The Cigna Group

Ladies and gentlemen, thank you for standing by for Cigna's fourth quarter 2018 results review. At this time, all callers are in a listen-only mode. We will conduct a question and answer session later during the conference and review procedures on how to enter queue to ask questions at that time. If you should require assistance during the call, please press star then zero on your touchtone phone. As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Mr. Will McDowell. Please go ahead, Mr. McDowell.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. With me this morning are David Cordani, our President and Chief Executive Officer, and Eric Palmer, Cigna's Chief Financial Officer. In our remarks today, David and Eric will cover a number of topics, including Cigna's full year 2018 financial results, as well as our financial outlook for 2019. As noted in our earnings release, when describing our financial results, Cigna uses certain financial measures, adjusted income from operations, and adjusted revenues, which are not determined in accordance with accounting principles generally accepted in the United States, otherwise known as GAAP. A reconciliation of these measures to the most directly comparable GAAP measures, shareholders net income and total revenues, respectively, is contained in today's earnings release, which is posted in the investor relations section of Cigna.com. We use the term labeled adjusted income from operations and earnings per share on this same basis as our principal measures of financial performance. In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2019 and future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectation. A description of these risks and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC. Before turning the call over to David, I will cover a few items pertaining to our financial results and disclosures. First, I remind you that we recently announced changes in our segment reporting. These changes were made to align with the company's organizational structure following the completion of the combination with Express Scripts on December 20th, 2018. In connection with this change, Cigna's results are now reported through the following five segments, integrated medical, health services, international markets, group disability and other, and finally, corporates. As previously disclosed, Cigna has also updated our financial reporting practices as follows. First, we exclude contributions from transitioning clients from adjusted income from operations and adjusted revenue. Transitioning clients reflect contributions from Anthem and Coventry and their clients. Second, at the segment level, adjusted income from operations is now reported on a pre-tax basis to better align with corporate and segment management team responsibilities. Third, when ERIC discusses our expense ratio, he is referring to our consolidated selling general and administrative expense ratio, which is calculated by dividing Cigna's total selling general and administrative expenses, excluding special items, and expenses from transitioning clients by Cigna's consolidated adjusted revenues. And fourth, the company's financial statements are now reported on the basis of Article V of Regulation SX, which is the general standard for service companies and the basis used by our largest managed care competitors. Previously, Cigna's financial statements were reported under Article VII generally used by insurance companies. The reporting updates I have just described enable Cigna to continue to provide high-quality, transparent financial reporting to the investment community. In Cigna's earnings release and financial supplement issued this morning, these changes have been applied retrospectively to facilitate comparisons to prior periods, and I want to stress that as a result of these segment changes and reclassifications, there is no change to our historically reported consolidated shareholders' net income, consolidated adjusted income from operations, earnings per share, shareholders' equity, or cash flows. Moving to results in the quarter. In the fourth quarter, we recorded special items totaling to a charge of $389 million, or $1.48 per share, primarily to reflect the impact of merger-related transaction costs. As described in today's earnings release, special items are excluded from adjusted income from operations and adjusted revenues in our discussion of financial results. Please note that when we make prospective comments regarding financial performance, including our full year 2019 outlook, we will do so on a basis that reflects our new basis of segment reporting and the additional financial reporting updates I have described this morning and excludes the impact of any future share repurchases or prior development of medical costs. Finally, I remind you that Cigna will be hosting our upcoming Investor Day on May 31st in New York City. With that, I will turn the call over to David.

Thanks, Will. Good morning, everyone, and thank you for joining our call today. I'll begin my comments with highlights from our exceptional 2018 financial results with Cigna delivering substantial revenue and earnings growth across our businesses. I'll also review how our combination with Express Scripts further strengthens the affordability of our programs, expands choice for those we serve. Then I'll offer initial insights into our exceptional expectations for 2019 before Eric addresses our full year 2018 financial results 2019 outlook in more detail. Eric and I will take your questions, after which I'll wrap up our call with a few closing comments. Let's dive in to review some of our performance highlights from last year, where we delivered strong revenue and earnings growth. Our full-year consolidated adjusted revenue increased by 15% to $48 billion, and we reported full-year adjusted income from operations of $3.6 billion, or $14.22 per share. representing a per-share increase of 36%. These results were driven by substantial growth in contributions across each of our businesses, including strong retention levels, the continued expansion and deepening of our customer and client relationships, and solid new growth across our portfolio. We can also deliver an industry-leading medical cost trend for the sixth consecutive year. Our sustained market-leading performance will further be strengthened as we integrate and leverage the core capabilities of Express Scripts, Express Scripts concluded 2018 with continued strong performance and delivered its lowest commercial pharmacy trend on record of 0.4%, details of which will be provided next week in our annual drug trend report. Express Scripts also achieved better than 98% client retention for 2019, all while continuing to invest in innovations that benefit customers, patients, clients, as well as healthcare providers. Overall, Cigna delivered very strong results in 2018 with growth across our portfolio of businesses. Our continued growth reflects Cigna's proven approach to service integration and how it delivers real value for the benefit of our customers, patients, clients, and healthcare provider partners. Our recent report on the value of integration, which was externally validated, shows that clients with Cigna medical, pharmacy, and behavioral benefits reduce annual medical costs by an average of $645 for each person with an identified health improvement opportunity. Savings can increase to nearly $10,000 for individuals with certain chronic conditions. As we look forward, Cigna is evolving our definition and approach to integration, driven by the insights we gain from a deeper understanding of our customers, as well as the broader capabilities from our Express Scripts combination. Our approach to integration focuses on the coordination of services around the individual and their whole person health needs. both body and mind. This approach also further expands choice, so access is available anytime, anywhere, based on our customer and patient's needs and preferences. To do this, we must remove friction and help our customers and patients connect to the services which are best aligned to their health status. In an environment where some are restricting access in order to narrowly drive affordability, at Cigna, we see an opportunity to further expand customer choice and to make it easier for people to access the health services they need, how and when they need them. This includes accessing care in a doctor's office, an urgent care center, a retail setting, or an employer clinic, or for more acute needs, at a facility-based setting, such as a hospital or outpatient service center. Increasingly at home, in a coordinated fashion, and through digital platforms that are linked with their healthcare professionals. This choice-based delivery model also allows us to guide our customers and patients towards solutions that help the healthy stay healthy, better predict and address risk factors for the healthy at risk, and ensure we deliver affordable, high-quality healthcare choices for the chronically ill, as well as those facing acute conditions. Making it easier for our customers and patients is important, but it is also critical for our healthcare provider partners. At Cigna, we see our role as being the connective tissue that links customers and patients with their healthcare providers in order to help them improve their health and well-being. We continue to partner, align with, and enable healthcare providers rather than seeking to own, compete with, or disintermediate them. Our combination with Express Scripts strengthens and accelerates our focus on coordinating services around our individual customers and patient needs. One of the steps that is essential for Cigna to unlock additional value for our stakeholders is the effective integration and leveraging of Express Scripts capabilities. Our immediate priority is to ensure we deliver on our commitments to customers, patients, and clients in 2019 and our position to do so in 2020. This includes the strong service delivery we were able to create in January 2009, an important implementation period. I couldn't be more proud and appreciative of our team's focus, passion, and delivery as we stepped into 2019. As a health service company, we see our 74,000 coworkers around the world as the greatest asset we have in carrying out our mission and delivering exceptional value for those we serve. As we move through 2019 and beyond with a focus on improving affordability, expanding choice, and broadening our reach, we have three key areas of focus. First, to optimize the significant medical and pharmacy cost energy opportunities, which will directly benefit our customers, patients, and clients and help to improve affordability. Second, to harness the breadth and depth of our combined data to better predict and identify conditions or behaviors and improve connectivity between our customers, patients, and healthcare providers. And third, to leverage new growth opportunities and expand reach across our businesses as we enter new geographies and broaden our solution portfolio. Let me use a credo as an example of how we will create real value in improving affordability and leveraging data. The first two items I referenced for credo express scripts, especially pharmacy business brings a comprehensive patient centered care model to improving prescribing adherence and clinical program coordination for credo has more than 500 specialty pharmacists and a field force of 550 nurses providing in home care across the United States. In fact, An Acredo at-home nurse is within just one hour of a home visit for 85% of Americans today. Cigna plans to begin leveraging specialty pharma services from Acredo in 2019 to deliver affordability improvements and better health outcomes for our customers and clients. Considering that specialty pharmacy is the fastest growing cost category in healthcare today, this will create clear and meaningful affordability benefits. Second, when looking at leveraging data, today, ACREDO and Express Scripts apply advanced informatics to identify patients who are likely to be non-adherent or have demonstrable gaps in care. For example, Bluetooth-enabled health monitoring devices tied to blood glucose monitors or rescue inhalers track patients' health in real-time basis and trigger targeted outreach and support. Moving forward, we will further strengthen and deepen the actionable insights from this type of pharmacy data by connecting it with our medical and behavioral data. Additionally, we will share resulting insights with our collaborative accountable care physician partners to further improve their patients' health outcomes. Connecting our physician partners with these actionable insights is especially important when supporting people who suffer from chronic conditions. For example, those with chronic conditions are seven times more likely to suffer from depression, and as many as six in 10 Americans live with at least one chronic condition. all of which further demonstrates the importance of effectively leveraging medical, pharmacy, and behavioral data to drive better health. Building on the consultative selling success of Cigna and Express Script's teams, our teams are already, on a targeted basis, identifying and pursuing new enterprise growth opportunities. An example includes expanding PBM services for some health plans that we currently serve through Cigna's payer business, Additionally, we have already engaged in targeted expansion opportunities for Cigna's health management capabilities to be offered to Express Script's health plan clients. Taken as a whole, our integration and value creation initiatives are off to a very strong start, and we look forward to discussing this in more depth with you at our investor day on May 31st. Before I close, let me briefly comment on our 2019 outlook. Our growth chassis has a proven track record of delivery and provides multiple paths for sustained growth in 2019 and beyond. For 2019, we expect revenue growth, attractive EPS growth, and strong free cash flows, all positioning us to deliver 15% average annual EPS growth over the next three years and enabling us to achieve our $20 to $21 EPS target in 2021. To conclude, our team, strategic framework, along with capital position and significant free cash flow, position us to lead an environment of continuous change, improve affordability, expand choice, and enhance predictability for our customers, patients, and clients, all while focusing on treating the whole person, both body and mind. We are positioned to continue delivering attractive, sustainable growth. We have significant strategic flexibility and financial flexibility and high visibility toward achieving our 2021 EPS target of $20 to $21 per share. And with that, I'll turn the call over to Eric.