The Cigna Group Q2 2026 Earnings Call

And gentlemen, thank you for standing by for the Cigna Group's second quarter 2020 results review. At this time, all callers are in a listen only mode. We will conduct a question and answer session later during the conference and review procedures on how to enter Q and ask questions at that time. if you should require assistance during the call, please press star zero on your touchtone phone. As a reminder, ladies and gentlemen, this conference, including the Q and A session, is being recorded. We'll begin by turning the conference over to Ralph Giacobbe. Please go ahead.

Great. Thank you. Good morning everyone. Thanks for joining today's call. I'm Ralph Giacobbe, senior vice President of Investor Relations. With me on the line this morning are Brian Evanko, the Cigna president and Chief Executive Officer, and Ann Dennison, Chief Financial Officer. In our remarks today, Brian and Ann will cover a number of topics, including our second quarter 2020 financial results and our financial outlook for 2026. Following their prepared remarks, Brian and Ann will be available for Q&A. As noted in our earnings release, when describing our financial results, we use certain financial measures, including adjusted income from operations and adjusted revenues, which are not determined in accordance with accounting principles generally accepted in the United States. Otherwise known as GAAP. A. Reconciliation of these measures to the most directly comparable GAAP measures. Shareholders net income and total revenues, respectively, is contained in today's earnings release, which is posted in the Investor Relations section of the 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. Today, we will be making some forward looking statements, including statements regarding our outlook for 2026 and future performance.

These. Are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. A description of these risks and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC. Regarding our results in the second quarter. We recorded after tax special item charges of $153 million or $0.58 per share Details of the special items are included in our quarterly financial supplement. Please note that when we make prospective comments regarding financial performance, including our full year 2026 outlook, we will do so on a basis that includes the potential impact of future share repurchases and anticipated 2026 dividends. With that, I'll turn the call over to Brian.

Thanks, Ralph. Good morning, everyone, and thank you for joining our call. I'm pleased to share. We delivered strong performance in the second quarter as we continue to execute at a high level, drive results and accelerate momentum across our enterprise. Today, I'll. Discuss our performance for the quarter and key strategic drivers of our growth in. It demonstrate how the strength and durable nature of our model is fueling our success. I'll also share some examples of how we are leveraging data, AI and technology to deliver more personalized health care experiences for our customers and patients. Then we'll review additional details about our results and outlook for the rest of the year, and we'll take your questions. So let's get started. As I've stepped into the CEO role, I'm energized by our strategic direction, our execution, and the impact we're having for those we serve While leveraging the power of one of the most experienced leadership teams in the industry. Over. The past few months, I've been spending even more time carefully listening to our partners across the health care system, including clients, customers, health care professionals and brokers. Throughout these. Conversations, a few themes consistently emerge. First, an elevated focus on affordability as new, expensive therapies continue to enter the market and demand for complex care grows.

Second. Growing expectations for more personalized experiences as people want healthcare to feel as easy as other areas of their lives. And third, the need for actionable insights and clinical programs to keep people healthy. These themes within healthcare are coupled with continued economic pressures. Geopolitical uncertainty, and a rapid pace of change fueled by AI advances. While the current environment is certainly dynamic, I see the landscape as ripe with opportunity to innovate, drive, change, and forge a new path in healthcare. All while continuing to execute on our commitments today. This orientation has fueled our strong second quarter performance, where I'm pleased to report that both Evernorth and Cigna Healthcare results were ahead of expectations. In. The second quarter. The Cigna delivered total revenues of $71.7 billion and adjusted earnings per share of $7.78. All. While we continue to reinvest in our business to fund growth, expansion and innovation for our customers. I'm proud of our team around the world for continuing to focus on those we serve. Our strategy is aligned with what customers and patients need most. And our portfolio is purpose built for where healthcare is headed and its relevance has never been greater. Now, looking at our performance across our businesses, we continue to drive impact and growth across both Evernorth health Services and Cigna Healthcare.

Over. All Evernorth earnings were slightly ahead of expectations, with revenues increasing 6% year over year, reflecting the continued demand for our services. While we invest in broadening our offerings and expanding our reach. Our specialty and care services businesses delivered pre-tax adjusted earnings growth of 22% year over year. LED by secular tailwinds as well as the differentiated strengths in Accredo and our expanded suite of specialty pharmacy services that support hospitals and health systems this quarter. We also saw faster than expected adoption of specialty generics and biosimilars, both of which improve affordability for patients and clients. Our growth in specialty continues to be fueled by our unique portfolio of capabilities, which enables us to better serve patients with more complex, clinically intensive needs. We're seeing continued growth in the number of patients relying on specialty medications. And we are uniquely positioned to serve them with our market leading access to more than 330 limited distribution medicines. Our highly personalized capabilities, including our clinical care teams, tailored engagement and deep understanding of complex health journeys, distinguish us in our ability to serve these patients. Turning to our Evernorth Pharmacy benefit Services business, we delivered pre-tax adjusted earnings of $609 million, reflecting the impacts of the previously discussed renewals and extensions of large client contracts.

As well as investments to support the transition to our new rebate free model, which we call signature. The team is making strong progress in the build out of our signature pharmacy benefits model. We see. Significant early interest from health plans and employers as we prepare for our broader market launch in 2028. This will follow our important next step of introducing signature to Cigna Healthcare's fully insured plans next year. At the same time, we're adding value and winning business today with 2027 representing one of our strongest selling seasons in recent years. We've been able to achieve this performance in pharmacy benefit services through our winning combination of superior unit costs, clinical programs designed to improve adherence to therapies, and market leading innovations that help our clients anticipate what is around the corner in a rapidly changing environment, helping them. Build and tailor solutions to meet their needs today, while planning for the future. Cigna healthcare. We delivered results ahead of expectations with pre-tax adjusted earnings growth of 17%. While the needs of every client are unique. Several factors contribute to why we continue to win in this segment. Our deep focus on the employer sponsored health care market, where we have differentiated expertise generating continued customer growth in our U.S. employer business.

Our disciplined pricing and execution, including in our stop loss business where we continue to make progress on margin recapture our. Portfolio shaping to drive focus.

Our.

Ability to continuously find new ways to innovate by leveraging data and clinical programs that keep people healthy and. Our integrated solutions that provide improved access and coordination across medical, pharmacy, and behavioral health services. For example, given the growing demand for mental health services, our most recent solutions demonstrate our continued industry leadership and make us the partner of choice. Our provider matching capabilities for behavioral health patients are reducing costs by matching patients with high quality providers. and offerings like headspace are expanding access to lower acuity, behavioral health options. Improving affordability, encouraging earlier intervention, and complementing demand for outpatient services. As you can see, a consistent reason why we win in both Evernorth and Cigna healthcare is our ability to innovate, to meet evolving customer and client demands. Now I want to spend a few minutes sharing more about how we are applying data, technology and AI to improve customer outcomes and transform business models. Our AI approach is built on a simple principle start with the customer and patient and identify where innovation can drive the most meaningful impact for them. We are leveraging. Technology and AI to drive better health outcomes. Simplify and personalize customer experiences, and lower costs.

And then execute that at scale. This has enabled us to use AI to change the trajectory of the most complex clinical journeys, to improve the lives of our customers and patients. One example is pharmacy Forward, a recently announced AI powered program designed to improve how patients access and incorporate specialty medications into their treatment plans We are unlocking new ways to coordinate care for patients by shortening the time between when a patient receives a prescription and when they can begin treatment. While minimizing administrative friction along the way. With. Pharmacy forward, we're focused on personalizing support, streamlining processing. and helping patients start and stay on therapy with greater ease and confidence. Our target. Use of AI is expected to cut time to therapy in half on average. And for clinicians, it enables them to deliver more connected, informed support, reducing their documentation time by up to 50%. Freeing capacity. To spend more time on patient care. We're finding that same philosophy within Cigna healthcare. We know patients. Navigating complex conditions. Benefit from personalized clinical support to improve both outcomes and affordability. This month. We announced an expansion of our AI enabled care coordination capabilities to help us identify customers with emerging, complex or chronic health needs.

Earlier, such as cancer, heart disease, and high risk pregnancies. And connect them more quickly to the personalized clinical support they need. Through predictive models and AI enabled insights. We will be able to expand support to 20% more customers with emerging, complex health needs. This is not about replacing clinicians with technology. But helping clinicians spend more time where they can make the greatest difference in. The results speak for themselves. Customers who engage in these programs reduce medical costs by approximately $2,000 per year on average Early engagement has already yielded a 42% reduction in avoidable inpatient stays. Amongst those customers. What makes these efforts unique is that they're not standalone technology initiatives. They are enabled by the combination of data. Clinical expertise, and pharmacy capabilities that exist across our enterprise. All focused on better serving our customers. We believe this ability to connect insights with action and action with measurable outcomes is a significant competitive advantage for The Cigna Group. As we look ahead, we'll continue to focus our investments on meaningful applications of AI that improve affordability, enhance the customer experience, help clinicians work more effectively, and create long term value. Now let me summarize our results.

We have a proven track record of delivering differentiated value for those we serve by innovating new solutions like signature clarity, pharmacy Forward and personalized care coordination, as well as through our model and meaningful partnerships. As a result, in the second quarter, we delivered on our financial commitments with adjusted EPS of $7.78 and are pleased to increase our guidance for full year adjusted earnings per share to at least $30.45. Further. Our company has attractive, sustainable growth opportunities in the long term. Building on our history and track record of results, delivery. Overall, our. Strong performance and disciplined execution throughout the first half of the year reflects the intentional design of our company and the passion of our coworkers for serving our customers with. That I'd like to turn it over to an.

Brian. Good morning everyone. As Brian mentioned, our second quarter results reflect another quarter of strong execution for the enterprise, with both Evernorth and Cigna Healthcare delivering pre-tax adjusted earnings above expectations during the. Quarter. We delivered total revenues of $71.7 billion, adjusted after tax earnings of $2.1 billion and adjusted earnings per share of $7.78. With our strong second quarter performance, we are raising our full year 2026 adjusted earnings per share outlook to at least $30.45. This outlook. Reflects the strong first half performance, while maintaining a prudent view of the current environment. Now, turning to our segment results. I'll start with Evernorth Second quarter 2026 revenues grew 6% year over year to $61.5 billion, and pre-tax adjusted earnings were $1.7 billion. Specialty and care services delivered strong performance with pre-tax adjusted earnings growing 22% year over year to $1.1 billion, ahead of expectations. The. Year over year growth reflects the strength of our specialty businesses, supported by continued specialty utilization growth and increased biosimilar adoption. Additionally, we were successful in improving the penetration of specialty generics, including generic Revlimid. The higher. Penetration of biosimilars and specialty generics drives affordability and value to patients and clients, and contributed favorably to earnings in the quarter.

Year over year. Earnings growth was further augmented by operating efficiencies and the income from our investment in Shield Health Solutions, which expands our reach into hospitals and health systems.

The.

Sustained growth in our specialty and care services business reinforces our confidence in the long term growth opportunity within specialty and reflects the deliberate steps we've taken to position our company at the forefront of this attractive market. Within pharmacy Benefit services, pre-tax adjusted earnings were $609 million, down from the prior year. Broadly, as expected. Our performance reflects the previously discussed renewals and extensions of large client contracts. and investments associated with the transition to our signature rebate remodel. As we. Previously mentioned, we saw higher biosimilar and specialty generic adoption during the quarter, which benefited Evernorth Results driving increased contribution in specialty and care services. While reducing contributions in pharmacy benefit services. Additionally, in the second quarter, we observed moderating GLP one growth as coverage levels slightly declined and utilization growth slowed from elevated levels, experienced in prior periods. We expect this trend to continue throughout the remainder of the year, and it is contemplated in our full year outlook Overall, Evernorth second quarter results reflect the continued strength of our specialty and care services business, alongside progress in the evolution of our pharmacy benefit services business. Turning to Cigna Health Care second quarter 2026 revenues grew 10% year over year to $11.8 billion, and pre-tax adjusted earnings were $1.3 billion.

The.

Care ratio for the second quarter was 84.5%, slightly ahead of expectations. Cigna healthcare delivered results ahead of expectations, driven by strong performance within the U.S. employer business. Broadly. Overall, cost trends remain elevated but stable against. That backdrop, medical cost trends were slightly favorable to expectations during the quarter, reflecting lower outpatient trends, including lower surgical spend Additionally, we continue to see good traction in the employer market with medical membership growing year to date, reflecting the strength of our client relationships and the value of our offerings. Overall, we are pleased with Cigna Healthcare's performance, which reflects our disciplined pricing, effective care coordination and focused execution. Now, turning to our outlook for the full year 2026. the strength of our second quarter performance gives us the confidence to increase our full year adjusted earnings per share outlook to at least $30.45, while maintaining a disciplined and prudent approach to the full year Regarding earnings cadence, we expect second half adjusted earnings per share to be split roughly evenly between the third and fourth quarter. Within Evernorth, we continue to expect full year pre-tax adjusted earnings of at least $6.9 billion. And for the third quarter earnings seasonality to be consistent with prior years within Cigna.

Health care. We are raising our full year pretax adjusted earnings outlook to, at least $4.55 billion, and we expect the third quarter pre-tax adjusted earnings to be over 60% of the second half earnings. For the medical care ratio, our full year guidance remains unchanged, and we expect the third quarter MCR to be slightly above second quarter. Consistent with historical seasonality.

Turning to.

For our 2026 Capital management position Second quarter operating cash flow was in line with expectations and consistent with historical patterns, which is influenced by calendar ization impacts that shift a portion of receivables into early July. We continue to expect our cash flow to be back half weighted, consistent with prior years. Our debt. To capitalization ratio was 42.8% as of June 30th, and we expect to end the year closer to our target of 40%. In the second quarter, we repurchased approximately 900,000 shares of common stock for approximately $250 million. We continue to view share repurchases as an attractive use of capital. While maintaining a focus on debt, paydown and disciplined capital management. Now, to recap. Our second quarter results reflect focused execution with both Evernorth and Cigna Healthcare delivering pre-tax adjusted earnings above expectations. While we continue to make progress on initiatives to support our long term growth strategy. We are pleased with our performance in the first half of the year and are confident in our increased full year 2026 adjusted earnings per share outlook of at least $30.45. We look forward to our upcoming Investor Day in September, where we'll go deeper on our long term strategy, growth opportunities and the outlook for Evernorth and Cigna Healthcare.

And with that, we'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 touch tone phone. If someone asks you a question ahead of you, you can remove yourself from the queue by pressing star two. Also, if you're using a speakerphone, please pick up the handset before pressing the buttons. One moment please. For the first question. Our first question comes from Stephen Baxter with Wells Fargo. You may ask your question.

Hi. Thanks for all the color on the call. I was wondering if you could maybe speak a little bit about how you'd expect the earnings growth progression within Evernorth to develop both for specialty and care and pharmacy benefits and how the pace of investments is impacting that. Thank you.

Thanks, Steve. So we are really pleased with specialty and Care's second quarter results, which exceeded our expectations. Performance during the quarter was driven by continued strength in specialty utilization, faster than expected adoption of biosimilars and specialty generics, which improved operating efficiency We thought we saw improved operating efficiency and contributions from from shields. Notably, specialty generic penetration exceeded 80% for newer products during the quarter, and these therapies improve affordability for patients and for clients, and contributed favorably to earnings performance. So overall., we expect to continue to perform well as we look through the back half of the year., we expect specialty generics and biosimilars to be a meaningful tailwind ., and we. Expect strong. We expected strong penetration throughout the year and built that into our original full year guide., we experienced it earlier than expected. So the magnitude of the benefit we saw in the second quarter is not expected to repeat at the same level in the third and fourth quarters, but we still expect strong results as we look to the back half of the year for specialty and.

Care.

Thank you. Our next question comes from Lisa Gill with J.P. Morgan. You may ask your question.

Good morning. Brian, you made a comment that the PBM selling season was very strong. Can you maybe just do two things? One, can you talk about renewals and where your renewals are at? And two, can you size. Up new business wins? And then thirdly, as we think about how important, how big your specialty business is, can you talk about are there incremental opportunities within specialty? What did you see in this year selling season?, you know, specific to, to specialty, are you seeing carve outs where you're winning more business? Is it just, you know, incremental business through the PBM contracting? Just want to better understand how you're thinking about the selling season.

Lisa. I appreciate the multifaceted nature of that question. So maybe I'll talk about the 27 selling season. Just more generally across the company. And get to some of the specifics of your your question on our pharmacy benefit services and specialty businesses throughout that, as it relates to just common themes in the selling season. Affordability continues to be the most pronounced problem across the healthcare space. And that's exacerbated certainly in the prescription drug space by the high unit prices for brand drugs., and then of course, on the medical side, by the upward march of hospital prices, which has continued. And so those affordability pressures have led employers to consider alternate plan designs as well as financing solutions. Fortunately, we're well positioned to support employers and other buyers in those in those alternatives. A second common theme we're seeing is the focus on customer experience, where we call personalization with employer and health plan clients increasingly looking for partners who will engage individuals with the right information at the right time and their preferred modality. And these themes are squarely where we're focused as an organization. So as it relates to the specifics of the growth platforms within our Evernorth pharmacy benefit services business, we closed 2026 with over 97% retention.

And the preliminary indicators for 2027 also suggest mid 90s or higher retention. So both of those 2026 and 2027 years are very consistent with historical norms. And to your to your point, as I shared earlier, our 2027 new business performance is quite strong. Total new business already secured is above the prior two selling seasons combined. So a very strong 27 new business performance. And looking forward, our new rebate three signature model is generating considerable interest from both existing clients and prospects as we look to scale it in 2028 and beyond. So this is good evidence that our clients see us as a multiyear thought partner as they prepare for future changes in their pharmacy benefit programs in the. In the specialty and Care Services platform, we continue to benefit there from secular tailwinds as Ann was just referencing, which leads to more patients utilizing specialty drugs along with our Accredo specialty pharmacy being included as a network option in even more unaffiliated PBM offerings. We also continue to see strong growth in the hospital and health system space, where our fee based offerings from Verity, from Care Path and some of the synergy we've been able to accomplish from our Shields Health Solutions investment are starting to pay off.

So putting all those pieces together, our solutions continue to adapt to market needs. We're confident in the long term durability of The Cigna Group and pleased with the performance so far in the 27 selling season.

Thank you.

Thank you. Our next question comes from A.J Rice with UBS. You may ask your question.

Hi everybody., I might pivot over to the benefits side., I appreciate the prepared remark. Comment about the surgery volumes. I was wondering, is the overall cost trend you're seeing in the commercial business