amounts
2024
2023
Change
Total revenues
$ 95,428
$ 89,764
$ 5,664
Operating income
832
3,690
(2,858)
Adjusted operating income (1)
2,547
4,456
(1,909)
Diluted earnings per share
$ 0.07
$ 1.75
$ (1.68)
Adjusted EPS (2)
$ 1.09
$ 2.21
$ (1.12)
Third quarter GAAP diluted EPS of $0.07 decreased from $1.75 in the prior year and Adjusted EPS of $1.09 decreased from $2.21 in the prior year, primarily due to a decline in the Health Care Benefits segment's operating results, which reflect continued utilization pressure and premium deficiency reserves of approximately $1.1 billion recorded in the third quarter of 2024, related to anticipated losses in the fourth quarter of 2024 within the Medicare and individual exchange product lines. The premium deficiency reserves are expected to be substantially released during the fourth quarter of 2024, benefiting results in that period.
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" beginning on page 11 and endnotes beginning on page 22 for explanations of non-GAAP financial measures presented in this press release. See pages 13 through 15 for reconciliations of each non-GAAP financial measure used in this release to the most directly comparable GAAP financial measure.
Consolidated third quarter results
Three Months Ended
September 30,
Nine Months Ended
September 30,
In millions, except per share amounts
2024
2023
Change
2024
2023
Change
Total revenues
$ 95,428
$ 89,764
$ 5,664
$ 275,099
$ 263,963
$ 11,136
Operating income
832
3,690
(2,858)
6,148
10,370
(4,222)
Adjusted operating income (1)
2,547
4,456
(1,909)
9,248
13,307
(4,059)
Net income
71
2,265
(2,194)
2,963
6,321
(3,358)
Diluted earnings per share
$ 0.07
$ 1.75
$ (1.68)
$ 2.35
$ 4.88
$ (2.53)
Adjusted EPS (2)
$ 1.09
$ 2.21
$ (1.12)
$ 4.23
$ 6.62
$ (2.39)
For the three months ended September 30, 2024 compared to the prior year:
Total revenues increased 6.3% primarily driven by growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments, partially offset by a decline in the Health Services segment.
Operating income decreased 77.5% primarily due to the decrease in adjusted operating income described below and restructuring charges of approximately $1.2 billion recorded in the current year.
Adjusted operating income decreased 42.8% driven by a decline in the Health Care Benefits segment, primarily due to increased utilization and premium deficiency reserves recorded in the third quarter of 2024 related to anticipated losses in the fourth quarter of 2024, partially offset by increases in the Health Services and Pharmacy & Consumer Wellness segments. See pages 3 through 5 for additional discussion of the adjusted operating income performance of the Company's segments.
Interest expense increased $59 million, or 8.5%, due to higher debt in the three months ended September 30, 2024, primarily driven by long-term debt issued in May 2024.
The effective income tax rate increased to 32.4% compared to 25.0% primarily due to lower pre-tax income in the three months ended September 30, 2024 compared to the prior year.
Restructuring program
During the third quarter of 2024, the Company finalized an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with this restructuring plan, during the three months ended September 30, 2024, the Company recorded restructuring charges of approximately $1.2 billion, comprised of a $607 million store impairment charge for additional retail pharmacy stores it plans to close in 2025, $293 million of costs associated with corporate workforce optimization, including severance and employee-related costs, and $269 million of other asset impairments and related charges associated with the discontinuation of certain non-core assets.
Health Care Benefits segment
The Health Care Benefits segment offers a full range of insured and self-insured ("ASC") medical, pharmacy, dental and behavioral health products and services. The segment results for the three and nine months ended September 30, 2024 and 2023 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
In millions, except percentages
2024
2023
Change
2024
2023
Change
Total revenues
$ 32,996
$ 26,296
$ 6,700
$ 97,707
$ 78,920
$ 18,787
Adjusted operating income (loss) (1)
(924)
1,536
(2,460)
746
4,901
(4,155)
Medical benefit ratio ("MBR") (3)
95.2 %
85.7 %
9.5 %
91.7 %
85.5 %
6.2 %
Medical membership (4)
27.1
25.7
1.4
Total revenues increased 25.5% for the three months ended September 30, 2024 compared to the prior year driven by growth in the Medicare and Commercial product lines.
During the third quarter of 2024, the Company recorded premium deficiency reserves of approximately $1.1 billion, primarily in its Medicare and individual exchange product lines related to anticipated losses for the 2024 coverage year. The $1.1 billion premium deficiency recorded was comprised of $394 million of operating expenses related to the write-off of unamortized acquisition costs and $670 million of health care costs.
During the three months ended September 30, 2024, the Health Care Benefits segment had an adjusted operating loss of $924 million compared to adjusted operating income of $1.5 billion in the prior year. The change was primarily driven by increased utilization, the approximately $1.1 billion of premium deficiency reserves described above, the impact of higher acuity in Medicaid following the resumption of redeterminations and the unfavorable impact of the previously disclosed decline in the Company's Medicare Advantage star ratings for the 2024 payment year. These decreases were partially offset by an increase in net investment income.
The MBR increased to 95.2% in the three months ended September 30, 2024 compared to 85.7% in the prior year driven by increased utilization, the $670 million (220 basis points) of premium deficiency reserves recorded as health care costs described above, higher acuity in Medicaid and the unfavorable impact of the Company's Medicare Advantage star ratings for the 2024 payment year.
Medical membership as of September 30, 2024 of 27.1 million increased 178,000 members compared with June 30, 2024, reflecting increases in the Commercial and Medicare product lines.
Prior years' health care costs payable estimates developed favorably by $788 million during the nine months ended September 30, 2024. 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 2024 operating results.
Days claims payable were 44.6 days as of September 30, 2024, a increase of 1.5 days compared to June 30, 2024. The increase was primarily driven by the impact of the premium deficiency reserves recorded as health care costs in the third quarter of 2024 described above.
The U.S. Centers for Medicare & Medicaid Services ("CMS") released the Company's 2025 star ratings in October 2024. The Company's 2025 star ratings will be used to determine which of the Company's Medicare Advantage plans have ratings of four stars or higher and qualify for bonus payments in 2026. Based on the Company's membership as of September 2024, 88% of the Company's Medicare Advantage members were in plans with 2025 star ratings of at least 4.0 stars, compared to 87% of the Company's Medicare Advantage members being in plans with 2024 star ratings of at least 4.0 stars based on the Company's membership as of September 2023.
See the supplemental information on page 17 for additional information regarding the performance of the Health Care Benefits segment.
Health Services segment
The Health Services segment provides a full range of pharmacy benefit management 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 and nine months ended September 30, 2024 and 2023 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
In millions
2024
2023
Change
2024
2023
Change
Total revenues
$ 44,129
$ 46,891
$ (2,762)
$ 126,585
$ 137,697
$ (11,112)
Adjusted operating income (1)
2,204
1,878
326
5,482
5,452
30
Pharmacy claims processed (5) (6)
484.1
579.6
(95.5)
1,418.2
1,743.5
(325.3)
Total revenues decreased 5.9% for the three months ended September 30, 2024 compared to the prior year primarily driven by the previously announced loss of a large client and continued pharmacy client price improvements. These decreases were partially offset by pharmacy drug mix, increased contributions from the Company's health care delivery assets and growth in specialty pharmacy.
Adjusted operating income increased 17.4% for the three months ended September 30, 2024 compared to the prior year primarily driven by improved purchasing economics, partially offset by continued pharmacy client price improvements and the previously announced loss of a large client.
Pharmacy claims processed decreased 16.5% on a 30-day equivalent basis for the three months ended September 30, 2024 compared to the prior year, reflecting the previously announced loss of a large client.
See the supplemental information on page 18 for additional information regarding the performance of the Health Services segment.
Pharmacy & Consumer Wellness segment
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 nine months ended September 30, 2024 and 2023 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
In millions
2024
2023
Change
2024
2023
Change
Total revenues
$ 32,423
$ 28,872
$ 3,551
$ 90,986
$ 85,578
$ 5,408
Adjusted operating income (1)
1,596
1,389
207
4,016
3,936
80
Prescriptions filled (5) (6)
431.6
407.1
24.5
1,269.6
1,217.6
52.0
Total revenues increased 12.3% for the three months ended September 30, 2024 compared to the prior year primarily driven by increased prescription volume, including increased contributions from vaccinations, and pharmacy drug mix. These increases were partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions and decreased front store volume, including the impact of a decrease in store count.
Adjusted operating income increased 14.9% for the three months ended September 30, 2024 compared to the prior year primarily driven by increased prescription volume, including increased contributions from vaccinations, as well as improved drug purchasing. These increases were partially offset by continued pharmacy reimbursement pressure and decreased front store volume in the three months ended September 30, 2024.
Prescriptions filled increased 6.0% on a 30-day equivalent basis for the three months ended September 30, 2024 compared to the prior year primarily driven by increased utilization.
Same store prescription volume(6)(12) increased 9.1% on a 30-day equivalent basis for the three months ended September 30, 2024 compared to the prior year.
See the supplemental information on page 19 for additional information regarding the performance of the Pharmacy & Consumer Wellness segment.
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 CVS Health
CVS Health is the leading health solutions company, delivering care like no one else can. We reach more people and improve the health of communities across America through our local presence, digital channels and over 300,000 dedicated colleagues, including more than 40,000 physicians, pharmacists, nurses and nurse practitioners. Wherever and whenever people need us, we help them with their health, whether that's managing chronic diseases, staying compliant with their medications or accessing affordable health and wellness services in the most convenient ways. We help people navigate the health care system, and their personal health care, by improving access, lowering costs and being a trusted partner for every meaningful moment of health. And we do it all with heart, each and every day. Follow @CVSHealth on social media.
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, but are not limited to, the information under the headings "CEO Commentary" and "Financial Results Summary" and the information included in the reconciliations and endnotes. 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 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 Reports on Form 10-Q for the quarterly periods ended March 31, 2024, June 30, 2024 and September 30, 2024 and our 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)
Three Months Ended
September 30,
Nine Months Ended
September 30,
In millions, except per share amounts
2024
2023
2024
2023
Revenues:
Products
$ 59,674
$ 61,298
$ 169,610
$ 179,984
Premiums
30,925
24,657
91,983
74,117
Services
4,279
3,532
12,108
8,977
Net investment income
550
277
1,398
885
Total revenues
95,428
89,764
275,099
263,963
Operating costs:
Cost of products sold
52,948
54,688
151,019
159,679
Health care costs
29,922
21,499
85,578
63,729
Operating expenses
10,557
9,876
31,185
29,329
Restructuring charges
1,169
11
1,169
507
Loss on assets held for sale
—
—
—
349
Total operating costs
94,596
86,074
268,951
253,593
Operating income
832
3,690
6,148
10,370
Interest expense
752
693
2,200
1,968
Other income
(25)
(22)
(74)
(66)
Income before income tax provision
105
3,019
4,022
8,468
Income tax provision
34
754
1,059
2,147
Net income
71
2,265
2,963
6,321
Net (income) loss attributable to noncontrolling interests
16
(4)
7
(23)
Net income attributable to CVS Health
$ 87
$ 2,261
$ 2,970
$ 6,298
Net income per share attributable to CVS Health:
Basic
$ 0.07
$ 1.76
$ 2.36
$ 4.90
Diluted
$ 0.07
$ 1.75
$ 2.35
$ 4.88
Weighted average shares outstanding:
Basic
1,259
1,287
1,258
1,284
Diluted
1,259
1,290
1,262
1,289
Dividends declared per share
$ 0.665
$ 0.605
$ 1.995
$ 1.815
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
In millions
September 30,2024
December 31,2023
Assets:
Cash and cash equivalents
$ 6,875
$ 8,196
Investments
2,805
3,259
Accounts receivable, net
36,179
35,227
Inventories
17,649
18,025
Other current assets
3,835
3,151
Total current assets
67,343
67,858
Long-term investments
28,939
23,019
Property and equipment, net
12,728
13,183
Operating lease right-of-use assets
16,231
17,252
Goodwill
91,272
91,272
Intangible assets, net
27,817
29,234
Separate accounts assets
3,334
3,250
Other assets
4,763
4,660
Total assets
$ 252,427
$ 249,728
Liabilities:
Accounts payable
$ 15,713
$ 14,897
Pharmacy claims and discounts payable
23,917
22,874
Health care costs payable
15,237
12,049
Policyholders' funds
913
1,326
Accrued expenses
20,174
22,189
Other insurance liabilities
1,051
1,141
Current portion of operating lease liabilities
1,912
1,741
Short-term debt
800
200
Current portion of long-term debt
4,910
2,772
Total current liabilities
84,627
79,189
Long-term operating lease liabilities
15,258
16,034
Long-term debt
59,824
58,638
Deferred income taxes
3,632
4,311
Separate accounts liabilities
3,334
3,250
Other long-term insurance liabilities
5,162
5,459
Other long-term liabilities
5,484
6,211
Total liabilities
177,321
173,092
Shareholders' equity:
Preferred stock
—
—
Common stock and capital surplus
49,510
48,992
Treasury stock
(36,813)
(33,838)
Retained earnings
62,038
61,604
Accumulated other comprehensive income (loss)
209
(297)
Total CVS Health shareholders' equity
74,944
76,461
Noncontrolling interests
162
175
Total shareholders' equity
75,106
76,636
Total liabilities and shareholders' equity
$ 252,427
$ 249,728
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
In millions
2024
2023
Cash flows from operating activities:
Cash receipts from customers
$ 264,538
$ 260,300
Cash paid for inventory, prescriptions dispensed and health services rendered
(145,469)
(153,051)
Insurance benefits paid
(80,357)
(61,658)
Cash paid to other suppliers and employees
(28,933)
(26,038)
Interest and investment income received
1,288
1,174
Interest paid
(2,391)
(2,049)
Income taxes paid
(1,429)
(2,616)
Net cash provided by operating activities
7,247
16,062
Cash flows from investing activities:
Proceeds from sales and maturities of investments
7,634
5,547
Purchases of investments
(12,677)
(6,625)
Purchases of property and equipment
(2,013)
(2,120)
Acquisitions (net of cash and restricted cash acquired)
(85)
(16,492)
Other
75
43
Net cash used in investing activities
(7,066)
(19,647)
Cash flows from financing activities:
Commercial paper borrowings (repayments), net
600
—
Proceeds from issuance of short-term loan
—
5,000
Repayment of short-term loan
—
(5,000)
Proceeds from issuance of long-term debt
4,959
10,898
Repayments of long-term debt
(1,706)
(2,734)
Repurchase of common stock
(3,023)
(2,013)
Dividends paid
(2,535)
(2,353)
Proceeds from exercise of stock options
342
242
Payments for taxes related to net share settlement of equity awards
(181)
(175)
Other
(22)
(210)
Net cash provided by (used in) financing activities
(1,566)
3,655
Net increase (decrease) in cash, cash equivalents and restricted cash
(1,385)
70
Cash, cash equivalents and restricted cash at the beginning of the period
8,525
13,305
Cash, cash equivalents and restricted cash at the end of the period
$ 7,140
$ 13,375
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
In millions
2024
2023
Reconciliation of net income to net cash provided by operating activities:
Net income
$ 2,963
$ 6,321
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
3,450
3,232
Stock-based compensation
403
461
Restructuring charges (impairment of long-lived assets)
840
