The Cigna Group

Ladies and gentlemen, thank you for standing by for Cigna's third quarter 2020 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 the queue to ask questions at that time. If you should require assistance during the call, please press star zero on your touch-tone 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 Ms. Alexis Jones. Please go ahead, Ms. Jones.

Good morning, everyone, and thank you for joining today's call. I am Alexis Jones, Lead Principal for Investor Relations. With me on the line 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 third quarter 2020 financial results, as well as an update on our financial outlook for 2020. 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 adjusted earnings per share on the 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 2020 and future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. A description of these risks and uncertainties is contained in the cautionary notes 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, with our reporting for third quarter 2020, we have updated our segment names to align with our launch of Evernorth and to better reflect the suite of services offered across our portfolio. The segment previously reported as Health Services is now reported as Evernorth. and the segment previously reported as integrated medical is now reported as U.S. medical. There are no changes to the underlying businesses reported in either segment. Regarding our results, in the third quarter, we recorded an after-tax special item charge of $83 million, or 23 cents per share, for integration and transaction-related costs. We also recorded a special item benefit of $89 million after-tax, or 24 cents per share, for a contractual adjustment for a former client. Finally, we recorded a special item benefit of $76 million after tax, or 21 cents per share, for the receipt of payments related to our risk corridor claim. 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. Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2020 outlook, we will do so on a basis that excludes the impact of any future share purchases. Finally, our outlook for 2020 assumes a full year of earnings from Cigna's group disability and life business. We continue to expect our divestiture of that business to be completed in the fourth quarter of 2020. With that, I will turn the call over to David.

Thanks, Alexis. Good morning, everyone, and thank you for joining our call today. I'll begin by providing a few brief comments on Tuesday's election results, which are certainly top of mind for all of us. Then I'll speak to how Cigna's strategy, accelerated by our recent launch of Evernote, positions us to continue building on our history of delivering strong performance in dynamic and rapidly evolving environments. I'll also provide comments on our strong third quarter results, and I'll conclude with a few brief overview comments relative to 2021 before turning the call over to Eric. First, relative to the election, certainly we, along with everybody else, awaits to see a clear and orderly conclusion. Regardless of the final outcome, our mission to improve the health, well-being, and peace of mind of those we serve around the world has not changed and is more critical than ever. We are ready to continue engaging in critical discussions on healthcare with members of both sides of the aisle at federal, state, and local levels. And we look forward to working constructively with the current administration or a new administration as we have been privileged to do so in the past. Looking forward, the long-term health needs of individuals and society at large transcends the results of any particular election or political climate. There is no question that simply continuing with the status quo for healthcare is not sufficient under any circumstances. Take, for example, that today's children are likely to be the first generation in American history to live shorter lives than their parents. Clearly, this is unacceptable, and the COVID-19 crisis has only reinforced our unsustainable healthcare challenges, including eroding individual health status, increased mental health impacts from heightened stress, anxiety, and loneliness, health disparities and social determinants of health, and gaps in our healthcare delivery infrastructure. Many U.S. states are seeing their healthcare systems overwhelmed and only exacerbated by the underlying chronic conditions, such as diabetes, that increase the risk of severe complications from COVID-19. The bottom line is that there is no one healthcare system that is perfectly positioned. In our view, the conversations regarding healthcare must focus less on who pays the cost of an unsustainable system. In fact, systems around the world continue to struggle with unsustainability and rising costs, including nationalized systems. What is important is that we work together to find solutions to meet the diverse underlying needs that are unique to a population in the most effective way possible. Regardless of the political climate, more than ever, people, governments, and employers, as well as health plans, are looking for healthcare systems that focus on keeping people healthy and not just treating them when they're sick, caring for the whole person, both mind and body, and ensuring the most affordable, high-value delivery of healthcare services. At Cigna, we are delivering on this promise, and our strategy is designed to answer the call for a healthcare system that is more affordable, predictable, and simple. Our strategy guides us to customize our solutions to meet the diverse needs of our clients, our customers, and our patients, and look at every decision and action we take to ensure it is addressing the demands for more value. We've amassed a targeted portfolio of capabilities to accelerate this direction, and when combined with our partnership orientation, our focus on data-driven innovation, and our capital flexibility, we are positioned to deliver differentiated value for those we serve and sustainable, attractive growth. As you know, we recently introduced Evernorth, an evolution of our high-performing health service portfolio, and another important milestone in delivering on our strategy. With Evernorth, we have a distinct and dedicated platform of services and innovative healthcare solutions for health plans, employers, government organizations, and healthcare providers. The launch of this new brand in September was met with overwhelming support and excitement from these buyer groups. Through this dedicated platform, we are demonstrating our commitment to meet their unique needs and invest in their success. Additionally, the platform further reinforces our position as the partner of choice to create more shared value for our clients and ultimately our customers. A recent example of this is our growing partnership with Prime Therapeutics. Through our Prime relationship, we expand our retail pharmacy network and rebate administration services more Americans through their 23 Blue Cross Blue Shield plans. We achieved this by enhancing the retail pharmacy network and increasing affordability from pharmaceutical manufacturers. With Evernorth, our relationship with Prime will be further expanded. This includes the option for Prime's plans to access the Accredo specialty pharmacy and Express Script's home delivery in network pharmacies beginning on January 1st, 2021. Evernorth reinforces our deep commitment to leverage our broad capabilities to serve health plans, employers, government entities, and healthcare professionals, and pursue mutually beneficial partnerships. At the same time, we are continuing to further invest in our Cigna brand, under which our U.S. commercial, U.S. government, and international businesses go to market. We will continue to be known for a customer and client-focused approach and for delivering industry-leading trends and outstanding customer service. For example, I am pleased to announce that our Medicare Advantage business achieved an annual customer net promoter score of plus 74, the fourth consecutive year we've shown an increase. In addition, in 2021, 88% of our customers will be in four-star plus rated plans, and we're the only major plan to achieve an increase year over year. This is just one example, an important one, of how our Cigna branded companies will continue to deliver differentiated value in the marketplace. With Cigna and the recent addition of Evernorth platform, we now have two powerful brands from which to drive sustained growth today and well into the future. Now turning to our third quarter performance, we delivered strong results that were in line with our expectations. As a result, and as expected, we experienced the return of elevated utilization to more typical levels and ongoing impact of COVID-19. We also continue to take actions to support our customers, our clients, our coworkers, our healthcare professionals, and our communities in these exceptionally challenging times. Additionally, we remain on track to complete the integration of Cigna and Express Scripts by the end of this year. Our consolidated revenue was $40.8 billion, with after-tax earnings of $1.6 billion. In our Evernorth segment, we continue to deliver strong performance, demonstrating the value we bring to health plans, employers, and governmental clients. Within our U.S. medical segment, we saw an increase in cost as expected as utilization returned to more typical levels. And our international business continues to deliver revenue and earnings growth as we meet the needs of our global customers as they navigate the disrupted environment due to COVID-19. With our strong third quarter results, we are confident that we will achieve our updated 2020 revenue and EPS outlook. Looking forward to 2021, we have a number of tailwinds. including continued growth momentum, favorable impacts from synergies from our Express Scripts combination, and further administrative synergies. We expect year-over-year headwinds from increased medical costs largely driven by the ongoing impact of COVID-19. Diving a bit more deeply into our growth momentum, we expect to drive continued organic growth across each of our wall position platforms. I'd specifically highlight Strong growth within our pharmacy service portfolio, including specialty and underlying script growth, aided by projected 98% client retention level. And continued expansion of our U.S. government business, including Medicare Advantage, where we continue to drive both strong market and product expansion, as well as in-market growth, putting us on track for customer growth in our targeted range of 10% to 15% in 2021 – and in individual exchanges where we've increased our addressable market footprint by over 50%. All in, we are positioned for both very strong revenue and continued earnings growth in 2021, and we remain on track to achieve our strategic goal of $20 to $21 of EPS. We expect a strong operating momentum and capital life framework to drive attractive operating cash flows of greater than $8 million. This significant cash flow generation, combined with our ongoing deleveraging, will give us significant strategic and financial flexibility for 2021 and beyond. Now, to summarize before turning it over to Eric, Cigna has a long history of delivering strong performance in dynamic, rapidly evolving environments, focused first and foremost on addressing the health and well-being needs of the individuals we serve. This approach transcends the results of any particular election cycle. We continue to build on this foundation as we delivered another strong quarter driven by the outstanding dedication of our more than 70,000 colleagues around the world who focus every day on our mission to improve the health, well-being, and peace of mind of those we serve. Our mission and our strategy as champions for affordable, predictable, and simple healthcare will continue to guide us as we provide exceptional value for the benefit of our customers, patients, and clients. and our launch of Evernorth will further fuel our strategy and expand our ability to serve more individuals. Finally, as we usually do, we look forward to providing more detailed and complete guidance for 2021 on our fourth quarter earnings call. With that, I'll turn it over to Eric. Thanks, David. Good morning, everyone.