The Cigna Group

Ladies and gentlemen, thank you for standing by for the Cigna Group's first quarter 2023 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 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 Ralph Jacoby. Please go ahead.

Great. Good morning, everyone. Thanks for joining today's call. I'm Ralph Jacoby, Senior Vice President of Investor Relations. With me on the line this morning are David Cordani, the Cigna Group's Chairman and Chief Executive Officer, and Brian Ivanko, Chief Financial Officer. In our remarks today, David and Brian will cover a number of topics, including our first quarter financial results and our updated financial outlook for 2023. As noted in our earnings release, when describing our financial results, We use 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 thecignagroup.com. We use the term label 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 2023 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 results and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC. Regarding our results, effective January 1, 2023, we adopted amended accounting guidance for long-duration insurance contracts, LDTI, and related amendments. Our 2023 full-year outlook included the impact of LDTI, and prior results have been restated to reflect this change. There has been no material impact to our prior results, and this change will not materially impact our future operating results. Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2023 outlook, we will do so on a basis that includes potential impact of future share purchases and anticipated 2023 dividends. With that, I'll turn the call over to David.

Thanks, Ralph. Good morning, everyone, and thanks for joining today's call. We begin 2023 with momentum, and in the first quarter, we again delivered strong performance and continued our long track record of innovating for customers, clients, and partners. Today, I'll discuss some of the key drivers fueling our growth during the quarter, and I'll also talk about how we're leading the way to address evolving stakeholder needs with a flexible and agile model providing multiple avenues to deliver and capture value. Specifically, I'll describe how the durable and flexible pharmacy benefit services we offer continue to thrive in the marketplace. Brian will provide additional detail about our financial results and discuss our outlook for 2023, and then I'll take your questions. With that, let's get started. In the first quarter, we delivered $46.5 billion in total revenues, $5.41 in adjusted earnings per share, and we are raising our full year 2003 guidance for adjusted EPS, revenue, and customer growth. We are pleased with the strong start across Evernote Health Services and Cigna Healthcare, and as we look forward, we expect another very good year for the Cigna Group. Evernote, comprising pharmacy benefit services, specialty pharmacy, and Evernote Care, again, contributed strong growth while retaining, expanding, and winning new relationships with the employers, health plans, and governmental organizations we serve. Our foundational pharmacy benefit service business continued its strong performance, demonstrating the value we provide to our clients and patients. Specialty Pharmacy, which accounts for approximately 40% of Evernorth's total revenue, drove outsized growth with a continued rise in new-to-market specialty drugs and increasing demand. Evernorth Care represents one of our most significant long-term growth opportunities, given the growing needs in virtual care as well as, for example, behavioral health services. In Cigna Healthcare, our health benefits platform, we achieved another quarter of revenue and customer growth with strong performance across our U.S. commercial, U.S. government, and international health businesses. With our focus on affordability and disciplined pricing, we are pleased with our medical cost performance and our medical care ratio, which was 81.3%. Our U.S. commercial business is on pace for another good year. Our affordability initiatives continue to strengthen our overall competitive position and this has helped fuel our strong customer growth. Our momentum also is a reflection of how employers of all sizes rely upon our consultative approach and the breadth of our solutions to support the health, engagement, and productivity of their workforces. In U.S. government, our Medicare Advantage business is achieving above-market growth in 2023 from our high-quality and affordable plans, our geographic expansion, and the maturation of markets we previously expanded into. In a dynamic individual exchange market, we also have substantial growth in our individual and family plan business, allowing us to bring Cigna Healthcare capabilities to a larger customer base. And in international health, our earnings growth has been strong for the past few years, and we expect positive top-line and bottom-line contributions again in 2023, given our high-quality and localized health insurance solutions supported by our global provider network. Overall, we're pleased with the quality, strength, and resilience demonstrated in our results, and importantly, how they position us for another year of sustained growth and attractive value creation. Looking ahead, we are confident in our increased outlook for the year, as well as our ability to sustainably deliver 10% to 13% compounded EPS growth over our strategic horizon, along with providing an attractive dividend. Today I want to spend a few minutes on Express Scripts, our pharmacy benefits business within Evernorth, including our recent announcements about how we are continuing to provide greater affordability, choice, and transparency for our clients and customers. Pharmacy services have an essential and impactful role in this time when medical care, physical or behavioral, are increasingly relying upon the use of pharmaceutical interventions. It's also important to recognize that successful care coordination programs for pharmacy services often create significant benefit and value for the medical services. We recognize the ongoing attention and legislative debate regarding the rising costs of prescription drugs. We are taking an active leadership role, and I want to be clear about how we are using our differentiated capabilities to create and capture value out of the drug supply chain on behalf of our clients and customers. First is the strength of our model, which is to deliver solutions and care coordination that address specific client needs and expand relationships with our full suite of services and capabilities, fueling our sustained attractive growth over time. Second, we are committed to enabling and prioritizing choice for our clients as we drive down costs. And third, we continue to build on our long track record of innovation to drive greater affordability, access, transparency, and improve clinical outcomes. Stepping back, our pharmacy benefits service business is achieving attractive growth because we're able to secure a diverse group and a growing client base, leading with the strength of our supply chain, clinical, and care management programs. With our proven model, Express Script's client retention rates are consistently in the mid-90s or higher, and we've been able to continuously grow our pipeline and win new business, from medium-sized to the largest employers, from local health plans to national players, and even the largest government-sponsored programs. We've expanded our efforts to advocate on behalf of our clients and customers, particularly as it relates to financing models, which are key areas of focus of some of the current legislative proposals. Express Script's business model starts with the commitment to enabling and prioritizing choice in benefit design and financing options for clients who are the primary financers of their employee benefit programs. This includes providing them the option to finance the cost of their programs by allowing us to share in the discounts we secure on their behalf, be it rebates or spread pricing. Our clients choose amongst these models based upon their needs for managing risk and greater predictability for their pharmacy costs as well as their cash flow. For context, across the breadth of our Express Scripts Pharmacy Benefit Service portfolio today, over 95% of rebate dollars are passed through to clients. The key point is that each client chooses the financing mechanism that works best for them. They have choices in how they pay for the value we deliver, and many find that using rebate sharing or spread pricing generates a stronger level of aligned incentives, in addition to being able to plan for predictable cash flow that it generates. Proposes to limit the availability and scope of these options will result in less choice for thousands of employers, health plans, and government clients we serve, and increase the cost over time. As it relates to ExpressGRIPS, we are confident in our ability to earn sustainable and attractive margins for our services under a variety of legislative scenarios. We are able to create value through the breadth of our capabilities, from supply chain to benefit design, driving competition amongst drug manufacturers to bring costs down, and deliver better health outcomes through our clinical programs. One area of focus for multiple stakeholders has been the amount of income we earn for rebate retention and retail spread. To put this in context, we expect about 20% of Evernote's 2023 pre-tax adjusted earnings to come from Express Script's retention of rebates and retail spread. This percentage has trended down over time, and we expect it to continue trending downward. This is fueled by our ongoing innovation and greater diversification of our Evernorth businesses. I would also remind you that these financing options that we provide to clients are developed in exchange for lower service fees. So said otherwise, if these programs decrease further over time, eBase income would increase. Therefore, we are confident that if some of these payment vehicles were reduced or removed by regulatory change or client preference, Express Scripts has a broad set of capabilities that create value and will continue to earn an attractive return. Let me provide some specific examples that reinforce our flexibility and durable model and how we tap into our long track record of innovation for better outcomes on behalf of our customers and clients who are seeking greater affordability and transparency for prescription drugs. First, we're taking several steps to expand transparency. Express Scripts' new ClearCare Rx fully demonstrates the flexibility we have for prescription drug benefits, where clients pay exactly what Express Scripts pays pharmacies for prescriptions. They receive 100% of drug rebates that Express Scripts obtains by negotiating with pharmaceutical companies. They pay one service fee to cover the administration of pharmacy benefits, product services, reporting, analytics, and the program is supported by a fully audible mechanism. In addition, clients also benefit from guarantees to keep Express Scripts accountable for clinical and financial performance measures, including improvements in overall adherence rates and patient outcomes. Additional steps to drive even greater transparency include providing clients with enhanced financial and fee disclosures regarding their spread pricing programs when they exist. Along with today's release about our first quarter financial results, you will also find additional disclosures we are providing about Express Script's model in our quarterly regulatory filings and on our new microsite. We will also offer a new digital pharmacy benefit statement for customers starting in 2024. The statement will share drug pricing information, out-of-pocket costs, and the net value delivered by Express Scripts on behalf of customers. With respect to the broader issue of drug pricing, to be clear, we were fully aligned with lowering costs of prescription drugs for customers. For example, Express Script's patient assurance program, launched in 2019, capped out-of-pocket costs for eligible members of select diabetes and cardiovascular medications. In 2022 alone, customers taking insulin saved more than $18 million because of this program. Now, with the introduction of our new copay assurance plan, We are taking further action to cap out-of-pocket costs for customers in client prescription drug benefits at $5 for generic drugs, $25 for preferred brand medications, and $45 for preferred specialty medications. Finally, we also have a series of groundbreaking initiatives to further support pharmacists in rural communities across the United States. We are offering increased reimbursement to true independent pharmacists and partnering on opportunities to expand their clinical practices to further support care needs of the local communities. We are also convening an advisory committee of community pharmacists. These initiatives will encourage better care, expanded access to lower prices for rural Americans, as well as increasing a more sustainable revenue stream for independent pharmacists. We are encouraged by how our recent actions have been received by a wide range of stakeholders, including clients, our pharmacy network partners, and policymakers. They recognize our commitment as a leader and trusted partner that continues to create value through our deep expertise in designing programs for specific client needs, driving innovation, and broadening our reach. In summary, we are demonstrating our leadership in the competitive pharmacy benefits market that is such a critical building block for the American healthcare system. We are serving specific client needs through the strength of our model and the effectiveness of our care coordination programs, allowing us to drive sustained attractive growth. We are continuing to advocate for clients and their ability to choose the appropriateness of programs that work best for the business as we help to lower costs. And we are continuing to innovate in driving greater affordability, transparency, and improved outcomes for those we serve. Now let me briefly recap our performance for the quarter and our outlook. In the first quarter, we continued to execute and perform well. We delivered for our customers, clients, and partners, and our business kept our commitment to our shareholders. We delivered adjusted EPS of $5.41 per share, and we're pleased to have increased our full-year outlook for adjusted EPS, revenue, and customer growth, as well as an improved medical care ratio. We are confident in our ability to deliver and capture value in a dynamic and changing environment. We've shaped our business model to navigate varying economic conditions, and our differentiated capabilities within Evernote provide us with the flexibility to meet unique client needs and potential changes caused by regulatory requirements. Additionally, our business is driving growth that is generating strong cash flows, and we are confident that we will further create value through successful and effective capital deployment. With that, I'll turn the call over to Brian.