Thank you all for being here today. I'm happy to host The Cigna Group. With me, we have Brian Evanko, the CFO of the company and the President and CEO of Cigna Healthcare. We also have Hasan Riaz and Ralph Giacobbe from the company in attendance. Let’s move into the Q&A session. One of the things we are trying to understand at the conference is the current backdrop for utilization, as there are many factors at play and varying opinions on our current utilization status. Could you provide some insights on utilization, starting with the core commercial segment and then any details on the Medicare Advantage side?

Sure, Kevin. And thanks to you and Bank of America for hosting us here this week. As it relates to utilization, in 2023 across the board, we saw strong levels of utilization in our Cigna Healthcare health plan book, which is something we had priced for, guided for and included in our projections. And so, as a result of that, you would have seen we had a strong year in Cigna Healthcare in 2023. The MCR performance was strong. The revenue growth was strong, in spite of what were elevated levels of utilization compared to 2020, 2021, 2022. So '23 was a stronger year of utilization. As we stepped into '24, we assumed those strong levels of utilization would continue through the entire year. So our pricing anticipated that, our guidance anticipated that and our projections did as well. So we are pleased with our first quarter results coming in better than expectations in Cigna Healthcare, where the MCR was better than we had projected and also the income was ahead of expectations, which again we come back to the firm pricing that we've had in the market, 2024 reflecting that utilization, is consistent with what we experienced in the first quarter. So far, the second quarter is largely in line with what we had expected coming out of the first quarter, which again is persistently high utilization levels relative to what we had in '23. In the first quarter, we had strong levels of inpatient utilization, a little bit of decelerating outpatient and surgery utilization, but still at high levels in absolute terms. So that's broadly how I would think about the picture we're seeing at The Cigna group.

Okay. And any different color on the Medicare Advantage side versus the commercial side?

The Medicare Advantage book for us and granted we only have about 600,000 lives, so it may not be representative of the nation, has been broadly in line with our projections. Strong levels of utilization, '23 persisted through the first quarter of '24. So I wouldn't call it out as a significant outlier relative to our commercial employer experience.

And I guess let's talk about the commercial side for a minute. I mean, you're one of the few companies that really talks about commercial as a growth business. And to your credit, you have been growing commercial well. I mean, but what is the opportunity that you guys see in the marketplace overall? What type of growth can you think you can deliver in commercial?

Yes, if you step back and think about the company in total, we've got three scaled growth platforms. We've got Cigna Healthcare, which is our health plan business. That's about 40% of our income. And our commercial employer business is the cornerstone in Cigna Healthcare. We've got our Evernorth Specialty and Care Services platform, which is about 30% of the company, which we expect to grow 8% to 12% per year on average. And then we have our Pharmacy Benefits Services business in Evernorth, that's about 30% of the company that we expect low- to mid-single-digit type growth on an ongoing basis. So three large scaled platforms. You asked specifically about the commercial employer business that's in Cigna Healthcare, which again is our health plan business. We've had a long track record of success here and part of it's the focus and the expertise that we've built up over time. But the opportunity we have going forward for disproportionately high growth is in the under 500 employer size segment, what we call the Select segment. So you can think of this employers who have between 50 and 500 employees. Today, we have about 7% market share. That's up from it was 5% just five years ago. So our share has been gradually building and we see the opportunity for that to eventually get into the double-digits from a share standpoint, which is where our over 500 market share is today in the commercial employer space. We see that as a significant opportunity going forward. The reason we've been successful in that space is both improved affordability at a local market level, but also a very consultative model that we've employed with employers from the standpoint of understanding how health benefits can be a weapon for them relative to talent attraction and retention and the fact that we're agnostic to funding arrangements. So we've for a long time had ASO or self-funded arrangements in the down market segment, which some of our competitors have been reluctant to do because it's lower revenue, even though it's very attractive from a profitability standpoint. So that's the subsegment within commercial employer that we're most excited about growth going forward.

Yes, I guess in Q1 when I looked at your commercial membership, the membership was down pretty much in every segment except for I guess the Select business. So what happened there? Why weren't we seeing better membership trends when the economy is doing relatively well? And then how should we think about the rest of the year?

Yes, the Select segment, I'll come back to the core of the question, the Select segment, you can think of as having more rolling renewal dates. So because these are smaller employers, it's not as concentrated on January 1st. So we tend to see intra-year growth, in that sub-segment specifically, so the under-500 Select segment. So we'll see throughout the year growth, in terms of sequential lives into 2024. As it relates to your point on the larger segments, if you look at our middle markets and national accounts, we did have some self-funded fee-based clients that were lost for 2024. We knew about that because from the standpoint of the pricing environment, we didn't chase the pricing. So not material to our income, but they did create a dent to the lives on 2024. Now that's on the heels of a couple of years of really strong growth. If you go back and look at where we were at the end of '21, our commercial employer book now is much bigger, 2 million, 3 million lives bigger. So we've had a lot of growth. But in this specific time period, we had a couple of known employer losses, Kevin.

And so then does that mean that the market's getting more competitive in that marketplace or is this just digesting recent growth?

I wouldn't say it's becoming more competitive overall because there were only two notable clients with fee-based arrangements. Out of the many we serve in that area, I wouldn't necessarily jump to the conclusion that it's more competitive. Generally, we're observing rational pricing from our competitors, though occasionally there are instances where the pricing is somewhat aggressive.

And so as far as the rest of the year goes, do you expect membership to kind of trend up from here as the year goes on?

We do. In the employer business, we expect there to be intra-year growth in the lives such that the full-year commercial employer book, year-end '24 versus year-end '23 should be flat to potentially up a bit.

Okay. And then you guys are getting out of the Medicare Advantage business and you don't have a Medicaid business. Can you just talk about your views on the government business? Like why isn't that part of your portfolio strategy today? And it seems like almost every company has a diversified portfolio. Aren't there benefits of having that?

There's a few different questions in there, so maybe I'll try to go deliberately through this to make sure the audience understands all the pieces in our thought process. So to your point, we're in the process of divesting our Medicare businesses as we speak to HCSC on track for early 2025 closing date of that. We've completed the DOJ review process. We got through the federal antitrust review already, so a couple of key milestones have already been met. Again, on track to deliver that divestiture in the first quarter or early part of 2025. Stepping back, though, why would we divest the business, I think is more where you were going with the question. We continue to see the Medicare subsector of the U.S. healthcare space as an attractive part of the U.S. healthcare market. So this was not a verdict about Medicare not being an attractive subsector. But for us, relative to where The Cigna Group is positioned, our strengths, our existing assets and where we can create the most value, we concluded that given its relatively small size in our portfolio, the amount of human capital and financial investment that would be required to scale it to a level that's significant for our company was too tall of a task and that it was best in someone else's hands. So that's what led to the decision to divest the business. So this was not a verdict about the Medicare market. It was relative to the size of our company and the things that we're prioritizing and focusing in. So I talked about specialty pharmacy earlier, our commercial employer business and the strength in our Pharmacy Benefits Services platforms. Those are getting disproportionate investment resources and we have a sustained right to win in each of them. Now, stepping back from that, our Evernorth Health Services business serves a lot of Medicare lives today. We serve a lot of Medicaid lives today, particularly with the win of Centene that has now gone effective, January 1st into our book. So we now serve 20 million or so customers of Centene across Medicaid, Medicare and across the entire Evernorth portfolio. About 30% of all the customers we serve there are government-sponsored: Medicaid, Medicare, DoD. So between our Pharmacy Benefits Services, specialty pharmacy, we serve a lot of Medicare, Medicaid, government lives, but through the services chassis as opposed to the health plan chassis. So in the long run, not having a health plan presence presents an opportunity for us strategically, something we could consider. It's not necessarily in the near term where we're going to be focused, but it's an opportunity in the long term for us to consider.

Is that true for Medicaid as well as Medicare or do you have a different view about those programs?

Similarly to Medicare, after the divestiture, we won't have any health plan presence in Cigna Healthcare. And as we go through our strategic reviews of any decision that we make, we'll assess Medicare, Medicaid and other lines where we're not active. So I wouldn't say we have a stronger view of one versus the other in terms of the relative attractiveness. Ultimately, it'll come back to, as we think about the criteria for where we invest or the criteria for M&A, each of the specific situations would need to be carefully reviewed. We have concluded that we don't intend to organically enter Medicaid or Medicare. So if we are in those lines in the health plan business, it would be through some sort of acquisition down the line.

All right. Can we talk a little bit about Evernorth then for a minute? You guys have kind of broken out that PBM business separately from the special two business. Can you talk a little bit about the decision to do that and why you think that's important for investors to understand?

Sure. Yes, so starting in the first quarter, we divided the Evernorth business into two operating segments or subsegments. And again, stepping back, Evernorth is a health services platform for Cigna. It's about 60% of our income. And then Cigna Healthcare is the health plan, about 40%. So the 60% we divided into the two components. And part of this was we had a lot of questions coming in from investors to help us understand the pieces better. But also part of it is we wanted to make sure we really put a spotlight on the Specialty and Care Services platform, which can you think of each of them as approximately equal today in terms of their contribution, 30% of the total company's income from both of those two operating segments. We found many people were taking our specialty pharmacy business and grouping it with the rest of our Pharmacy Benefits Services business and just thinking of that as a prescription drug oriented business. Yes, the two have very different growth profiles going forward. So the Specialty and Care Services business, $400 billion addressable market, it'll grow high-single-digits for the foreseeable future and we're the leader in that space. And we've expected 8% to 12% annual income growth out of that operating segment on a go-forward basis and we've delivered that historically. However, we don't feel like everyone understands or appreciates the power of that business today, because historically, when it was lumped together with the rest of Evernorth, it was easy to say that's a big PBM. Yet, the reality is the specialty pharmacy business is really a heavy-duty clinical care delivery model in a really attractive, highly growing addressable market. And so we wanted to put a spotlight on that for investors and allow you all to see the fact that that's going to be a very high growth business for the company and ideally think of it from a valuation standpoint differently than what the rest of Evernorth is, which is our Pharmacy Benefits Services platform, which we expect to grow 2% to 4% going forward. So it'll still grow and still has secular tailwinds, but not to the 8% to 12% growth rate of the Specialty and Care Services platform. So that's why we decided to go down that route, Kevin. We have a lot of questions and we wanted to put a spotlight on the high growth subsegment that we have within Evernorth.

And I guess maybe to that point, I think since this was the first quarter where we could look at it, it's optically looked a little bit strange when the PBM business grew so much off the Centene contract, but the specialty business didn't seem to get the same lift. Can you talk about why specialty didn't get the same bump that PBM did?

Sure, yes. And you're right. We had the benefit of the Centene contract onboarding in the Pharmacy Benefits Services operating segment. So if you look at the quarter-over-quarter growth, it's very high in excess of 40% in the Pharmacy Benefits Services platform. Now, the Specialty and Care Services still grew 12% year-over-year, so nothing to sneeze at in that regard. But to your point, the Centene recognition, if you will in terms of where the financial shows up is largely in the Pharmacy Benefits Services platform today. So we have our Accredo Specialty Pharmacy as one of the specialty pharmacy options for Centene customers, but it's not exclusive. It's one of the options. So to the extent that a Centene customer fills a script at our Accredo Specialty Pharmacy, we recognize it in that subsegment. But the lion's share of the relationship is in the Pharmacy Benefits Services platform today.

Okay. And when you think about that 8% to 12% growth algorithm, like how should we think about it? What are the key drivers to that?

The most significant driver of that is the core secular growth in the specialty pharmacy market. And what I mean by that is looking back over the past decade or so, much of the innovation in healthcare has been in medical devices. Now we're starting to see pharmaceutical innovation not even in the early innings, we're starting to get in the middle innings of pharmaceutical innovation over the next decade really being the next wave of health care. And the specialty pharmacy market in particular will see a lot of that. So whether it's gene therapies, Alzheimer's drugs, we're seeing right now the effect of GLP-1s starting to ramp, as you all know. Those are all examples of drug innovation that will drive high secular growth in that $400 billion specialty pharmacy market. And our Accredo Specialty Pharmacy today, we have depending on which measure you use in the 20% market share range, something along those lines. We have a scaled business in a high growing subsector with a lot of clinical experts, because these are high-cost drugs. Often, they require temperature control or they require specific administration in a person's house or in a physician's office. So these are high-cost drugs. This is not going down to your local drugstore and picking up a generic. They're complicated specialty drugs and we're really well positioned. So that's the primary driver of the 8% to 12% growth within there. The two others that I would highlight are we have a Distribution business for specialty pharmacy as well called CuraScript. It's been growing double-digits for many years. And we have an opportunity to see that grow at an even faster rate on a go forward basis as more biosimilars are brought to market and more competition for high-cost branded drugs enters the markets, we have an opportunity there. And then our Behavioral Health business, we have an opportunity for outsized growth there as well. Today, that's a relatively small part of the company, but there's a tremendous amount of demand for mental health right now both from our Cigna Healthcare customers, but also our external and affiliated clients that Evernorth serves. So all those things taken together lead to the 8% to 12% expectation.

That last one, so the first two were actually kind of specialty drug driven the last one, that's a medical management overlay, not a pharmaceutical?

Correct. Yes. So from the standpoint of trying to keep things simple, only having two operating segments in Evernorth, the specialty and care services includes primarily specialty pharmaceutical, but we have some health care services in there as well, things like behavioral health, things like our MDLive Virtual Care, things like our EviCore medical benefits management.

And so it seems like everyone is talking about adding more of these services and these carve-out benefits. I mean, how would you characterize the competitive environment today for these types of things like behavioral? It seems like, again, Elevance is doing it, United has been doing it, you're doing it like how do you win in that market?

I believe it's crucial to further segment the employer landscape. Your question seems focused on the employer market, particularly regarding the under 500 segment that I mentioned earlier. We have significant growth opportunities in what we refer to as the select segment within Cigna Healthcare. Typically, these employers are purchasing our complete range of solutions. They do not separate mental health services from their medical benefits or prescription drugs during procurement. This approach is largely due to smaller HR departments seeking simplicity rather than navigating complex procurement processes and managing multiple partners. As we move to larger employers, specifically those with over 500 employees, we often see a shift towards a la carte or multi-partner procurement. This has been a longstanding trend. We are noticing some point solution fatigue among our larger clients, many of whom I've engaged with extensively in my Cigna Healthcare role. They have invested in several smaller point solutions, but the returns have not met their expectations. Consequently, they are seeking more integrated solutions, which creates an opportunity for us and our larger competitors to consolidate some of the point solution providers. Overall, in the smaller market, we can provide comprehensive solutions when we engage with clients. However, in the larger market, there is more fragmentation at present, which allows for potential consolidation.

Okay. Can you talk a little bit about the PBM environment? You guys just won a large contract. Anything to highlight there as far as over the next year or two that anything you have up for re-procurement or any larger contracts that might be coming to market?

The Centene contract that was just effective January 1, 2024, far and away bigger than anything else that's in the kind of short to intermediate horizon for us. And for '25, we'd expect based on where we sit here in the middle of May, mid-90s or better retention on our PBM book of business, based on where things stand and a few opportunities for new business coming in as well. That's all factored into the forward-looking 2% to 4% average annual growth algorithm for the Pharmacy Benefits Services business, but not anything anywhere near as sizable in the '25 cycle that's we had with Centene.

And as far as the Centene contract, I guess last year was a drag, you should prepare for it. This year it's talking more break even and next year you should be at target margins. Is that are you still on track for that dynamic?

We are on track for that dynamic. So we don't intend to every quarter talk about the financial performance of Centene. But that broad picture you just painted is consistent with our latest expectations. '25, we should be at run rate profitability on the contract. And the installation went great. So, we still have regular dialogue with Centene. They've been pleased from everything we've heard in terms of the operational performance, which was not an easy thing to do to bring 20 million new customers over into our environment. We're really pleased with the performance from the team.

All right. Great. Can you talk a little bit about, just going back to the Health Plan business, the exchanges? You guys pulled back noticeably on the exchanges in a couple of states. Where are the margins today and how do you view the exchanges going forward?

Sure. So the exchanges are within Cigna Healthcare for us, and you can think of it as this year about a $4 billion book of business from a premium standpoint. So within Cigna Healthcare, that represents under 10% of the total, but it's an area we see growth opportunity on a go forward basis. Now, we had to do some repositioning in '24, because '23 in two of our largest states with the benefit of hindsight, we underpriced the business in two of those states. And so we went through a new product positioning as well as a repricing exercise in two of those states, which led to a reduction in membership year-to-date, as we expected. So the good news for us is we've delivered '24 where we needed to from the standpoint of fewer customers, but more profitable. As we went through the repricing that I made reference to, our '24 expectations are that the book itself will run slightly below our target margins, and our target margins are 4% to 6% on that business, so we expect to be slightly below that. That's what's incorporated in our guidance. The first quarter and the April experience is consistent with that expectation.

Is that would you expect to be at target next year following repricing?

Barring any unforeseen events, that will be our expectation.

I think you guys have a longer term view that that business will grow, is it 10% to 15%?

Yes. In Cigna Healthcare, we anticipate an average annual income growth of 7% to 10%. Within that, we expect the individual exchanges to increase by 10% to 15%. The overall impact leads to a total growth of 7% to 10% for Cigna Healthcare. Part of this growth stems from expanding our addressable market, as we currently operate in about a dozen states, allowing us to enter new ones. In some existing areas, our market share is lower, presenting opportunities for us. Ultimately, we expect that $4 billion in premium to grow over time. While the entire company’s performance is not solely based on this segment, we view it as a crucial part of the health care system.

Is that the only part of your commercial business that was kind of under target? Are you generally speaking back to target margin and commercial outside of exchanges?

Yes. So Cigna Healthcare, if you think of the components, the U.S. Employer business is essentially at target margins, the International Health business is essentially at target margins, the individual exchange a little bit below as we just talked about. And then our Medicare business, which we're in the process of divesting currently weighed down by SG&A, so it's below targets. Although the medical care ratios are not out of line with where we would expect.

Okay. It's interesting. It feels to me like Cigna is in a pretty good spot right now. When I think about next year, there's not really any obvious headwinds that I can see to your business. So next year you're going to have trends going to remain high, unit costs seem to be driving commercial trend and that's probably going to be high again next year. So that's good for revenue growth. You've got the Centene contract ramping up. It sounds like the RFP pipeline is going well on the PBM side. So it seems like everything's kind of going well in your favor. Is there anything we should be thinking about from a headwind perspective that, is an offset or anything that keeps you up at night as far as next year's growth goes?

I hate to say there are no headwinds, but there are no significant headwinds that I would emphasize, and I generally agree with your assessment. Two months ago at our Investor Day, you may recall that we raised the ceiling of our EPS growth algorithm for the future. It was previously set at 10% to 13% for a long time, and we increased it to 10% to 14%. We see the next few years as opportunities for strong growth rates, even though we are operating in a somewhat disrupted environment. The factors you mentioned and the drug innovation I referred to contribute to our businesses being well positioned for the coming years, and there are no specific headwinds that I would highlight as we approach 2025. Of course, we must remain mindful of the possibility that medical cost utilization may exceed expectations, and we will continue to invest in operating expenses or strategic capabilities that could impact operating expenses during any specific time frame. However, overall, I don't see any significant one-time headwinds.

Yes. And then, you talked a bit about the share repo that you're doing this year. You guys are in the process of doing the first $5 billion. What's the appetite or ability to do it to continue share repo on the back half of the year? And your good debt to cap is in Q1 was 44%. You guys usually talk about 40% as the target. How does that play into how you think about share repo and the timing?

We have consistently viewed our shares as an excellent use of our available capital, which is why we have engaged in substantial share repurchases over the past few years. For 2024, we plan to allocate a significant portion of our discretionary cash flow toward further share repurchases. We are on track to meet our commitment of at least $5 billion in share repurchases by the end of the first half of 2024. In February, we started a $3.2 billion accelerated stock repurchase program that will conclude by the end of this month, and we will also conduct open market repurchases to reach our target by the end of June. We are fortunate to have strong cash generation, which gives us the flexibility to execute this strategy. Looking toward the latter half of the year, after accounting for capital expenditures and shareholder dividends, we expect to have around $3 billion in available cash for deployment, which can be utilized for either debt repayment or potential strategic mergers and acquisitions. While we view these options as interchangeable in the latter half of the year, share repurchase remains a highly attractive strategy for us. Regarding our debt levels, we were slightly higher in the first quarter due to the timing of our debt issuance related to the share repurchase program and also due to a write-off of one of our assets, which temporarily increased our debt-to-cap ratio. We are committed to maintaining a debt-to-cap ratio of 40%, which aligns with our agreements with rating agencies, and we were at that level at the end of the year. We will work toward reducing our debt to reach that target again.

When you mention that 65% of your cash flow is directed towards M&A or share repurchases, I understand you view your stock as a worthwhile investment, and we do as well. However, regarding M&A, my concern with Cigna's strategic capital allocation is that there should be opportunities available that could advance the company. Since acquiring Express Scripts, you've generated more funds from asset sales than you've used for acquisitions. It seems like your peers are more proactive in capital deployment. What are your thoughts on this? Are you potentially missing out on opportunities? Is there anything you see now that you believe would be advantageous to acquire?

Yes, we see M&A as an important part of our capital deployment strategy, so full stop. And even though, to your point, there haven't been as many high dollar, high-profile acquisitions since we acquired Express Scripts, it's a constant area of review and focus for us strategically. So to your point, 60% to 65% of our capital available for deployment we see as fungible between M&A and repurchase, but we're not going to sit on cash either. So if there's not an attractive M&A prospect, we're going to use the repurchase lever because we view our stock as a very good investment, with where we sit today. Now strategic M&A for us falls into a few different categories. There's where can we improve our competitive position and our competitive advantage in our existing businesses. So I went through the different components of the company earlier. And then there's where can we expand our addressable market, our reach, which could be in Cigna Healthcare. We talked about a few of the lines where we don't have a presence or we won't have a presence in the future or it could be in Evernorth where we have more opportunities for services, particularly health services. So those are examples of areas that we're constantly looking at. But importantly, every asset needs to be viewed individually and we put it through the lens of does it strategically push the company forward, is it financially attractive, meaning accretive over time and meeting return on capital expectations, and can we get it done, both from the standpoint of having the right counterparty and getting through antitrust.

I guess I understand getting into new markets or getting to new geographies. What does it mean, say, to improve your competitive positioning? Like what does that mean?

So in the three large scaled assets I made reference to Cigna Healthcare, Specialty and Care Services and Pharmacy Benefits Services, there are examples of ways where we can further extend our advantage into subsectors. So, in Cigna Healthcare, we have certain geographies where we're less competitive. In the Specialty and Care Services business, we're a little more nascent as it relates to serving health systems and hospitals. Those are examples of within already large scale businesses where there could be an advantage to build.

Okay, I think that is all we have time for. Thank you very much.

Thanks Kevin. I appreciate the time.