Q3 2022 Cigna Corp Earnings Call

Ladies and gentlemen, thank you for standing by for Cigna's third quarter 2022 results review.

At this time all callers are in a listen only mode. We will conduct a conduct a question and answer session. Later during the conference and review procedures on how to enter queued ask questions at that time, if you should require assistance during the call. Please press star Zero and you touched on zone as.

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 Mr. Ralph Jacobi. Please go ahead Mr. Jacobi.

Great. Thanks, Good morning, everyone and thank you for joining today's call I'm, Ralph Jacobi Senior Vice President of Investor Relations with me on the line. This morning are David core Danny Cigna's, Chairman and Chief Executive Officer, and Brian of Banco Cigna's, Chief Financial Officer.

In our remarks today, David and Brian will cover a number of topics, including Cigna's third quarter 2022 financial results as well as an update on our financial outlook for 2022.

As noted in our earnings release, when describing our financial results Cigna uses certain financial measures.

<unk> 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 Dot com.

We use the term labeled adjusted income from operations and adjusted earnings per share on the same basis as our principal measures of financial performance.

In our remarks today, we will be making some forward looking statements, including statements regarding our outlook for 2022 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 report 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 third quarter, we recorded after tax special item charges of $23 million or <unk> <unk> per share for integration and transaction related costs.

We also recorded an after tax special item benefit of $1 $4 billion or $4 52 per share associated with the sale of our international life accident and supplemental businesses to Chubb.

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.

Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2022 outlook. We will do so on a basis that includes the potential impact of future share repurchases and anticipated 2022 dividends.

With that I'll turn the call over to David.

Thanks, Ralph Good morning, everyone and thank you for joining today's call.

Our team is performing well and dynamic environment and we delivered another strong quarter of revenue earnings and cash flows.

Yeah, I'm going to spend a few minutes highlighting key drivers of our results in the third quarter and while we are once again, raising our 2022 full year outlook for adjusted earnings per share as well as for growth in medical customers and enterprise revenues.

And then I'll address how we continued to expand and enhance our capabilities for the evolving market needs and also provide some initial perspective relative to 2023.

Brian will share more details of our third quarter results and our outlook for the rest of the year then we'll take your questions.

Let's get started.

During the third quarter, we delivered results that were better than our expectations, including total revenues of $45 3 billion.

And adjusted earnings per share of $6 <unk>.

We continued building on our momentum this year and we are confident we will deliver on our increased full year 2022, adjusted EPS guidance of at least $23 in handsets.

We also expect to continue advancing our capital deployment strategy, including investing in our business to drive innovation and growth.

Repurchasing at least $7 billion of our shares this year, all while paying a meaningful dividend.

Our performance in the quarter reinforces the impact of our sustained commitment to service and innovation are.

Our progress in retaining clients and expanding relationships with additional services as well as winning new business.

Even with our health service platform performed well again with solid topline and bottom line results driven by our market, leading innovation and affordability across our pharmacy benefit services specialty pharmacy and everyone's care solutions.

Cigna healthcare our benefits portfolio also was key to continuing our momentum in the quarter.

Our U S commercial business is having a very good year with solid.

Client retention levels, and new business wins, particularly in the middle market in select segments, leading us to once again raise our full year outlook for medical customers.

Our medical care ratio for Sigma healthcare was better than expectations at 88% in the third quarter, demonstrating the effectiveness of our affordability initiatives and targeted pricing actions overall, we're very pleased with our third quarter results.

Now I'll take a few minutes to walk through how we are well positioned going forward with ever Northern Cigna health care.

Within both platforms, we have differentiated businesses and a clear durable three part growth framework.

First through our foundational businesses, including our pharmacy benefit services U S commercial and international health businesses.

With these mature skilled businesses, we established core relationships with corporate clients health plans and governmental entities.

Our capital efficient operating models will further support steady growth as well as strategic and financial flexibility for our company.

As we look ahead for these businesses in 2023, and a pharmacy benefit services, we're expecting another year of high client retention levels complemented with new business wins.

So very pleased with our solid start to the selling season for 2024, including our new multiyear agreement for express scripts to be the pharmacy benefits and specialty services provider for Centene.

Working with Centene, we will make prescription drugs more affordable and accessible for approximately $20 million and team members.

The strategic collaboration with Centene builds unexpressed group's track record as a partner of choice and we will present growth opportunities to provide additional <unk> health services over time.

We have momentum this year in customer growth revenue and earnings and expect sustain these results and performance throughout 2023.

A second way, we drive growth is to accelerate businesses, which include accrete, especially pharmacy ever North care services and are you a government business.

These businesses have outsized opportunities to grow with compelling secular tailwinds as well as differentiated capabilities that benefit our clients and customers.

Looking forward for accelerate businesses, we continue to be excited about the value creation opportunities, especially pharmaceuticals, including Biosimilars over the next several years.

With our leading capabilities and expertise we expanded our relationship to be the exclusive specialty pharmacy provider for the department of defense starting in 2023.

This is further reinforcement to how we fuel sustained long term growth and ever north by improving clinical quality for the benefit of patients and achieving significant savings for our clients.

You never know with care services, we are advancing our care management and delivery strategies.

One area of focus is enhancing virtual care that strengthens relationships between patients and their physicians to better anticipate health issues and intervene earlier.

For example, with empty lives, we are providing better experiences and improve affordability with personalised care that is more convenient and effective and directing patient to the most appropriate care settings.

When a person.

When in person cares needed empty lives successfully guys patients to urgent care facilities or other alternative sites secure decreasing avoidable emergency room visits by at least 10 per cent.

We intend to further build on this progress by enhancing our virtual primary care offerings for patients with chronic conditions by providing continuous engagement with their physician remote monitoring with connected devices in real time interventions between appointments.

U S government, we're continuing to make investments positioning is to grow in 2023 and beyond.

We are strengthening this business by building high quality affordable Medicare advantage that fits we offer with geographic and network expansion as well as further product enhancements.

Finally, a third way we drive growth is through a cross enterprises leverage here, we harness capabilities across her company to accelerate innovation and have a greater impact than any individual could have on its own.

Our opportunities here are driven in part by a rich longitudinal data and information we have to accelerate the development of new more effective solutions for our clients and customers.

Are passable programs are a good example, with passable specialty we're working across the medical and pharmacy benefits to reduce the cost of specialty infusions and injectables.

In our path, while bone and joint program with harnessed ever North digital navigation and advanced predictive analytical capabilities to reduce unnecessary muscular skeletal surgeries and provide better coordinated care.

There was a significant addressable market for these programs as 50 per cent of adults suffer from bone joint and muscle conditions and these are major drivers to U S health care costs.

Additionally, we could do to take an enterprise view of our client relationships and it successfully broaden and deepen them with their overall suite of capabilities.

This is supported a number of attractive wins and a good example is a very large new fee based relationship for 2000 twenty-three and R. U S. Commercial team that has secured this offering like bringing solution to longstanding express scripts clients.

Was there ever North Insigne healthcare platforms Intergrowth framework, we anticipate driving a another year of earnings customer and revenue growth in 2023.

We will provide detailed guidance as we always do on our fourth quarter earnings call, having said that I'll provide a view of some of the tailwind and headwinds we see for 2000 twenty-three, which are largely consistent with the points, we highlighted at our Investor day in June .

With a strong selling season, we anticipate a tailwind of continued growth across both are ever north and signals care platforms.

We expect additional margin improvement Insigne health care and with our leading position in the rapidly growing, especially pharmaceuticals market will begin capturing value from biosimilars.

Relative to anticipated headwinds, we will make meaningful strategic investments in R accelerated growth businesses.

We will have additional costs as well as we prepare to support renewed and expanded relationships with the department of defense and Prime Therapeutics.

And a new development sense Investor day, as our exciting strategic win with <unk>, which will create a one year headwind as we unborn this new partner.

Do you all that together, we anticipate that these tailwinds and headwinds will largely balanced and sell soft next year with the exception of our <unk> headwind, which represents incremental costs for us in 2023.

Now briefly summarize overall, a strong performance in the quarter and throughout the year shows how we were addressing the most pressing needs of our customers and clients and growing a business.

We're investing in innovation to enhance our capabilities for future growth and continue delivering for all of our stakeholders.

We're confident we remain on track for a full year 2022 commitments, including our increase adjusted EPS guidance for this year of at least $23.10 and with that I'll turn the call over to Brian .

Thank you David and good morning, everyone.

Today I'll review key aspects of sickness third quarter of 2022 results and I'll discuss our updated outlook for the full year.

We're proud of another strong quarter and are pleased to drive continued momentum from the first half of 2022 with third quarter adjusted earnings per share exceeding our expectations.

With that we are again, increasing our full year adjusted 2022 earnings outlook to at least $23.10 per share.

Representing growth of 13% off or reported full year 2021 adjusted EPS.

Looking at the quarter, specifically key consolidated financial highlights include total revenues of $45.3 billion.

After tax adjusted earnings of $1.9 billion.

And adjusted earnings per share of $6.04.

Regarding our segments I'll first comment on that Bernard.

We are pleased with the continued profitable growth and ever north as our client centric approach deep pharmacy expertise and strong track record of service continues to resonate with new and existing clients.

One. Good example of this is our recently announced a partnership with 17.

They will deliver greater prescription drug affordability and access for their approximately 20 million customers starting in January of 2024.

This mutually beneficial partnerships will bring significant revenue and will be financially accretive over the course of the multiyear contract term.

Turning to third quarter results Forever, North revenues grew 6% over third quarter of 2000 $21 billion to $35.7 billion.

And pretax adjusted earnings were $1.6 billion.

Ever notice results in the quarter were driven by continued expansion of our accelerated growth businesses.

Led by our specialty pharmacy.

As well as our focus on affordability and delivering lowest net cost solutions for our clients and customers.

We also continue to make meaningful strategic investments to both sustain and create new sources of differentiation.

These include investments, which serve to deepen our client relationships and expand our services portfolio and digital capabilities.

Overall ever North delivered another quarter of strong results consistent with our expectations.

Turning to Cigna healthcare.

2021 results presented an opportunity to expand feature margins.

And our team has executed extremely well and achieved both strong membership growth and improve profitability here in 2022.

Third quarter of 2022 performance continued this pattern is.

As adjusted revenues were $11.2 billion pretax adjusted earnings were $1.1 billion into medical care ratio was 88%.

Our medical care ratio was better than expectations and continues to demonstrate the impact of our affordability initiatives and pricing discipline.

The favorable medical costs in the quarter were partially offset by lower net investment income.

Turning to medical customers, we ended the quarter with 18 million total medical customers growth of 873000 customers or 5% year to date.

We continue to drive strong customer and client growth in our U S commercial and international health businesses.

Overall Cigna healthcare results reflect continued execution against our commitment to increasing both customer relationships and profit margins in 2022.

For corporate and other operations the third quarter of 2022 pretax adjusted loss was $299 million.

As a reminder, this segment previously included earnings contributions from the international life accident and supplemental benefits businesses that we divested to Chubb on July 1st 2022.

Overall, we delivered strong third quarter financial results that exceeded our expectations, continuing our momentum with contributions across our foundational and accelerated growth businesses.

Now turning to our outlook for full year 2022.

We are positioned the enterprise for continued strong performance in these dynamic times.

As demonstrated by our strong year to date results and heightened reinvestment into our business.

With that said, we remain mindful of the current economic backdrop and utilization environment heading into the upcoming winter months.

In light of these moving pieces, we are increasing our outlook for full year adjusted revenue and adjusted earnings per share.

We now expect full year 2022 consolidated adjusted revenues of at least $179 billion enabled by continued growth and deepening of customer and client relationships and both ever an orphan cigna healthcare.

We are also raising our adjusted earnings per share guidance to at least $23.10 per share.

Representing growth of 13% over reported full year 2021 adjusted EPS.

Cigna healthcare, we expect to continue to grow customers, while expanding margins over 2021.

We are improving our expected 2022 medical care ratio outlook to 81.5% to $82 2%.

We are raising are expected full year 2022, adjusted earnings to approximately $4.05 billion.

And we are raising our medical customer growth expectation to approximately 900000 customers.

Which reflects strong new business growth and attractive retention levels and R. U S commercial and international health businesses.

Our full year 2022 enterprise SG&A ratio is now expected to be approximately 7.3% and.

An increase compared to our prior guidance as we further accelerate investments into our business.

Now moving to our 2022 capital management position at outlook.

Year to date through November 3rd 2022.

We expect to have repurchased approximately 22 million shares of common stock for $5.8 billion, including the accelerated share repurchase agreements announced in June .

We also continue to expect to deploy at least $7 billion to share repurchases for the full year 2022.

And during the third quarter, we delivered strong cash flow from operations of $3.3 billion.

We remain on track for another strong year of cash generation, providing us the fuel and flexibility for ongoing capital deployment opportunities.

Our balance sheet and cash flow outlook remains strong benefiting from our asset late framework that drive strategic flexibility solid margins and attractive returns on capital.

Now to recap.

Results in the third quarter, we're above expectations, reflecting strong growth across our diversified portfolio.

Ever North continues to deliver attractive results.

While Cigna healthcare continues to grow and expand both customer relationships and margins <unk>.

Giving us confidence we will deliver on our increased 2022, adjusted EPS guidance of at least $23.10 per share.

We remain well positioned and expect another year of customer revenue and earnings growth in 2023.

Relative to 2023.

We deem the current consensus E P S to be reasonable when excluding the 17 contract win.

Although consistent with our historical approach our initial guidance would have likely started more prudently.

As David mentioned 17 implementation related costs and produce a net new headwind for our 2000 twenty-three financials.

That said, we expect a two year compounded EPS growth rate from 2022 the 2024.

To be within our long term average, 10% to 13% annual range.

Driven by the strong earnings contribution from our broad portfolio.

As well as 2024 contributions from the 17 contract win.

Following the implementation cost impact that we will incur in 2023.

We look forward to providing you with more detailed 2023 guidance during our fourth quarter call.

And with that I'll turn it over to the operator for the Q&A portion of the call.

Ladies and gentlemen at this time if you do have a question. Please press star one on your Touchtone phone. If someone asks you. A question ahead of you you can remove yourself from the queue by pressing star too.

So if you're using a speaker phone please pick up your handset before pressing the buttons one moment. Please for the first question.

Our first question comes from Mister Stephen Baxter with Wells Fargo give me ask you a question.

Yeah, Hi, Thanks for the question just wanted to ask you know congratulations on the <unk> contract when I wanted to ask specifically, it's too early to have you on what you were expecting the implementation costs to be in 2023, and it sounds like you're kind of suggesting that we should potentially add that back to 2023 and kind of create a jump off point.

Is it too early to think the 2024 and we will see the contract now naturally agree to basically how should we be thinking about that it's 2024 too early to think about accretion. Thank you.

For a Stephen it's Brian .

I appreciate the question very much so maybe I'll give you a little bit of a flavor for the multi year do you hear so I'd be remiss if I didn't start by saying this is a huge win for the organization and a great validation of the the value proposition and the ever North segment of our company and in particular, the express scripts team should a great job partnering with with.

Our new client here and what will be laser focus on successfully implementing the new client.

Over the course of the next 14 months to ensure smooth execution of their 20 million customers.

As I mentioned over the lifetime of the contract the relationship will be accretive to our financials.

But you should think of the profit margin percentage being below the book average as is typical for a contract of this size and scale, but in terms of the year by year pattern and how to think about that you should think of 2023 being a headwind as both David and I said due to the implementation related costs that are incurred prior.

To any revenue being received.

We're currently sizing that at about $200 million for the 2023 year.

Given we're only a week or so into the contract award we still have a lot of detailed planning to do to to refine that but that's our current best estimate for what 2023 implementation related costs will look like for 2024. We are currently expecting to be in a neutral to small positive contribution standpoint in terms of the income. So you can think of.

At 2023, a headwind essentially unwinding in the 2024 financials and then for 2025 and the subsequent years, we would expect to be at approximately run rate contribution levels on the on the relationship.

Thank you Mister Baxter. Our next question comes from Mister HJ right with Credit Suisse. You May ask your question.

Hi, everybody, maybe just to ask I know last year or probably ended 22 you made the.

Comment that you wouldn't be doing any larger deals and thank you to find that as anything nor the $10 billion in acquisitions.

I Wonder if you think about 23 now launch changed over the course of the year you've been very active on the share repurchase front. What is your current thinking about whether you'd be open to transactions Ah any comment about priorities or the.

The pipeline would that looks like and then the flip side of courses are ongoing share repurchase activity when you're giving these twenty-three comments do you have any sense of where you might size.

Share repurchase activity and all of that.

Good morning to its David So let me provide a couple of any points. There first stepping back relative to a capital priorities are capital priorities remained consistent which is first and foremost to make sure. The ongoing growth of the underlying business continue to be funded properly from a capital Z capital standpoint, as well as from investments and innovation.

Second too obviously service are very attracted dividend and then third we selectively pursue strategically attractive and financially attractive M&A and or return excess capital to our to our shareholders through share repurchase specific to M&A priorities as we discussed at our Investor Day, you can think about her M&A priorities largely.

Focused on our accelerate business in within the <unk> businesses, a bit more pinpointed with they never know to care when are U S. Government business, we may do top bands tuck ins in other aspects of our portfolio promote that are highly financially attractive, but the strategic accelerants would be more in the accelerate business to your question relative to earlier this calendar.

A year, we dean 2022 to be a bit unique for ourselves and that as we stepped into fiscal year 2022, we had the strong operating cash flow the brain articulated earlier as well as the anticipated inflow from the divestiture of a portion of our international business a job.

So those two numbers created well in excess of $10 billion that we had a stewart forward that coupled with.

Argue with the price of our equity at that point in time led us to create as much clarity as possible for our shareholders in 22 relative to our commitment to share repurchase that we're on track for looking forward I will maintain the capital discipline, we will be open to strategic M&A that advances us in the accelerated businesses and on a final note <unk> relative to twenty-three.

Right.

As you have in the past just thinking about we will deploy capital and the way I talked about before either in a shareholder accretive way to achieve through the shareholder share repurchase in or through accretive M&A and our contribution to our EPS growth rate in 3% to 5% range year in year round.

Successful capital deployment remains intact.

Okay, great. Thanks, a lot.

Thank you Mister Rice. Our next question comes from Mister Justin Lake with Wolf Research You Me ask you a question.

Thanks. Good morning, just a couple of numbers questions first it'd be it would be.

The accelerated growth and your stop loss revenues Bynum cross of this year.

Wanted to get some color of what's driving that do you think it continues at.

We'll call. It you know a solid double digit pace. It's a 2023 and then quickly your your medical cross reserves were down to about 5% in the quarter. Just curious if there was anything driving down.

According Justin it's Bryan on the on the stop loss Yeah. We're we're really pleased with the the strong growth that we've shown this year.

As you can see both in terms of the quarter over quarter and the year over year premium growth with some 13% and 12% growth respectively on that important to keep in mind. There's a few components that drive that one is we've shown very strong growth in our fee based.

Taking the healthcare customers this year and many of those bring wisdom stop-off contracts. So there are some additional units. If you will of stop loss that are embedded in the year over year growth rate on top of that we have had strong firm price increases on our existing client base and.

As you noted now it and the double digit level with the 13% quarter over quarter, representing some of the later 2022 renewal dates seeing strong price increases and then finally, we have seen a a bit of increased penetration our existing asl clients as well of the stop loss products. So a few different for.

Factors that drove that strong growth as we've talked about and prior calls we still have some margin expansion opportunity in our stop-off book of business as we head into twenty-three. So we would expect another year of strong growth in premiums for the stop loss product and the 2023 calendar year on the reserve side, there's really nothing in particular.

I'd call to your attention there, we we continue to employ a consistent methodology to establishing a reserves there will be some natural variability just between product mix shift in inventory levels changing from quarter to quarter. An overall, we feel good about the appropriateness of our reserves and if you look year over year at the reserve levels. They all the key metrics that we evaluate.

Screen appropriate and and prudent.

Thank you Mister like our next question comes from Mister Cabin Fishback with Bank of America, you May ask your question.

Great. Thanks.

Quick is that question and then another question, but can you help besides the revenue that gives us a little bit of difference would have 17 talks about the revenue contribution versus what it looks like Uhm C. B S was booking from a revenue perspective, who could help a size from a revenue perspective, 17 contract and whether you get all of that in 24, whether that ramps up but.

Then I guess, but then I guess like the my main question, it's just gonna be about maybe going back to the M&A point.

I just find it very interesting that you've got some competitors, who are just out there constantly buying things and adding capabilities and other companies you know focusing more on share repurchase in selected smaller acquisitions I guess.

You do not see this as an arms race it almost feels to me like a lot of companies are out there building capabilities.

Do you feel when you think about M&A that potentially you know not pursuing M&A will will be a disadvantage over the next three to five years, if you're not doing anything else today. Thanks.

Good morning, having to save it.

On your first piece you give them a look forward to providing get a lot more detail as we get into 2000 twenty-three relative to 2024.

At a macro level I think.

Two data points to think about relative to the size of the relationship and in today's state, there's about $41 billion relative to spend.

Spend capacity and as a note into my prepared remarks, approximately 20 million customer relationships that will evolve and change over time and as we provide more detailed guidance going forward, we'll we'll try to separate that versus the revenue contribution.

Tears strategic question relative to M&A first and foremost I think you're framing is quite important I I wouldn't call. It a arms race I would call it stepping back the marketplace demand for further value creation.

Is and will remain consistently or.

Aggressive from that standpoint, hence innovation additional value creation strong operating execution, and then selectively expanding your addressable market demand and the strategy, we deem to be mission critical to now stepping back to ourselves as we are discussing an investor day, where position with strong performing foundational businesses.

And well positioned accelerate business those accelerate businesses are in sectors that have secular tailwinds and then to the core of your point, how do we fuel additional capability growth I I'd ask you to think about it in a multi pronged approach as opposed to M&A, yes, or no. One is significant targeted on.

Growing organic investment back into ourselves with new innovations and some of which I talked about today, some of which we profiled at our Investor day, our new password programs are unique longitudinal programs that take into consideration data navigation sport best in class clinical engagement with physicians and will increase value by taking <unk>.

Costs out of the system through improving clinical quality, so organic investments or and number one two is smartly and successfully leveraging our ventures capabilities to partner up with organizations to accelerate innovation and the third time in a we remain quite open to M&A, we do not deem it to be a silver bullet it's a.

Part of the growth support strategy, so organic execution investments in organic innovation smart elaborate drove our ventures capabilities as well as M&A overtime, and I would just come back and accurate, hence our track record of strong top line growth and strong bottom line growth with tremendous.

Casually generation over the last decade, I claimed that recipe through which we are willing to go forward basis.

Great. Thanks.

Thank you Mr. Fish back our next question comes to Miss Lisa Gal.

J P. Morgan what can I ask you a question.

[noise], Thanks I think.

Thanks for taking my question I, just really wanted to better understand as we think about get to comment on the tailwind for 2023 around biosimilars.

As you think about the plan designed for for twenty-three are you seeing him players and health plans willing to put the biosimilars on the formulary I mean, how much color invincibility do you have to that tailwind for twenty-three again is that primarily humira or are we thinking about other biosimilars as well.

Good morning at least it's David first relative to the category as you know from prior conversations we deem the category to be a net positive from a client patient and customer standpoint, as we look forward twenty-three and beyond as it relates to further improvements in affordability and given the positioning of our.

Crito capabilities are not positive for ourselves. So just grounding on that for starters in terms of the capabilities to brings to bear second 2023 represents the start of another step function, but the start of another step function as it relates in about a similar third we will communicate our national formulary conclusions later this <unk>.

<unk> as you very well know that's one dimension and then there's client specifics formularies decisions that are made on that are underway. So to the core of your question. It will vary in 2000 twenty-three between international formulary as well as client specific formula is on a go forward basis, we deem it to be a net positive for the franchise.

2023, as I noted it will present, a tailwind for us in 2023 that is humorous specific or the category specific but others will begin to ramp as we move through 2023, and two 2024, so a transitional I've I've, you're twenty-three as a transitional year for the space with acceleration or disk.

Visions are about to be communicated and finalized relative to formula and decisions in their varied at an employer or health plan level, our national formulary decisions will be consistent across out subset of our portfolio.

Thanks for the comments.

Thank you Ms. Yellen. Our next question comes from Mister <unk>, but found research you May I ask you a question.

Hi, Thanks. Good morning, So the 200 million you mentioned for 17 preparation classes that pre tax or after tax and then my real question is.

The outlook for Medicare advantage for 2023, I'm curious I know you've made some investments through this year and you've talked bad opportunities for March next year, but I'd be curious on the growth front and if you could just give us some color on how some of the newer account the expansions have gone in recent years that'd be helpful. [noise].

Good morning, Josh that's Bryan I'll I'll take the first part of your question I think David will comment on the Medicare advantage component are the 200 million that we quoted as a pretax figure and again as we work through the detailed implementation plans in terms of rate and pace will continue to refine that estimate that you can think of that as a team the 200 million dollar pre tax.

For 2023, specifically.

David you want to talk about Medicare sure Josh Good morning specific too cause Medicare advantage, let me take it may be a little bit in reverse order. If your if your question because as you articulate we've been systematically adding new new geographies net new geographies and adjacent counties over the last several years and successfully opening those counties in those markets.

Second as you would expect your early sales in a net new market, we tend to have a lower contribution in your sales in mature existing markets. The sheer nature of the operating costs environment and getting those businesses up and running from that standpoint, having said that while we're very early in the 2020.

Three decision, making process cycle, it's everyday takes on early precincts reporting your positive as it relates to our current net growth algorithm and both and mature counties and market as well as some of our new market entries look into 2023, given the continued geographic expansion we've made network.

Improvement, we've made investment in distribution and marketing support as well as more resources and capabilities to begin to harness some of the commercial agents to Medicare we expect 2003 to be a year of growth for a Medicare advantage portfolio and look forward to updating you on that as we get through the latter part of this year.

Thank you Mr. Asking our next question comes to Mister Nathan Rich with Goldman Sachs. You May I ask you a question.

Hi, This is Lindsey <unk>. Thanks for the question. Congratulations again on that 17 contract plan could you talk to some of the opportunities for future Epineural service expansion and just start teaching <unk>.

Good morning, Lindsey, it's David Thank you for the acknowledgement and is probably noted earlier, we're excited and we're proud to be given the opportunity and we will seek to earn that opportunity day in day out and is Brian noted before we get to the core of your question. The team is 110% focused on a successful.

<unk> implementation and initiation of the relationship on January one of 2024 and heads down relative to that as it relates to future opportunities I Wanna get ahead of ourselves relative to that but we've we've demonstrated over time, when we successfully partner and successfully collaborate we have an opportunity to brought.

And deeper relationships and we Andrew this relationship with <unk> first and foremost needing to wanting to fully committed to performing on the existing commitment and then availing <unk> as a partner relative to our everyone's capabilities and or abroad service capabilities to co collaborate and innovate. So we see opportunity over time, but we're not getting ahead of ourselves.

We're focused on the present and the president is a significant wind for us I would wrap around it our our our track record demonstrates deepening of relationships and brought any relationships I co collaboration and co development and that's what we will seek to do with <unk>. After we successfully deliver on this promise.

Thank you.

[noise]. Thank you. Our next question comes from Mister Scott Stevens you May ask your question.

Hi, Good morning wanted to talk to ask about the exchange market and how you're thinking about the setup for 2023, there obviously some moving pieces on the competitive chess board that should be favorable for potential enrollment growth. So I'm interested in and you know how you are thinking about enrollment grow.

For 2023, and then you know confident said in your pricing a setup for 2000 twenty-three. If you do end up adding more membership unexpected given somebody the competitor competitor accents.

Confidence and also achieving our target margins for that segment as well thanks.

Scott Good morning, it's David.

Wildly speaking of we view this space as a a space, where we have an opportunity to grow over time and as you very well know there's been a little bit of a.

Volatility since it's inception, and we were we entered at inception and remained in the marketplace and continued to systematically grow will grow geography's as was happening in 2023 as it relates to the the volume we would expect to have Netflix customer growth. Our current outlook is have customer growth in too.

And twenty-three and we would expect that there would be a positive margin contribution is Brian and I. Both know that we expect this isn't health care portfolio in aggregate dive.

Further margin expansion opportunity, we believe that this subset of our space will have net positive Margaret contribution going forward I'm not going to comment in terms of the latter part of yours question went back to target margins.

As we continue to invest in that we know what the underlying book is performing at and what we expect it to perform at will make investment decisions. In 2023 for 2024 that may that may dampen a little bit of the margins those are discretionary decisions for ongoing growth, but headline is well positioned for twenty-three expect to have net growth and expect to have.

Good Margaret performance with a portfolio.

Thank you Mr. <unk>. Our next question comes from Mister Gary Taylor with Cowan you May ask you a question.

Hi, Good morning, one quick one for Brian and one for David Bryan just an investment income in the quarter.

Looked a little light even accounting for the best to that that's a return looked a little low light. So just wondering if there was.

Something there, perhaps a little non-recurring in terms of potential run rate on investment income and then for David I've had a couple of clients ask lately about.

The D O J intervening in the in a lawsuit as well as the M. A joining the class action on the Multiplan lawsuit I guess the question really is just.

It's a legal profile the company changed in any material way and just wanted to give you a chance to comment on those things.

[noise] morning, Gary as it relates to our investment income within the third quartered in aggregate. The investment income did slightly trail our expectations, but does that shortfall was more than offset by the favorable medical care ratio performance within the health care, which allowed us to outperform both are sick the health care and enterprise income.

[noise] outlook two things that are important to keep in mind as you reflect on that and you are references in your question. The first one is the Chubb divestiture that was completed on July 1st.

Resulted in a step down of our investment income and you can think of that is in the range of $50 million to $60 million per quarter.

Essentially remove starting in the third quarter, so at any comparisons to historical periods need to normalise for that factor. The second area is within our alternative asset portfolio, which consists of I think of this as private market non coupon assets and this represents a minority of our invested assets, but it's subject to mark to market accounting for U S. <unk>.

Requirements and given some of the challenges in the public capital markets. This year, we had expected some downward mark to market adjustments in the third quarter and the fourth quarter and that did transpire. Some of the downward marks were a little bit larger than what we had been projecting but as I said earlier strong medical care ratio performance in the quarter allowed us to exceed our.

Overall income and EPS outlook.

As you think about the future and trying to run right. This if you were to remove the chubb related contributions from 2022. The all in net investment income for 23, you can think of is approximately similar to the all in 2022 investment. It comes on neither a tailwind or a headwind as we step into twenty-three on the investment and come on.

David Oh should comment on the Medicare advantage policies and such.

Thanks, Brian Good morning, Gary.

Your broader framework, Gary and step back and say, we have we do want to you to operate in an active regulated space too.

Two point.

Two as we look at today in the past we have a strong track record mentioned organization are being well governed and strong healthy compliance related programs to that point into the corporate question I I do not deem that the legal exposure I think is where you're going after it with a profile of the company exchange meaningfully.

And in some ways given the strategic positioning of our franchise being more services based I would make the argument that the legal exposure footprint on a relative basis to to the space is is lighter from that standpoint, given the services based nature of our portfolio is more intense and heavy but.

No doubt interactive space has been is and will continue to be an active space, but we're proud of our governance and compliance functions and capabilities.

Thanks.

Thank you Mr. Taylor. Our next question comes from Mister <unk> with Morgan Stanley You May ask your question.

Yeah, Hi, good morning, So a couple of questions here just to clarify for 2023 is D. E. P. A starting point that we should use is at 23 10, and then is do we think about the 17 head arena 200 mailing around 2% earnings growth.

Are you assuming that excluding 17.

<unk>, what it's grown at that long term target of 10% to 13%.

Good morning, Ricky it's Brian So let me try to clarify some of the comments I made earlier as it relates to our 2023 outlook. So prior to the 17 contract award. The the current 2000 twenty-three consensus EPS estimate we see is reasonable.

And so the last I looked this was in the range of $25.30 give or take a few cents.

With the recently announced 17 contract. This will create an incremental 2000 twenty-three headwind that will essentially need to be deducted from that 2023 earnings per share figure that I just referenced and then as I as I mentioned as as normal we typically start with our initial guide having some level of.

Prudent said it particularly since we have in at least EPS convention with the way that we communicate our outlook. So those are the different Ah moving pieces that I would point to as you think about 2023, and then as I said earlier relative to the two year 2022 to 24 growth rate we would expect.

That to be within our 10% to 13% compounded annual EPS growth rate range.

Okay and then just one quick follow up question. If we think about the 17 contract is there any leverage to to gain with the additional scale, but you'll see cross the Rex.

Mm mm.

Because.

Good morning, it's David broadly speaking.

A framework of growth always presents opportunity. So I I think your basic tenet is positive here. Additionally, our opportunity to further enhance the value we're able to deliver it to an existing clients, especially those with higher government portfolios of business and or strengthen our value prop.

Physician, even further relative to winning new clients on a go forward basis. So.

Give you a directional answer not originally yes, or no answer, but a directional answer that growth has a net positive whether it's the ongoing investment back innovation the capabilities and subsectors of the space in terms of being much more government intensive within this portfolio or otherwise I would say net directional positive.

Thank you.

Thank you Miss Goldwasser. Our next question comes from Mister Steven Valiquette with bark at least give me ask you a question.

Oh, great. Thanks, second warning everybody. So I guess, what the increase in membership guidance for 22, and the commercial risk of membership growth your beer actually accelerating as the year progresses, just curious to hear a little more color just from the positive tailwinds there.

Kind of what's driving the extra.

Commercial risk membership success.

Excuse me to say that let me talk a little more about the the selling season the dynamic in the process. If they noted in my opening 2022 results for commercial portfolio business first and foremost we're pleased with where pleased with our performance. We're pleased with the retention.

We're pleased with the net growth too and 22.

A primary driver that growth is good performance in our middle market and sustained success in our select segment within our select segment, we regularly offer so.

So we're self funded with stop-loss.

Shoulder to shoulder with derivatives oven specific risks alternatives and we provide choice we provide choice declining roles that the funding well we've designer our sales process or underwriting process and Ah solutioning process that we were able to put that choice forward.

And you're out it ebbs and flows between a different mix between answer on stop loss and brisk business. We're pleased within that risk results that underlying that but I think the overall headline is it the sustain strong success of the lack segment now now more broadly as you look at the portfolio of a fee based business continues to grow Brian pointed back to the.

Meaningful growth in stop loss and finally in my comments pointing toward 2023, we will have a very good national account January one that's largely fee based business. That's retention its expansion in this new business has as well as edition of large what we would call middle market fee based relationships going forward.

So the underlying net growth is consistent quality is there and the M. L. R and Christians you see is really fundamental strength was an actual like segment.

Thank you Mr. Valiquette. Our next question comes from Mister Lance Whelks with Bernstein, you May I ask you a question.

Yeah, congratulations on that <unk> <unk>.

Two two just clean up questions. One is whenever north just understanding the driver of fees and have you ever noticed a segment and the other is just to comment on utilization, obviously M. A R.

Was really down this quarter just interested in getting any comments on relative to maybe a baseline are kind of pre COVID-19 levels for commercial public a change in Medicare advantage contrasted with sort of the non medical products like what what what kind of environment you are operating and they're seeing right now thanks a lot.

[noise] boarding lance's, Brian absurd as it relates to the fees and ever North and and you can see the the strikes and this line. If you look at the statistical supplement in terms of fees and other revenue with with strong 16 per cent quarter over quarter, 21% year to date growth. There's a few different components that contribute to this so.

One this is where M. D line business shows up and we've continued to see strong growth throughout the year and and utilization of our empty lives services. Secondly, we have a number of express scripts or pharmacy benefit services clients, who choose a pure feebates relationship with us. So we offer choice relative to how they want to.

Work with us with some of them might want a formulary or a network only relationship and so that shows up in in this line item and then also or have a core business in terms of medical benefit management. Some of the post acute care solutions et cetera, all roll up into this this line I'm. So all these things in totality or showing nice growth for the ever north business.

As it relates to your second question and I think that was pointed fixing the health care more specifically in terms of utilization environment third quarter did run favorable to our expectations most of that favre ability within the U S. Commercial book a business with our government lines.

Essentially in line with expectations and within the quarter, both Covid and non COVID-19 costs and the U S. Commercial book were favorable to our expectations non COVID-19 favor ability was predominantly driven by inpatient and emergency room and the Covid side of the house, we saw a third quarter of Covid related costs.

Running at a very comparable level to what they were in the second quarter, whereas we had assumed a bit of an uptick.

So so broadly speaking that's how I would summarize what we saw in the third quarter all in our commercial book of businesses running just slightly above what a pre pandemic baseline would've been trained it forward onto your question, there with with Medicare and touch below that.

Great. Thanks, a lot.

Thank you Mr. Wilkes our last question comes from deep Windley with Jeffries you May ask your question.

Hi, Thanks for squeeze me and I joined late so I apologize. If this has been asked but as you think about 20 twenty-three <unk>.

And you know kind of fed pushing to slow labor labor market and potential recession implications will you be thinking about <unk> recession possibilities as you set your your guidance for twenty-three and how do you think.

The businesses position to be resilient against that.

Okay. Good morning, David.

So I think a really important question and that that we didn't spend time on that so thanks for the opportunity first from our point of view, there's little doubt the economy has been confronting some challenges so recession non recession, there's been some challenges.

And to date.

Grounding, we've seen little direct impact for the demand of our services or the underlying performance for our portfolio Alright movement and costs here. There are broadly speaking and we've seen little direct impact as we look forward by and large we still see an environment, where net net employers are more oriented in terms of.

Maintaining and or hiring employees seeking to get to full employment, we do see instances where that has slowed we do see instances, where employers would put it freezes, but when you balance the portfolio as a whole right now they're still a net hiring environment that sits in front of us now that not to today as we look forward, we we absolutely playthrough since.

That could have further softening of the economy, a recessionary impact at this point, we believe given the visibility we haven't as a starting point of 2023 with the net growth we expect to step in the year with coupled with the strength that we expect in 2022 with those.

Those two points and the various leverage we have within our diverse services portfolio and benefits portfolio. We believe will be in position to deliver another strong 2000 twenty-three ending with we acknowledged the fact that the economy is.

As in a bit of a challenge the environment and the current state, but all in we believe our portfolio will be durable and it's imposition to perform next year because of the strong start will have to the year and the various levels that we have to manage in our portfolio.

Alright, thank you.

Thank you Mr. Windley I will now turn the call back over to David <unk> for closing remarks.

First let me thank everybody for joining our call today and I'll just wrap up but if you have a few thoughts first our business is performing well a new collaboration with 17 is great evidence of the strength of our value proposition and how it continues to resonate in the market.

We're growing with high levels of retention and winning new clients were performing well in this dynamic environment and are sustained disciplined execution is benefiting those we serve as well as our shareholders.

We are delivering for shareholders remain on track for full year adjusted EPS outlook of at least $23.10, which is elevated from a prior out like we're confident we're well positioned over the long term to continue deliver on our annual adjusted EPS growth of 10 to 13 per cent plus or meaningful dividend.

This is all possible because of the brought the capabilities we have across our organization are proving commitment to innovation, but most importantly, the dedication of our more than 70000 coworkers across the globe.

I personally appreciate our team and what they do everyday for our clients are partners, our customers and patients and I. Thank them for the commitment to making a positive impact on People's lives each and every day.

Thank you again for your interest in Sigma and we look forward to continue our conversation as we go into the latter part of this year have a good day.

Ladies and gentlemen, this concludes Cygnets third quarter 2022 results review, taking their investor relations will be available to respond to it just no question. Shortly a recording of this conference will be available for 10 business days. Following this call you may access to recording conference by Dialling 8008195739.

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Thank you for participating we will know disconnect.