10-QPeriod: Q2 FY2020

Cigna Group Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 6, 2020For Securities:CI

Summary

Cigna Group reported solid financial results for the second quarter and first half of 2020, demonstrating resilience amidst the COVID-19 pandemic. Total revenues saw a modest increase, driven by growth in Pharmacy and Premiums, though partially offset by a decline in Fees and Other Revenues. Net income and Shareholders' net income showed significant year-over-year improvements, largely attributable to strong performance in the Integrated Medical and Health Services segments. This improvement was fueled by decreased medical utilization due to deferred care, which more than offset increased COVID-19 related costs and premium relief programs. The company also made strategic moves, including progressing the sale of its U.S. Group Disability and Life insurance business and actively managing its capital structure through debt repayment and share repurchases. Cigna highlighted its proactive approach to supporting customers, providers, and communities during the pandemic, underscoring its commitment to affordability, simplicity, and predictability in healthcare delivery. The company maintained a strong liquidity position, with substantial cash and committed credit facilities available.

Financial Highlights

47 data points
Beta

Revenue

$39.27B

34.8% Gross Margin

Net Income

$1.75B

4.5% Net Margin

EPS (Diluted)

$4.73

Total Assets

$159.63B

Cash & Equivalents

$7.50B

Free Cash Flow

$3.27B

Financial Statements
Beta
Revenue$39.27B
Cost of Revenue$25.61B
Gross Profit$13.65B
SG&A Expenses$3.41B
Operating Income$2.64B
Net Income$1.75B
EPS (Basic)$4.77
EPS (Diluted)$4.73
Shares Outstanding (Diluted)370.70M

Key Highlights

  • 1Total revenues for the second quarter of 2020 were $39.265 billion, a slight increase from $38.819 billion in the prior year period, driven by growth in Pharmacy and Premiums.
  • 2Shareholders' net income increased by 25% to $1.754 billion for the second quarter of 2020, compared to $1.408 billion in the prior year, with diluted EPS at $4.73.
  • 3The Integrated Medical segment saw a significant improvement in its medical care ratio (MCR) to 70.5% from 81.6% due to deferred medical utilization caused by COVID-19, leading to higher pre-tax adjusted income.
  • 4The company is progressing with the sale of its U.S. Group Disability and Life insurance business, expected to close in the third quarter of 2020, which is anticipated to yield approximately $5.3 billion in net after-tax proceeds.
  • 5Cigna repurchased $1.3 billion of common stock in the first six months of 2020 and has significant share repurchase authority remaining.
  • 6The company maintained a strong liquidity position, with $7.6 billion in cash and short-term investments and $4.25 billion of undrawn committed capacity under revolving credit agreements as of June 30, 2020.
  • 7COVID-19 impacted medical utilization, leading to lower benefit expenses but also prompting premium relief programs, a net positive for earnings in the quarter due to utilization declines significantly outweighing costs.

Frequently Asked Questions

COVID-19 significantly impacted medical utilization, with customers deferring care. This led to lower medical costs and benefit expenses, which more than offset incremental COVID-19 related costs and premium relief programs. Consequently, the Integrated Medical segment reported higher earnings and a lower medical care ratio, contributing positively to overall profitability.

Cigna entered into a definitive agreement in December 2019 to sell this business to New York Life Insurance Company for $6.3 billion. The sale was expected to close in the third quarter of 2020, subject to regulatory approvals. This divestiture is expected to generate approximately $5.3 billion in net after-tax proceeds, which Cigna planned to use for share repurchases and debt repayment.

Cigna maintained a strong liquidity position, with approximately $7.6 billion in cash and short-term investments and $4.25 billion in undrawn committed credit facilities as of June 30, 2020. The company actively managed its capital structure by repurchasing $1.3 billion of its common stock in the first half of the year and also planned to use proceeds from the sale of its disability business for debt repayment. Debt-to-capitalization ratio declined to 43.5%.

Total revenues increased slightly, driven by growth in Pharmacy revenues ($26.564 billion, up 1%) and Premiums ($10.406 billion, up 6%). Pharmacy revenue growth was attributed to customer transitions to Health Services, higher claims volumes, and increased pricing due to branded drug inflation, partially offset by the absence of revenue from former transitioning clients. Premium growth was driven by customer growth, rate increases reflecting medical cost inflation, and the return of the health insurance industry tax.