Cigna : Fourth Quarter 2020 Conference Call Transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

CI.N - Q4 2020 Cigna Corp Earnings Call

EVENT DATE/TIME: FEBRUARY 04, 2021 / 1:30PM GMT

OVERVIEW:

Co. reported 2020 consolidated adjusted revenue of $160b, consolidated adjusted after-tax earnings of $6.8b and consolidated adjusted EPS of $18.45. Expects 2021 consolidated adjusted revenues to be at least $165b and consolidated adjusted income from operations to be at least $6.95b or at least $20 per share.

REFINITIV STREETEVENTS |www.refinitiv.com|Contact Us

CORPORATE PARTICIPANTS

Alexis Jones Cigna Corporation - IR Lead Principal Brian C. Evanko Cigna Corporation - Executive VP & CFO

David Michael Cordani Cigna Corporation - President, CEO & Director

CONFERENCE CALL PARTICIPANTS

Albert J. William Rice Crédit Suisse AG, Research Division - Research Analyst

Charles Rhyee Cowen and Company, LLC, Research Division - MD & Senior Research Analyst David Howard Windley Jefferies LLC, Research Division - MD & Equity Analyst

Gary Paul Taylor JPMorgan Chase & Co, Research Division - Analyst

George Robert Hill Deutsche Bank AG, Research Division - MD & Equity Research Analyst Joshua Richard Raskin Nephron Research LLC - Research Analyst

Justin Lake Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Kevin Mark Fischbeck BofA Securities, Research Division - MD in Equity Research Lance Arthur Wilkes Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst Matthew Richard Borsch BMO Capital Markets Equity Research - Research Analyst

Ralph Giacobbe Citigroup Inc., Research Division - Director and Co-Head of Americas Healthcare Research Robert Patrick Jones Goldman Sachs Group, Inc., Research Division - VP

Scott J. Fidel Stephens Inc., Research Division - MD & Analyst

Steven James Valiquette Barclays Bank PLC, Research Division - Research Analyst

PRESENTATION

Operator

Good morning. Ladies and gentlemen, thank you for standing by for Cigna's Fourth Quarter 2020 Results Review. (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 Ms. Alexis Jones. Please go ahead, Ms. Jones.

Alexis Jones - Cigna Corporation - IR Lead Principal

Good morning, everyone, and thank you for joining today's call. I am Alexis Jones, Lead Principal for Investor Relations. With me on the line this morning are David Cordani, our President and Chief Executive Officer; and Brian Evanko, Cigna's Chief Financial Officer. In our remarks today, David and Brian will cover a number of topics, including Cigna's full year 2020 financial results as well as an update on our financial outlook for 2021. As noted in our earnings release, when describing our financial results, Cigna uses 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 cigna.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.

2

In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2021 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 to David, I will cover a few items pertaining to our financial results and disclosures. Regarding our results. In the fourth quarter, we recorded an after-tax special item benefit of $3.2 billion or $8.91 per share for the sale of Cigna's Group Disability and Life business that was completed on December 31, 2020.

We also recorded an after-tax special item charge of $148 million or $0.41 per share for integration and transaction-related costs. As described in today's earnings release, special items are excluded from adjusted income from operations and adjusted revenues in our discussion of financial results.

Beginning next quarter in our earnings release and quarterly financial supplement, the Group Disability and Other segment will be combined with Corporate and called Corporate and Other Operations. This change to simplify our reporting was enabled by the aforementioned sale of the Group Disability and Life business.

Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2021 outlook, we will do so on a basis that includes the potential impact of future share repurchases and anticipated 2021 dividend.

With that, I will turn the call over to David.

David Michael Cordani - Cigna Corporation - President, CEO & Director

Thank you, Alexis. Good morning, everyone, and thank you for joining us on our call today. When we met a year ago, the challenges from COVID-19 were just beginning to fully emerge around the globe. With the arrival of vaccines, 2021 is likely to be a year of transition as communities and businesses seek to turn the page. I am very proud of the ways in which our 70,000-plus colleagues led and continue to lead through this difficult time for customers, our clients, our providers, our partners and our communities.

Starting last spring, we were amongst the first to wave out-of-pocket cost for COVID-19 testing as well as treatment. Our Evernorth business quickly leveraged our supply chain expertise to ensure consistent prescription drug supply and delivery during the uncertain times.

In our U.S. Medical business, we ramped up to meet the significant increased demand for behavioral health services by growing our network, adding virtual provider partners, creating on-demand webcasts, treating first responders and adding search capabilities for provider ethnicity. All while we were deploying hundreds of millions of dollars to support our clients and partners who are hit hardest by the pandemic.

In partnership with New York Life, we launched the Brave of Heart Fund to provide charitable grants for families, frontline workers and volunteers who lost loved ones to COVID-19. Then last month, our Cigna Medical Group was amongst the first non-hospital organizations in the nation to administer antibody therapy for high-risk COVID-19 patients, freeing up much needed hospital space. And just a few weeks ago, we partnered with industry leaders from across the public and private sectors to ensure that people who receive the vaccine have digital access to their vaccination records so they can safely return to their jobs and daily activities.

As we continue to work to serve our clients, our customers and our patients during the pandemic, we also balanced our responsibility to deliver for our shareholders as well. For 2020 full year, we grew our adjusted revenue by 14% to $160 billion. We also delivered adjusted earnings per share of $18.45, consistent with our overall expectations, which included the ongoing elevated cost of COVID-19 related services.

Today, I'm going to talk about how our strategic actions we took in 2020 position each of our businesses to navigate what we expect will be another very dynamic year, one that will require us, again, to balance the varying needs of all of our stakeholders. I'll also tell you about our growth framework

3

and how our execution of it will drive our success throughout this challenging environment and beyond. Following my comments, Brian Evanko will share more details about our 2020 financial results and our 2021 outlook. And then we'll take your questions.

At Cigna, we've been on a journey, an important one over the past 2 years to significantly accelerate our strategic path. During 2020, we completed the integration of our combination with Express Scripts and delivered on our integration priorities, including revenue growth, cash flow generation, deleveraging targets, strong client retention, high levels of coworker retention and working to keep our vision top of mind with innovations and improved affordability, predictability and simplicity delivered to the market.

In addition, we delivered another important milestone of our strategic journey by launching Evernorth, our health services platform, which has meaningfully grown our strategic partnerships and is bringing innovative solutions to the market already. We also recently made a series of leadership changes to align our capabilities and further operationalize our strategy reinforcing our talent depth and our commitment to continue to grow and develop our team. And based on the capital and cash flow strength of our company, we are demonstrating the ability to have an "and" orientation to our capital deployment strategy. This means we're able to reinvest in our business for ongoing growth, and pay a meaningful quarterly dividend, and deploy substantial capital to share repurchase, and target and pursue strategic M&A.

At the same time, we continue to execute effectively across each of our businesses by delivering value to our clients and customers or patients. In Evernorth, our 2020 adjusted revenue increased 20% driven by ongoing strong retention, the completion of insourcing Cigna volumes and organic growth, including our partnership with Prime Therapeutics.

In U.S. Commercial, our relentless support of our customers and our employer clients and partners throughout the pandemic led to strong client retention levels again in 2020, along with better-than-expected in-group strength building a solid foundation that we will carry into 2021.

In U.S. Government, we grew our Medicare Advantage customer base by 18%, exceeding our average annual growth target of 10% to 15%, and we expanded our geographic and product footprint to now be making market offerings in 28% of all available Medicare Advantage buyer markets.

In addition, 88% of Medicare Advantage and prescription drug plan customers in 2021 are in 4-Star plus rated plans, with our national weighted average of 4.5 Stars, the highest amongst our national competitors. And in our International business, despite navigating the challenges of the ongoing pandemic in multiple countries, we delivered full year adjusted earnings growth of 18%, fueled by our strong partnerships.

Related to the Group Disability and Life, which we sold to New York Life on December 31, I am proud of the way in which our team worked to deliver in a very challenging environment, fueled by the pandemic for the benefit of our clients and customers. As a result of the pandemic, it created a significant reduction in our earnings contribution for our business last year. However, we remained focused on serving our clients and customers.

Throughout 2021, we expect the macro environment to remain dynamic, which presents both challenges and opportunities for us. Among the challenges, we expect COVID-19 and the rollout of the vaccine to continue to tax an already overburdened health care system. And we expect intensified and much-needed focus on health disparities to continue as well. At the same time, we also see opportunities. They include greater recognition of the importance of the employer-sponsored market, with companies playing an even more critical role in ensuring the well-being of their employees by offering comprehensive medical, pharmacy and behavioral services.

There are also a number of accelerating trends that will further drive fundamental changes in health care. For example, pharmacological innovations are quickly becoming the future of health care, driven in part by the continued rise in specialty pharmaceuticals, gene therapies and the evolution of biosimilars. There's also greater recognition and acceptance of the link between mental health and physical health. And we see care access rapidly changing as a result of consumer behavior and technology and data innovation, leading to growing use of virtual visits and coordinated home-based care, all aided by advancements in remote monitoring as well.

Against this backdrop, the progress we achieved in 2020, along with the strength of our capabilities, that gives us confidence that we will deliver at least $20 of adjusted earnings per share in 2021, even in the face of the COVID-19 headwinds, primarily in the form of elevated medical costs.

4