Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Overview of Business

CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health,” the “Company,” “we,” “our” or “us”), is a leading diversified health solutions company reshaping health care to help make healthier happen for more Americans. In an increasingly connected and digital world, CVS Health is meeting people wherever they are and changing health care to meet their needs. The Company has more than 9,000 retail locations, more than 1,100 walk-in medical clinics, a leading pharmacy benefits manager with over 110 million plan members with expanding specialty pharmacy solutions and a dedicated senior pharmacy care business serving more than one million patients per year. The Company also serves an estimated 37 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan (“PDP”). The Company is a leader in key segments of health care through its foundational businesses and is creating new sources of value by expanding into next generation care delivery and health services, with a goal of improving satisfaction levels for both providers and consumers. The Company believes its integrated health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs.

In connection with its new operating model adopted in the first quarter of 2023, the Company realigned the composition of its segments to reflect how its Chief Operating Decision Maker (the “CODM”) reviews information and manages the business. As a result of this realignment, the Company formed a new Health Services segment, which in addition to providing a full range of pharmacy benefit management (“PBM”) solutions, also delivers health care services in the Company’s medical clinics, virtually, and in the home, as well as provider enablement solutions. In addition, the Company created a new Pharmacy & Consumer Wellness segment, which includes its retail and long-term care pharmacy operations and related pharmacy services, as well as its retail front store operations. This segment will also provide pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. Prior period segment financial information has been recast to conform with the current period presentation.

Following the segment realignment described above, the Company’s four reportable segments are as follows: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other, which are described below.

Overview of the Health Care Benefits Segment

The Health Care Benefits segment operates as one of the nation’s leading diversified health care benefits providers. The Health Care Benefits segment has the information and resources to help members, in consultation with their health care professionals, make more informed decisions about their health care. The Health Care Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs and Medicaid health care management services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. The Company refers to insurance products (where it assumes all or a majority of the risk for medical and dental care costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.” In addition, effective January 2022, the Company entered the individual public health insurance exchanges (“Public Exchanges”) in eight states through which it sells Insured plans directly to individual consumers. The Company entered Public Exchanges in four additional states effective January 2023.

Overview of the Health Services Segment

The Health Services segment provides a full range of PBM solutions, delivers health care services in its medical clinics, virtually, and in the home, and offers provider enablement solutions. PBM solutions include plan design offerings and administration, formulary management, retail pharmacy network management services, and specialty and mail order pharmacy services. In addition, the Company provides clinical services, disease management services, medical spend management and pharmacy and/or other administrative services for providers and federal 340B drug pricing program covered entities (“Covered Entities”). The Company operates a group purchasing organization that negotiates pricing for the purchase of pharmaceuticals and rebates with pharmaceutical manufacturers on behalf of its participants and provides various administrative, management and reporting services to pharmaceutical manufacturers. The Health Services segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, plans offered on Public Exchanges and private health insurance exchanges, other sponsors of health benefit plans throughout the United States and Covered Entities.

Overview of the 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 conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and ancillary services to long-term care facilities and other care settings, and provides pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. As of March 31, 2023, the Pharmacy & Consumer Wellness segment operated more than 9,000 retail locations, as well as online retail pharmacy websites, LTC pharmacies and on-site pharmacies, retail specialty pharmacy stores, compounding pharmacies and branches for infusion and enteral nutrition services.

Overview of the Corporate/Other Segment

The Company presents the remainder of its financial results in the Corporate/Other segment, which primarily consists of:

• Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments, expenses associated with the Company’s investments in its transformation and enterprise modernization programs and acquisition-related transaction and integration costs; and

• Products for which the Company no longer solicits or accepts new customers such as its large case pensions and long-term care insurance products.

Overview of Current Trends

We also face trends and uncertainties specific to our reportable segments, certain of which are summarized below and also discussed in the review of our segment results. For the remainder of the year, the Company believes you should consider the following important information:

• The Health Care Benefits segment is expected to continue to benefit from Medicare and Commercial membership growth, partially offset by declines in Medicaid due to the impact of redeterminations in 2023.

• The Health Services segment is expected to continue to benefit from the Company’s ability to drive further improvements in purchasing economics and strong pharmacy network volume. These increases are expected to be partially offset by continued client price improvements and regulation of pharmacy pricing, as well as a recent expansion of pharmaceutical manufacturer policies restricting 340B discounts. The dilutive impact of the acquisition of Oak Street Health, Inc. (“Oak Street Health”) is expected to be partially offset by the accretive impact of the acquisition of Signify Health, Inc. (“Signify Health”) during the remainder of the year.

• The Pharmacy & Consumer Wellness segment is expected to continue to benefit from increased prescription volume and improved generic drug purchasing, partially offset by continued pharmacy reimbursement pressure and lower contributions from coronavirus disease 2019 (“COVID-19”) vaccinations, diagnostic testing and OTC test kits as COVID-19 transitions to an endemic stage.

• The Company is expected to benefit from the continuation of its enterprise-wide cost savings initiatives, which aim to reduce the Company’s operating cost structure in a way that improves the consumer experience and is sustainable. Key drivers include:

• Investments in digital, technology and analytics capabilities that will streamline processes and improve outcomes,

• Implementing workforce and workplace strategies, and

• Deploying vendor and procurement strategies.

• The Company expects changes to its business environment to continue as elected and other government officials at the national and state levels continue to propose and enact significant modifications to public policy and existing laws and regulations that govern or impact the Company’s businesses.

The Company’s current expectations described above are forward-looking statements. Please see the “Cautionary Statement Concerning Forward-Looking Statements” in this Form 10-Q for information regarding important factors that may cause the Company’s actual results to differ from those currently projected and/or otherwise materially affect the Company.

Operating Results

The following discussion explains the material changes in the Company’s operating results for the three months ended March 31, 2023 and 2022, and the significant developments affecting the Company’s financial condition since December 31, 2022. We strongly recommend that you read our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Summary of Consolidated Financial Results

			Three Months Ended March 31,																		Change
In millions			2023						2022																		$						%
Revenues:
Products			$	58,147					$	52,522																	$	5,625					10.7		%
Premiums			24,352						21,631																		2,721						12.6		%
Services			2,445						2,505																		(60)						(2.4)		%
Net investment income			334						168																		166						98.8		%
Total revenues			85,278						76,826																		8,452						11.0		%
Operating costs:
Cost of products sold			51,455						45,509																		5,946						13.1		%
Benefit costs			20,448						17,923																		2,525						14.1		%
Opioid litigation charge			—						484																		(484)						(100.0)		%
Loss on assets held for sale			349						41																		308						751.2		%
Operating expenses			9,580						9,324																		256						2.7		%
Total operating costs			81,832						73,281																		8,551						11.7		%
Operating income			3,446						3,545																		(99)						(2.8)		%
Interest expense			589						586																		3						0.5		%
Other income			(22)						(42)																		20						47.6		%
Income before income tax provision			2,879						3,001																		(122)						(4.1)		%
Income tax provision			737						646																		91						14.1		%
Net income			2,142						2,355																		(213)						(9.0)		%
Net income attributable to noncontrolling interests			(6)						(1)																		(5)						(500.0)		%
Net income attributable to CVS Health			$	2,136					$	2,354																	$	(218)					(9.3)		%

Commentary - Three Months Ended March 31, 2023 vs. 2022

Revenues

• Total revenues increased $8.5 billion, or 11.0%, in the three months ended March 31, 2023 compared to the prior year driven by growth across all segments.

• Please see “Segment Analysis” later in this report for additional information about the revenues of the Company’s segments.

Operating expenses

• Operating expenses increased $256 million, or 2.7%, in the three months ended March 31, 2023 compared to the prior year. The increase in operating expenses was primarily due to increased operating expenses to support growth in the business, incremental investments in business operations and an increase in acquisition-related transaction and integration costs compared to the prior year. These increases were partially offset by a decrease in amortization of intangible assets compared to the prior year.

• Operating expenses as a percentage of total revenues were 11.2% in the three months ended March 31, 2023, a decrease of 90 basis points compared to the prior year. The decrease in operating expenses as a percentage of total revenues was primarily due to the increases in total revenues described above.

• Please see “Segment Analysis” later in this report for additional information about the operating expenses of the Company’s segments.

Operating income

• Operating income decreased $99 million, or 2.8%, in the three months ended March 31, 2023 compared to prior year primarily due to declines in the Pharmacy & Consumer Wellness segment, including a $349 million loss on assets held for sale related to the write-down of the Company’s Omnicare® long-term care business (“LTC business”), as well as acquisition-related transaction and integration costs recorded in the current year. The decrease was partially offset by the absence of a $484 million opioid litigation charge recorded in the prior year and increased operating income in the Health Services segment.

• Please see “Segment Analysis” later in this report for additional information about the operating results of the Company’s segments.

Interest expense

• Interest expense remained relatively consistent, increasing $3 million, or 0.5%, in the three months ended March 31, 2023 compared to the prior year. See “Liquidity and Capital Resources” later in this report for additional information.

Income tax provision

• The effective income tax rate was 25.6% for the three months ended March 31, 2023 compared to 21.5% for the three months ended March 31, 2022. The increase in the tax rate was primarily due to the absence of the impact of certain discrete tax items concluded in the first quarter of 2022.

Segment Analysis

The following discussion of segment operating results is presented based on the Company’s reportable segments in accordance with the accounting guidance for segment reporting and is consistent with the segment disclosure in Note 12 ‘‘Segment Reporting’’ to the unaudited condensed consolidated financial statements.

The Company has three operating segments, Health Care Benefits, Health Services and Pharmacy & Consumer Wellness, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the Company’s 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. Adjusted operating income 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. Effective for the first quarter of 2023, adjusted operating income also excludes the impact of net realized capital gains or losses. See the reconciliations of operating income (GAAP measure) to adjusted operating income below for further context regarding the items excluded from operating income in determining adjusted operating income. 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. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.

Segment financial information for the three months ended March 31, 2023 reflects the following items:

*•*The realignment of the Company’s segments to correspond with changes made to its operating model as described in Note 1 ‘‘Significant Accounting Policies’’ to the unaudited condensed consolidated financial statements, including the discontinuance of the former Maintenance Choice segment reporting practice as described in Note (2) of the table below.

*•*The impact of the adoption of the long-duration insurance accounting standard, which the Company adopted on January 1, 2023 using a modified retrospective transition method, as described in Note 1 ‘‘Significant Accounting Policies’’ to the unaudited condensed consolidated financial statements.

• The exclusion of the impact of net realized capital gains or losses from adjusted operating income, as described above.

Segment financial information for the three months ended March 31, 2022 has been recast to conform with current period presentation for these items, the impact of which are reflected in the “Adjustments” lines of the table below.

The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals:

In millions			Health Care Benefits						Health Services (1)						Pharmacy & Consumer Wellness						Corporate/ Other						Intersegment Eliminations (2)						Consolidated Totals
Three Months Ended
March 31, 2023
Total revenues			$	25,877					$	44,591					$	27,922					$	188					$	(13,300)					$	85,278
Adjusted operating income (loss)			1,824						1,680						1,134						(268)						—						4,370
March 31, 2022
Total revenues, as previously reported			23,109						39,461						25,418						126						(11,288)						76,826
Adjustments			(15)						154						480						—						(619)						—
Total revenues, as adjusted			$	23,094					$	39,615					$	25,898					$	126					$	(11,907)					$	76,826
Adjusted operating income (loss), as previously reported			$	1,751					$	1,636					$	1,605					$	(305)					$	(204)					$	4,483
Adjustments			110						(165)						(32)						7						204						124
Adjusted operating income (loss), as adjusted			$	1,861					$	1,471					$	1,573					$	(298)					$	—					$	4,607

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(1)Total revenues of the Health Services segment include approximately $4.1 billion and $3.8 billion of retail co-payments for the three months ended March 31, 2023 and 2022, respectively.

(2)Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Health Services segment, and/or the Pharmacy & Consumer Wellness segment. Prior to January 1, 2023, intersegment adjusted operating income eliminations occurred when members of the Health Services segment's clients enrolled in Maintenance Choice elected to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail. When this occurred, both the Health Services and Pharmacy & Consumer Wellness segments recorded the adjusted operating income on a stand-alone basis. Effective January 1, 2023, the adjusted operating income associated with such transactions is reported only in the Pharmacy & Consumer Wellness segment, therefore no adjusted operating income elimination is required.

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:

			Three Months Ended March 31, 2023
In millions			Health Care Benefits						Health Services						Pharmacy & Consumer Wellness						Corporate/ Other												Consolidated Totals
Operating income (loss) (GAAP measure)			$	1,408					$	1,638					$	717					$	(317)											$	3,446
Amortization of intangible assets (1)			295						41						65						1												402
Net realized capital losses (2)			99						—						3						3												105
Loss on assets held for sale (3)			—						—						349						—												349
Acquisition-related transaction and integration costs (4)			—						—						—						43												43
Office real estate optimization charges (5)			22						1						—						2												25
Adjusted operating income (loss)			$	1,824					$	1,680					$	1,134					$	(268)											$	4,370

			Three Months Ended March 31, 2022
In millions			Health Care Benefits						Health Services						Pharmacy & Consumer Wellness						Corporate/ Other												Consolidated Totals
Operating income (loss) (GAAP measure)			$	1,467					$	1,427					$	1,435					$	(784)											$	3,545
Amortization of intangible assets (1)			295						44						122						1												462
Net realized capital losses (2)			58						—						16						1												75
Loss on assets held for sale (3)			41						—						—						—												41
Opioid litigation charge (6)			—						—						—						484												484
Adjusted operating income (loss)			$	1,861					$	1,471					$	1,573					$	(298)											$	4,607

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(1)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 unaudited 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.

(2)The Company’s net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of insurance liabilities. Net realized capital gains and losses are reflected in the unaudited condensed consolidated statements of operations in net investment income within each segment. These capital gains and losses are the result of investment decisions, market conditions and other economic developments that are unrelated to the performance of the Company’s business, and the amount and timing of these capital gains and losses do 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. Accordingly, the Company believes excluding net realized capital gains and losses 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.

(3)During the three months ended March 31, 2023, the loss on assets held for sale relates to the Company’s LTC reporting unit within the Pharmacy & Consumer Wellness segment. During 2022, the Company determined that its LTC business was no longer a strategic asset and committed to a plan to sell it, at which time the LTC business met the criteria for held-for-sale accounting and its net assets were accounted for as assets held for sale. As of March 31, 2023, the net assets of the LTC business continued to meet the criteria for held-for-sale accounting and during the first quarter of 2023, a loss on assets held for sale was recorded to write down the carrying value of the LTC business to the Company’s best estimate of the ultimate selling price which reflects its estimated fair value less costs to sell. During the three months ended March 31, 2022, the loss on assets held for sale relates to the Company’s international health care business domiciled in Thailand (“Thailand business”), which was included in the Commercial Business reporting unit in the Health Care Benefits segment. The sale of the Thailand business closed in the second quarter of 2022, and the ultimate loss on the sale was not material.

(4)During the three months ended March 31, 2023, the acquisition-related transaction and integration costs relate to the acquisitions of Signify Health and Oak Street Health. The acquisition-related transaction and integration costs are reflected in the Company’s unaudited condensed consolidated statement of operations in operating expenses within the Corporate/Other segment.

(5)During the three months ended March 31, 2023, the office real estate optimization charges primarily relate to the abandonment of leased real estate and the related right-of-use assets and property and equipment in connection with the planned reduction of corporate office real estate space in response to the Company’s new flexible work arrangement. The office real estate optimization charges are reflected in the Company’s unaudited condensed consolidated statement of operations in operating expenses within the Health Care Benefits, Corporate/Other and Health Services segments.

(6)During the three months ended March 31, 2022, the opioid litigation charge relates to an agreement to resolve substantially all opioid claims against the Company by the State of Florida. The opioid litigation charge is reflected within the Corporate/Other segment.

Health Care Benefits Segment

The following table summarizes the Health Care Benefits segment’s performance for the respective periods:

			Three Months Ended March 31,																		Change
In millions, except percentages and basis points (“bps”)			2023						2022																		$						%
Revenues:
Premiums			$	24,339					$	21,614																	$	2,725					12.6		%
Services			1,374						1,391																		(17)						(1.2)		%
Net investment income			164						89																		75						84.3		%
Total revenues			25,877						23,094																		2,783						12.1		%
Benefit costs			20,595						18,019																		2,576						14.3		%
MBR			84.6		%				83.4		%																120			bps
Loss on assets held for sale			$	—					$	41																	$	(41)					(100.0)		%
Operating expenses			3,874						3,567																		307						8.6		%
Operating expenses as a % of total revenues			15.0		%				15.4		%
Operating income			$	1,408					$	1,467																	$	(59)					(4.0)		%
Operating income as a % of total revenues			5.4		%				6.4		%
Adjusted operating income (1)			$	1,824					$	1,861																	$	(37)					(2.0)		%
Adjusted operating income as a % of total revenues			7.0		%				8.1		%
Premium revenues (by business):
Government			$	17,528					$	16,195																	$	1,333					8.2		%
Commercial			6,811						5,419																		1,392						25.7		%

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(1)See “Segment Analysis” above in this report for a reconciliation of Health Care Benefits segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

Commentary - Three Months Ended March 31, 2023 vs. 2022

Revenues

• Total revenues increased $2.8 billion, or 12.1%, to $25.9 billion in the three months ended March 31, 2023 compared to the prior year driven by growth across all product lines.

Medical Benefit Ratio (“MBR”)

• Medical benefit ratio is calculated as benefit costs divided by premium revenues and represents the percentage of premium revenues spent on medical benefits for the Company’s Insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Company’s Insured Health Care Benefits products.

*•*The MBR increased to 84.6% in the three months ended March 31, 2023 compared to 83.4% in the prior year reflective of the continued progression towards normalized utilization and lower impact from favorable development of prior-years’ health care cost estimates in the three months ended March 31, 2023 compared to the prior year.

Loss on assets held for sale

*•*During the three months ended March 31, 2022, the Company recorded a $41 million loss on assets held for sale on its

Thailand business, which was included in the Commercial Business reporting unit within the Health Care Benefits segment.

Operating expenses

• Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.

• Operating expenses increased $307 million, or 8.6%, in the three months ended March 31, 2023 compared to the prior year primarily driven by increased operating expenses to support the growth across all product lines described above.

*•*Operating expenses as a percentage of total revenues decreased to 15.0% in the three months ended March 31, 2023 compared to 15.4% in the prior year. The decrease in operating expenses as a percentage of total revenues was primarily driven by the increases in total revenues described above.

Adjusted operating income

*•*Adjusted operating income decreased slightly in the three months ended March 31, 2023 compared to the prior year primarily driven by the continued progression towards normalized utilization and lower impact from favorable development of prior-years’ health care cost estimates in the three months ended March 31, 2023 compared to the prior year. These decreases were largely offset by higher net investment income and membership growth across all product lines in the three months ended March 31, 2023.

The following table summarizes the Health Care Benefits segment’s medical membership for the respective periods:

			March 31, 2023																		December 31, 2022																								March 31, 2022
In thousands			Insured						ASC						Total						Insured						ASC						Total																								Insured						ASC						Total
Medical membership:
Commercial			3,949						14,039						17,988						3,136						13,896						17,032																								3,285						13,924						17,209
Medicare Advantage			3,387						—						3,387						3,270						—						3,270																								3,169						—						3,169
Medicare Supplement			1,344						—						1,344						1,363						—						1,363																								1,292						—						1,292
Medicaid			2,293						501						2,794						2,234						497						2,731																								2,375						477						2,852
Total medical membership			10,973						14,540						25,513						10,003						14,393						24,396																								10,121						14,401						24,522
Supplemental membership information:
Medicare Prescription Drug Plan (standalone)															6,112																		6,128																																				6,022

Medical Membership

• Medical membership represents the number of members covered by the Company’s Insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on segment total revenues and operating results.

• Medical membership as of March 31, 2023 of 25.5 million increased 1.1 million members compared with December 31, 2022, driven by increases across all product lines including an increase of approximately 900,000 members related to the individual exchange business within the Commercial product line.

Medicare Update

On March 31, 2023, the U.S. Centers for Medicare & Medicaid Services (“CMS”) issued its final notice detailing final 2024 Medicare Advantage payment rates. Final 2024 Medicare Advantage rates resulted in an expected average decrease in revenue for the Medicare Advantage industry of 1.12%, excluding the CMS estimate of Medicare Advantage risk score trend.

Health Services Segment (formerly Pharmacy Services Segment)

The following table summarizes the Health Services segment’s performance for the respective periods:

			Three Months Ended March 31,																		Change
In millions, except percentages			2023						2022																		$						%
Revenues:
Products			$	43,671					$	38,899																	$	4,772					12.3		%
Services			920						716																		204						28.5		%
Total revenues			44,591						39,615																		4,976						12.6		%
Cost of products sold			42,416						37,622																		4,794						12.7		%
Operating expenses			537						566																		(29)						(5.1)		%
Operating expenses as a % of total revenues			1.2		%				1.4		%
Operating income			$	1,638					$	1,427																	$	211					14.8		%
Operating income as a % of total revenues			3.7		%				3.6		%
Adjusted operating income (1)			$	1,680					$	1,471																	$	209					14.2		%
Adjusted operating income as a % of total revenues			3.8		%				3.7		%
Revenues (by distribution channel):
Pharmacy network (2)			$	27,592					$	24,128																	$	3,464					14.4		%
Mail & specialty (3)			16,145						14,668																		1,477						10.1		%
Other			854						819																		35						4.3		%
Pharmacy claims processed (4)			587.3						566.5																		20.8						3.7		%
Generic dispensing rate (4)			88.4		%				87.7		%

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(1)See “Segment Analysis” above in this report for a reconciliation of Health Services segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

(2)Pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies. Effective January 1, 2023, pharmacy network revenues also include activity associated with Maintenance Choice, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order. Maintenance Choice activity was previously reflected in mail & specialty revenues. Prior period financial information has been revised to conform with current period presentation.

(3)Mail & specialty revenues relate to specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment. Effective January 1, 2023, mail & specialty revenues exclude Maintenance Choice activity, which is now reported within pharmacy network revenues. Prior period financial information has been revised to conform with current period presentation.

(4)Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

Commentary - Three Months Ended March 31, 2023 vs. 2022

Revenues

• Total revenues increased $5.0 billion, or 12.6%, to $44.6 billion in the three months ended March 31, 2023 compared to the prior year primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued pharmacy client price improvements.

Operating expenses

• Operating expenses in the Health Services segment include selling, general and administrative expenses; and depreciation and amortization expense.

• Operating expenses as a percentage of total revenues remained relatively consistent at 1.2% and 1.4% in the three-month periods ended March 31, 2023 and 2022, respectively.

Adjusted operating income

• Adjusted operating income increased $209 million, or 14.2%, in the three months ended March 31, 2023 compared to the prior year. The increase in adjusted operating income was primarily driven by improved purchasing economics, including increased contributions from the products and services of the Company’s group purchasing organization, and increased pharmacy claims volume. These increases were partially offset by continued pharmacy client price improvements and decreased COVID-19 diagnostic testing in the segment’s MinuteClinic walk-in medical clinics compared to the prior year.

• As you review the Health Services segment’s performance in this area, you should consider the following important information about the business:

• The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates, fees and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on adjusted operating income. In particular, competitive pressures in the PBM industry have caused the Company and other PBMs to continue to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and the Company expects these trends to continue. The “differential” or “spread” is any difference between the drug price charged to plan sponsors, including Medicare Part D plan sponsors, by a PBM and the price paid for the drug by the PBM to the dispensing provider.

Pharmacy claims processed

• Pharmacy claims processed represents the number of prescription claims processed through the Company’s pharmacy benefits manager and dispensed by either its retail network pharmacies or the Company’s mail and specialty pharmacies. Management uses this metric to understand variances between actual claims processed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of pharmacy claim volume on segment total revenues and operating results.

• The Company’s pharmacy claims processed on a 30-day equivalent basis increased 3.7% in the three months ended March 31, 2023 compared to the prior year primarily driven by net new business, increased utilization and the impact of an elevated cough, cold and flu season compared to the prior year. These increases were partially offset by a decrease in COVID-19 vaccinations.

• Excluding the impact of COVID-19 vaccinations, pharmacy claims processed increased 4.8% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year.

Generic dispensing rate

• Generic dispensing rate is calculated by dividing the Health Services segment’s generic drug claims processed by its total claims processed. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.

• The Health Services segment’s generic dispensing rate increased to 88.4% in the three months ended March 31, 2023 compared to 87.7% in the prior year. The increase in the segment’s generic dispensing rate was primarily driven by a decrease in brand prescriptions, largely attributable to decreased COVID-19 vaccinations in the three months ended March 31, 2023 compared to the prior year. Excluding the impact of COVID-19 vaccinations, the segment’s generic dispensing rate was 88.5% and 88.8% in the three months ended March 31, 2023 and 2022, respectively.

Pharmacy & Consumer Wellness Segment (formerly Retail/LTC Segment)

The following table summarizes the Pharmacy & Consumer Wellness segment’s performance for the respective periods:

			Three Months Ended March 31,																		Change
In millions, except percentages			2023						2022																		$						%
Revenues:
Products			$	27,258					$	24,904																	$	2,354					9.5		%
Services			667						1,010																		(343)						(34.0)		%
Net investment income (loss)			(3)						(16)																		13						81.3		%
Total revenues			27,922						25,898																		2,024						7.8		%
Cost of products sold			21,876						19,382																		2,494						12.9		%
Loss on assets held for sale			349						—																		349						100.0		%
Operating expenses			4,980						5,081																		(101)						(2.0)		%
Operating expenses as a % of total revenues			17.8		%				19.6		%
Operating income			$	717					$	1,435																	$	(718)					(50.0)		%
Operating income as a % of total revenues			2.6		%				5.5		%
Adjusted operating income (1)			$	1,134					$	1,573																	$	(439)					(27.9)		%
Adjusted operating income as a % of total revenues			4.1		%				6.1		%
Revenues (by major goods/service lines):
Pharmacy			$	21,495					$	19,532																	$	1,963					10.1		%
Front Store			5,597						5,313																		284						5.3		%
Other			833						1,069																		(236)						(22.1)		%
Net investment income (loss)			(3)						(16)																		13						81.3		%
Prescriptions filled (2)			404.8						395.1																		9.7						2.5		%
Same store sales increase: (3)
Total			11.6		%				10.9		%
Pharmacy			12.7		%				10.1		%
Front Store			7.7		%				13.9		%
Prescription volume (2)			5.0		%				6.1		%
Generic dispensing rate (2)			89.4		%				87.5		%

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(1)See “Segment Analysis” above in this report for a reconciliation of Pharmacy & Consumer Wellness segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

(2)Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

(3)Same store sales and prescription volume represent the change in revenues and prescriptions filled in the Company’s retail pharmacy stores that have been operating for greater than one year, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues and prescriptions from LTC and infusion services operations. Effective January 1, 2023, same store sales also include digital sales initiated online or through mobile applications and fulfilled through the Company’s distribution centers. Prior period financial information has been revised to conform with current period presentation. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.

Commentary - Three Months Ended March 31, 2023 vs. 2022

Revenues

• Total revenues increased $2.0 billion, or 7.8%, to $27.9 billion in the three months ended March 31, 2023 compared to the prior year primarily driven by increased prescription and front store volume, pharmacy drug mix and brand inflation. These increases were partially offset by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing and the impact of recent generic introductions.

• Pharmacy same store sales increased 12.7% in the three months ended March 31, 2023 compared to the prior year. The increase was primarily driven by the 5.0% increase in pharmacy same store prescription volume on a 30-day equivalent basis, pharmacy drug mix and brand inflation. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic introductions.

• Front store same store sales increased 7.7% in the three months ended March 31, 2023 compared to the prior year. The increase was primarily due to strength in consumer health, including the impact of an elevated cough, cold and flu season compared to the prior year, as well as increased beauty product sales in the three months ended March 31, 2023.

• Other revenues decreased $236 million in the three months ended March 31, 2023 compared to the prior year. The decrease was primarily due to decreased COVID-19 diagnostic testing in the three months ended March 31, 2023 compared to the prior year.

Loss on assets held for sale

*•*During the three months ended March 31, 2023, the Company recorded a $349 million loss on assets held for sale related to the write-down of its LTC business. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ to the unaudited condensed consolidated financial statements for additional information.

Operating expenses

*•*Operating expenses in the Pharmacy & Consumer Wellness segment include payroll, employee benefits and occupancy costs associated with the segment’s stores and pharmacy fulfillment operations; selling expenses; advertising expenses; depreciation and amortization expense and certain administrative expenses.

• Operating expenses decreased $101 million, or 2.0%, in the three months ended March 31, 2023 compared to the prior year. The decrease was primarily due to lower expenses associated with COVID-19 vaccination administration and a decrease in amortization of intangible assets compared to the prior year. These decreases were partially offset by incremental costs associated with increased volume and increased investments in the segment’s operations and capabilities.

*•*Operating expenses as a percentage of total revenues decreased to 17.8% in the three months ended March 31, 2023 compared to 19.6% in the prior year. The decrease in operating expenses as a percentage of total revenues was driven by the increases in total revenues and decreases in operating expenses described above.

Adjusted operating income

• Adjusted operating income decreased $439 million, or 27.9% in the three months ended March 31, 2023 compared to the prior year. The decrease in adjusted operating income was primarily driven by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing and increased investments in the segment’s operations and capabilities. These decreases were partially offset by the increased prescription volume described above and improved generic drug purchasing.

• As you review the Pharmacy & Consumer Wellness segment’s performance in this area, you should consider the following important information about the business:

• The segment’s adjusted operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business within the pharmacy portion of the Pharmacy & Consumer Wellness segment. If the pharmacy reimbursement pressure accelerates, the segment may not be able to grow revenues, and its adjusted operating income could be adversely affected.

• The increased use of generic drugs has positively impacted the segment’s adjusted operating income but has resulted in third-party payors augmenting their efforts to reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which the Company expects to continue, reduces the benefit the segment realizes from brand to generic drug conversions.

Prescriptions filled

• Prescriptions filled represents the number of prescriptions dispensed through the Pharmacy & Consumer Wellness segment’s retail and long-term care pharmacies and infusion services operations. Management uses this metric to understand variances between actual prescriptions dispensed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of prescription volume on segment total revenues and operating results.

• Prescriptions filled increased 2.5% on a 30-day equivalent basis in the three months ended March 31, 2023 compared to the prior year primarily driven by increased utilization and the impact of an elevated cough, cold and flu season compared to the prior year. These increases were partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 4.5% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year.

Generic dispensing rate

• Generic dispensing rate is calculated by dividing the Pharmacy & Consumer Wellness segment’s generic drug prescriptions filled by its total prescriptions filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for

client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.

• The Pharmacy & Consumer Wellness segment’s generic dispensing rate increased to 89.4% in the three months ended March 31, 2023 compared to 87.5% in the prior year. The increase in the segment’s generic dispensing rate was primarily driven by a decrease in brand prescriptions, largely attributable to decreased COVID-19 vaccinations in the three months ended March 31, 2023 compared to the prior year. Excluding the impact of COVID-19 vaccinations, the segment’s total generic dispensing rate was 89.7% in both the three months ended March 31, 2023 and 2022.

Corporate/Other Segment

The following table summarizes the Corporate/Other segment’s performance for the respective periods:

			Three Months Ended March 31,																		Change
In millions, except percentages			2023						2022																		$						%
Revenues:
Premiums			$	13					$	17																	$	(4)					(23.5)		%
Services			2						14																		(12)						(85.7)		%
Net investment income			173						95																		78						82.1		%
Total revenues			188						126																		62						49.2		%
Cost of products sold			1						10																		(9)						(90.0)		%
Benefit costs			52						61																		(9)						(14.8)		%
Opioid litigation charge			—						484																		(484)						(100.0)		%
Operating expenses			452						355																		97						27.3		%
Operating loss			(317)						(784)																		467						59.6		%
Adjusted operating loss (1)			(268)						(298)																		30						10.1		%

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(1)See “Segment Analysis” above in this report for a reconciliation of Corporate/Other segment operating loss (GAAP measure) to adjusted operating loss, which represents the Company’s principal measure of segment performance.

Commentary - Three Months Ended March 31, 2023 vs. 2022

Revenues

• Revenues primarily relate to products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care insurance products.

*•*Total revenues increased $62 million, or 49.2%, to $188 million in the three months ended March 31, 2023 compared to the prior year primarily driven by higher average invested assets and favorable average investment yields compared to the prior year, partially offset by decreased net investment income from private equity investments compared to the prior year.

Opioid litigation charge

*•*During the three months ended March 31, 2022, the Company recorded a $484 million opioid litigation charge. See

Note 11 ‘‘Commitments and Contingencies’’ to the unaudited condensed consolidated financial statements for additional information.

Adjusted operating loss

• Adjusted operating loss decreased $30 million in the three months ended March 31, 2023 compared to the prior year primarily driven by the increases in net investment income described above, partially offset by an increase in operating expenses.

Liquidity and Capital Resources

Cash Flows

The Company maintains a level of liquidity sufficient to allow it to meet its cash needs in the short-term. Over the long term, the Company manages its cash and capital structure to maximize shareholder return, maintain its financial condition and maintain flexibility for future strategic initiatives. The Company continuously assesses its regulatory capital requirements, working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements, dividend payouts, potential share repurchases and future investments or acquisitions. The Company believes its operating cash flows, commercial paper program, credit facilities, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives. As of March 31, 2023, the Company had approximately $14.6 billion in cash and cash equivalents, approximately $2.7 billion of which was held by the parent company or nonrestricted subsidiaries.

The net change in cash, cash equivalents and restricted cash during the three months ended March 31, 2023 and 2022 was as follows:

			Three Months Ended March 31,												Change
In millions, except percentages			2023						2022						$						%
Net cash provided by operating activities			$	7,438					$	3,563					$	3,875					108.8		%
Net cash used in investing activities			(8,514)						(1,993)						(6,521)						(327.2)		%
Net cash provided by (used in) financing activities			2,726						(2,650)						5,376						202.9		%
Net increase (decrease) in cash, cash equivalents and restricted cash			$	1,650					$	(1,080)					$	2,730					252.8		%

Commentary

• Net cash provided by operating activities increased by $3.9 billion in the three months ended March 31, 2023 compared to the prior year. The increase was primarily due to the early receipt of the April CMS payment of $5.1 billion, partially offset by the timing of payments.

• Net cash used in investing activities increased by $6.5 billion in the three months ended March 31, 2023 compared to the prior year primarily due to the acquisition of Signify Health in March 2023, partially offset by lower net purchases of investments.

• Net cash provided by financing activities was $2.7 billion in the three months ended March 31, 2023 compared to net cash used in financing activities of $2.7 billion in the prior year. The increase in cash provided by financing activities primarily related to proceeds from the issuance of $6.0 billion of long-term senior notes in the three months ended March 31, 2023.

Short-term Borrowings

Commercial Paper and Back-up Credit Facilities

The Company did not have any commercial paper outstanding as of March 31, 2023. In connection with its commercial paper program, the Company maintains a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2025, a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 11, 2026, and a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2027. The credit facilities allow for borrowings at various rates that are dependent, in part, on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately 0.03%, regardless of usage. As of March 31, 2023, there were no borrowings outstanding under any of the Company’s back-up credit facilities.

Term Loan Agreement

On May 1, 2023, the Company entered into a 364-day $5.0 billion term loan agreement. The term loan agreement allows for borrowings at various rates that are dependent, in part, on the Company’s debt ratings. On May 2, 2023, the Company borrowed $5.0 billion under the term loan agreement to fund a portion of the Oak Street Health acquisition purchase price.

Federal Home Loan Bank of Boston

A subsidiary of the Company is a member of the Federal Home Loan Bank of Boston (the “FHLBB”). As a member, the subsidiary has the ability to obtain cash advances, subject to certain minimum collateral requirements. The maximum borrowing capacity available from the FHLBB as of March 31, 2023 was approximately $990 million. As of March 31, 2023, there were no outstanding advances from the FHLBB.

Long-term Borrowings

2023 Notes

On February 21, 2023, the Company issued $1.5 billion aggregate principal amount of 5.0% senior notes due February 2026, $1.5 billion aggregate principal amount of 5.125% senior notes due February 2030, $1.75 billion aggregate principal amount of 5.25% senior notes due February 2033 and $1.25 billion aggregate principal amount of 5.625% senior notes due February 2053 for total proceeds of approximately $6.0 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used to fund general corporate purposes, including a portion of the Signify Health Acquisition purchase price.

Debt Covenants

The Company’s back-up revolving credit facilities and unsecured senior notes contain customary restrictive financial and operating covenants. These covenants do not include an acceleration of the Company’s debt maturities in the event of a downgrade in the Company’s credit ratings. The Company does not believe the restrictions contained in these covenants materially affect its financial or operating flexibility. As of March 31, 2023, the Company was in compliance with all of its debt covenants.

Debt Ratings

As of March 31, 2023, the Company’s long-term debt was rated “Baa2” by Moody’s Investor Service, Inc. (“Moody’s”) and “BBB” by Standard & Poor’s Financial Services LLC (“S&P”), and its commercial paper program was rated “P-2” by Moody’s and “A-2” by S&P. The outlook on the Company’s long-term debt is “Stable” by both Moody’s and S&P. In assessing the Company’s credit strength, the Company believes that both Moody’s and S&P considered, among other things, the Company’s capital structure and financial policies as well as its consolidated balance sheet, its historical acquisition activity and other financial information. Although the Company currently believes its long-term debt ratings will remain investment grade, it cannot guarantee the future actions of Moody’s and/or S&P. The Company’s debt ratings have a direct impact on its future borrowing costs, access to capital markets and new store operating lease costs.

Share Repurchase Program

The following share repurchase program has been authorized by CVS Health Corporation’s Board of Directors (the “Board”):

In billions Authorization Date			Authorized						Remaining as of March 31, 2023
November 17, 2022 (“2022 Repurchase Program”)			$	10.0					$	10.0
December 9, 2021 (“2021 Repurchase Program”)			10.0						4.5

Each of the share Repurchase Programs was effective immediately and permit the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase (“ASR”) transactions, and/or other derivative transactions. Both the 2022 and 2021 Repurchase Programs can be modified or terminated by the Board at any time.

During the three months ended March 31, 2023 and 2022, the Company repurchased an aggregate of 22.8 million shares of common stock for approximately $2.0 billion and an aggregate of 19.1 million shares of common stock for approximately $2.0 billion, respectively, both pursuant to the 2021 Repurchase Program. This activity includes the share repurchases under the ASR transactions described below.

Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $2.0 billion fixed dollar ASR with Citibank, N.A. (“Citibank”). Upon payment of the $2.0 billion purchase price on January 4, 2023, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $2.0 billion notional amount of the ASR or approximately 17.4 million shares at a price of $92.19 per share, which were placed into treasury stock in January 2023. The ASR was accounted for as an initial treasury stock transaction for $1.6 billion and a forward contract for $0.4 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2023, the Company received approximately 5.4 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $2.0 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury and the forward contract was reclassified from capital surplus to treasury stock in February 2023.

Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $1.5 billion fixed dollar ASR with Barclays Bank PLC (“Barclays”). Upon payment of the $1.5 billion purchase price on January 4, 2022, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $1.5 billion notional amount of the ASR or approximately 11.6 million shares at a price of $103.34 per share, which were placed into treasury stock in January 2022. The ASR was accounted for as an initial treasury stock transaction for $1.2 billion and a forward contract for $0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2022, the Company received approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $1.5 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury and the forward contract was reclassified from capital surplus to treasury stock in February 2022.

At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share.

Critical Accounting Policies

The Company prepares the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles, which require management to make certain estimates and apply judgment. Estimates and judgments are based on historical experience, current trends and other factors that management believes to be important at the time the unaudited condensed consolidated financial statements are prepared. On a regular basis, the Company reviews its accounting policies and how they are applied and disclosed in the unaudited condensed consolidated financial statements. While the Company believes the historical experience, current trends and other factors considered by management support the preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles, actual results could differ from estimates, and such differences could be material.

For a full description of the Company’s other critical accounting policies, see “Critical Accounting Policies” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2022 Form 10-K.

Cautionary Statement Concerning Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a “safe harbor” for forward-looking statements, so long as (1) those statements are identified as forward-looking and (2) the statements are accompanied by meaningful cautionary statements that identify important factors that could cause actual results to differ materially from those discussed in the statement. We want to take advantage of these safe harbor provisions.

Certain information contained in this Quarterly Report on Form 10-Q (this “report”) is forward-looking within the meaning of the Reform Act or SEC rules. This information includes, but is not limited to the forward-looking information in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2 of this report. In addition, throughout this report and our other reports and communications, we use the following words or variations or negatives of these words and similar expressions when we intend to identify forward-looking statements:

·			Anticipates			·			Believes			·			Can			·			Continue			·			Could
·			Estimates			·			Evaluate			·			Expects			·			Explore			·			Forecast
·			Guidance			·			Intends			·			Likely			·			May			·			Might
·			Outlook			·			Plans			·			Potential			·			Predict			·			Probable
·			Projects			·			Seeks			·			Should			·			View			·			Will

All statements addressing the future operating performance of CVS Health or any segment or any subsidiary and/or future events or developments, including statements relating to the impact of COVID-19 and any new variants or viruses on the Company’s businesses, investment portfolio, operating results, cash flows and/or financial condition, statements relating to corporate strategy, statements relating to future revenue, operating income or adjusted operating income, earnings per share or adjusted earnings per share, Health Care Benefits segment business, sales results and/or trends, medical cost trends, medical membership, Medicare Part D membership, medical benefit ratios and/or operations, Health Services segment business, sales results and/or trends and/or operations, Pharmacy & Consumer Wellness segment business, sales results and/or trends and/or operations, incremental investment spending, interest expense, effective tax rate, weighted-average share count, cash flow from operations, net capital expenditures, cash available for debt repayment, statements related to possible, proposed or pending acquisitions, joint ventures, investments or combinations that involve, among other things, the timing or likelihood of receipt of regulatory approvals, the timing of completion, integration synergies, net synergies and integration risks and other costs, including those related to CVS Health’s acquisitions of Signify Health and Oak Street Health, enterprise modernization,

Form 10-Q Table of Contents

transformation, leverage ratio, cash available for enhancing shareholder value, inventory reduction, turn rate and/or loss rate, debt ratings, the Company’s ability to attract or retain customers and clients, store development and/or relocations, new product development, and the impact of industry and regulatory developments as well as statements expressing optimism or pessimism about future operating results or events, are forward-looking statements within the meaning of the Reform Act.

Forward-looking statements rely on a number of estimates, assumptions and projections concerning future events, and are subject to a number of significant risks and uncertainties and other factors that could cause actual results to differ materially from those statements. Many of these risks and uncertainties and other factors are outside our control.

Certain additional risks and uncertainties and other factors are described under “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and under “Risk Factors” included in Part II, Item 1A of this report; these are not the only risks and uncertainties we face. There can be no assurance that the Company has identified all the risks that may affect it. Additional risks and uncertainties not presently known to the Company or that the Company currently believes to be immaterial also may adversely affect the Company’s businesses. If any of those risks or uncertainties develops into actual events, those events or circumstances could have a material adverse effect on the Company’s businesses, operating results, cash flows, financial condition and/or stock price, among other effects.

You should not put undue reliance on forward-looking statements. Any forward-looking statement speaks only as of the date of this report, and we disclaim any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, uncertainties or otherwise.