10-QPeriod: Q3 FY2015

CVS HEALTH Corp Quarterly Report for Q3 Ended Sep 30, 2015

Filed October 30, 2015For Securities:CVS

Summary

CVS Health Corporation reported strong performance for the nine months ended September 30, 2015, with net revenues increasing by 9.6% to $112.1 billion. This growth was driven by robust performance in both the Pharmacy Services and Retail/LTC segments, with the latter significantly bolstered by the acquisition of Omnicare, Inc. for approximately $9.6 billion in August 2015. Net income attributable to CVS Health increased by 12.5% to $3.74 billion for the same period, demonstrating effective operational execution and strategic acquisitions. The company also announced a proposed acquisition of Target's pharmacy and clinic businesses for $1.887 billion, indicating continued aggressive growth strategies. The balance sheet reflects substantial increases in goodwill and intangible assets, largely due to the Omnicare acquisition, alongside a significant increase in long-term debt to finance these strategic moves. Operating cash flow remained strong, although investing activities showed a significant outflow due to the acquisition. The company also continued its share repurchase program, returning capital to shareholders. Despite increased debt and integration costs, the financial health of CVS Health appears solid, supported by its diversified business model and strategic acquisitions. Overall, CVS Health demonstrated significant growth and executed major strategic initiatives during this period, positioning itself for continued expansion in the integrated healthcare and pharmacy market. Investors should note the substantial debt taken on to fund acquisitions and the ongoing integration efforts as key factors to monitor.

Financial Highlights

57 data points
Beta

Revenue

$38.64B

17.2% Gross Margin

Net Income

$1.25B

3.2% Net Margin

EPS (Diluted)

$1.11

Total Assets

$92.36B

Cash & Equivalents

$2.89B

Free Cash Flow

$1.27B

Financial Statements
Beta
Revenue$38.64B
Cost of Revenue$31.98B
Gross Profit$6.66B
Operating Expenses$4.33B
Operating Income$2.33B
Interest Expense$268.00M
Net Income$1.25B
EPS (Basic)$1.11
EPS (Diluted)$1.11
Shares Outstanding (Basic)1.11B
Shares Outstanding (Diluted)1.12B

Key Highlights

  • 1Net revenues for the nine months ended September 30, 2015, increased by 9.6% year-over-year to $112.14 billion.
  • 2Net income attributable to CVS Health for the nine months ended September 30, 2015, rose by 12.5% to $3.74 billion.
  • 3Acquisition of Omnicare, Inc. for approximately $9.6 billion was completed on August 18, 2015, significantly expanding the Retail/LTC segment.
  • 4The company announced a proposed acquisition of Target's pharmacy and clinic businesses for $1.887 billion.
  • 5Long-term debt increased substantially from $11.63 billion at year-end 2014 to $26.77 billion as of September 30, 2015, primarily due to financing the Omnicare acquisition.
  • 6Goodwill increased significantly from $28.14 billion to $37.13 billion, driven by the Omnicare acquisition.
  • 7Diluted earnings per share from continuing operations for the nine months ended September 30, 2015, were $3.28, up from $2.82 in the prior year.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in the Pharmacy Services segment due to increased specialty pharmacy volume and higher claims in the pharmacy network. The Retail/LTC segment also saw significant growth, boosted by the acquisition of Omnicare and an increase in pharmacy same-store sales.

The acquisition of Omnicare for approximately $9.6 billion significantly increased CVS Health's assets, particularly goodwill and intangible assets. This also led to a substantial rise in long-term debt to finance the transaction. The Omnicare acquisition was integrated into the Retail/LTC segment, expanding its operations in long-term care pharmacy services.

CVS Health entered into an Asset Purchase Agreement with Target in June 2015 to acquire its pharmacy and clinic businesses for $1.887 billion. The closing of this acquisition was uncertain at the time of the filing and was subject to regulatory approval and other customary conditions.

Long-term debt significantly increased from $11.63 billion at December 31, 2014, to $26.77 billion at September 30, 2015. This increase was primarily due to the issuance of $15 billion in unsecured senior notes to fund the Omnicare acquisition and the assumption of Omnicare's debt.