The Cigna Group

Ladies and gentlemen, thank you for standing by for the Cigna Group's third quarter 2024 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 touchtone phone. As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We will begin by turning the conference over to Ralph Jacoby. Please go ahead.

Thanks, operator. Good morning, everyone. Thank you 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, Brian Ivanko, Chief Financial Officer of the Cigna Group and President and Chief Executive Officer of Cigna Healthcare, and Eric Palmer, President and Chief Executive Officer of Evernorth Health Services. In our remarks today, David and Brian will cover a number of topics, including our third quarter financial results and our financial outlook for 2024. Following their prepared remarks, David, Brian, and Eric will be available for Q&A. As noted in our earnings release, when describing our financial results, we use certain financial measures, including 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 the CignaGroup.com. We use the term labeled adjusted income from operations and adjusted earnings per share on the same basis as our principle measures of financial performance. In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2024 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 note to today's earnings release and in our most recent reports filed with the SEC. Before turning the call over, I will cover a couple items pertaining to our GAAP financial results. In the third quarter, we recorded shareholders' net income of $739 million, or $2.63 per share. This is driven by a non-cash after-tax net realized investment loss of $1 billion, or $3.69 per share, related to VillageMD. This includes both the write-down of the remaining carrying value of the asset as well as the impairment of the dividend, which is recognized as a special item in the quarter. This is excluded from adjusted income from operations and adjusted earnings per share in our discussion of financial results. In the third quarter, we also recorded other after tax net special item charges of $162 million, or 58 cents per share. Details of the special items are included in our quarterly financial supplement. Additionally, please note that when we make perspective comments regarding financial performance, including our full year 2024 outlook, we'll do so on a basis that includes the potential impact of future share purchases and anticipated 2024 dividends. With that, I'll turn the call over to David.

Thanks, Ralph. Good morning, everyone, and thank you for joining today's call. Today, I'll spend a few minutes talking about our strong results in the third quarter and how we're advancing our growth strategy. I'll also provide some initial perspective relative to 2025 including some of the expected tailwinds and headwinds. Then Brian will share more detail about our results and our outlook for the rest of the year, and we'll take your questions. So let's get started. Built beyond a track record of competitively differentiated performance, I'm pleased to report that in the third quarter, the Cigna Group delivered total revenue of $63.7 billion and adjusted earnings per share of $7.51. Our results are a testament to the collective depth and strength of our people and the commitment, hard work, and focus they bring to everything we do. We have deep continuity and the most experienced leadership team in the industry with more than 16 years average tenure across our growth platforms. And we continue to infuse new talent into the company from across many sectors and industries to round out our enterprise perspective. Our third quarter performance demonstrates how we harness the complementary capabilities of our two growth platforms, Evernorth Health Services and Cigna Healthcare, to drive attractive growth. This quarter, Evernorth anchored our results by delivering strong top and bottom line contributions generated by market-leading innovation and affordability initiatives, particularly within our specialty and care services portfolio, as well as our pharmacy benefit service business. Evernote's strong overall growth reflects the continued demand for our services as we continue investing in broadening our offerings and expanding our reach. Cigna Healthcare was also continuing their momentum in the quarter. U.S. employer business draws on enterprise capabilities to deliver greater affordability and support healthy outcomes for the benefit of our clients and their employees and families. Of note, we are driving continued solid growth in our select customer segment. Our results demonstrate focused execution and momentum during our peak selling season and continued opportunity for growth in the years ahead. Touching on our Medicare Advantage business, we remain on track to close on our sale of our Medicare business to HCSC in the first quarter of 2025. We continue to expect to use the majority of the proceeds for share repurchase. I would note that our Medicare business is performing in line with expectations, and we're pleased with the overall value of our offerings, including our nationwide enrollment weighted average will again be four stars for 2025. Going forward, our focus will be on further growing our Evernorth chassis to continue to serve Medicare lives. Overall, our quarterly results reflect clear strategy and strong execution, resulting in attractive results. Now, stepping back, I want to take a moment to comment on recent headlines and speculation around our company. And while we don't comment on media rumors, we believe that it is important to provide additional context during these unprecedented times. First, there is no question that the industry is highly disrupted. For example, the Medicare Advantage market is particularly challenged given a number of factors, including elevated medical costs, a significant change in SARS ratings for many, and the reset of the risk-adjuster revenue streams. These and other forces are contributing to operational disruption for some as well. As I noted, we don't comment on rumors, but what I will do is be very clear on the actions we are pursuing. We continue to deploy our access free cash flow for share repurchase, with repurchases totaling $5.7 billion year to date, including over $715 million in October. Looking forward, we expect to continue to actively repurchase our shares in the fourth quarter, further leveraging our remaining repurchase capacity, which stands at $5.6 billion. Now I want to transition and cover several actions we are driving in the third quarter and throughout 2024 that address the forces of change that are reshaping the face of healthcare. While we continue to position our company for growth for the benefit of our clients, our customers, and our patients. The first is the pace and rate of pharmacological innovation, and it continues to surge. Many of the treatments coming to market are meaningful in extending and improving quality of lives, for example, through new gene therapies and breakthrough treatments, but they are pressuring affordability given the high list price for manufacturers. Everton North's specialty pharmacy business, Accredo, is continuing its strong growth trajectory given both the secular tailwinds and our differentiated strengths. which make us the market leader in the space. The opportunity in biosimilars is a good example of how we're leading the way in providing more value. At the end of June, we began dispensing our interchangeable biosimilar for Humira. And we're pleased that biosimilar penetration was approximately one-third among eligible Acredo patients in the quarter. Building on that success, several weeks ago, we announced that we will begin offering an interchangeable to Stellara biosimilar in 2025. Like Humira Biosimilar, it will be available for a $0 out-of-pocket for eligible accretive patients, which drives savings for individuals as well as clients. Another example of our leadership is the GLP-1 drug class, which is on pace to be the number one drug trend driver for plans this year. Now, they're expensive with manufacturers' list price of approximately $15,000 a year. Express Scripts, our pharmacy benefit service business, The Encircle Rx solution provides a clinical program wrapper around the medication to help to support sustainable and positive lifestyle changes for patients, as well as improve affordability and access for clients. I'm pleased to share that in the quarter, Encircle has already grown to almost 8 million lives now enrolled. The pace of change in pharmacological industry is also why we continue to proactively address misconceptions and misinformation around the pharmacy benefits industry. This is vital to ensure that patients and individuals continue to maintain access to affordable, high-quality prescriptions. Earlier this month, Dr. Dennis Carlton, professor of economics emeritus from the University of Chicago and former DOJ economist, released a comprehensive review of the PBM industry. Dr. Carlton's research was conducted over 16 months and drew from multiple sources, including analysis of approximately 20 billion 30-day equivalent prescriptions. The finding of Dr. Carlson's research, in direct contradiction with the FTC's report, concludes that PBMs lower high drug prices by fostering competition among tribal drug manufacturers and pharmacies. PBMs facilitate broader access to generic medications in addition to name-brand alternatives, which lower costs. And importantly, PBMs support independent pharmacies with higher reimbursement rates than chains, and the number of independent pharmacies is increasing. We will leverage Dr. Carlson's study as we continue to engage in fact-based discussions about these critical issues. Moving to the second rapidly changing trend, the increased need for quality behavioral services, which is in part driven by geopolitical, economic, social dynamic tensions that are unfolding around the globe. For context, in the past five years, we've seen overall behavioral therapy utilization nearly double. Now, in the same period, we've worked to increase services and access, for example, adding almost 270,000 providers to our network, assessing the needs of those with lower complexity issues and offering new coaching programs, and implementing online scheduling and access with appointments guaranteed within 72 hours which millions of Cigna Healthcare customers can now pursue. This is another example of how our businesses have complementary capabilities as we leverage behavioral health innovations and services from Avernorth and embed them into Cigna Healthcare solutions. The final trend I will touch on is technology-enabled innovations. We're only beginning to see the start of profound changes as emerging technologies such as AI-powered diagnostics and treatments will drive vast improvements including more personalized care. Another example is the ongoing adoption of virtual services, which is rapidly rising with about 25% of patients accessing care through telehealth services last year in the US. This far exceeds the 5% or fewer who accessed care this way prior to the pandemic. We continue to advance in this area with our telehealth platform MDLive. We have offered MDLive for our customers since its acquisition in 2021. And last month, we took another step forward with patients that have lower health risk issues, enabling them to get fast, flexible care without a phone call or video call, whenever and wherever they want, with MDLive physicians via an online portal. And patients typically are able to receive treatment within one hour. At the Cigna Group, we're built to create and capture value from these forces of change for the benefit of those we serve. Next, I'll transition to provide some context relative to the tailwinds and headwinds we anticipate for 2025. Now, we'll provide detailed guidance as we always do during our fourth quarter call. With the strength of our Evernorth and Cigna Healthcare platforms, we expect to both finish 2024 strong and for 2025 to have another year of competitively attractive performance. Some notable tailwinds include our continued ramp up of biosimilar offerings. continued advancement of new client relationships, and EPS accretion from the divestiture of our Medicare business, specifically the impact of share repurchase from the sales proceeds. Now turning to headwinds, we expect a lower net investment income as we will no longer recognize the dividend from our Village MD investment. We anticipate some stranded overhead from the sale of our Medicare Advantage business, which we will mitigate over time. and we will make continued strategic investments across our portfolio to drive sustained innovation and position ourselves for long-term growth. Considering all the puts and takes, we expect another strong year of growth in 2025, with EPS growth at at least 10%, which is consistent with our historical approach when we start the year with appropriate prudence. Now I'll briefly summarize our performance for the quarter. Building on our momentum, Our focus in Discipline Third Quarter Execution positions us to meet our full year 2024 and long-term growth targets. The Cigna Group has earned a reputation for delivering differentiated value for those we serve and driving new innovation in ways that lead the industry. Our ability to consistently do this year after year is directly attributable to the strength of our leadership team and the passion and commitment of our 70,000 colleagues worldwide. and the deliberate structure of our company, which is designed with growth platforms capable of navigating even the most dynamic environments. As a result, in the third quarter, we delivered on our financial commitments with adjusted EPS of $7.51, and we remain on track to deliver full-year adjusted earnings per share of at least $20.40 in 2024. Our company has attractive and sustainable growth opportunities over the long term, and we remain confident in delivering our continued average annual EPS growth rate of 10% to 14% on average, building on our track record of achieving 13% adjusted EPS on a compounded growth rate over the past decade. With that, I'll turn it over to Brian to share additional perspective on our performance for the quarter and our outlook for the rest of the year.