10-QPeriod: Q2 FY2019

Cigna Group Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 1, 2019For Securities:CI

Summary

Cigna Group (CI) reported strong financial results for the second quarter and first half of 2019, largely driven by the significant contribution from the acquisition of Express Scripts. Total revenues surged by 235-238% year-over-year for the respective periods, reaching $38.8 billion for the quarter and $76.8 billion for the six months. This growth is primarily attributable to the inclusion of Express Scripts' pharmacy benefit management and medical management businesses. Shareholders' net income saw a substantial increase of 75% for the quarter and 61% for the six months, reaching $1.41 billion and $2.78 billion, respectively. This growth, while impressive, was somewhat tempered by the dilution from shares issued in connection with the Express Scripts acquisition, leading to a more moderate increase in diluted earnings per share. The company's focus on integrating Express Scripts and optimizing its health services and integrated medical segments positions it for continued operational efficiency and market competitiveness.

Financial Highlights

49 data points
Beta

Revenue

$38.82B

35.7% Gross Margin

Net Income

$1.41B

3.6% Net Margin

EPS (Diluted)

$3.70

Total Assets

$154.40B

Cash & Equivalents

$3.61B

Free Cash Flow

$736.00M

Financial Statements
Beta
Revenue$38.82B
Cost of Revenue$24.96B
Gross Profit$13.86B
SG&A Expenses$3.38B
Operating Income$2.16B
Net Income$1.41B
EPS (Basic)$3.73
EPS (Diluted)$3.70
Shares Outstanding (Diluted)380.97M

Key Highlights

  • 1Total revenues experienced substantial growth, increasing by 238% to $38.8 billion for the three months ended June 30, 2019, and by 235% to $76.8 billion for the six months ended June 30, 2019, primarily due to the integration of Express Scripts.
  • 2Shareholders' net income increased significantly by 75% to $1.41 billion for the quarter and by 61% to $2.78 billion for the six months, driven by the inclusion of Express Scripts' results and strong performance in the Integrated Medical segment.
  • 3Diluted earnings per share increased to $3.70 for the quarter and $7.26 for the six months, though the growth rate was moderated by new shares issued from the Express Scripts acquisition.
  • 4The Health Services segment, heavily influenced by Express Scripts, saw adjusted revenues increase significantly, reflecting strong performance in pharmacy benefit management and medical management.
  • 5The Integrated Medical segment demonstrated robust growth with a 10% increase in adjusted revenues for the quarter and 11% for the six months, driven by customer growth and higher premium rates.
  • 6Selling, general and administrative expenses increased by 19% for the quarter and 20% for the six months, largely due to the inclusion of Express Scripts and integration costs.
  • 7Interest expense and other increased significantly due to interest on debt issued to finance the Express Scripts acquisition and assumed debt from Express Scripts.

Frequently Asked Questions

The primary driver of Cigna's significant revenue increase was the acquisition of Express Scripts Holding Company, which closed on December 20, 2018. The financial results for the periods ending June 30, 2019, include the full contribution of Express Scripts' businesses, leading to a substantial year-over-year revenue growth.

The acquisition of Express Scripts significantly boosted Cigna's profitability, as evidenced by the 75% increase in shareholders' net income for the quarter and 61% for the six months. While Express Scripts' results contributed positively, the overall net income growth was somewhat moderated by dilution from new shares issued to fund the acquisition and increased interest expenses related to acquisition financing.

Following the Express Scripts acquisition, Cigna's debt-to-capitalization ratio increased. However, the company anticipates deleveraging to the upper 30s by the end of 2020 by utilizing cash flows from operating activities. Cigna maintains sufficient liquidity through operating cash flows, credit agreements, and commercial paper programs to meet its financial obligations.

Cigna is involved in several ongoing legal and regulatory matters. These include litigation related to the Amara cash balance pension plan, the terminated merger agreement with Anthem, and claims brought by Anthem against Express Scripts. The company is also subject to regulatory reviews concerning Medicare Advantage risk adjustment practices. While Cigna believes in the merits of its claims and intends to vigorously defend itself, adverse outcomes in these matters could potentially impact future financial results.