CIGNA-GROUP Earningcall Transcript Of Q2 of 2024

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  second-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  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.  Regarding  our  results  in  the  second

quarter, we recorded an after-tax net special item charge of $64 million or $0.23 per share. Details

of the special items are included in our quarterly financial supplement. Additionally, please note that

we  will  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.

And with that, I'll turn the call over to David. 

David Michael Cordani -- Chairman and Chief Executive Officer

Thanks, Ralph. Good morning, everyone, and thank you for joining our call today. For the second

quarter, we again delivered strong performance as we continue to build on our momentum. Today,

I'll discuss our performance for the quarter and key strategic drivers of our growth, demonstrate how

the strength and durable nature of our model is fueling our success.

Then Brian will review additional details on our results and our outlook for the rest of the year, and

we'll move to your questions. So let's get started. For the second quarter, I'm pleased to report that

the Cigna Group delivered total revenue of $60.5 billion and adjusted earnings per share of $6.72.

We achieved these positive overall results in a dynamic environment, and I'm proud of our team for

continuing  to  focus  on  those  we  serve,  ensuring  that  they  get  care  of  the  need,  to  get  their

medications  at  an  affordable  cost  and  they  get  the  support  they  need  in  order  to  make  the  best

decisions about their health and vitality.

All  of  this  requires  a  relentless  focus  on  innovation,  disciplined  execution,  and  a  passionate

commitment  to  our  mission.  During  the  quarter,  our  Evernorth  Health  Service  businesses

demonstrated  continued  strength  with  our  market-leading  specialty  and  pharmacy  benefit  services

capabilities.  Within  Evernorth,  I'll  start  with  our  accelerated  growth  specialty  and  care  businesses,

which  provides  specialty  drugs  for  the  treatment  of  complex  and  rare  diseases,  distribution  of

specialty pharmaceuticals as well as clinical programs to help clients improve health and vitality. We

saw  strong  growth  in  the  quarter  with  adjusted  income  growing  12%  year  over  year,  reflecting

continued demand for our services while we also continue to invest in broadening our offerings and

expanding our reach.

In Accredo, our specialty business, our growth continues to be fueled by secular tailwinds as well as

Accredo's  differentiated  strength  which  makes  us  the  market  leader  in  the  space.  Biosimilars,  for

example,  represent  a  force  of  change  and  a  substantial  opportunity  for  continued  growth  and

impact.  At  the  end  of  June,  we  began  dispensing  our  interchangeable  biosimilar  for  Humira.  Our

program has zero out-of-pocket cost for patients, saving them, on average, $3,500 per year.

To deliver these savings, we have agreements in place with multiple manufacturers that will produce

biosimilars  for  Evernorth  pharmaceutical  distributor,  Quallent  Pharmaceuticals.  Now  the  biosimilar

opportunity  goes  well  beyond  Humira.  By  2030,  we  expect  an  additional  $100  million  of  annual

specialty drug spend in the U.S. will be subject to biosimilar and generic competition.

And Accredo is well-positioned to deliver differentiated value for our clients, customers, and patients.

In our care services businesses, we are continuing to grow and expand in key areas of increased

demand, including behavioral health, virtual, and home care. For example, the summer, we further

expanded  Evernorth  behavioral  care  group  to  an  additional  seve  states.  We  are  seeing  positive

patient  outcomes  from  our  unique  clinician  matching  capabilities  based  on  individual  needs  and

preferences with fully 84% of patients experiencing clinically significant reductions in the depression

and anxiety symptoms.

Now  shifting  to  Express  Scripts,  our  foundational  pharmacy  benefit  services  businesses.  We  are

seeing continued strong client demand given our breadth of clinical and supply chain expertise as

well as our proven partnership orientation. This quarter, Express Scripts built on a long track record

of  innovating  for  those  we  serve  with  continued  enhancements  and  new  solutions.  For  example,

given the high cost of GLP-1 drugs, we're continuing to see meaningful interest from our clients in

EnCircleRx, now with more than 2 million lives already enrolled.

Our  program  starts  with  our  longitudinal  data  to  target  patients  who  will  most  benefit  from  these

medications and we provide patients with resources to make lasting changes to help maximize the

effectiveness  of  these  medications,  both  in  the  short  and  long  term.  Another  example  of  our

innovation orientation is a recent announcement of Express Scripts oncology benefit services, which

will be available in 2025. Our new solution helps patients navigate the challenges of cancer care by

providing  a  single  oncology  benefit,  integrating  pharmacy,  medical,  and  behavioral  health

treatments. Our patient-centered approach will help to ensure the earliest possible detection guide

individuals to high-quality providers and coordinate care across clinical teams.

Now moving to Cigna Healthcare, our health benefits platform, we continue to deliver solutions that

create  value  and  better  outcomes  for  clients  and  customers,  coupled  with  highly  competitive  total

cost  of  care.  Similar  to  others  in  the  industry  and  as  we've  anticipated,  we  are  seeing  increased

utilization in our book of business. I would note that our results are largely in line with the elevated

levels in our planning and pricing assumptions. Our U.S.

Employer foundational growth business continues to perform in line with our expectations. Over this

year, I've met with hundreds of clients across the U.S. and globally. And while the needs of every

client are unique, there are a few consistent themes across every discussion.

First, continued focus on affordability, particularly in light medications like GLP-1 and gene therapies

coming  to  market.  Next,  an  increased  need  of  improved  access  and  importantly,  coordination  of

behavioral health services. Third is mounting point solution fatigue. And fourth, the opportunity and

need  for  leverage  of  our  longitudinal  data  and  clinical  programs  to  help  keep  people  healthy  and

vital.

Our  solutions  continue  to  resonate  well  given  our  highly  consultative  approach  to  help  clients

choose  the  right  set  of  solutions,  our  proven  capabilities  to  support  their  workforce,  and  our

innovative  programs  that  help  to  keep  costs  down.  As  a  result,  we  are  further  gaining  share  and

continue to see outsized opportunities, for example, in our Select segment. Another capability of our

U.S. employer business to deliver integrated and tailored benefits for our clients and customers, our

modular  solutions  that  incorporate  innovative  services  from  Evernorth,  including  behavioral  health,

virtual care, and pharmacy.

Our  Pathwell  solution,  which  continues  to  drive  exceptional  value  is  a  prime  example.  Pathwell

specialty is another way we are reducing costs associated with specialty drug therapies while also

providing improved care and clinical outcomes for patients. With our Accredo nurses, nearly 50% of

our  Pathwell  specialty  patients  who've  transitioned  their  site  of  care,  now  receive  treatment  in  the

comfort and convenience of their home. We are pleased with how the market continues to recognize

the value we are delivering through solutions like Pathwell.

Turning  to  our  Medicare  Advantage  business.  We  continue  to  make  great  progress  regarding  the

sale of this business, and I'm pleased that we remain on track to close in the first quarter of 2025 as

planned.  Next,  I  want  to  take  a  few  minutes  to  talk  about  the  current  environment  surrounding

pharmacy  benefit  managers  and  the  relative  landscape.  At  the  heart  of  this  debate  is  the  cost  of

pharmaceuticals.

As  we  previously  discussed,  a  key  force  of  change  in  healthcare  is  the  surge  of  pharmacological

innovation. For context, prescription drug coverage is the most frequently used care benefit. And on

average, it used 15 times per year per person resulting in billions of dollars -- billions of prescriptions

per year annually in the United States. Today, and for the foreseeable future, and most meaningful

advances  extending  and  improving  quality  of  life  will  come  through  gene  therapies,  breakthrough,

and treatments for cancers and other conditions as well as personalized medicines.

In the U.S., for example, there are already more than 20 gene therapy and cell therapies available.

However, there are nearly 1,000 more in the pipeline. Additionally, as we know, GLP-1s are growing

rapidly, helping to treat diseases and complications that stem from obesity and diabetes. This class

of drug is on tap to be the No.

1 pharmacy benefit trend driver for plans of all sizes this year. And the impact will grow with some

forecasting  nearly  10%  of  the  U.S.  population  using  GLP-1s  in  the  next  10  years  or  sooner.  The

applications  rippling  from  these  fast-growing  pharmaceutical  trends  across  the  entire  healthcare

system are undeniable.

And one of the biggest unanswered questions is how could society afford this continued trajectory?

Our  role  is  to  negotiate  with  pharmaceutical  manufacturers  as  well  as  pharmacies  to  ensure  that

individuals  are  able  to  access  pharmacological  innovations  at  a  fair  and  affordable  price.  In  fact,

pharmacy benefit companies are the only part of the drug supply chain who work to drive cost down.

To  underscore  this,  new  drugs  coming  to  market  with  unsustainable  prices  in  2023,  were  up

$300,000  on  a  median  basis,  up  over  35%  over  2022.  And  last  year,  median  brand  drug  price

increases were greater than 5% more than the rate of inflation.

Let  me  repeat  this.  Last  year,  the  median  annual  price  for  new  drugs  coming  to  market  was

$300,000 up 35% over 2022. Meanwhile, in 2023, Express Scripts change in pace and cost sharing

was  relatively  flat  on  average.  Express  Scripts  patients  with  employer-sponsored  drug  coverage

pay, on average, $15 out of pocket for a 30-day supply.

And for clients, Express Scripts delivered more than $38 billion in savings annually. Stepping back,

our industry negotiations to drive these results can at times generate friction in the system. Friction

that  is  spilled  into  and  now  has  reached  tightened  levels  in  the  political  arena  and  media  with

industry winners and losers being declared at every report and every headline. We believe that the

facts and results and outcomes delivered to our clients, customers and patients will rule the day.

However, the environment calls on us to be more proactive. This means ensuring that what we do

and the value we bring is more widely and better understood. And we continue to evolve our model

to address legitimate pain points and opportunities. For example, in 2023, 1% of the patients in the

United States experienced out-of-pocket costs above $2,000 a year.

From  our  point  of  view,  that's  too  many.  We  accept  the  responsibility  to  accelerate  innovation  to

make medications more affordable while continuing to improve health outcomes in finding solutions

for every person we serve. Make no doubt our team will continue to lean into the challenge for the

benefit of our patients, clients, and the healthcare ecosystem and we are proud of the work that our

team does every day and the role we play, and the results we're able to achieve. Now let me pause

and summarize before transitioning to Brian.

When you combine our compelling growth potential and strong execution focus, we have confidence

in  our  ability  to  meet  our  2024  and  long-term  growth  targets.  We  have  a  proven  track  record  of

delivering differentiated value for those we serve by innovating new solutions like in EnCircleRx and

our Pathwell suite as well as expanding meaningful partnerships. As a result, in the second quarter,

we  delivered  on  our  financial  commitment  with  adjusted  EPS  of  $6.72,  and  we  remain  on  track  to

deliver our guidance for full-year adjusted earnings per share of at least $28.40 for 2024. Further,

our company has attractive sustainable growth opportunities over the long term, and we remain on

track  to  deliver  average  annual  adjusted  EPS  growth  of  10%  to  14%  and  building  on  our  track

record  of  achieving  13%  adjusted  EPS  growth  over  the  last  decade,  all  while  we  generate

cumulative  operating  cash  flow  of  $60  billion  over  the  next  five  years  while  continuing  to

meaningfully invest capital for the benefit of shareholders.

We also continue to make strategic investments in strengthening our capabilities in our foundational

and accelerated growth business. and remain focusing on harnessing the breadth of our capabilities

of our organization to meet the evolving needs of those we serve. Overall, our strong performance

through  the  first  half  of  the  year  reflects  the  balance  in  our  company  portfolio  and  the  significant

value creation that positions us for sustained and differentiated growth. With that, I'll turn it over to

Brian.

Brian C. Evanko -- Executive Vice President, Chief Financial Officer

Thank you, David. Good morning, everyone. Today, I'll review Cigna's second-quarter 2024 results

and  discuss  our  outlook  for  the  full  year.  We're  pleased  with  our  strong  second-quarter  results,

reflecting growth across Evernorth and Cigna Healthcare care.

The  results  underpin  the  strength  and  the  stability  of  our  diversified  portfolio  of  businesses  in  a

dynamic  environment  and  demonstrate  continued  execution  against  our  operating  and  financial

commitments. Key consolidated financial highlights for the second quarter include revenue of $60.5

billion,  which  represents  25%  year-over-year  growth,  and  adjusted  earnings  per  share  of  $6.72  or

10% year-over-year growth. With the strong first-half performance, we continue to have confidence

in our full-year 2024 adjusted earnings per share outlook of at least $28.40, which represents more

than 13% year-over-year growth in EPS. Now turning to our segment results.

I'll  first  comment  on  Evernorth.  Evernorth  continues  to  deliver  strong  results  driven  by  both  of  its

operating  segments.  Second-quarter  2024  revenues  grew  to  $49.5  billion,  while  pre-tax  adjusted

earnings  grew  7%  to  $1.6  billion,  slightly  ahead  of  expectations.  Specialty  and  Care  Services

showed strong growth with revenue up 18% to $22.9 billion, and pre-tax adjusted earnings were up

12% to $756 million, at the high end of our long-term target growth range.

This  performance  is  a  demonstration  of  our  robust  and  diversified  capabilities  as  we  delivered

broad-based growth across our specialty businesses, Accredo and CuraScript, as well as in our care

services  businesses.  Pharmacy  Benefit  Services  also  posted  strong  revenue  growth  driven  by  the

addition  of  new  business  wins  and  expansion  of  existing  relationships.  Pretax  adjusted  earnings

increased  to  $798  million  as  our  innovative  capabilities  continue  to  drive  value  for  our  clients,

customers,  and  patients.  Overall,  we're  pleased  with  Evernorth's  second-quarter  results  and

continue to expect strong income growth in the second half of the year.

Turning  to  Cigna  Healthcare.  Second-quarter  2024  revenues  were  $13.2  billion,  and  pre-tax

adjusted  earnings  were  $1.2  billion.  Second-quarter  earnings  were  in  line  with  expectations  and

included approximately $50 million of a favorable prior-year impact related to Medicare Advantage

risk  adjustment.  The  second-quarter  medical  care  ratio  of  82.3%  was  within  our  expected  range,

inclusive  of  the  aforementioned  unfavorable  prior-year  impact  of  approximately  $50  million  or  40

basis points on the medical care ratio.

Absent this item, the underlying medical care ratio was broadly in line with expectations. As noted

previously, we had planned and priced for 2024 medical cost trend to be above 2023 levels, which

took into account both unit cost inflation as well as continued elevated utilization. Year to date, we

have  seen  elevated  cost  trends,  consistent  with  our  planning  and  pricing  assumptions.  The  net

medical cost payable at the end of the second quarter was $5.04 billion, compared to $5.66 billion at

the end of the first quarter.

As noted previously, in the first quarter, we had booked approximately $650 million in incremental

reserves relating to the Change Healthcare disruption. Those reserves have since developed in line

with  expectations  and  claims  payments  have  returned  to  more  normalized  levels.  driving  the

sequential decline in net medical cost payable. Moving to Cigna Healthcare Medical customers.

We  ended  the  quarter  with  $19  million  total  medical  customers.  We  expect  growth  in  Cigna

Healthcare medical customers for the remainder of the year, primarily driven by growth in our U.S.

employer  Select  and  Middle  Market  segments.  Overall,  Cigna  Healthcare  delivered  consistent

results in a dynamic operating environment.

Now turning to our outlook for full year 2024. With our continued strong underlying performance in

Evernorth and Cigna Healthcare, we are reaffirming our full-year 2024 expectation for consolidated

adjusted income from operations of at least $8.065 billion or at least $28.40 per share. Regarding

cadence of earnings, we expect the third-quarter adjusted earnings per share to be approximately

25% of the full-year outlook. Now turning to our 2024 outlook for each of our growth platforms.

In  Evernorth,  we  continue  to  expect  full-year  2024  pre-tax  adjusted  earnings  of  at  least  $7  billion.

This  reflects  continued  momentum  into  the  second  half,  with  third  quarter  Evernorth  earnings

expected  to  accelerate  to  high  single-digit  year-over-year  growth,  in  part  due  to  an  increase  in

adoption  of  our  interchangeable  biosimilar  offering.  For  Cigna  Healthcare,  we  continue  to  expect

full-year  2024  pre-tax  adjusted  earnings  of  at  least  $4.775  billion,  and  we  expect  the  third-quarter

adjusted  earnings  to  be  approximately  25%  of  the  full-year  outlook.  We  continue  to  expect  the

full-year medical care ratio within the range of 81.7% to 82.5%.

With  the  first  half  medical  care  ratio  coming  in  at  81.1%,  the  midpoint  of  our  guidance  implies  an

83.1%  medical  care  ratio  for  the  second  half  of  the  year.  We  would  expect  the  third  quarter  to  be

slightly below that level. Turning to our 2024 capital management position. As of July 31st, we have

repurchased  14.7  million  shares  of  common  stock  or  approximately  $5  billion,  consistent  with  our

previous commentary.

We continue to expect at least $11 billion of cash flow from operations. Our balance sheet and cash

flow outlook remains strong, benefiting from our efficient asset-light framework that drives attractive

returns on capital. Now to recap. Our first-half 2024 consolidated results reflect strong contributions

and execution from both Evernorth and Cigna Healthcare.

Our  2024  outlook  reflects  the  sustained  momentum  and  strong  fundamentals  of  our  two  growth

platforms,  which  gives  us  confidence  to  deliver  on  our  full-year  2024  adjusted  earnings  per  share

outlook of at least $28.40. With that, we'll turn it over to the operator for the Q&A portion of the call.

Operator

Questions & Answers: