10-QPeriod: Q3 FY2019

Cigna Group Quarterly Report for Q3 Ended Sep 30, 2019

Filed October 31, 2019For Securities:CI

Summary

Cigna Group's (CI) third-quarter 2019 results show significant year-over-year growth, largely driven by the full integration of Express Scripts, acquired in late 2018. Total revenues more than tripled compared to the prior year period, reflecting substantial contributions from the Health Services segment, which encompasses Express Scripts' pharmacy benefit management and medical management services. Net income and earnings per share also saw robust increases, though the growth rate for EPS was tempered by dilution from shares issued in connection with the Express Scripts acquisition. The company demonstrated operational improvements across key segments, notably in Integrated Medical, and managed its expenses effectively despite the scale of the integration. Cigna's strengthened financial position and diverse business segments provide a solid foundation for future performance, although investors should remain aware of ongoing integration costs and potential regulatory headwinds within the healthcare industry.

Financial Highlights

49 data points
Beta

Revenue

$38.56B

36.3% Gross Margin

Net Income

$1.35B

3.5% Net Margin

EPS (Diluted)

$3.57

Total Assets

$154.85B

Cash & Equivalents

$4.58B

Free Cash Flow

$2.22B

Financial Statements
Beta
Revenue$38.56B
Cost of Revenue$24.55B
Gross Profit$14.00B
SG&A Expenses$3.41B
Operating Income$2.12B
Net Income$1.35B
EPS (Basic)$3.60
EPS (Diluted)$3.57
Shares Outstanding (Diluted)378.32M

Key Highlights

  • 1Total revenues surged by 237% year-over-year to $38.6 billion for the three months ended September 30, 2019, primarily due to the inclusion of Express Scripts.
  • 2Shareholders' net income increased by 75% to $1.35 billion for the third quarter, with diluted EPS rising to $3.57 from $3.14 in the prior year.
  • 3The Health Services segment, significantly boosted by Express Scripts, showed substantial revenue growth, with adjusted revenues increasing significantly year-over-year.
  • 4Integrated Medical segment revenues grew by 12% year-over-year, driven by customer growth and higher premium rates.
  • 5Interest expense and other significantly increased due to debt financing for the Express Scripts acquisition and assumed debt.
  • 6The company repurchased approximately 4.2 million shares for $687 million during the third quarter of 2019.
  • 7Cigna's debt-to-capitalization ratio improved to 46.4% as of September 30, 2019, from 50.9% at December 31, 2018, with plans to further deleverage.

Frequently Asked Questions

The primary driver of Cigna's significant revenue growth was the full integration of Express Scripts, which was acquired in December 2018. This contributed substantially to the Health Services segment's performance and overall company revenue.

The Express Scripts acquisition significantly boosted Cigna's net income and adjusted income from operations. However, earnings per share (EPS) growth was moderated due to dilution from new shares issued as part of the acquisition financing.

Cigna's debt-to-capitalization ratio decreased from 50.9% at the end of 2018 to 46.4% by September 30, 2019. The company anticipates further deleveraging to the upper 30s by the end of 2020, primarily through operating cash flows.

Yes, Cigna is involved in several ongoing legal and regulatory matters, including investigations into Medicare Advantage risk adjustment practices, and litigation related to the terminated merger with Anthem and Express Scripts' contract with Anthem. While the company believes it has merits in its claims and disputes, these matters carry inherent uncertainties and potential financial impacts.