10-QPeriod: Q2 FY2020

CVS HEALTH Corp Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 5, 2020For Securities:CVS

Summary

CVS Health Corporation reported a strong financial performance for the second quarter of 2020, with total revenues increasing by 3.0% to $65.34 billion compared to the same period in 2019. This growth was driven by increases across all segments, particularly in Premiums and Products. Despite incremental operating expenses related to COVID-19 response, the company saw a significant increase in operating income of 40.5% to $4.68 billion, largely due to a substantial decrease in benefit costs within the Health Care Benefits segment, a direct consequence of deferred elective procedures and reduced discretionary utilization during the pandemic. Net income attributable to CVS Health surged by 53.7% to $2.98 billion, or $2.26 per diluted share, reflecting the operational efficiencies and the favorable impact of the pandemic on certain cost structures. The company also demonstrated robust operational cash flow, increasing by 43.1% to $10.42 billion for the first six months of 2020, bolstered by tax payment deferrals and reduced benefit costs. The company maintained a strong liquidity position with $14.87 billion in cash and cash equivalents as of June 30, 2020.

Financial Highlights

55 data points
Beta

Revenue

$65.34B

38.4% Gross Margin

Net Income

$2.99B

4.6% Net Margin

EPS (Diluted)

$2.26

Total Assets

$235.50B

Cash & Equivalents

$14.87B

Free Cash Flow

$6.67B

Financial Statements
Beta
Revenue$65.34B
Cost of Revenue$40.24B
Gross Profit$25.10B
Operating Expenses$60.66B
Operating Income$4.68B
Interest Expense$765.00M
Net Income$2.99B
EPS (Basic)$2.27
EPS (Diluted)$2.26
Shares Outstanding (Basic)1.31B
Shares Outstanding (Diluted)1.31B

Key Highlights

  • 1Total revenues increased by 3.0% to $65.34 billion in Q2 2020 compared to Q2 2019.
  • 2Operating income saw a significant increase of 40.5% to $4.68 billion in Q2 2020.
  • 3Net income attributable to CVS Health grew by 53.7% to $2.98 billion in Q2 2020.
  • 4Diluted EPS increased to $2.26 in Q2 2020 from $1.49 in Q2 2019.
  • 5Net cash provided by operating activities increased by 43.1% to $10.42 billion for the first six months of 2020.
  • 6The company reported $14.87 billion in cash and cash equivalents as of June 30, 2020.
  • 7Benefit costs decreased by 10.2% in Q2 2020 compared to Q2 2019, largely due to COVID-19 related deferral of elective procedures.

Frequently Asked Questions

The primary driver of the significant increase in operating income was the substantial decrease in benefit costs within the Health Care Benefits segment. This was largely due to the deferral of elective medical procedures and other discretionary healthcare utilization as a result of the COVID-19 pandemic. While this reduced benefit costs, it also led to increased operating expenses in other segments due to COVID-19 response efforts.

COVID-19 had a mixed impact. On the revenue side, it adversely affected Retail/LTC and Pharmacy Services segments due to reduced new therapy prescriptions and lower front store sales from shelter-in-place orders. However, it significantly reduced benefit costs in the Health Care Benefits segment. Overall, total revenues increased slightly, but operating expenses increased due to COVID-19 response efforts such as remote work and safety measures.

As of June 30, 2020, CVS Health maintained a strong liquidity position with $14.87 billion in cash and cash equivalents. The company also had approximately $7.0 billion held by the parent company or non-restricted subsidiaries. This robust cash position was further bolstered by a $4 billion issuance of senior notes in March 2020 to enhance liquidity.

The Pharmacy Services segment saw a slight increase in total revenues of 0.1% to $34.89 billion. Operating income for the segment increased by 6.2% to $1.27 billion, and adjusted operating income increased by 2.4% to $1.33 billion. This performance was driven by growth in specialty pharmacy and improved purchasing economics, partially offset by client losses and price compression.