Cigna Delivers Strong First Quarter 2019 Results, Raises Outlook

BLOOMFIELD, Connecticut, May 2 -- Cigna, a health service company, issued the following news release:

Global health service company Cigna Corporation (NYSE: CI) today reported strong first quarter 2019 results led by the Health Services and Integrated Medical segments.

"Cigna's first quarter performance reflects focused execution of our proven growth strategy and positions us well to achieve our increased outlook for 2019," said David M. Cordani, President and Chief Executive Officer. "Our combination with Express Scripts is fueling additional innovative programs for the benefit of our customers and patients, as we accelerate our efforts to improve the affordability of health care."

Total revenues for first quarter 2019 were $37.9 billion. Adjusted revenues1 were $33.4 billion and reflect strong contributions from each of Cigna's ongoing businesses.

Shareholders' net income for first quarter 2019 was $1.37 billion, or $3.56 per share, compared with $0.9 billion, or $3.72 per share, for first quarter 2018.

Cigna's adjusted income from operations2 for first quarter 2019 was $1.5 billion, or $3.90 per share, compared with $1.0 billion, or $4.11 per share, for 2018. This reflects strong earnings contributions led by the Health Services and Integrated Medical segments.

Reconciliations of total revenues to adjusted revenues1 and of shareholders' net income to adjusted income from operations2 are provided on the following page, and on Exhibit 1 of this earnings release.

CONSOLIDATED HIGHLIGHTS

The following table includes highlights of results and reconciliations of total revenues to adjusted revenues1 and shareholders' net income to adjusted income from operations2:

Consolidated Financial Results (dollars in millions):

To view the table, click here: https://www.cigna.com/newsroom/news-releases/2019/cigna-delivers-strong-first-quarter-2019-results-raises-outlook

* Year to date through May 1, 2019, the Company repurchased 3.1 million shares of common stock for approximately $556 million.

* The debt to capitalization ratio improved to 48.8% at March 31, 2019 from 50.9% at December 31, 2018.

* The SG&A expense ratio5 was 9.3% for first quarter 2019, a significant decrease from 23.5% for first quarter 2018 driven by business mix changes resulting from the Express Scripts combination, and the health insurance tax suspension.

CUSTOMER RELATIONSHIPS

The following table summarizes our medical customers and overall customer relationships:

Customer Relationships (in thousands):

To view the table, click here: https://www.cigna.com/newsroom/news-releases/2019/cigna-delivers-strong-first-quarter-2019-results-raises-outlook

* The total medical customer base6 at first quarter 2019 was 17 million, an organic increase of 32,000 customers year to date and 224,000 over first quarter 2018 driven by growth in the Select and Middle Market segments, partially offset by a decline in National Accounts.

* The pharmacy customer base6 at first quarter 2019 was 75 million, an organic increase of 1.7 million customers year to date, driven by strong new commercial sales.

* Pharmacy6 and Medicare Part D customers in the first quarter 2019 and fourth quarter 2018 include customers gained through the completion of the Express Scripts combination on December 20, 2018.

HIGHLIGHTS OF SEGMENT RESULTS

See Exhibit 1 for a reconciliation of adjusted income (loss) from operations2 to shareholders' net income.

Health Services

This segment includes a broad range of pharmacy services, including benefits management, specialty pharmacy services, clinical solutions, home delivery, and health management services.

Financial Results (dollars in millions):

To view the table, click here: https://www.cigna.com/newsroom/news-releases/2019/cigna-delivers-strong-first-quarter-2019-results-raises-outlook

* Cigna completed the combination with Express Scripts on December 20, 2018. Accordingly, contributions from the Express Scripts business are reflected in the Health Services segment results for the entire first quarter 2019, a portion of fourth quarter 2018, and are not reflected in first quarter 2018 results.

* Growth in first quarter 2019 adjusted revenues1 and adjusted income from operations, pre-tax2 were driven by the combination with Express Scripts.

* Health Services fulfilled 292 million adjusted pharmacy scripts9 in first quarter 2019, consistent with the company's expectations.

* Health Services delivered solid results in first quarter 2019, driven by organic growth in pharmacy customers since the start of the year, and strong adjusted pharmacy script volumes and performance in specialty pharmacy care.

Integrated Medical

This segment includes Cigna's U.S. Commercial and Government businesses that provide comprehensive medical solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services to insured and self-insured customers. Government solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual health insurance coverage both on and off the public exchanges.

Financial Results (dollars in millions):

To view the table, click here: https://www.cigna.com/newsroom/news-releases/2019/cigna-delivers-strong-first-quarter-2019-results-raises-outlook

* Integrated Medical delivered strong results in first quarter 2019, led by organic growth and strong margins in our Commercial and Government businesses.

* First quarter 2019 adjusted revenues1 increased 13% relative to first quarter 2018, driven by Commercial customer growth and expansion of specialty relationships, as well as premium increases consistent with underlying cost trends.

* First quarter 2019 adjusted income from operations, pre-tax2 and adjusted margin, pre-tax8 reflect strong medical and specialty contributions and continued effective medical cost performance.

* Adjusted income from operations, pre-tax2 for first quarter 2019 and first quarter 2018 included favorable net prior year reserve development on a pre-tax basis of $50 million and $51 million, respectively.

* The medical care ratio5 ("MCR") of 78.9% for first quarter 2019 reflects strong performance and execution in our commercial and government businesses and favorable prior year development, partially offset by the addition of the Express Scripts Medicare Part D business and the pricing effect of the health insurance tax suspension.

* Integrated Medical net medical costs payable10 was approximately $2.72 billion at March 31, 2019, $2.41 billion at March 31, 2018 and $2.43 billion at December 31, 2018.

International Markets

This segment includes supplemental health, life and accident insurance products and health care coverage in our international markets, as well as health care benefits for globally mobile employees of multinational organizations.

Financial Results (dollars in millions, policies and customers in thousands):

To view the table, click here: https://www.cigna.com/newsroom/news-releases/2019/cigna-delivers-strong-first-quarter-2019-results-raises-outlook

* First quarter 2019 adjusted revenues/1,7 grew 4% over first quarter 2018, reflecting continued business growth, partially offset by some impact from unfavorable foreign currency movements.

* First quarter 2019 adjusted income from operations, pre-tax2 and adjusted margin, pre-tax8 reflect business growth, offset by unfavorable foreign currency impacts and spending to strengthen our capabilities to further long-term growth.

Group Disability and Other Operations

This segment includes Cigna's Group Disability and Life business which offers group long-term and short-term disability, and group life, accident, voluntary and specialty insurance products and services. Additionally, this segment includes Corporate Owned Life Insurance ("COLI") and the Company's run-off operations.

Financial Results (dollars in millions):

To view the table, click here: https://www.cigna.com/newsroom/news-releases/2019/cigna-delivers-strong-first-quarter-2019-results-raises-outlook

* First quarter 2019 adjusted income from operations, pre-tax2 and adjusted margin, pre-tax8 reflect unfavorable disability claims partially offset by strong life results.

Corporate

Corporate reflects interest expense, as well as amounts not allocated to operating segments and includes intersegment eliminations.

Financial Results (dollars in millions):

To view the table, click here: https://www.cigna.com/newsroom/news-releases/2019/cigna-delivers-strong-first-quarter-2019-results-raises-outlook

* The first quarter 2019 adjusted loss from operations, pre-tax2 increased as a result of higher interest expense associated with the financing of the combination with Express Scripts.

2019 OUTLOOK

Cigna's outlook for full year 2019 consolidated adjusted income from operations2,3,4 is in the range of $6.24 billion to $6.4 billion, or $16.25 to $16.65 per share. Cigna's outlook excludes the impact of additional prior year reserve development of medical costs and potential effects of any future share repurchase4.

To view the table, click here: https://www.cigna.com/newsroom/news-releases/2019/cigna-delivers-strong-first-quarter-2019-results-raises-outlook

2020 OUTLOOK

Health Services' projected 2020 retention rate for the 2019 selling season for pharmacy services is in the range of 96% to 98%.

The foregoing statements represent the Company's current estimates of Cigna's 2019 consolidated and segment adjusted income from operations2,3,4 and other key metrics as of the date of this release. Actual results may differ materially depending on a number of factors. Investors are urged to read the Cautionary Note Regarding Forward-Looking Statements included in this release. Management does not assume any obligation to update these estimates.

This quarterly earnings release and the Quarterly Financial Supplement are available on Cigna's website in the Investor Relations section (http://www.cigna.com/aboutcigna/investors). Management will be hosting a conference call to review first quarter 2019 results and discuss full year 2019 outlook beginning today at 8:30 a.m. ET. A link to the conference call is available in the Investor Relations section of Cigna's website located at https://www.cigna.com/aboutcigna/investors/events/index.page.

The call-in numbers for the conference call are as follows:

Live Call

(888) 324-7575 (Domestic)

(210) 234-0013 (International)

Passcode: 5022019

Replay

(800) 839-5571 (Domestic)

(402) 220-2073 (International)

It is strongly suggested you dial in to the conference call by 8:15 a.m. ET.

Notes:

1. At the consolidated level, the measure "adjusted revenues" is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, "total revenues." We define adjusted revenues as total revenues excluding revenue contributions from transitioning pharmacy benefit management clients, Anthem Inc. and Coventry Health Care, Inc. (the "transitioning clients"), net realized investment results from equity method investments, and special items. We exclude these items from this measure because they are not indicative of past or future underlying performance of the business. See Exhibit 1 for a reconciliation of consolidated adjusted revenues to total revenues.

2. Adjusted income (loss) from operations is defined as shareholders' net income (loss) excluding the following adjustments: earnings contributions from transitioning clients, net realized investment results, amortization of acquired intangible assets, and special items. Special items are identified in Exhibit 1 of this earnings release. Adjusted income (loss) from operations is measured on an after-tax basis for consolidated results and on a pre-tax basis for segment results.

Adjusted income (loss) from operations is a measure of profitability used by Cigna's management because it presents the underlying results of operations of Cigna's businesses and permits analysis of trends in underlying revenue, expenses and shareholders' net income. This consolidated measure is not determined in accordance with accounting principles generally accepted in the United States (GAAP) and should not be viewed as a substitute for the most directly comparable GAAP measure, shareholders' net income. See Exhibit 1 for a reconciliation of adjusted income from operations to shareholders' net income.

Effective in the fourth quarter of 2018, Cigna updated its segments. Refer to our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2019 and our Annual Report on Form 10-K for the year ended December 31, 2018 for additional information and prior period results on the historic and new segment bases.

3. Management is not able to provide a reconciliation of adjusted income from operations to shareholders' net income (loss) or adjusted revenues to total revenues on a forward-looking basis because we are unable to predict, without unreasonable effort, certain components thereof including (i) future net realized investment results (from equity method investments with respect to adjusted revenues) and (ii) future special items. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As such, any associated estimate and its impact on shareholders' net income could vary materially.

4. The Company's outlook excludes the potential effects of any share repurchases or business combinations that may occur after the date of this earnings release.

5. Operating ratios are defined as follows:

- Medical care ratio represents medical costs as a percentage of premiums for all U.S. commercial risk products, including medical, pharmacy, dental, stop loss and behavioral products provided through guaranteed cost or experience-rated funding arrangements, as well as Medicare Advantage, Medicare Part D, Medicare Supplement, Medicaid, and individual on and off-exchange products, within our Integrated Medical segment.

- SG&A expense ratio represents enterprise selling, general and administrative expenses excluding special items and expenses from transitioning clients, as a percentage of adjusted revenue at a consolidated level.

6. Customer relationships are defined as follows:

- Total medical customers includes individuals in our Integrated Medical and International Markets segments who meet any one of the following criteria: are covered under a medical insurance policy, managed care arrangement, or service agreement issued by Cigna; have access to Cigna's provider network for covered services under their medical plan; or have medical claims and services that are administered by Cigna.

- Pharmacy customer relationships excludes transitioning clients.

- International Markets policies exclude International Markets medical customers included in total medical customers.

- Group Disability and Life covered lives are estimated.

7. Cigna owns a 50% noncontrolling interest in its China joint venture. Cigna's 50% share of the joint venture's earnings is reported in Fees and Other Revenues using the equity method of accounting under GAAP. As such, the adjusted revenues and policy counts for the International Markets segment do not include the China joint venture.

8. Adjusted margin, pre-tax, is calculated by dividing adjusted income (loss) from operations, pre-tax by adjusted revenues for each segment.

9. For Health Services adjusted pharmacy scripts, non-specialty network scripts filled through 90-day programs and home delivery scripts are multiplied by three. All other network and specialty scripts are counted as one script. Adjusted pharmacy scripts guidance does not include script volumes associated with transitioning clients, nor volumes expected to be insourced from OptumRx under the terms of the transition services agreement.

10. Medical costs payable within the Integrated Medical segment are presented net of reinsurance and other recoverables. The gross medical costs payable balance was $2.96 billion as of March 31, 2019, $2.70 billion as of December 31, 2018, and $2.64 billion as of March 31, 2018. The Integrated Medical days claims payable was 40.9 days at March 31, 2019, 40.7 days at December 31, 2018 and 41.9 days at March 31, 2018.

11. The measure "adjusted tax rate" is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, "consolidated effective tax rate." We define adjusted tax rate as the consolidated income tax rate applicable to the Company's pre-tax income excluding net realized investment results, amortization of acquired intangible assets, special items, and transitioning clients. Management is not able to provide a reconciliation to the consolidated effective tax rate on a forward-looking basis because we are unable to predict, without unreasonable effort, certain components thereof including (i) future net realized investment results and (ii) future special items.

12. Medical cost trend includes all U.S. commercial employer funding arrangements.

* * *

- Total revenues in the first quarter were $37.9 billion. Adjusted revenues 1 were $33.4 billion.

- Shareholders' net income for the first quarter was $1.37 billion, or $3.56 per share

- Adjusted income from operations 2 for the first quarter was $1.5 billion, or $3.90 per share

- Adjusted income from operations 2,3,4 is now projected to be in the range of $6.24 billion to $6.4 billion in 2019, or $16.25 to $16.65 per share 3 , which represents per share growth of 14% to 17% over 2018