8-KRegulation FD

Cigna Group 8-K Report, Regulation FD Disclosure (Jan 30, 2019)

Filed January 30, 2019For Securities:CI

Summary

Cigna Group (CI) filed an 8-K on January 30, 2019, to disclose that Anthem, Inc. exercised its early termination right for the Pharmacy Benefit Management (PBM) Services Agreement with Express Scripts, now a part of Cigna, following Cigna's acquisition of Express Scripts. This termination is effective March 1, 2020, with a one-year transition period. Cigna has accounted for the expected loss of revenue and earnings from Anthem in its financial outlook for 2019 and long-term expectations. The company stated that its 2019 adjusted income from operations guidance and 2021 targets remain on track, and its capital deployment strategy and deleveraging plans are also unaffected, despite some impact on free cash flow over the next two years. Cigna emphasized its commitment to managing an effective transition process for Anthem's customers and clients, ensuring continued high levels of patient care and clinical quality during the migration. The company's definition of "adjusted income from operations" excludes earnings from transitioning clients like Anthem. While this event was anticipated due to Anthem's stated intention to build its own PBM, the official notification of early termination is a key update for investors.

Key Highlights

  • 1Anthem, Inc. has exercised its early termination of the PBM Services Agreement with Express Scripts (now part of Cigna), effective March 1, 2020.
  • 2This early termination is a result of Cigna's acquisition of Express Scripts.
  • 3Cigna had already excluded any revenues or earnings from this transitioning client (Anthem) from its 2019 financial expectations and long-term outlook.
  • 4The company affirmed that its full-year 2019 adjusted income from operations outlook remains consistent with its plans.
  • 5Cigna reiterated its 2021 target of $20 to $21 of consolidated adjusted income from operations per share.
  • 6While there is an impact on free cash flow over the next two years, Cigna's capital deployment strategy and deleveraging timeline remain on track.
  • 7Cigna will focus on a smooth transition of services for Anthem's customers and clients during the migration period.

Frequently Asked Questions

The early termination means that Anthem will no longer be a client of Express Scripts (and by extension, Cigna) for pharmacy benefit management services after March 1, 2020. This event was anticipated by Cigna, particularly following Cigna's acquisition of Express Scripts. Cigna has already factored the financial impact of losing this client into its previously issued financial guidance and long-term expectations.

Cigna stated that its financial outlook for full-year 2019, including consolidated adjusted income from operations and per share guidance, remains consistent with its plans. The company also reaffirmed its 2021 target for consolidated adjusted income from operations per share. While there will be some impact on free cash flow over the next two years, Cigna's capital deployment strategy and deleveraging plans are unaffected and remain on track.

Cigna will focus on ensuring a smooth and effective transition of services for Anthem's customers and clients over Anthem's aggressive timeline. The company emphasized its commitment to supporting Anthem's migration while maintaining high levels of patient care and clinical quality.

Cigna defines 'adjusted income from operations' as shareholders' net income excluding after-tax adjustments such as net realized investment results, amortization of acquired intangible assets, special items, and earnings contributions from transitioning clients (like Anthem). Management uses this non-GAAP measure to present the underlying business results and analyze operational trends, but it should not be viewed as a substitute for GAAP net income.