Yahoo Finance Cigna Corporation (NYSE:CI) Q1 2024 Earnings Call Transcript
Cigna Corporation (NYSE:CI) Q1 2024 Earnings Call Transcript May 2, 2024
Cigna Corporation beats earnings expectations. Reported EPS is $6.47, expectations were $6.22. Cigna Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by for the Cigna Group's First 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 we will review procedures on how to enter queue to ask questions at that time. [Operator Instructions] 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 Giacobbe. Please go ahead.
Ralph Giacobbe: Good morning. Thank you for joining today's call. I'm Ralph Giacobbe, 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 Evanko, 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 first-quarter financial results and our updated 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 or loss, 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 terms 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 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 few items pertaining to our GAAP financial results. In the first quarter, we recorded shareholders' net loss of $277 million or $0.97 per share. This is driven by non-cash after-tax net realized investment loss of $1.8 billion or $6.31 per share, primarily related to a VillageMD impairment charge. This is excluded from adjusted income from operations and adjusted earnings per share in our discussion of financial results. We also recorded an after-tax net special item charge of $3 million or $0.01 per share. Details of the special items are included in our quarterly financial supplement. As described in today's release, special items are excluded from adjusted income from operations, adjusted earnings per share, 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 2024 outlook, we will do so on a basis that includes the potential impact of future share repurchases and anticipated 2024 dividends. With that, I'll turn the call over to David.
David Cordani: Thanks, Ralph. Good morning, everyone, and thanks for joining our call. In the first quarter, our company continued delivering differentiated value for our clients, customers, patients, and partners. And we posted strong results for the quarter as we continue to build on our momentum coming into 2024. Today, I'll discuss our quarterly performance and key strategic drivers of our growth. Specifically, I'll spend a few minutes talking about our Specialty business and our focus on biosimilars to drive greater affordability in the market for the benefit of those we serve. Then, Brian will review additional details about our financial results during the quarter, our increased outlook for full-year 2024, and our strong capital position, and then we'll take your questions.
So let's get started. In the quarter, I'm pleased to report that the Cigna Group delivered total revenue of $57.3 billion, adjusted earnings per share of $6.47. And given our momentum and strong start to the year, we've increased our guidance for full-year adjusted earnings per share to at least $28.40. These positive results demonstrate our differentiated capabilities, innovative approaches, and disciplined execution during a dynamic and disruptive time for our industry. Our results also speak to our diverse and well-balanced portfolio as we invest in our high-growth businesses, which continue to benefit from secular tailwinds and ensure our foundational businesses are positioned for continued success. In Evernorth Health Services, we're pleased with our results that are in line with our expectations.
Starting with our Pharmacy Benefit Services, our foundational businesses, our innovative solutions continue to gain traction with health plans, large commercial employers, and governmental organizations. A recent example of how we continue to drive greater access and affordability in a rapidly evolving pharmaceutical landscape is EncircleRx. This solution focuses on cardiodiabesity, adds value for our clients and patients by providing predictability, reducing cost and enhancing outcomes related to GLP-1 drug coverage. We're pleased with the strong interest in EncircleRx from our clients with more than 1 million lives already enrolled. EncircleRx is made possible given our decade-plus track record of offering new solutions built on data driven insights and our deep supply-chain expertise.
Said otherwise, we have a proven innovation platform. In our accelerated growth Specialty Care and Services businesses, our results were in line with our expectations, reflecting strong double-digit adjusted revenue growth. As a reminder, this set of businesses is diverse and includes Accredo, CuraScript Specialty Distribution, and our emerging Care Service businesses. I'll talk more about Specialty in a few moments. In Care Services, we are investing in a number of areas, including accountable care, virtual, home-based, and behavioral care. We're pleased with the progress our Evernorth Behavioral Care Group is making since its launch in six states plus the District of Columbia, and we have already expanded access and convenience for patients with our program.
In Cigna Healthcare, our health benefits platform, we achieved another quarter of strong performance. With our focus on affordability and disciplined pricing, we're pleased with our strong medical cost performance and medical care ratio, which was 79.9%. Our US employer business is on pace for another good year as we continue to leverage our high-performing networks and digitally-enabled services to expand access and overall value. At our Investor Day, we discussed the strong results we've seen with our Pathwell suite of solutions, including Pathwell Specialty, which drives value by reducing costs associated with specialty drugs and therapies, and improving care experiences and outcomes for patients. Also within the Pathwell suite is our Pathwell Bone & Joint solution, which we piloted in 2023 and is now being rolled out for broader client adoption.
For context, one in two adults suffer from a musculoskeletal condition, which results in more than $500 billion of annual spend. Our solution uses a curated natural network combined with clinical and digital services to guide patients with spine, knee, hip, and shoulder conditions to the right path -- pathway of care at the right time. We're already seeing strong results and our personalized concierge experience has resulted in 96% patient satisfaction, while also delivering meaningful savings for our clients from this innovative program. Turning to International Health. Our results continue to be strong given our focus on localized health solutions and high-quality services for the globally mobile population. In our individual exchange business, we continue to sharpen our focus by repositioning our book through targeted actions in certain geographies.
It's also important to note we are making good progress toward our sale of our Medicare businesses to HCSC. The sale of these businesses to HCSC remains on track with the expiration of the waiting period under Hart-Scott-Rodino Act, which occurred on April 17. As such, the regulatory review of this transaction by the DOJ is complete. The transaction is expected to close in the first quarter of 2025 as planned. After closing, we will continue to serve Medicare Advantage customers through our Evernorth broad suite of high-performing services. And under our agreement with HCSC, these include services for the seniors who will transition with the divested businesses. Taken together, we're pleased with our results for the first quarter. They reflect the quality and strength of our businesses and position us well for another year of sustained growth and attractive value creation.
Now, I want to spend a few minutes on our Specialty businesses within Evernorth, which is already a large and well-established portfolio of services, yet represents accelerated growth opportunity as we look forward. Overall, the Specialty market is large at about $400 billion today and is fast growing and Evernorth is the industry leader. Our performance continues to be strong with double-digit revenue growth in the first quarter. Our combination of Accredo, CuraScript Specialty Distribution, and CarePath offers something truly unique in the market, built over decades with assets and capabilities that are highly differentiated. And while we are the leader in the industry, we continue to innovate our capabilities and offerings, and expand our reach and impact.
For example, just last week, Evernorth announced that we will have an interchangeable Humira biosimilar available for $0 out-of-pocket cost for eligible Accredo patients. Currently, more than 100,000 Accredo patients use either Humira or one of the biosimilars. They are supported by Specially trained pharmacists and nurses in Accredo’s therapeutic resource center for inflammatory conditions. We're available to serve and support these patients around the clock. To meet the individual needs of our patients while driving significant savings for them and their health plans, we will be able to provide both high and low-concentration interchangeable biosimilars. Or put another way, varying dosage levels based on patient needs. To accomplish this, we have agreements in place with multiple manufacturers who will produce biosimilars for Evernorth's private label pharmaceutical distributor, Quallent Pharmaceuticals, which we launched back in 2021.
The biosimilars will be priced at about 85% lower than Humira and we estimate that individual patients will save on average of $3,500 per year. And in addition to Accredo patients, all of our pharmacy benefit service clients and patients will have access to these biosimilars. Importantly, the biosimilar opportunity goes well beyond Humira. By 2030, we expect to see biosimilars or generics introduced for nearly half of the top 25 specialty drugs in the United States. This translates to over $100 billion in annual spend, subject to additional choice and competition. The introduction of biosimilars creates a multiyear tailwind that enables us to continue to drive growth and value-creation for the benefit of those we serve. Clearly, we're very excited about the growth opportunities we see ahead in Specialty.
Our Specialty businesses are a cornerstone of the accelerated growth within Evernorth and our confidence in our leading position and capabilities will continue to fuel innovation such as the biosimilar launch I just discussed. Now to wrap up, let me recap our performance for the quarter. In the quarter, we continued to execute well and perform well. We met the evolving needs of our clients, customers, patients, and partners in the midst of a dynamic marketplace. We delivered on our financial commitments, including adjusted EPS of $6.47, and we -- and we've increased our guidance for full-year adjusted earnings per share to at least $28.40. This performance puts us towards the higher end of our 10% to 14% long-term average annual EPS growth commitment.
Looking ahead, we remain focused on meeting our commitments as we execute our strategy by creating value for the benefit of those we serve by driving greater affordability and access expansion, and delivering innovations that continue to grow market share over time in Evernorth and in Cigna Healthcare. With that, I'll turn it over to Brian.
Brian Evanko: Thank you, David. Good morning, everyone. We're pleased to report a strong start to the year with first-quarter pre-tax adjusted earnings above expectations, reflecting contributions across our two growth platforms, Evernorth and Cigna Healthcare. Key consolidated financial highlights for the first quarter include revenue of $57.3 billion, which represents 23% year-over-year growth. Adjusted earnings per share of $6.47 or 20% year-over-year growth and cash flow from operations of $4.8 billion. The continued momentum in strong fundamentals of our businesses give us the confidence to increase our full-year 2024 adjusted earnings per share outlook to at least $28.40. Before I turn to our segment results, I'd like to briefly discuss the impact of the Change Healthcare disruption in the first quarter.
We experienced incremental operating expenses that are reflected in our first-quarter results. And within Cigna Healthcare, we had some disruption to claims submissions and payments that I'll discuss further in a few moments. Despite these unexpected events, we delivered a very strong start to the year and are proud of our teams managing through a dynamic operating environment. Now turning to our segment results. First, I'll comment on Evernorth. First quarter 2024 Evernorth revenues were $46.2 billion and pre-tax adjusted earnings were $1.4 billion, in line with expectations. As discussed at our Investor Day in March, starting this quarter, we're providing revenue and pre-tax adjusted earnings for our two operating segments within Evernorth, namely Pharmacy Benefit Services and Specialty & Care Services.
For the quarter, Pharmacy Benefit Services revenue increased 43%, driven by new business wins, including Centene starting on January 1. Pre-tax adjusted earnings were $513 million, reflecting growth offset by the net impact of client onboarding and implementation costs. Specialty & Care Services revenue increased 12% and pre-tax adjusted earnings grew to $788 million, in line with expectations. Overall, Evernorth continues to perform well and we're pleased with the results to start the year. Turning to Cigna Healthcare. First quarter 2024 adjusted revenues were $13.3 billion and pre-tax adjusted earnings were $1.3 billion. Cigna Healthcare's first-quarter results were better than expectations, driven by a favorable medical care ratio, partially offset by higher SG&A expenses and lower net investment income.
The first-quarter medical care ratio of 79.9% benefited from our focus on affordability initiatives and effective pricing execution as we planned and priced for the continuation of elevated cost trend levels the industry experienced in 2023. As noted earlier, the Change Healthcare incident caused some disruption to first-quarter operations, including claims processing and submissions. Within the quarter, we booked approximately $650 million in incremental reserves in Cigna Healthcare relating to this disruption. Approximately two-thirds of the incremental reserve pertains to claims that we received but were not paid out as of March 31st. These claims have since been paid out to providers. The balance of the incremental reserve represents an estimate of first-quarter claims incurred, but not yet reported, specifically pertaining to the Change Healthcare disruption.
We remain confident in our reserve posture and cost trend projections over the balance of the year. Moving to Cigna Healthcare Medical Customers, we ended the quarter with 19.2 million total medical customers. This is in line with our expectations and includes a reduction to our individual exchange enrollment following the repositioning of our book in certain geographies to improve overall profitability. Overall, Cigna Healthcare delivered strong results in the quarter. Our Cigna Healthcare results continue to benefit from our decade-plus track record of value-based care. We have continued to further evolve this strategy with Evernorth Accountable Care and remain committed to driving affordability and quality outcomes for our clients and patients through our partnership-oriented value-based care framework.
As Ralph mentioned in his opening comments, during the quarter, we recognized a non-cash impairment charge related to VillageMD, which is excluded from our adjusted earnings. This accounting item does not alter our forward-looking value-based care strategy, where we continue to make progress in aligning incentives with providers, including with VillageMD. Our partnership has already launched in targeted geographic markets and we will seek to build upon that early progress. Now turning to our outlook for full year 2024. We continue to expect strong underlying growth in Evernorth and Cigna Healthcare. We now expect full-year 2024 consolidated adjusted income from operations to be at least $8.065 billion or at least $28.40 per share, an increase from our prior outlook.
We expect the 2024 adjusted earnings per share cadence to be approximately 45% in the first half and the remaining 55% in the second half. Now turning to our 2024 outlook for each of our growth platforms. In Evernorth, we continue to expect full-year 2024 adjusted earnings of at least $7 billion. We expect Evernorth's second quarter pre-tax adjusted earnings to grow mid-single-digits year-over-year. For Cigna Healthcare, we now expect full-year 2024 adjusted earnings of at least $4.775 billion, an increase from our prior guidance to reflect the strength of our first-quarter results and continued confidence for the rest of the year. We expect Cigna Healthcare's pre-tax adjusted earnings in the second quarter to be approximately 25% of full-year pre-tax adjusted earnings.
We also now expect our full-year 2024 Medical Care ratio to be in the range of 81.7% to 82.5%, an improvement of 20 basis points from the high end of the prior range. Additionally, we expect our second-quarter Medical Care ratio to be within our full-year guidance range. Turning to our 2024 capital management position. Our debt-to-capitalization ratio was 44.3% as of March 31st compared to 40.1% as of December 31st, 2023. The increase primarily reflects the timing of debt issuance, in part due to the accelerated share repurchase agreements we entered in February. We continue to target a long-term debt-to-capitalization ratio of approximately 40%. We continue to expect at least $11 billion of cash flow from operations, and we continue to expect to use the majority of our discretionary cash flow for share repurchase this year.
Additionally, our guidance continues to assume full-year weighted average shares outstanding to be in the range of 282 million to 286 million shares. Our balance sheet and cash-flow outlook remains strong, driven by the strength of our highly efficient service-based model. Now to recap, our first-quarter consolidated results were ahead of expectations, driven by the strength of our medical care ratio within Cigna Healthcare, and our 2024 outlook reflects the sustained momentum and strong fundamentals of our two growth platforms, Evernorth and Cigna Healthcare, while continuing to maintain a prudent posture in this dynamic environment. We're confident in our ability to deliver on our updated full-year 2024 adjusted earnings of at least $28.40 per share.
And with that, we'll turn it over to the operator for the Q&A portion of the call.
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