10-QPeriod: Q3 FY2020

CVS HEALTH Corp Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 6, 2020For Securities:CVS

Summary

CVS Health Corporation reported solid revenue growth for the nine months ended September 30, 2020, driven by increases across all segments. Total revenues rose by 4.9% year-over-year to $199.15 billion. The company saw a notable 10.6% increase in Premiums revenue in the third quarter, contributing to overall revenue growth. Operating income also showed significant improvement, increasing by 27.2% for the nine-month period to $11.39 billion, bolstered by the sale of the Workers' Compensation business and improved purchasing economics in the Pharmacy Services segment. Despite challenges related to COVID-19 impacting certain operational aspects and expenses, CVS Health demonstrated resilience and improved profitability. Net income attributable to CVS Health for the nine months ended September 30, 2020, increased by 27.0% to $6.21 billion, or $4.72 per diluted share. The company's balance sheet remained strong, with total assets increasing to $232.9 billion. The company's liquidity position was also healthy, with $9.26 billion in cash and cash equivalents. Key strategic moves during the period included the extinguishment of significant debt, demonstrating active capital management. The company continues to navigate the evolving healthcare landscape, with a focus on its integrated health services model.

Financial Highlights

54 data points
Beta

Revenue

$67.06B

38.9% Gross Margin

Net Income

$1.22B

1.8% Net Margin

EPS (Diluted)

$0.93

Total Assets

$232.90B

Cash & Equivalents

$9.26B

Free Cash Flow

$1.34B

Financial Statements
Beta
Revenue$67.06B
Cost of Revenue$40.94B
Gross Profit$26.12B
Operating Expenses$63.81B
Operating Income$3.25B
Interest Expense$731.00M
Net Income$1.22B
EPS (Basic)$0.93
EPS (Diluted)$0.93
Shares Outstanding (Basic)1.31B
Shares Outstanding (Diluted)1.31B

Key Highlights

  • 1Total revenues increased by 4.9% for the first nine months of 2020 to $199.15 billion, driven by growth in all segments.
  • 2Operating income saw a significant increase of 27.2% for the nine months ended September 30, 2020, reaching $11.39 billion.
  • 3Net income attributable to CVS Health grew by 27.0% for the nine months ended September 30, 2020, to $6.21 billion.
  • 4The company reported a substantial gain on the sale of its Workers' Compensation business in the third quarter.
  • 5CVS Health managed its debt effectively, including a large extinguishment of senior notes in August 2020.
  • 6Despite COVID-19 related expenses and impacts, the company maintained strong cash flow from operating activities, which increased by 20.4% for the nine-month period.
  • 7The Health Care Benefits segment showed robust growth, particularly in Government products, with increased premium revenues.

Frequently Asked Questions

Revenue growth was driven by increases across all of CVS Health's segments, particularly notable in the Health Care Benefits segment due to membership growth in Government products and the reinstatement of the Health Insurer Fee (HIF). Pharmacy Services and Retail/LTC also contributed positively through increased prescription volume and specialty pharmacy growth.

The COVID-19 pandemic had a mixed impact. While it led to incremental operating expenses related to pandemic response efforts and reduced customer traffic in some areas, it also contributed to reduced benefit costs in the Health Care Benefits segment due to the deferral of elective procedures. The company also incurred expenses related to supporting customers, members, and colleagues.

CVS Health actively managed its debt by issuing new notes in March and August 2020, raising substantial capital. Concurrently, in August 2020, the company repurchased $6.0 billion of its outstanding senior notes through tender offers, resulting in a significant loss on early extinguishment of debt but also optimizing its capital structure.

The Health Care Benefits segment demonstrated strong performance, with total revenues increasing by 7.5% for the nine months ended September 30, 2020. This growth was primarily driven by a 15.9% increase in Government product premiums and a significant reduction in benefit costs due to deferred elective procedures, despite planned COVID-19 related investments. Operating income for this segment increased substantially by 57.1% year-over-year.