Q1 2020 Earnings Call
Good morning.
Ladies and gentlemen, thank you for standing by for Cigna's first quarter 2020 results review.
At this time all listeners are in listen only mode. We will conduct a question answer session later during the.
And we view procedures on how to enter the Q to ask questions at that time.
You should require assistance during the call. Please press star zero in your Touchtone phone.
As a reminder, ladies and gentlemen, this conference, including the <unk> session is being recorded.
I'll begin by turning the conference over to Mr. William Mcdowell. Please go ahead Mr. Mcdowell.
Good morning, everyone and thank you for joining today's call.
Well Mcdowell, Vice President of Investor Relations.
As we begin recall I would note the wheel practicing appropriate social distance.
As such our dialled into todays call from separate locations.
For your patience should we as a result encounter any technical difficulties.
With me on the line. This morning, our David Cordani, our President and Chief Executive Officer, and our Palmer Cigna's Chief Financial Officer.
Our remarks today, David Eric will cover a number of topics, including Cigna's first quarter 2020 financial results as well as an update on our financial outlook for 2020.
Noted in our earnings release, when describing our financial results Big News is 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 <unk>.
A reconciliation of these measures to the most directly comparable GAAP measures shareholders net income and total revenues respectively.
Contained in today's earnings release, which is posted in the Investor Relations section Cigna Dot com.
We used the term labeled adjusted income from operations.
Adjusted earnings per share on the same basis.
Principal measures of financial performance.
In our remarks today, we will be making some forward looking statements, including statements regarding our outlook for 2020 and future performance.
Treatments 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 today's earnings release and in our most recent reports filed with the FCC.
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 first quarter, we recorded after tax special items, netting to a charge of $191 million or 51 cents per share.
As detailed in our financial supplement special items in the first quarter include expenses associated with the previously disclosed early extinguishment of debt as well as integration and transaction related costs and other matters.
I described in today's earnings release, especially Nims are excluded from adjusted income from operations in our discussion of financial results.
Please note that consistent with past practice, when we make perspective comments regarding financial performance.
Our full year 2020 outlook, we will do so on a basis. It excludes the impact of any future share repurchases or additional prior year development of medical costs.
Also we disclosed pardon development onto the gross and net basis, you know released this morning.
Going forward, we will only report this measure on a gross basis consistent with industry practice.
Additionally, our outlook for 2020 assumes a full year earnings from or from Cigna's group disability and life business.
We continue to expect or divesture of that business to be completed in the third quarter of 2020.
I will turn the call over to David.
Thanks will and good morning, everyone. Thanks for joining our call today.
I'd like to begin by acknowledging the unique an unprecedented challenge of coping Nineteens global endemic and the tireless effort of those on the frontline caring for patients in need.
Cigna, we have work to ensure the health and safety of our customers patients and colleagues.
We will continue to partner across the system to lead to this crisis.
Well, the koby, making emergency understandably and rightfully dominates much of our focus we do you want to take advantage of our time together today to provide you with an update on our first quarter results in our outlook for the Bell 2020.
Following my comments, Eric will share more detail about our first quarter financial results and expectations for the though 2020 now we'll take your questions.
Let's begin by discussing the rapid and decisive steps, we've taken to respond to the Coke 19 crisis.
From the beginning of this helped emergency we established three primary goals for response efforts first and foremost do tend to the needs of our stakeholders across the globe.
Core customers a patients we've taken steps to remove cost and barrier for testing a treatment.
Sure they have access to the medications and expand access to care, including through additional telehealth services for medical behavioral and recently for example.
For clients, we have leverage are compensated approach and proactively provided them with support and services they need.
This includes serving as trusted advisors for those who can guidance on how to navigate this dynamic and challenging environment.
And providing relief for those in financial distress.
Or healthcare provider partners, we've given them administrative as well as targeted financial support.
Additionally, in partnership with New York Life, We agreed that Brave Apart fund.
For the true heroes of the Koeppen 19 crisis. This fund with contributions from our respective foundations aims to provide $100 million or more and monitoring other assistance to frontline healthcare workers their support teams and the families.
We're proud to have taken this action, which reinforces the service orientation of both Cigna in New York life.
As we work together on an accelerated basis to bring peace of mind, the brave men and women, who are still valiantly serving our communities.
Additionally for 70000 colleagues around the globe. We've also taken appropriate steps to protect their health and wellbeing. Well example, we are providing premium pay for those essential workers, who jobs continue to be seeking the site dependent.
And we are providing 10 additional days of emergency time off to cover absences related to the virus and allow a co workers to care for themselves and their loved ones. During this challenging time.
Our second goal respond coping 19 crisis is to ensure that we maintained a healthy organization that is well positioned to deliver significant value for all of our stakeholders today and into the future.
We know and appreciate the fact that many are depending on us no more than ever and we need to be there for them in the time of crisis and beyond.
We are focused on balancing all of these needs and ensuring we maintain strength of our franchise like continue to invest in growth.
Our capabilities ongoing innovation in our talent.
Finally, another key goal of our responses over 19 crisis is to ensure we are a proactive part of the solution partnering both at national as well as local levels.
We've played an active role in driving high level of collaboration across government not for profit in private sector organizations in response to this pandemic.
Well, we are proud of our response to date, we will continue to drive our entire organization to give voice to in work for the benefit of our key stakeholders.
Now turning briefly to our results.
Our first quarter results were strong consolidated adjusted revenue grew to $38.4 billion, an after tax earnings grew to $1.76 billion, including high single digit earnings growth and our whole service business, which was somewhat ahead of our expectations.
Our team achieved these results through focused execution of our business strategies and by continuing to expand key relationships and partnerships and working to make health care more affordable predictable in simple.
The strength of our first quarter results driven by the performance of our underlying fundamentals reinforces our confidence that are well positioned diverse health service portfolio will again deliver attractive topline and bottomline growth in 2020, including strong cash flows as such we are reaffirming our FFO.
Full year EPS outlook of $18 to $18 in 60 cents.
Well the impact of Copel 19 to still developing we clearly see headwinds driven by the recession that is causing including for example, this enrollment within our commercial customers.
In our integrated medical business as well as all her whole service business as well as impression or group disability business.
As for medical costs, we expect somewhat offsetting impacts from elevated Kogan 18 claims costs and lower medical costs from deferred procedures.
We fully recognized this is a dynamic environment. However, we expect the strength of our first quarter to drive us to another strong year for revenue earnings and free cash flow.
All we continue to invest in supports the needs of our key stakeholders.
As we look forward there was no doubt the Coke 19 pandemic has highlighted opportunities for improvement in healthcare system.
Which we believe will accelerate change in our industry.
This evolution is likely to usher in new call for and embrace of innovative and disruptive solutions.
New wave of broadens partnerships.
In a need for even greater levels of differentiated value in the marketplace.
At Cigna, we have both the capabilities in orientation to further differentiate ourselves in this rapidly evolving industry.
The work we've done to harness the whole capabilities. Following our combination with express scripts has positioned us to deliver exceptional value for the benefit of our customers patients and clients in an environment that is demanding solutions to healthcare's most pressing problems.
To achieve this we have deep and broad clinical strength from our medical behavioral pharmacy services.
And broad data and insight capabilities.
In addition, we have substantial financial strength and Capitol Hill aided by our capital light framework as we have position our company not to be tied to capital intensive investments in bricks and mortar assets or care delivery ownership.
This gives us tremendous strategic flexibility and positions us to drive forward with solutions that make healthcare more affordable predictable and simple for those reserves.
Our approach is further fueled by our partnership orientation. Recent examples include MD life, we help each of which make it more simple for individuals to access care.
With MD life for example earlier this year significant first partner to offer virtual care for annual checkups.
And as a cokemaking crisis of all we temporarily transferred hundreds of our nurses and physicians MD life to further expand their capacity.
We we health in January we harness boost capabilities to quickly launch an early intervention tool, which is now available to assess covert 19 risk for individuals in the U.S.
With this innovative technology customers can assess their symptoms and making form decisions about their next steps for care all within the comfort and safety of their homes.
And do you live and but we help just two recent examples of our broad portfolio partnerships around the world.
Now to summarize.
Cygnus strategic framework provides us with the foundation to respond quickly and effectively opened 19 health emergency.
Although we delivered strong first quarter results.
We have expanded our services and support for our customers patients clients healthcare partners colleagues and communities.
All while continuing to ensure that our company remains well positioned to deliver value.
Whenever and however, it is needed both today and into the future.
This fuels or expectations of delivering sustained attractive topline and bottomline growth in 2020 and continuing in 2021.
None of this will be possible without the hard work and dedication of our colleagues around the globe.
Everyday their commitment and passion embodies our mission to improve the health well being peace of mind to those we serve.
This has never been more clear in defining that over the last several months as they have stepped up in count was ways to support the needs of our key stakeholders around the globe at a time when they most need us now with that ill turn the call over to Eric.
Thanks, David Good morning, everyone.
Hi remarks today I'll briefly review.
In this first quarter results discuss our outlook for the full year inclusive of the impacts and our response to that opened 19 pandemic.
Although my remarks today will be primarily financially focus I'd like to acknowledge that full alignment with cigna's mission and strategy. During these uniquely challenging times. Our company has focused on serving the needs of our customers our clients and our providers as well ensuring the safety of our employees.
Now regarding our first quarter consolidated results a few key financial highlights include adjusted revenue of $38.4 billion.
Adjusted earnings of $1.76 billion after tax.
Adjusted earnings per share or dollars and 69 cents and continued strong operating cash flow at $1.9 billion.
Cigna's first quarter results reflect underlying strength of our businesses and the value we delivered to our customers and clients.
Within our business segments Health services integrated medical as international all performed at or somewhat ahead of our expectations.
I'd also note that given the timing of the Pandemics onset and progressing in the United States. It's impacted first quarter results was limited.
Overall during this first quarter results demonstrate the strength of our diverse portfolio of businesses each of which remains intensely focused on improving the health wellbeing decent mind for those we serve.
Now as we look to the balance of 2020 I'd start by observing that signal we fully recognize that we are an unprecedented times as we navigate the ongoing cobot magazines endemic.
I'm proud of the many ways that cigna's responding with an acceleration of our efforts in the marketplace to make healthcare more affordable predictable a simple.
We are partnering across the ecosystem and we are leading in providing resources and services as well and adapting plan designs to ensure we are meeting those needs.
Aided by our strong and diverse portfolio of businesses. We are reaffirming our full year 2020 outlook for consolidated adjusted revenues in the range of 150 for $156 billion.
And to put some additional context around our full your expectations or adjusted earnings per share I'd remind you that cigna ended 2019 with considerable strength and momentum across our businesses.
That carry through the first quarter strong underlying fundamentals over them both results above our previous expectations.
And the meaningful amounts of capital, we deployed including ongoing reinvestment for growth debt repayment and returns to shareholders through share repurchase.
And we recognize the coven nineteens endemic presents challenges for all businesses that segment no exception.
And the first quarter, we saw the onset and incident of virus begin to ramp globally.
And the diversification of our businesses resulted in a limited impact.
Over the balance of this year, we expect headwinds to our performance from the end to include lines and customers across our commercial employer and health services businesses relative to our prior expectations and some favorability in our group disability business.
Regarding medical costs, we expect higher costs associated with over 19 treatment offset by lower levels of utilization related to the deferral of procedures.
Important to note, we observed 85% of Cigna's us commercial customers through self funding arrangements and as such our medical cost performance is highly aligned with our clients.
The quarterly progression of earnings within integrated medical will vary somewhat from historical patterns with lower utilization expected in the second quarter, an expectation of elevated services in the back half of 2000 flooding.
From an enterprise perspective, I'd highlight that we continue to expect strong volume growth. This year in pharmacy services specialty pharmacy care and than Medicare advantage, all while we continue to drive overall expense efficiencies.
These considerations underscore the strength and diversity of our portfolio of businesses, which continued to deliver solutions directly aligned with marketplace needs.
Throughout the year, we will continue to invest in innovation and capabilities to serve our customers and clients and to have the ability to flex to meet their needs.
Impacts from Covance into our financial outlook will be influenced by the duration and the extent of the pandemic and the related economic unemployment challenges.
We will continue to monitor developments related endemic as we progress through the year and are committed to supporting our customers' lives up to your apartment communities that they can front. So many challenges this environment presents.
To enable our customers and clients to better for them access to care, we're working to customize our solutions that arrangements as well as leveraging our partnerships with the healthcare delivery system.
Because as a whole we continue to expect full year consolidated adjusted earnings per share in the range of 18 $18.60.
I'd also remind you that our financial outlook excludes the impact of future share repurchases and the additional prior year Reserve development.
And also assumes a full year contributions from our group disability and life business. Although we continue to expect our divestiture of that business to close in the third quarter.
Overall these expected results were driven by strong underlying fundamentals disciplined expense management and deployment of capital, partially offset by pressures associated with that over the next June pandemic.
Now moving to our 2020 capital and liquidity position then outlook.
Our capital efficient businesses generate a substantial amount of cash flow, which provides us with financial flexibility, particularly in times of stress.
In the first quarter, we generated $1.9 billion of cash flows from operations.
We also deployed $1.1 billion debt repayment in the first quarter.
And on a year to date basis, we've repurchased 5.9 million shares of stock for $1.1 billion.
For 2020, we continue to expect greater than $7.5 billion and cash flow from operations, reflecting the strong capital efficiency of our well performing businesses.
Looking to our liquidity and flexibility.
March 30, Onest 2020, we had $1.6 billion of cash available to the parent.
In April we entered into a term loan for $1.4 billion to further enhance our current liquidity positions in light of disruptions in the commercial paper market.
We feel very good about the cash flows that our businesses generate and our overall liquidity and I would also note that we have access to an additional $4.25 billion and committed an untapped revolving lines of credit.
Finally, we're on track to close the sale of our group disability and life business in the third quarter generating $5.3 billion net proceeds, which we expect to deploy share repurchase and debt repayment in 2020.
Our debt to capitalization ratio was 44.7% March 30, onest down from 45.2%.
The 31 to 2019, we remain on track to return our debt to capitalization ratio the upper thirtys by the end of 2000 wanting.
Our balance sheet and cash flow remains strong benefiting from a highly efficient service based orientation as I've strategic flexibility strong margins and returns on capital.
Now to recap against the challenging backdrop and opened 19 pandemic cigna's intensified our focus on delivering exceptional value for the benefit of our customers patients at all of our stakeholders.
Fully committed to ensuring the safety of our employees, providing continuity of services for our customers with clients and working collaboratively physician partners.
We're also doing so while seeking to deliver differentiated sustainable value back to our communities.
We ended 2019 with strength across our diversified portfolio of global businesses, which we carried through to a strong first quarter performance.
The middle of our business are strong and durable, which positions us very well support our customers' lives healthcare partners in communities in this challenged dynamic environment.
While the mix of these contributions is somewhat different we expect these strong fundamentals across our diverse portfolio of businesses. So enable us to manage through the various impacts of the current environment.
And as such we're reaffirming our full year adjusted EPS outlook for 2020 and remain committed to our objective of achieving 20 to $21 earnings per share in 2021.
With that we'll turn it over to the operator for the DNA portion of the call.
Thank you ladies and gentlemen at this time if you do have a question. Please press star one on your Touchtone phone if someone ask your question ahead of you you can we move yourself from the Q by pressing star to.
Also if you are using a speakerphone. Please pick up your handset before pressing the buttons. Finally, we ask that you. Please limit yourself to one question to allow sufficient time for questions from those remaining in the Q.
One moment please for the first question.
Our first question is from AJ Rice with credit Suisse. Your line is open Sir.
Hi, everybody you're seeing say.
Just wanted to ask you're reiterating your outlook for 2021.
Clearly there is a more uncertain economic backdrop today than there was when you originally gave in or even six months ago.
Would you think through your business lines should we assume that reiteration reflects the fact that you had so much momentum that you've got some cushion in the numbers. So even if the economic environment turns out a little tougher year, okay or should we assume that maybe you don't think the business will be impacted that much.
But the economic environment can you just flush out why you're confident are reiterating the 2021.
Hey, Good morning, It's David you do your voice your family are well.
So for 2021, we're context first and foremost you know that we establish that target when we announce or combination with express scripts over two years ago and since then we have remained on track to achieve it we recognize them down the current environment is highly disruptive.
However, we believe the goal is both achievable and remains an appropriate target.
You're correct.
When you use were cushion I would use the word momentum in strength, so we've been able to effectively execute our integration.
And that remains on track and performing quite strong.
Core businesses within our portfolio, our service oriented portfolio with diverse solutions and diverse funding mechanisms to be able to flex in a very dynamic marketplace and environment from that standpoint.
We we look at our performance stepping into through 2020, when we consider our first quarter results through and then carried through the month of April as we look at our results. We believe that target is still appropriate and achievable from that standpoint, I would note clearly in hurting your comment the biggest wildcard for every industry is the would be the.
Depth and breadth in duration of a global recession.
So that Crystal ball no one has perfectly but the balance of our business portfolio in high performing diverse business portfolio gives us confidence in that Super target.
Okay.
Thank you Mr. Rice for your question. Our next question is from Gary Taylor with Jpmorgan. Your line is open text.
Hi, good morning, everybody.
Two questions I guess I'll, just one I would stick with can we go too.
Healthcare services segment, the 12% growth.
In the EBITDA there.
Was very strong can you can you give us some sense on how much of that was.
Improvement in synergies core operations versus some pull forward, perhaps from the two Q because of pre fills and others.
Gary It's Eric.
Okay.
I'll give you a couple of perspectives on that so overall, we're really pleased with the performance of the services health services business in the first quarter as David noted a minute ago Weve made really good progress in terms of the transition of the signal lives again and continue to work on integration and the like you reference.
Instead of the impact of any amounts that were pulled forward and things along those lines I would note that we had.
Approximately 5 million scripts or one one of the app for sense of the volume.
We ended up having in the first quarter that was we view as being pulled forward from from later periods. So would point to that as a relatively modest impact in terms of the.
The impact of the results in the first quarter and more general it would just come back to strong strong results and continued traction in terms of integration program.
I would not call out any additional.
Synergies or differences there versus our prior expectations.
Thank you.
Thank you for your question Mr. Taylor. Our next question is from Ralph Jacoby with Citi. Your line is open Sir.
Thanks. Good morning, David was hoping you could expand your thoughts on sort of the lingering or long term consequences of cold it and just the potential impact and how you see to your business both in terms of.
Our appetite or not for for risk bearing so versus fully insured.
Holistic approach that you kind of bring to the market. We are suite of products and then just your positioning reinsurance segments of the market like individual or Medicaid, where you've historically been a smaller player. Thanks.
Good morning growth.
So if we step back I think one of the perspectives that.
The current environment reinforces is.
The power of an importance of the role of the employer so stepping back.
We need to understand the fact that for an employer to have a vibrant business.
The healthy productive present highly engaged coworkers and in some way the crisis actually reinforces the roles the employer.
In terms of creating a safe environment, but an environment that actually creates a healthy environment and environment that has a level of productivity engagement and I first want to just pleased to see how corporation to stepped up relative to.
Co worker safety coworker engagement protocols, even the number of employers that have stepped forward, where they had employment dislocation by maintaining continuity of benefits. So one is we see that is quite important as it relates the funding mechanism I don't see broad swing.
We don't project forward, a broad swing, having said that we maintain a diverse portfolio funding mechanisms and we offered tweaks for employer clients on a regular basis that has been and that will continue to be a strength. So our ability to have the flexibility. We think is quite important but we don't see this broadly swinging one way or the other from DSO.
No guarantee cost or vice versa as it relates to segment expansion.
Weve positioned our business portfolio to be able to continue to expand so our health service portfolio isn't really critical strategic expansion, we're offering a broad array of services both to corporate clients.
Health plans governmental entities and increasingly overtime healthcare delivery infrastructures on all sorts of products and programs services, we see as mission critical so cutting across funding mechanisms up through Medicaid from that standpoint, and then finally, we systematically expanded our individual business in our bias is to do so.
And as you will note my final comment is from the past, we see overtime the steep base risk bearing program or performance based program as an additional growth opportunity for us. If there is high level of clinical engagement clinical coordination so we like our positioning.
I appreciate the role of the employer employee stepping up big in the marketplace today, taking care of their employees as best they can and dynamically doing so and we see further growth opportunities in our core chassis expand that health services as well as individual programs.
Okay. Thank you.
Thank you for your question Mr. Jacoby Darla next question from Justin Lake with Wolfe Research. Your line is open Sir.
Thanks, just wanted to too.
Question and also a follow up first a follow up on Jay's question around 2021 can you talk specifically about the building blocks that are going better.
That will offset the the potential headwinds to employer growth and then my question was around share repurchase we want to point to stock in the first quarter can you talk about that.
Thanks went into effect can you talk about the timing it our first of all and then given it looks like the re purpose is a little bit bigger than I would've expected can you talk about one is that a is that they are.
The purpose Doug tied to the.
Are you buying back with Tracy you expected yet from the disability sale in the.
Quarter.
Anything about a potential pause due to repurchase relative to what you're seeing kind of others do out there would be helpful as well. Thanks.
Justin you packed a lot in there.
So let me let me take the first.
I mean, the qualitative comment on the second but ask Eric to take the second question.
Broadly speaking, we're not going to walk through the detailed building blocks in 2021, we'll do that when we get into providing detailed guidance for 2021.
I would ask you to consider going back and looking at the Investor day of walk through that Eric provided.
He put forth the building blocks that exist in terms across walking us from 19 to 20 to 21 from that standpoint.
I'll remind you of few just as illustrations for the broader audience right. The impact of deleveraging. We know it we understand it is more within our control versus not the impact of synergies we know it we understand it our integration.
Program as well well in track and will enhance our impact of capital deployment before we get into the foundation and fundamental pieces of the equation.
Thats standpoint, and then finally inferred in your comment was the effective Disenrollment two comments one is what we're seeing thus far and it's just that thus far is both in our integrated medical business as well as in our health service business for those corporate employers, who had co worker dislocation fully half of those employers.
Our maintaining continuity of benefits either through the word furlough or by having layoffs, but with benefit continuity, which reinforces an expectation of a more short lived effect as well as the roles of the employers are playing and then finally related to that our health service portfolio gives us a much broader level of services.
As offered to the marketplace as opposed to being held to just integrated medical sale versus not the qualitative comment I'd give you on.
Stock repurchases I handed over to Eric for more specifics as we recognize the dynamics of the environment just two points one.
Stock repurchase that was done in the first quarter was largely done before the cobot 19 epidemic.
Spiked up intensity in the United States and secondly, given the unique nature of having a large strategic divestiture, which is what we have for later this year.
As a more unique event, where the responsible thing to do is to put that capital back in our shareholders' hands largely.
Because it is a unique onetime event from that but I'll ask Eric to expand a little further on the recall that David Thanks, adjusted I Hope you're doing well with respect to the share repurchase as you noted we deploy it just over $1 billion over the.
Of course of of the first quarter and really think of that as.
Back in the framework that I've talked about in terms of our use of capital such overall for the right. So between the cash flow from operations that we expected to generate as well as the proceeds from the group divestiture.
We expect to close in the third quarter, we've talked about having both of those sources of capital available for deployment that we would admit navigate toward.
Year ends at the capitalization ratio of below 40% and reduce the share count too.
Actively offset the portion of the year, where we don't have the group business. So that the impact would be neutral on EPS for the year, and we've got flexibility and navigating through that and Thats the framework in which we deployed capital in the first quarter.
Thank you for your question Mr. liked our next question from Kevin Fischbeck with Bank of America. Your line is open Sir.
Great. Thanks.
Just wondering I guess, we can all kind of given that on how the recession will impact.
Health benefits side of the business, but I guess, if you could talk about the.
Services side, a little bit more.
700 was unclear to me how that business would be expected to perform in a recession. So any color you can give on kind of.
Nicole declines in utilization per person during that during a recession as well as kind of your overall membership mix within that how much of that business is related to commercial.
Birds versus serving a Medicare or Medicaid members through your your customers.
Kevin Good morning, it's David.
I appreciate your question.
Broadly speaking, we would see it just in terms of PBM macro picture relative to traditional integrated.
Corporate pacing medical and integrated benefits, a little less disrupted versus not.
We too is think about that business is serving corporate clients.
Typically larger corporate clients secondly.
Health plans with diverse portfolio of services from commercial through Medicare Medicaid and other governmental programs and then a large government contract.
Second in the services that it provides those services are somewhat foundational in nature. So the pharmacy pharmaceutical utilization broadly speaking.
That individuals need not changed dramatically as a result of it recession, it's not a deferrable event typically from that standpoint. So it has a bit more balanced in terms of both the ursitti of the client base that exists within it and then the core foundational aspect the comes along with it as I noted to prior question.
As well, we're seeing in the health service space that were those corporate clients in the last Garik to give you a little bit more color in terms of broader split and second for those corporate clients.
Those that actually have had a reduction in workforce fully 50% of them are maintaining benefits on behalf of those individuals. So headline we see it is a bit less disrupted from a recession versus the traditional business you would think of in terms of measuring it against for the reasons I mentioned.
Ask Eric just give you a little bit more color in terms of splits yet to Kevin It's Eric.
Maybe a couple of things that would add here to David's answer the first of all we did provide some statistics in terms of a little bit of a makeup of kind of the distribution of.
Scripts across the different channels and such and back in the Investor Day last year.
Our magnitude about 400 million of the scripts associated with the commercial business. So so.
Meaningful block of business to be sure, but one of several different components of the book of business that we have with an expressive so pretty well diversified I think David cover the dynamics in terms of the consistency of the volumes and such for.
Benefit of our patients and such I think maybe the last thing I would note is just the.
The positive impacts of mail order that that we experienced in the first quarter, we will be rural right. So so as we've talked about for some time mail order carries with it a number of benefits right better dispensing accuracy. Once you get on mail order, you're more likely to state with Europe prescription keep that.
Helps if you can gaps in care from being.
Remaining open are being opened in such as and obviously, we've got the quite a leading operation in terms of home delivery pharmacies. So we feel really good about the ability to use that to help observer customers as well.
Okay. Thanks.
Thank you for your question Mr. Fischbeck. Our next question from George Hill with Deutsche Bank. Your line is open Sir.
Yeah.
Good morning, David American Thanks for taking my question, David I'm really intrigued by your comments on the Disenrollment, saying, Hey, we're maintaining continuity is benefits.
I guess are you we will put any more color around the dynamic of the following enrollment versus falling medical costs I guess I'm just trying to think about obviously the medical costs seem to keep falling faster.
Im wondering is that the same into PBM versus the medical business.
And then I guess do you have any sense of the permanence of the expectations I'm trying to figure out. If this is the difference of getting laid off and getting six weeks or three months of healthcare after getting laid off or whether or not employers are looking at this is some type of more permanent.
Expecting to bring employees back in balance of the year. Thanks, I know, it's a lot.
Yes, George I appreciate it and it's a bit of a different dynamic that we are confronting on a whole variety basi, so, let's maybe unpack that a little bit first.
On the cost side of the equation headline answers now so when would it mean by that is your entrance of a falloff in medical costs is that similar to the fall off in pharmacy cost no because inferred in your comment is that fall off in medical cost is correlated to the affordable experience is a medical theres not.
A similar one for one correlation in pharmacy as it relates to fall off now there may be a small amount if theres a deferrable procedure and that would have been a follow on script of that in individual be taking on the back end that procedure, but by and large I would separate those two I was having it a different effect into different impact.
Specific to the Disenrollment dynamic put one is what we see is.
Corporations, and it's important pause moment in United States corporations, we see a really striving to where it all possible take care of the coworkers and see this as ideally a more temporary dislocation.
Their business and hence want to maintain continuity or tethering, meaning times positive ties with the co workers as such fully 50% both in our innovative medical and our health service business are maintaining benefits with their employees from that standpoint, not with a 30 day timeline. Currently obviously there will be we visitations of that.
Endpoint, but its with a full on expectation of.
Those individual corporations expecting fully expecting.
To bring business back you'll also note bring employees back when the business comes back you'll also note that part of the federal narrowed and right now is around.
Stimulus evolution in regulatory evolution is providing further evaluation of providing further incentives and subsidies to employers beyond the small employers subsidy around the benefit continuity because the data would show that the benefit continuity is better for society at large by keeping people, helping the first place.
The transition standpoint, so point is it's a unique time corporations are reaching I think constructively, where it all possible both large medium and small where possible to maintain that level of continuity Ian evolving governmental posture around providing additional incentives or support to be able to do so thats helpful.
That is thank you.
Thank you for your question Mr. Hill. Our next question is from his Ricky Goldwasser with Morgan Stanley Ma'am. Your line is open.
Yes. Thank you good morning.
So when we think about the progression to your point Theres a lot of uncertainty regarding.
Tiny, but if we think about a scenario.
Second surge.
And when you think about the balance off.
It is falling medical cost persons.
Or severe employment.
You still feel comfortable on doing that type of more bearish scenario.
2020 2021.
Numbers could you provide.
Ricky I.
I appreciate your framing.
Clearly, there's a lot of scenarios.
And clearly there is uncertainty so we agree on both.
We are I don't think its constructive to take multiple different hypotheticals, and then try to pinpoint how individual lever would move within that scenario and to give a point in time, but but we recognize and I. Appreciate your framing there are multiple scenarios that exist.
Our view is that as we've played through a variety of scenarios.
And a variety of sensitivity tests and understanding what we have within our controls over to running our business. That's a reaffirmation of our EPS as well as our revenue outlook is appropriate for 2020.
And as I noted to the prior questions.
Elaborate we have within our control as we invest understand the environment right now for 2021.
That target is also appropriate and achievable for corporation from that standpoint, the last thing I would say is.
The whole notion relative to a second surgery or otherwise.
We've seen elevated experiences now that society is adjusting to and we would expect to see further adjustments in both clinical protocols community protocols, the way in which businesses operate.
From a more flexible standpoint, and we'd expect to see further evolution accelerate evolution of treatments ideally beginning to be introduced to the market in the second half of this year as well, but having said that we continue to believe that our outlook for 2020 is inappropriate outlook and achievable outlook for us.
Thank you for your question Mysql loss, Sir our next question is from Robert Jones with Goldman Sachs. Your line is open source.
Great. Thanks for the questions I guess, just following up on the health services segment. The retention rate you guys laid out obviously looks pretty solid as you think about 2021.
I'm just curious how this selling season. It's early has progressed just given I can only imagine payers are doing benefit managers that payers are dealing with with a lot of other distractions right. Now. So wondering if that's adding to maybe a reluctance to explore switching and then Conversely, do you think because of those dynamics.
So that there might be less opportunity this year for net new wins.
Just given that the retention rates across the board might in fact, the higher thanks.
Good morning, Robert It's David.
Let me frame that in two dimensions health services, and then a little bit of walk over to integrate a medical but specific to health services. We're delighted.
We used.
The strength and we would view the 96% to 98% expectation for retention rate yet again for 2021 to be really really strong.
Now that's delivered with as a result of sustained strong service delivery.
The same sustained strong.
Pharmacy costs delivery.
An ongoing innovation.
And wrapping around that the team continued to be consultation on working with our clients specific to that retention rate I would remind you that first you should expect that they health plan portfolio business.
Those renewals largely complete and largely completed before the spike of Koby 19, So I would not correlate that result too.
Acidity or reluctance of people to evaluate the marketplace. Secondly, the large corporates within that portfolio also more meaningfully re new earlier side of the timeline versus not.
No bridging to your comment this disrupted environment I think creates a higher hurdle rate all other things from an equal.
Corporation or a benefits manager to introduce even more disruption to their world I think I think thats, a basic solid tenant to take place because of so much disruption. However, we still see business moving in that comic carries from health services across integrated medical because at its core.
Lawyers.
Okay. So this comment now are still looking for differentiated value and being able to bring them whether it's in integrating innovative offerings. We coordinate health service offering that can deliver innovative step function value that affordability predictability and simplification is even more important today, but all things remaining equal I think your base.
10 is right from this point going forward.
Arms of the selling season, there is a bit of a higher hurdle to get across I, just wouldn't draw that conclusion up against the health service renewal of 96 and 8%. There's so much of that would have been completed before the spike of the epidemic.
Got it thanks.
Thank you for your question Mr. Jones. Our next question is from Josh Raskin Nephron. Your line is open Sir.
Thanks, Good morning.
Question around the 2020, Diogenes confirmation here and there were a bunch of positives, including some favorable development that tax benefit.
Something in the international around the accounting change in share buybacks et cetera, and yet I haven't heard anything to call that talks about.
Pressures from co bid out way.
The benefits.
Laid surfaces and things like that it may be less impact. So im just curious since Egypt more appropriate to confirm guidance or am I sort of missing something and maybe the economic impact and lost membership we should be considering more more seriously.
Hey, just good morning, David.
I appreciate the way you framed the question. So so one is really strong start to the year.
Fundamentals are strong across multiple of our business portfolios and as in the case and in most quarters.
Additional items that you could call out is.
Potentially being non run rate will point to within our international business. There was a large favorable items that came through that aided further strong fundamentals within the business, having said that.
We believe the outlook is both appropriate achievable in prudent.
Given that were a bit ahead of our own expectations and the streets expectations in the first quarter given the uncertainty that exists in the latter part of the year.
So strong fundamentals topline bottom line aided by some items that are non run rate on mobile and take the international item as an example, but added to a strong quarter within international and as we take it all into consideration we think it's prudent to maintain our EPS outlook at this point in time.
Given the uncertainty and potential puts and takes in the second half of the era.
Okay. So nothing specific you would point to as a major headwind.
That is correct Josh.
Thanks.
Thank you for your question Mr. Raskin. Our next question some Scott Fidel with Stephens. Your line is open Sir.
Hi, Thanks, guys.
Good to have some unique insights into the impact of code bid on the business for a bit about more extended period due to your exposures to Asia and and some of that the key markets that have been impacted there. So interested if you can talk a bit about what you're seeing more recently and some of the Asian businesses.
Those economies have have started to open back up at different levels, and and specifically just around consumer behaviors, both as they relate to some of the sales trends of your products and then on how you're seeing healthcare utilization.
Turning to track that later into and some of these markets that have already been experiencing cobot for longer than we have.
Okay. It's got good morning, it's David.
Grab that and.
I missed anything I'll ask Eric to add too.
Great question, So stepping back as you articulate where global Health service company. So we did have an early look into the coconut seen dynamic, including our own coworkers in one.
Its a.
City, where we had meaningful number coworkers I highlight two specific learnings.
We're able to take starting from that but not limited to that and carrying forward and then I'll give you a little bit on new specific for your question relative to medical costs, a little bit more difficult 0.1 is.
We were able to learn and everybody's learning.
Now to dynamically flex a global workforce.
Pretty darn rapidly into a a work at home environment.
But not just a simple or at home environment work at home environment with the technology infrastructure connectivity and then workflows.
The execution transpiring not just in terms of the base of the business, but ongoing innovation some of the creative work that needs to transpire from that standpoint decades.
Indisputably, we're able to learn and recast the imperative around public private partnership in every country we operate in.
See the public private partnership as being integral to being able to respond to this from Worksite management to worker safety to testing access testing protocols to treatment to community support et cetera, et cetera et cetera. So we saw that in country out the country after country.
Yeah.
Which we would like to believe that helped us being positioned in the United States to be able to expect that proactively reach out to that engage as it relates to the medical cost dynamic.
We see more of that through our global employer business as you know covering the globally mobile population.
The large business, but it's been across the globe. So you see really small snippets invite to that everywhere as opposed to density of that broadly speaking from that standpoint, and my final comment would be even in the markets that had the early is onset we seek consumer behavior coming back pretty rapidly.
Quite rapidly as it relates to.
Activation of the consumer from a social interaction standpoint to the.
Assuming services to the sale process, including your individual sale process or anything that benefit.
The headlines pretty effectively there so nothing about that at this point thank Scott.
Hi, Thanks.
Thank you for your question Mr. finale. Our next question is from Steven Valiquette with Barclays. Your line is open Sir.
Great. Thanks, good morning generic and thanks for taking my question.
So similar to many of your managed care peers.
Mentioned in your prepared remarks, your expectation of lower healthcare utilization in the second quarter than elevated in the back half of 2020.
Isn't that word elevated I guess just to clarify are you expecting and budgeting for now is that overall healthcare utilization would be above historical averages at some point in the back half of this year as there was a catch up of deferred care or just elevated versus lower to Q trends and then basically returning back to normal trends before any cobot 19.
I think theres still some mixed views among investors just on the magnitude of healthcare utilization bounce back and in the back half in 2020. Thanks.
Steve It's Eric I'll start here.
Overall I.
I think step to recognize.
This is a bit unprecedented right. So so so stepping into this I think the things we've been looking at your or one it's a pretty different set of dynamics across different geographies. So so I think I'm understanding the asset approach across different geographies and how this plays across different geographies I would just no I think there'll be variation.
There is the Covance impact certainly been more impactful in some geographies than others I think that will lead to more disruption in some geographies than others. So to start with that one too I think we would view, but there will be some things that are deferred over the second quarter as I noted in my prepared.
Marks that will come into the back half of the year now I don't think it will necessarily be one for one I'm in terms of.
In terms of all of the those things or deferred from the second quarter occurring in the the third and fourth quarters, but it's appropriate to think of at least some of those coming back in the back half of the year and as a as we continue to progress through this will be working to refine our estimates and keep you posted as we as we think about David on what else you that.
Grew their comments for sure.
I would remind to Steven specifically for our business.
Ask you remember 85% of our.
Commercial businesses azo, so our employer clients are seeing and aligned with.
We're experiencing from that standpoint, and even when you carry that forward to our may portfolio today, approximately 85% of our may customers are any value based our relationship with health care system from that standpoint, and then a final holidays.
Do you think about that capacity right the healthcare systems capacity.
To either get back to its prior level of utilization service fulfillment versus a massive uptick in that over a short period of time and I don't mean that akoti way, we need to recognize the fact that.
Our healthcare delivery system is taxed right now different dimensions of at our tax but some facilities are redeploying.
Surgeons, and otherwise who were not doing deferrable procedures in doing trash procedures or virtual care from that standpoint. So is there a lot of uncertainty here important for us we're aligned with our employer clients and we'll see.
Let's see the benefits of that aggregate cost experience in the first half of the year.
Bit more reversion in the second half of the year based upon the scenarios were operating with right now.
Just a very quick follow up on that some of your peers have provided ranges on what percent of total medical spend that they deem as either non emergent or elective.
Some of also discussed how much that 11 care declining on a percent basis either in late March or in April I or are you able to share your views on these metrics in trends based on what you're seeing right now.
Yes, Eric the some of our.
Some of the most effective markets you could see.
Sure pure deferrals or reduction in cost of as much as 30% for the first few weeks in April.
Okay. That's perfect. Okay. Thank you.
Thank you for your question Mitch Snider. Our next question comes from David Windley with Jefferies. Your line is open Sir.
Hi, Thank you for taking my questions and good morning.
You commented about certainly kind of cobot slash recession impacting membership and not being one of the one of the variables that you are looking out certainly I'm wondering if.
To what extent you are already feeling that and if that is a reason for the relatively slow growth in select and middle market.
Membership in the for here at the in the first quarter.
If that's true or is there another reason and what would that be thank you.
Hey, David It's Eric ill start and then the asked David if you once that anything else on here ups overall brought them.
Two.
The current cobot pandemic as a driver in terms of.
As of the membership results, we reported from a first quarter perspective over overall, but again just stepping back a little bit window. We're really pleased with the continued customer growth in the select segment. So.
Year on year basis up about 10% in terms of now versus where we were a year ago. We've talked about in a lot of different settings. This is a business that grows continuously throughout the year right. So we've got.
Pretty consistent growth quarter in quarter.
Okay, good momentum there and on a year on year basis as well.
Up a bit midmarket since again pretty consistent performance there since we'll get I wouldn't point to any.
Disruption in the first quarter actuals as we as we think about the the pandemic dynamic.
Scale, David what else would Jeff.
That is reaffirmed the point, which I think it's sometimes maybe lost is the select segment ramps throughout the course of the year.
And we can do you see the value proposition and the consultative offering we have in that space is resonating quite well.
Thank you.
Thank you for your question Mr. Windley, our last question will come from Charles re with Cowen.
Mystery Your line is open.
Oh, yes, thanks, thanks for taking questions I guess.
Because of the basket.
David.
You talked about.
Some of the up what you're doing particularly in July.
You guys were on the first to launch a digital formulary.
For.
For employers to look at an obviously.
Particularly personal care has really come to the forefront, whereas is obviously the nation practices, social distancing et cetera can you maybe talk about sort of what the interest in uptake of the formula has been coming into this year.
Then you know what kind of response has been able to provide for clients using to us.
In the middle of pandemic and and the last I guess related to that when I looked at it it's really come about diabetes care mental health.
To help itself wasn't on it maybe is that it does a distinction that you kind of make when you construct in the formulary and any thoughts there or what else would be helpful. Thanks.
Charles Good morning.
Let me try to kind of compartmentalize.
Your question here, So I think you're building a little bit of it off the digital formulary and then you referenced the tele health services et cetera. So.
Maybe stepping back the digital formulary was an innovative offering is an example of one of many innovative offerings I should say.
We're trying to seek to help our clients.
Meaning corporate customers and health plans as they seek to utilize that as well as our customers in terms of making more informed decisions. So the digital formula as a specific purpose.
The curate and digital applications that are out there to 300000, plus in growing and try to evaluate them against specific criteria more broadly inferred in your statement, which I agree with is.
Society at large as an aggressively ramping appetite for more personalized simplified convenient ways of accessing services information and increasingly care. So with tele health wouldn't that long ago that I think we as a society movies, you can tell health as a.
Small slice of tree intervention and coping 19 epidemic is reinforcing to us and can be a larger portion of and overall integrated a coordinated healthier offering and we see that is a big part of both today and the future we like our positioning both partnering as well as having for prior.
Andrew capabilities in as I noted, we're the first offer annual checkups, we brought to market a dental capability et cetera around that and then lastly, just wrapping. The example around it the movie health capability that we're able to bring to market very rapidly is another way of harnessing both through partnership, but putting the customer a patient front in center.
Okay, and providing actionable virtual tool with which to assess oneself and make informed decisions going forward from that standpoint. So big picture is we see re envisioning of what we call. The front end of care the way in which individuals' access both information as well as the care system as having a tremendous opera.
Turning to harness.
New technologies tools and capabilities, which start with virtualization and carrying that through a part of the coordinated care delivery system, and we like our positioning by not being tethered to or beholden to whether to bricks and mortar or care fulfillment resources that will be in conflict with that and the appetite right now is high.
And the satisfaction level from consumers, who are experiencing that is quite high and we think that will grow going forward.
David If I go quickly follow up can you maybe give a sense on sort of.
Decision tree in your mind in which of these capabilities that you want to.
Owns this was like Billy Helms versus ones that you want to partner with like can be lives.
Yes, when tele health.
My assumption has been utilization relatively has been until now fairly low.
So the decision is easier to say, we'd rather partner with somebody doing it but is there a as a point when you would even look at Tele health and say this is a capability we want to have in house. Thanks.
So.
Fair question, I'd say stay tuned for more but to give you a little bit of framing relative to it we do some telehealth today.
So on our side on our own platform. So the Cigna medical group.
Arizona today is a filling approximately 80% of all our patient experiences today through either telephony or video interaction and less than 20%.
Of their fulfillment is taking place through physical interaction during the cobot environment. So we can see that first hand, secondly, weve co developed.
Tele health capability, when some of our more advanced value based healthcare partners in certain markets, having said that we have successfully partnered on scale.
Bigger picture expect to see us the oriented around at a minimum the IP or intellectual property. The data the data management, indeed algorithms the predictive capability to deliver the personalization the clinical quality, we're going to be more oriented around that and then open.
Architected to own some.
And then partner with some in very different ways to be able to bring it to marketplace to offer the respective choice if that helps.
Thank you so much for your question Mystery I will now turn the conference back over to David Cordani for closing remarks.
Thank you and thanks, everyone for joining our call today I want to its start by acknowledging again, the tireless efforts of all the frontline workers of the Cobot 19 crisis for their selfless in carrying nature nature for on the patients that they are servicing.
I guess respective as we lead through this crisis, we will.
I tend to the needs of our stakeholders across the globe.
Work to maintain a healthy organization that is well positioned to deliver significant value all of our stakeholders. Both today as it rolls into the future and ensure that we work to be proactive part of the solution partnering in both national and local levels.
Relative to our performance our team achieved strong results from the first quarter through focus execution of our business strategies and by continuing to expand our key relationships and partnerships and working to make health care more affordable predictable and simple.
Fuels, our expectations of delivering sustained attractive topline and bottomline growth in 2020 and continuing this growth in 2021.
With that we thank you for joining the call. We wish you safety and health during these challenging times for both you and your family members and we look forward to future discussions.
Ladies and gentlemen, this concludes cigna's first quarter 2020 results review Cigna Investor Relations will be available to respond to additional question shortly.
During this conference will be available for 10 business days following this call.
May access to recorded conference by dialing 8663 times.
5.39.
No passcode is required.
Thank you for participate.
We will now disconnect.