Cigna Corp. (CI) Q1 2014 Earnings Call Corrected Transcript: 01-May-2014
Ted Detrick - Vice President, Investor Relations, Cigna Corp.
David M. Cordani - President, Chief Executive Officer & Director, Cigna Corp.Thomas A. McCarthy - Chief Financial Officer & Executive Vice President, Cigna Corp. Other Participants Scott J. Fidel - Analyst, Deutsche Bank Securities, Inc. Joshua R. Raskin - Analyst, Barclays Capital, Inc. Ralph Giacobbe - Analyst, Credit Suisse Securities (USA) LLC (Broker) Justin Lake - Analyst, JPMorgan Securities LLC Kevin Mark Fischbeck - Analyst, Bank of America Merrill Lynch A.J. Rice - Analyst, UBS Securities LLC Carl R. McDonald - Analyst, Citigroup Global Markets Inc. (Broker) Andy Schenker - Analyst, Morgan Stanley & Co. LLC Peter Costa - Analyst, Wells Fargo Securities LLC Ana A. Gupte - Analyst, Leerink Partners LLC Chris D. Rigg - Analyst, Susquehanna Financial Group LLLP MANAGEMENT DISCUSSION SECTION Operator: Ladies and gentlemen, thank you for standing by for Cigna's First Quarter 2014 Results Review. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the question-and-answer session, is being recorded. We'll begin by turning the conference over to Mr. Ted Detrick. Please go ahead, Mr. Detrick. Ted Detrick, Vice President, Investor Relations Good morning, everyone. And thank you for joining today's call. I'm Ted Detrick, Vice President of Investor Relations. And joining me this morning are David Cordani, our President and Chief Executive Officer; and Tom McCarthy, Cigna's Chief Financial Officer. In our remarks today, David and Tom will cover a number of topics, including Cigna's first quarter 2014 financial results as well as an update on our financial outlook for full-year 2014. Now, as noted in our earnings release, Cigna uses certain financial measures which are not determined in accordance with accounting principles generally accepted in the United States, otherwise known as GAAP, when describing our financial results. Specifically, we use the term labeled adjusted income from operations and earnings per share on the same basis as the principles measures of performance for Cigna and our business segments. And a reconciliation of these measures to the most directly comparable GAAP measure is contained is in today's earnings release, which is posted in the Investor Relations section of cigna.com. Now, in our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2014 and future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. A description of the risks and uncertainties is contained in the Cautionary Note in today's earning release and our most recently filed reports with the Securities and Exchange Commission. Now, before turning the call over to David, I will cover a few items pertaining to our financial results and disclosures. First, beginning this quarter in our earnings release and quarterly financial supplement, we have combined the results of the Runoff Reinsurance, Other Operations and Corporate segments into one reporting unit called Corporate & Other Operations. This change to simplify our reporting was enabled by Cigna's exit of the Runoff Reinsurance business in 2013. We have revised our prior-period results to conform to this current presentation. And as a result of this reporting change, there is no change to our historical results. Now, on a separate point, please note that when we discuss the number of covered lives for our Global Medical customers, we will be doing so on a basis that excludes those individuals that were previously covered under Limited Benefits plans. As a reminder, we exited the Limited Benefits business as of December 31, 2013, due to ACA regulation. And lastly, I would note that when we discuss our earnings outlook for 2014, it will be on the basis of adjusted income from operations. And in addition, our outlook for earnings per share for 2014 excludes the effects of any future capital deployment. And on that basis, I will turn the call over to David. David M. Cordani, President, Chief Executive Officer & Director Thanks, Ted. Good morning, everyone. And thank you for joining today's call. I will begin today with a review of our first quarter performance and highlights of our financial results. And I will offer our perspectives on how we are anticipating and adapting to the ongoing evolution of the business environment. Then, I will discussion how we are developing personalized and localized solutions that improve quality and affordability through Cigna's Collaborative Care initiatives. These actions ultimately translate into differentiated value for our customers and clients and, as a result, greater value for our shareholders. Next, Tom will provide specifics on our performance and highlight our outlook for the year before we open the floor to your questions. After that, I'll leave you with a few closing remarks. Let's get started with some highlights. The first quarter of 2014 continues our track record of strong performance and begins a new year of delivering competitively attractive financial results. Our results this quarter, once again, reflect strong contributions from each of our businesses. The first quarter 2014 consolidated revenues increased to $8.5 billion. We reported adjusted income from operations for the first quarter of $501 million, or $1.83 per share, which represents a per share increase of 6% over a very strong first quarter of 2013. Turning to each of our segments, in the Global Health Care area, we continue to drive strong results across our targeted markets. Our focus on continued high quality clinical outcomes is driving favorable medical costs for our customers and clients, with the vast majority of our clients directly benefiting from these results through our transparent funding arrangements. These outcomes are helping us grow and deepen our relationships with more medical customers globally through a combination of retaining customers and continuing to add new ones. In addition, our first quarter results also underscore the good progress we have made on our remediation efforts to address the claims pressure in our U.S. Seniors business. Our Global Supplemental Benefit business continues its strong performance as we capitalize on the differentiated marketing and distribution capabilities in our targeted geographies. In our Group Disability and Life segment, our results reflect strong performance in business growth in the midst of an improving, but still challenging, economic environment. Overall, this quarter's results were, once again, driven by our focused strategy, effective execution and differentiated capabilities that create value for Cigna's stakeholders. Our performance for the first quarter gives us confidence that we will achieve our increased 2014 outlook. An essential element of Cigna's sustained ability to deliver strong results in this dynamic and rapidly-changing environment has been our focused strategy of going deep, going global and going individual, which allows us to effectively target sub-segments of the market where we can create competitively superior value for our customers and clients based on our differentiated capabilities. We do this around the world, fueled by our global footprint, which is unique in our industry, with operations in more than 30 countries and jurisdictions. As part of our go-deep strategy, we place a continued emphasis on localizing our initiatives in our global markets, harnessing analytics and the customer insights they generate to deliver products and services that are personally relevant and adaptable to the unique needs of our targeted customers and clients. We do all of this in close consultation with clients and distribution partners and in collaboration with our health care delivery partners. Cigna's ability to work collaboratively to help to improve health outcomes and reduce costs is of critical importance, as many systems around the world remain challenged. Highlight the magnitude of the opportunity in the U.S., recent studies, including those from the Institute of Medicine, have shown a majority of patients are not receiving evidence-based clinical care and nearly one third of all medical costs are spent on unnecessary services that do not improve health outcomes. Research also indicates that positive health outcomes are stagnating, while costs increase due to a singular focus on volume that puts tremendous pressure on the entire health care system. At Cigna, our emphasis on collaboration and personalization of care has driven us to create a model that encourages the highest levels of quality and affordability through aligned incentives with our physician partners. Our approach combines these aligned incentives with specific actionable information and care extenders, including health coaches and case managers, to provide individualized local support. Given our proven success in collaborative arrangements with large physician groups, in the first quarter, we announced an expansion of our value-based initiatives to better serve a large subset of our customers with high-risk conditions and complex needs who seek care from small physician groups as well as hospital facilities. We have also expanded our collaborative programs to include targeted specialist groups, where our focus is on five specialties that comprise nearly 60% of all medical spending, such as oncology as well as obstetrics, where our advanced Healthy Pregnancies, Healthy Babies program enables more full-term, natural deliveries and helps mothers and babies stay healthy during pregnancy as well as following birth.