Plea sure to be introducing Cigna. The Cigna Group is one of the largest providers of health insurance in the U.S. and also one of the largest pharmacy benefit managers. Presenting today, we have Brian Evanko, who's the CFO of the company. I don't know, Brian, do you have anything you wanna start off with before we jump into Q&A? Maybe a few things, Kevin. Thanks to you and Bank of America for hosting us here this week. We just reported our first quarter results last Friday, not a lot of new information given it's just been a few days that transpired since then. Our first quarter results were ahead of our expectations. We delivered $5.41 of adjusted EPS, which was better than what we had been projecting, with the upside driven by our Cigna Healthcare business in particular, which is the health plan side of the franchise. Sp think of roughly 40% of the company there. The favorability was in the medical care ratio, specifically in viral-oriented conditions in the quarter. Our Evernorth business continues to perform really well. We had a good quarter in Q1 here and delivered against our expectations there. In an aggregate, the revenue for the franchise came in ahead of expectations as well. Good start to the year. As it relates to the full year, 2023, we've increased our EPS guidance for the year to at least $24.70 per share, which is a $0.10 raise off of where we were. We increased our revenue outlook by $1 billion for the year as well, and also increased our Cigna Healthcare medical customer growth expectation to be at least 1.3 million customers off of where we started the year. Really pleased with the quarter, the strong guide for the full year, which also includes a number of embedded earnings opportunities that are not included in the guide. The final thing, if you didn't see, we did proactively offer a series of disclosures on Friday associated with our Express Scripts Pharmacy benefit manager. Given the amount of rhetoric that exists across the ecosystem right now, and the number of incorrect data points being introduced from various stakeholders, we thought it was really important to be on the record by specifically putting forward some quantitative and qualitative information in a formal SEC setting, such as our call. Also, we had supplemental 10-Q disclosures along with a microsite that we introduced with some important data points to help both investors understand what our PBM does do and doesn't do, but also make sure that broader stakeholders are familiar with the value we create 'cause our clients hire us for a reason, because we're very good at managing prescription drugs on their behalf and in driving value back to them. For all those reasons, we thought it was important to step into that discussion. Kevin, I'm sure we'll spend a little bit of time on that topic here today. Yeah. No, definitely. So that's a good setup. I guess maybe starting on the Q1 performance in the managed care side of things, trying to square everything that all the companies here are saying this week. If you've got the hospital companies, the med tech companies saying utilization's great and growing really well, and that's gonna continue, and managed care companies saying everything's fine and this isn't an issue. Can you help us square how those two seemingly incongruous statements, you know, come together? Sure. As we stepped into 2023, we expected that there was going to be a more normalized level of utilization in the healthcare system compared to the COVID years, where there was quite a bit of disruption. When I, when I say a more normalized level of utilization, if you go back to 2019, roll that forward for four years at, call it, normalized levels of cost trends, that's what we assumed in our pricing and our planning for purposes of 2023 outlooks. That's what we saw in the Q1. If you bifurcate the viral and the non-viral, so viral here means flu, RSV, and COVID. The viral conditions in the quarter came in a little lighter than our expectations, and that drove the favorability in our medical care ratio in the quarter. The non-viral conditions came in very much in line with our expectations. I think that squares a little bit to the commentary from other parts of the supply side here in healthcare. Also important to keep in mind year-over-year, if you look at first quarter 2023 versus first quarter 2022, the percentage growth in non-viral conditions was high because the first quarter 2022 had a depressed level of non-viral utilization, given all the Omicron-related COVID activity in that time period. A little bit of a lighter comp created a high percentage growth rate year-over-year, but in aggregate, more normalized level of utilization is what we saw for non-viral conditions in the first quarter, and that's what we've anticipated for the remainder of the year in terms of what's embedded in our guide. Yeah. I guess from that perspective, the year-over-year you said normal trends for the year, but you always thought Q1 was gonna look really big from, at least a non-COVID volume perspective, and then the growth rate should be decent. We anticipate 2023 versus 2022 being a more normalized level, plus the incremental provider inflation that we've priced for and planned for when you think about a 2023 versus 2022 all-in cost trend level. Okay. That makes sense. I guess when we think about on the PBM side of things, it was great to get the disclosure that you provided. Very welcome. I guess as an analyst, you always wonder if you pushed the envelope too far, by saying you get 20% of your rebate of your profit input from rebates and spread, can you help us think about where the other 80% is coming from so that we can understand a little bit better how that segment makes its money? Sure. For those that maybe didn't see the disclosure, what we talked about on Friday is of the Evernorth segment, which is our health services company, we're in $6.4 billion or more income there this year. Approximately 20% of that is associated with PBM retained rebates and network retail spread. It was important to us to get that data point out there because there were some wide ranges on that, those sources of income for us. We wanted to help investors to narrow down the range a little bit. 20% of the $6.4 billion in Evernorth is about 60% of the company if you think about income, so 20% of the 60% is associated with those two earning sources. We thought it was important to put that out there. The other 80% portion of that comes from PBM fee-based income. We have a variety of service and clinical programs through the PBM, whether that be clients that just wanna use our network or whether those that wanna use our clinical programs or whether those that want a more fully transparent model, such as the ClearCareRx program we introduced in April, where we pass through all the rebates, and there's no spread contribution. Those are all examples of PBM fee-based income that comprises a portion of that 80%. Secondly, our specialty pharmacy, Accredo, which is a great asset, highly differentiated and a strong economic moat around this business, currently comprises about 40% of the revenue of Evernorth, and also has a meaningful income contribution. Here you can think of not just filling the prescriptions, but it's a very clinically oriented business, meaning we have over 500 home infusion nurses that go to people's homes and provide infusions in their homes. That sort of thing happens in our specialty pharmacy in Evernorth. The third area I'd highlight is our home delivery pharmacy. As the name implies, we deliver prescriptions directly to people's homes. The fourth area is Evernorth Care Services. Here you can think of more health services versus the other categories I just described are more prescription drug oriented. Evernorth Care Services is oriented around care management, care coordination, and targeted care delivery. We have our MDLIVE virtual care business in here. We have our behavioral health business in here. We have our eviCore, medical benefits management business in here, amongst other health services capabilities. Those four pieces, PBM fee-based, specialty pharmacy, home delivery pharmacy, and Evernorth Care Services comprise that other 80. Was that in order of importance or? Those are not ranked from a quantitative standpoint. I was just giving you a sense for the lay of the land. Cause the 40% specialty, I guess I usually think of specialty as a little bit lower margin. Is that the right way to think about it? Is it about the same margin as the rest of Evernorth is running? If you think of Evernorth in aggregate delivers 4% to 4.5% margins, which again, we think are competitive, sustainable in a variety of scenarios. The specialty pharmacy you can think of in that zone, maybe a little on the lower end of that, but directionally in that general zone. It's obviously a meaningful contributor to the 80%, but I wouldn't want you to think it's just exactly one-for-one to the revenue either. Then the services business is, like, 10% of Evernorth. Should that also be kind of the way to think about that profitability? From a revenue standpoint, it's about 10% of Evernorth today. Over time, that will grow faster than the rest of Evernorth because of the investments we're making, as well as that's an area we seek to be acquisitive over time. That'll show a higher percentage growth rate. Over time, that will be a higher margin part of the segment, too. I mentioned 4%-4.5% margins for Evernorth. Over time, the healthcare services portfolio will perform above that. Today, it's not because of the level of investment that's going in. It'd be reasonable to think, approximately commensurate with the revenue, just from a directional standpoint. Okay. All right. I think that that gives us enough to get a better sense, so appreciate that. I guess when we think about then, the way that you guys have been investing in your business. You know, you bought Express Scripts, you de-levered, you're now generating huge amounts of cash flow. We kind of looked around, you see all these other companies seem to be buying things, whether it's providers or home health or technology, and you made a couple of investments and some smaller things that you mentioned on the health services side. You've done a couple of things with VillageMD, but, like, in general, it feels like you're not investing as much as some of the peers are. Do you guys at all feel like there's an arms race out there that you need to be, you know, competing in? How do you feel about your capabilities, and what do you need to invest in? I appreciate the question and totally agree with the comment about the cash generation. That's one of the things we take most pride in, right? This year, we'll generate over $9 billion in cash from operations. The last 12 months, if you do the trailing 12, you'll find over $11 billion. Really strong cash generation, and the franchise will continue to generate a tremendous amount of cash in the future. The last few years, we have used quite a bit of that deployable capital for share repurchase, to your point. A big driver of that was the dislocation or share price. We continue to view share repurchase as a very attractive lever given where the stock trades today. That said, we will be more acquisitive on a net basis in the future, I think, than we have been the last couple of years, if you look at where the capital's been deployed, and really with two specific areas of focus, one being the Evernorth Care Group platform that I referenced a moment ago, and the second one being our U.S. government programs and services. I'm not sure I would use the term arms race per se, but we are interested in acquiring more capabilities in the Evernorth Care platform, whether that be care management, care coordination, and targeted care delivery, but in a manner that's synergistic with the rest of the company. Importantly, as we look at potential deals, we have to see a strong level of synergy versus just owning something to own it. When we think of the acquisition of MDLIVE that we did in 2021, we saw strong synergy with the Cigna Healthcare platform. We also saw strong synergy with Evernorth's health plan clients who can use those capabilities. The investment we made in VillageMD just earlier this year of $2.7 billion deployment toward care services capabilities, which gets us into value-based care, not just in the government lines, but in the commercial lines, since 60% of the patient panel of VillageMD is commercial employer lives. Our Cigna Healthcare business is heavily commercial employer weighted today. All those things we found attractive and synergistic, and you should expect there to be more investment in that area going forward. When you think about that, I mean, I guess VillageMD I thought was kind of an interesting deal for you 'cause for a long time you guys have been saying, "We don't need to own providers." Then you then make an investment in a provider, but it's a minority investment, so you don't control the provider. Like, how did you think about why VillageMD? How'd you think about, you know, how much control you need of an asset, you know, to make an investment worthwhile? Yeah. I think we've proven over time, if you look at the health plan for a minute. Mm-hmm. In Cigna Healthcare, that a partnered model can drive great outcomes, partner with a delivery system. we've been able to continue to drive great affordability for our clients and customers, you know, as evidenced by we added 1 million customers in 2022. We're on track to add 1.3 million or more in 2023, most of those coming from commercial employer fee-based relationships where the cost of goods sold is a key driver of whether we win or lose the client. That's been done in the context of partnering with the delivery system as opposed to owning the delivery system. That said, we don't have a religious opposition to ownership. It just needs to make sense financially from the standpoint of the synergies of any potential acquisition. The VillageMD investment intentionally was not an acquisition. It was a minority investment, so we have about 13%-14% of VillageMD with our investment. We'll receive not only the equity component, but we have a dividend stream of 5.5% off of $2.2 billion of that. That flows through our P&L starting this year. Importantly, the strategic component of this is why we did the deal, meaning, Evernorth in partnership with VillageMD is constructing, as we speak, local market value-based care ecosystems, starting with primary care but including specialty care, that allow us in those geographies to essentially monetize in a shared savings context, when we save money for the financier. If we're able to drive care to a more effective site, or we're able to reduce unnecessary tests, those savings will be shared between the payer or the financier or the plan sponsor, VillageMD, and Evernorth. This is in a commercial employer platform in addition to Medicare. A little bit different than when people tend to think value-based care, they think Medicare Advantage, capitate, and I'm done. In this case, the commercial employer ecosystem we're talking about, creates value-based sharing relative to a reference point across the plan sponsor, Evernorth, and VillageMD. Over time, those handful of local markets that we're building out right now, will be extensible to other Evernorth health plan clients, and that ecosystem will be extensible to other provider partners outside of Village because Evernorth owns the risk-based entities that I made a reference to. That's the reason this is so interesting to us, and it doesn't just apply to our risk book. It also applies to our self-funded commercial employer book, who has VillageMD in their network. I guess from that perspective that it's a, it's a partnership. It was the equity investment necessary to get that partnership, or was that something you could have done, you know, without that? I guess in the past you kind of talked about how we don't need to make investments. We can partner. We're big. Why did this have an equity component alongside that? Yeah. We felt in this case the equity ownership would, A, accelerate the progress that we were talking about through aligning incentives. B, it's already allowed us to strengthen our position from the standpoint of our health plan in those local markets where Village has a presence. Finally, I think the mutual alignment from the standpoint of our management teams made us feel like culturally that this made a lot of sense to get closer. It gives us, you know, optionality down the line. Do we sell our position? Do we increase our position depending on how things transpire? When you mentioned, you said so one being Evernorth care services and the other one being government services. Like, what does that mean? Does that mean managed Medicaid and Medicare Advantage, or are there other components to that potentially? The phraseology we've been using is U.S. government programs and services, which you can think of through the Cigna Healthcare platform being a payer. Right? Today we have a Medicare Advantage business, about 600,000 customers, give or take. Right? Relatively small nationally. We have some good density in certain local markets, but relatively small nationally. The individual exchange also in there, over 700,000 customers right now, but we're only in 16 states, so potentially interest there. Our Medicaid business, which today doesn't exist in the health plan since we divested the last of our operations, is another area of potential interest for us in the health plan. The service company similarly serving government-oriented patients or individuals is of interest to us through different assets. You can think of that one as both having a health plan component as well as a service component, depending on the asset. Okay. I guess when you guys talk about doing deals, you talk about having an accretion kinda target, as part of your criteria, and you target you talk about, high visibility in closing. Does that stop you from doing n ot thinking about transformative deals because those It's harder to check those boxes when you do these really large transactions, and we should be thinking smaller things, or does that not necessarily rule out anything? Yeah. I think your point about larger deals is really important because smaller M&A has to be strategically aligned, but we're a lot more comfortable with something that might be a push financially or in some cases even considering dilutive transactions if it's on the smaller end. Some of the smaller acquisitions we made over the last 5-10 years, you know, were not accretive immediately. That's the type of thing strategically we will continue to do. When you get into the larger scale transaction zone, that's where we said three criteria need to be met. One, needs to be strategically aligned with where the company's heading. Two, financially to the point of, it needs to be an accretive transaction. Thirdly, have a high probability of closing. All those three criteria need to be met for us to consider something larger. Obviously, there are only a finite number of potential assets that fall into the categories we referenced earlier that would fall into that category, but we look at each of those criteria. Does that, does that rule out some things then from your perspective that some larger things are just not like, buying a physician practice at a huge multiple just really wouldn't work for you in that scenario? It kinda comes back to the synergy point. Again, if there was a physician practice that we could generate sufficient synergy, we would consider that. Importantly, we're not willing to chase assets that we don't see having synergistic value for the company over time. All right. Maybe just to go back to the PBM for a minute. That seems to be an area where you're seeing a lot of scrutiny from the government, and that's probably why you broke out the exposure from an earnings perspective. How do you think you're positioned if some of these things go away? Like, how easy would it be to pivot the model to move away from spread pricing or rebates or whatever the next item is? Yeah. It's an important question, and also really important for context setting to keep in mind our clients of the PBM choose how they wanna work with us, so they choose how they wish to pay us for the services we provide. We offer them options today. Do they wanna have a fee-based relationship only with us? Do they wanna have a shared rebate relationship with us? Do they wanna have one where we guarantee a certain level of savings to them? They choose how they wanna work with us. This is a really competitive marketplace, right? I know, a couple of my competitors were here earlier this morning, right? That this is a very competitive, sophisticated marketplace. Consultants are involved in evaluating all the different situations, and those choices are really important to a strong free market business in this context. We think reduction of choice is not a good thing for the healthcare system, not a good thing for the country. Some of the ideas being proposed, which would eliminate a potential funding mechanism or pricing model, we think ends up reducing choice and not necessarily being a good thing. To your point, if some of the ideas being floated, whether in the federal level or the state level, were to transpire, I'm more confident that our business will flex in a way that allows us to earn a similar level of margin in the future as we do today. What do I mean by that? The fee-based relationships we have today, we earn a comparable level of profitability compared to those that are, rebate-oriented or spread pricing-oriented or have cost of goods guarantees associated with them. We're confident that our business model will evolve, should any of those scenarios unfold. What's the value of having choice? I mean, like, from the customer perspective, are there customers who just really fight tooth and nail and say, "I need rebates"? Like, what is the rationale? What makes a customer say that's clearly the better choice for me versus a more fee-based option? There are some that prioritize some of our... If I take the employer space as an example, some of them will prioritize cash flow, and therefore, they like having the rebate cash flow coming every month that allows them then, running their own business, to decide, "Do I redeploy that into healthcare? Do I redeploy that into another part of my business?" Others enjoy the predictability of upfront fees, and they prioritize that. Others prioritize the ability to have clinical programs that are focused on drug adherence for their employees and that are focused on outcomes over time. Each of those different vehicles that I made a reference to allow us to meet different employer needs or client needs. Importantly, all those things are just financing mechanisms. They're just pricing models. The reason we win is because we're experts in the prescription drug space. We're experts in negotiating with the pharmaceutical manufacturers. We're experts in determining clinical efficacy of drug X versus drug Y for a given situation that an individual is dealing with. We're experts at determining when a biosimilar makes sense to be preferred versus not. That's why people hire us, not necessarily because of our rebate pricing model or our fee-based pricing models. Yeah. I guess it seems like the PBM scrutiny and hearings is like this overhang for the group and for the company in particular. Is there something that you're looking at where you say, "Well, actually, if this happened, that would be where things would be an issue?" Or you look at this all and say, "Everything we're seeing we can adjust to. I think the, there's a range of proposals obviously being floated right now. I think the degree of just how sweeping the set of changes are is one consideration. If it targets one lever, if a bill that comes through targets one lever, obviously that's an easier thing to change than if a bill targets five or six or seven levers all at once. I think the degree of change is one variable in that. Secondarily, the speed of onset is another consideration. Some of the bills have a multi-year tail to them before they're effective, or they might be effective at the renewal of a client or the renewal of a governmental contract, et cetera. In those instances, we can flex and adapt our model very deliberately versus if something changes tomorrow, it will be a bit more chaotic for our clients in terms of preparing and adjusting. Now our client contracts are written in a manner that allow us to revisit them midstream should there be a really significant environmental change. That's obviously not a lever we would go to frequently. Overall, there's not any one thing I would point to though, Kevin, that would be kind of more dangerous than another if there was some sort of regulation in this space. Yeah. Is there anything you could think of that would kinda allow managed care. Well, scrutiny to just kinda move on? Like, you know, is there some solution to this where everyone's happy and we can, you know, now focus on some other part of the healthcare system? If I knew, I would certainly offer that. I think a few thoughts, though. One, we've intentionally stepped into transparency of our model the last few weeks with some of the releases we had in April. If you didn't see, not just the disclosures alongside our earnings, but middle of April we introduced the ClearCareRx transparent funding model, we introduced the Copay Assurance program, as well as some support for independent pharmacists. Those are all things designed to improve transparency in the space because that's, I think, one of the problems. Without transparency, people make up their own narratives and oftentimes are way off base with some of the perceived data and facts that are brought forth. We'll continue to step into that and providing more and more transparency into what we do, how we create value, why people hire us, and why we earn a return that's appropriate and sustainable with the business model that we have. Two, if you look at other situations in the past in terms of the ebb and flow of PBM dynamics, so 15 years ago, right, there was scrutiny at that time. There were inquiries from the FTC, et cetera, using data and facts to demonstrate the world's better off with PBMs doing their jobs versus not, because drug prices wouldn't be controlled. That's something that we're working toward right now as we respond to the FTC's inquiry, as we respond to the demands from other state regulators, et cetera. Those types of things kind of push us in the direction of transparency. you know, eventually, if there's a some sort of clearing event, like there was with the IRA for the manufacturers, you know, there could be a little bit of clarity that's provided there once we have some clarity on the regulatory front. Okay, a couple other things that are drivers right now, biosimilar wave gets a lot of discussion. You guys talked about how the PBM growth this year is more back and weighted in part because of the biosimilar ramp. How should we think about the profitability of that? I guess you've talked about 4.5% margins over time on the PBM businesses. Does biosimilars change that? Does it change that permanently? Does it change that temporarily? How, how do we think about what biosimilars mean economically? Yeah. We're really excited for the next few years because we're on the cusp of a wave of biosimilars hitting the market, and we're really well positioned to capitalize on that because of what I said earlier, our expertise in using competition to drive cost out. We've already done that this year for the benefit of our clients and customers with the both Humira but also am gevita both being in the market. It's created lower net costs for our clients. There hasn't been that much share shift yet, early in the process, early in the year, but we've already been able to save money for our clients and customers through what's transpired. July 1st, back half of the year, we expect there to be a further step in value, both in terms of the contracts that we have in place, but also as additional biosimilars enter the market. Our 2023 guidance is not dependent on more biosimilars coming into the market. We have strong line of sight into the 2023 picture for that reason, or for purposes of whatever happens in the drug introduction zone. 2024 and thereafter, you'll have a cumulative effect start to build with Humira and the biosimilars there, but you also will have additional drugs that have biosimilar competition for the first time. Stelara's a big one on the horizon, where you'll see biosimilars either at the end of 2023 or into 2024, which will add another step to the value creation for us. We would expect there to be additional savings for our clients, and when we create that additional savings, we'll keep a piece of that, right, as part of our model. To your point on margins, I wouldn't expect it to massively move the segment margin, but it should be a tailwind to income for the coming years. On the call you said that you thought that the 340B exposure that was kinda being floated out there was overstated to some degree. I think CVS said they were looking at a $250 million pressure. You know, some of the data we had said that you were maybe, you know, 20% the size of CVS. Is $50 million pressure, is that, like, the right ballpark to be thinking about? When you said the numbers out there are too high, what were you responding to? Just to clarify, the $250 and the $50 is the Increment of depth. differential from prior expectations. Yeah. That's in the right zone if you think about us. Our prior projections compared to our latest have come down a bit for the 340B portion of the business. The point we're trying to make on the call was we've seen other estimates that were multiples of that, and our exposure is more limited. When you think of $50 million, you're in the right zone. Our Evernorth business, because of all the different components I described earlier, has strength in other areas that allow us to weather that and continue with the income guidance that we issued as we stepped into the year. Okay. Maybe just last question here. Asking all the companies, I think specifically for you guys, an interesting question around a recession. How do you guys think about a recession? You You have this longer term 10%-13% EPS growth. Does a recession, say, that that should change during that time period, or can you do that type of growth, you know, even during a recession? Yeah. As you think about the company, and those of you that have followed us for some time, the company's changed in a couple of important ways over the years compared to prior economic downturns. One being we're much more diversified, right? We have a service company now that's 60% of the franchise which didn't exist during the global financial crisis, as an example, since we were purely a health plan at that point. Secondly, we've done some divestitures. For example, our group life and disability divestiture at the beginning of 2021, which is a very economically sensitive business. Those two components have made the texture of the company quite a bit different than it was in prior economic downturns. Should one come, where we'll see the potential for some volume pressures in our U.S. commercial book of business, and we've shared as a rule of thumb in the past, there's a relationship. A 1% move in the unemployment rate tends to move our volumes by anywhere from 0.5% to 1%. We have about 16 million commercial employer lives right now. If the unemployment rate were to go from 3.4 to 4.4, a rule of thumb would be 80,000 to 160,000 lives could disenroll over the course of an economic downturn. Again, that's a rule of thumb, but it gives you a little bit of just context for how to think about the franchise. Importantly, when you bubble that up to the enterprise, we think it's very manageable in terms of that sort of pressure to keep us on our 10% to 13% EPS algorithm, even if there is some level of pressure in 2023 or 2024. Just to tie that up, membership losses, should we think of that as a it's 1% of membership, it's 1% of earnings within the Cigna business, or is it a higher incremental margin, lower incremental margin? I would tend to think of it as approximately book average because of the levers that we have available to pull in terms of discretionary expenses, et cetera. I wouldn't necessarily view it as a material difference from a profitability standpoint, depending on who disenrolls. Okay, perfect. I think that's all we have time for. Appreciate you taking the time. Thanks for hosting us.