CVS HEALTH REPORTS STRONG FOURTH QUARTER AND FULL-YEAR 2021 RESULTS, CONFIRMS 2022 FULL-YEAR EPS GUIDANCE

WOONSOCKET, R.I., Feb. 9, 2022 /PRNewswire/ -- CVS Health Corporation (NYSE: CVS) today announced operating results for the three months and year ended December 31, 2021.

FOURTH QUARTER HIGHLIGHTS KEY FINANCIAL DATA

• Total revenues increased to $76.6 billion, up 10.1% compared to prior year
• GAAP diluted EPS from continuing operations of $0.98 and Adjusted EPS of $1.98

FULL-YEAR HIGHLIGHTS

• Total revenues increased to $292.1 billion, up 8.7% compared to prior year
• GAAP diluted EPS from continuing operations of $5.95 and Adjusted EPS of $8.40
• Generated cash flow from operations of $18.3 billion
• Net repayments of long-term debt of $8.8 billion

KEY FINANCIAL DATA

2022 FULL-YEAR GUIDANCE

• Confirmed GAAP diluted EPS from continuing operations guidance range of $7.04 to $7.24
• Confirmed Adjusted EPS guidance range of $8.10 to $8.30
• Revised cash flow from operations guidance range to $12.0 billion to $13.0 billion from $12.5 billion to $13.0 billion

CEO COMMENTARY

"We're engaging millions of customers across our businesses and in our community health destinations, becoming an even bigger part of their everyday health. That's clearly reflected in our performance, but more importantly in our potential."
-Karen S. Lynch, CVS Health President and CEO

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 13 and endnotes beginning on page 26 for explanations of non-GAAP financial measures presented in this press release. See pages 15 through 17 and page 25 for reconciliations of each non-GAAP financial measure used in this release to the most directly comparable GAAP financial measure.

Consolidated Fourth Quarter and Full-Year Results and Operational Highlights

Financial Results

For the three months and year ended December 31, 2021 compared to the prior year:

• Total revenues increased 10.1% and 8.7%, respectively, driven by growth across all segments.
• Operating income decreased 11.7% and 5.2%, respectively, primarily due to a store impairment charge of approximately $1.4 billion recorded in the fourth quarter of 2021 related to the write down of operating lease right-of-use assets and property and equipment in connection with planned retail store closures over the next three years, as well as the absence of pre-tax income of $307 million associated with the receipt of amounts owed to the Company under the ACA risk corridor program ("ACA risk corridor receipt") during the fourth quarter of 2020. The decrease in operating income in the year ended December 31, 2021 was also driven by a $431 million goodwill impairment charge associated with the long-term care ("LTC") business in the Retail/LTC segment recorded during the third quarter of 2021. The decreases in both periods were partially offset by the increases in adjusted operating income described below and lower acquisition-related integration costs compared to the prior year.
• Adjusted operating income increased 40.8% and 8.1%, respectively, primarily due to increased prescription and front store volume and the administration of COVID-19 vaccinations in the Retail/LTC segment, improved purchasing economics and growth in specialty pharmacy in the Pharmacy Services segment, as well as gains from anti-trust legal settlements of $126 million and $263 million recorded in the three months and year ended December 31, 2021, respectively. During the three months ended December 31, 2021, the increase was also driven by lower COVID-19 related investments compared to the prior year in the Health Care Benefits segment. During the year ended December 31, 2021, the increase was also driven by the administration of COVID-19 diagnostic testing in the Retail/LTC segment and was partially offset by higher COVID-19 related costs in the Health Care Benefits segment, including the impact of the deferral of elective procedures and other discretionary utilization in response to the COVID-19 pandemic during the year ended December 31, 2020.
• Interest expense decreased $70 million, or 10.3%, and $404 million, or 13.9%, respectively, due to lower debt in the three months and year ended December 31, 2021.
• The effective income tax rate in the fourth quarter decreased to 17.5% compared to 19.7%, and decreased to 24.2% for the full year compared to 26.3% in the prior year. The decrease in both periods was primarily due to the repeal of the non-deductible health insurer fee ("HIF") for 2021 and the favorable impact of a prior year refund claim approved by the Internal Revenue Service ("IRS") during the fourth quarter of 2021. The decrease in both periods were partially offset by the absence of the favorable resolution of certain tax matters in the fourth quarter of 2020.

Company Highlights

• Unveiled several steps to support the acceleration of the Company's omnichannel health strategy, which will include the creation of new store formats and the optimization of the Company's retail footprint to align with evolving customer needs, including a reduction in store density in certain locations and the closure of approximately 900 retail stores between 2022 and 2024. In addition, named Prem Shah the Company's first Chief Pharmacy Officer, who alongside Michelle Peluso, Chief Customer Officer, became Co-President of the Retail/LTC business effective January 1, 2022.
• Administered more than 8 million COVID-19 tests and more than 20 million COVID-19 vaccines nationwide in the fourth quarter of 2021. For the full year, the Company administered more than 32 million COVID-19 tests and more than 59 million COVID-19 vaccines, while maintaining a strong commitment to vaccine and testing equity by optimizing site locations and targeting outreach initiatives to reach vulnerable populations.
• Paid down $2.3 billion of long-term debt, while returning $660 million to shareholders through dividends during the three months ended December 31, 2021. Since the close of the acquisition of Aetna Inc. in November 2018, the Company has repaid a net $21.0 billion of long-term debt.
• Announced a 10% increase to the annual shareholder dividend, which became effective with the February 1, 2022 dividend distribution, and the authorization of a $10 billion share repurchase program.
• Named to the 2021 S&P Dow Jones Sustainability Indices ("DJSI") North American Index for the ninth consecutive year and the DJSI World Index for the third consecutive year. The Company was also one of the first seven companies globally to have science-based net-zero GHG emissions targets validated by the Science-Based Targets initiative.
• Hosted a one-day virtual career event resulting in approximately 45,000 clinical and retail hires, building on accelerated recruitment and retention efforts throughout 2021. The Company announced a significant investment in its employees by raising the minimum enterprise hourly wage to $15.00 an hour effective July 2022.

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 and years ended December 31, 2021 and 2020 were as follows:

• Total revenues increased 8.4% and 8.9% for the three months and year ended December 31, 2021, respectively, compared to the prior year primarily driven by growth in the Government Services business. The increase in total revenues in the three months ended December 31, 2021 was also driven by lower COVID-19 related investments compared to the prior year. The increase in both periods was partially offset by the unfavorable impact of the repeal of the HIF for 2021 and the absence of the ACA risk corridor receipt.
• Adjusted operating income increased $357 million for the three months ended December 31, 2021 compared to the prior year primarily driven by lower COVID-19 related investments and improved underlying performance, partially offset by higher medical costs related to COVID-19 in the three months ended December 31, 2021 compared to the prior year.
• Adjusted operating income decreased 19.0% for the year ended December 31, 2021 compared to the prior year primarily driven by the net impact of the COVID-19 pandemic, which reflected higher COVID-19 related costs in the year ended December 31, 2021 compared to the prior year, including the impact of the deferral of elective procedures and other discretionary utilization in response to the COVID-19 pandemic during the year ended December 31, 2020. The decrease was partially offset by improved performance in the underlying Government Services business and higher favorable development of prior-years' health care cost estimates in the year ended December 31, 2021 compared to the prior year.
• The MBR increased from 86.7% to 87.0% in the three months ended December 31, 2021 compared to the prior year primarily driven by the absence of the ACA risk corridor receipt and the repeal of the HIF for 2021. These increases were largely offset by the net impact of the COVID-19 pandemic, including lower COVID-19 related investments in 2021 compared to the prior year and improved underlying performance.
• The MBR increased from 80.9% to 85.0% in the year ended December 31, 2021 compared to the prior year primarily driven by the higher COVID-19 related costs described above and the repeal of the HIF for 2021. The increase was partially offset by improved underlying performance in the current year.
• Medical membership as of December 31, 2021 of 23.8 million increased 151,000 members compared with September 30, 2021, reflecting increases across all product lines.
• The segment experienced favorable development of prior-periods' health care cost estimates in its Commercial and Government Services businesses during the three months ended December 31, 2021, primarily attributable to third quarter 2021 performance.
• Prior years' health care costs payable estimates developed favorably by $788 million during the year ended December 31, 2021. 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 2021 operating results.

See the supplemental information on page 20 for additional information regarding the performance of the Health Care Benefits segment.

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 and years ended December 31, 2021 and 2020 were as follows:

• Total revenues increased 8.2% and 7.8% for the three months and year ended December 31, 2021, respectively, compared to the prior year primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued price compression.
• Adjusted operating income increased 16.8% and 20.6% for the three months and year ended December 31, 2021, respectively, compared to the prior year primarily driven by improved purchasing economics which reflected increased contributions from the products and services of the Company's group purchasing organization and specialty pharmacy (including pharmacy and/or administrative services for providers and 340B covered entities). These increases were partially offset by continued price compression.
• Total pharmacy claims processed increased 8.2% and 6.2%, on a 30-day equivalent basis, for the three months and year ended December 31, 2021, respectively, compared to the prior year primarily driven by net new business and COVID-19 vaccinations, as well as increased new therapy prescriptions, which were adversely impacted by the COVID-19 pandemic during the three months and year ended December 31, 2020. Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 5.4% and 4.2%, on a 30-day equivalent basis, for the three months and year ended December 31, 2021, respectively, compared to the prior year.

See the supplemental information on page 22 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 health and wellness products and general merchandise, provides health care services through walk-in medical clinics, provides medical diagnostic testing, administers vaccinations and provides pharmacy services to long-term care facilities. The segment results for the three months and years ended December 31, 2021 and 2020 were as follows:

• Total revenues increased 12.7% and 9.8% for the three months and year ended December 31, 2021, respectively, compared to the prior year primarily driven by increased prescription and front store volume, the administration of COVID-19 vaccinations and diagnostic testing, as well as brand inflation. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic introductions. COVID-19 vaccinations, diagnostic testing and over-the-counter ("OTC") test kit sales contributed approximately 40% and 45% of the increase in the segment's revenues for the three months and year ended December 31, 2021, respectively, compared to the prior year. The prior year reflected the ongoing expansion of the Company's diagnostic testing program which began in April 2020, an immaterial impact from COVID-19 vaccinations which began in December 2020 and no OTC test kit sales.
• Adjusted operating income increased 38.4% and 24.0% for the three months and year ended December 31, 2021, respectively, compared to the prior year primarily driven by the administration of COVID-19 vaccinations, the increased prescription and front store volume described above, improved generic drug purchasing, as well as gains from anti-trust legal settlements of $106 million and $231 million recorded in the three months and year ended December 31, 2021, respectively. The increase in adjusted operating income in the year ended December 31, 2021 was also driven by the administration of diagnostic testing. These increases were partially offset by continued pharmacy reimbursement pressure and increased investments in the segment's capabilities and colleague compensation and benefits. COVID-19 vaccinations, diagnostic testing and OTC test kit sales contributed approximately 35% and 30% of the segment's adjusted operating income for the three months and year ended December 31, 2021, respectively.
• Prescriptions filled increased 11.6% and 8.4%, on a 30-day equivalent basis, for the three months and year ended December 31, 2021, respectively, compared to the prior year primarily driven by COVID-19 vaccinations and the continued adoption of patient care programs, as well as increased new therapy prescriptions, which were adversely impacted by the COVID-19 pandemic during the three months and year ended December 31, 2020. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 6.1% and 4.3%, on a 30-day equivalent basis, for the three months and year ended December 31, 2021, respectively, compared to the prior year.

See the supplemental information on page 23 for additional information regarding the performance of the Retail/LTC segment.

2022 Full-Year Guidance

The Company confirmed its full-year 2022 GAAP diluted EPS from continuing operations guidance range of $7.04 to $7.24 and its full-year 2022 Adjusted EPS guidance range of $8.10 to $8.30. The Company also revised its full-year 2022 cash flow from operations guidance range to $12.0 billion to $13.0 billion from $12.5 billion to $13.0 billion.

The adjustment between full-year 2022 GAAP diluted EPS from continuing operations and Adjusted EPS is the exclusion of amortization of intangible assets.

Teleconference and Webcast

The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its fourth quarter and full-year 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 approximately 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. Learn more 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, but are not limited to, Ms. Lynch's quotation, the information under the headings "2022 Full-Year Guidance" and "Company Highlights" 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, including the potential emergence of additional variants, vaccine and testing protocols, government testing initiatives, the geographies impacted by and 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 most recently filed Quarterly Report on Form 10-Q 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 -

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 consolidated adjusted operating income, adjusted earnings per share (EPS) and adjusted income from continuing operations 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 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 and years ended December 31, 2021 and 2020, acquisition-related integration costs relate to the acquisition of Aetna Inc. The acquisition-related integration costs are reflected in the condensed consolidated statements of operations in operating expenses within the Corporate/Other segment.
• During the three months and year ended December 31, 2021, the store impairment charge relates to the write down of operating lease right-of-use assets and property and equipment in connection with the planned closure of approximately 900 retail stores between 2022 and 2024. The store impairment charge is reflected in the condensed consolidated statements of operations within the Retail/LTC segment.
• During the year ended December 31, 2021, the goodwill impairment charge relates to the LTC reporting unit within the Retail/LTC segment.
• In June 2021, the Company received $61 million related to a purchase price working capital adjustment for an acquisition completed during the first quarter of 2020. The resolution of this matter occurred subsequent to the acquisition accounting measurement period and is reflected in the condensed consolidated statement of operations for the year ended December 31, 2021 as a reduction of operating expenses within the Health Care Benefits segment.
• During the year ended December 31, 2020, the gain on divestiture of subsidiary represents the pre-tax gain on the sale of the Company's Coventry Health Care Workers' Compensation business ("Workers' Compensation business"), which the Company sold on July 31, 2020 for approximately $850 million. The gain on divestiture was finalized in the three months ended December 31, 2020 and is reflected as a reduction in operating expenses in the condensed consolidated statement of operations within the Health Care Benefits segment in the year ended December 31, 2020.
• During the three months and year ended December 31, 2020, the Company received $313 million owed to it under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "ACA") risk corridor program that was previously fully reserved for as payment was uncertain. After considering offsetting items such as the ACA's minimum medical loss ratio ("MLR") rebate requirements and premium taxes, the Company recognized pre-tax income of $307 million in the condensed consolidated statements of operations within the Health Care Benefits segment. The portion of the ACA risk corridor receipt attributable to noncontrolling interest was $12 million related to third party ownership interests in the Company's consolidated operating entities.
• During the three months and year ended December 31, 2021, the loss on early extinguishment of debt relates to the Company's repayment of approximately $2.3 billion of its outstanding senior notes in December 2021 pursuant to its early redemption make-whole provision for such senior notes. During the year ended December 31, 2021, the loss on early extinguishment of debt also relates to the Company's repayment of approximately $2.0 billion of its outstanding senior notes in August 2021 pursuant to its tender offer for such senior notes. During the three months and year ended December 31, 2020, the loss on early extinguishment of debt relates to the Company's repayment of $4.5 billion of its outstanding senior notes in December 2020 pursuant to its tender offers for such senior notes. During the year ended December 31, 2020, the loss on early extinguishment of debt also relates to the Company's repayment of $6.0 billion of its outstanding senior notes in August 2020 pursuant to its tender offers for such senior notes.
• 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. During the three months and year ended December 31, 2021, the Company's non-GAAP tax provision also excludes certain tax benefits primarily related to IRS approval of a prior year tax refund claim. During the three months ended December 31, 2020, the Company realized certain tax losses that were able to be used to offset a portion of the taxable gain related to the July 2020 sale of the Workers' Compensation business, which reduced total tax expense for the three months and year ended December 31, 2020.

See endnotes (1) and (2) on page 26 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 15 through 17 and page 25.

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

Adjusted Operating Income
(Unaudited)

The following are reconciliations of consolidated operating income (GAAP measure) to consolidated adjusted operating income, as well as reconciliations of segment GAAP operating income to segment adjusted operating income:

Adjusted Earnings Per Share
(Unaudited)

The following are reconciliations of income 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: 

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)

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 years ended December 31, 2021 and 2020:

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

Supplemental Information
(Unaudited)

Pharmacy Services Segment

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