Cigna Q2-2013 Quarterly Conference Call Review and Follow-up from Building Business Acumen Class. Keith Gulledge Consultant Acumen Learning, LLC August 16, 2013. Q2-2013–Earnings Call Review. In conjunction with. Thank you for joining us! Call will last approximately one hour.
Quarterly Conference Call Review
Building Business Acumen Class
Acumen Learning, LLC
August 16, 2013
Q2-2013–Earnings Call Review
In conjunction with
2nd Quarter 2013 Earnings Call Review Notes
Agenda – 1 Hour
These and other workshop slides and materials available for .PDF or .PPT download at:
Earnings Call Participants
Cash Flow(NOT same as Profit)
CEO’s #1 Job:
Grow shareholder value
MEET, EXCEED, then ANTICIPATE Customer Needs
GAAP for financial and tax reporting to match Revenue and Expense
David Cordani followed by Thomas McCarthy—Q2-2013 results and operations, and Full Year 2013 outlook.
Breakdown of analysts’ questions by topics & subjects (several questions addressed more than one Driver):
Dominant Drivers: GROWTH of PROFITS, MARKETS
Formality: Ted Detrick makes standard financial disclaimers at the beginning of every call per SEC regs:
“We delivered strong second quarter results in each of Cigna's ongoing businesses.”
Review of key Q2-2013 results
How Cigna’s broad portfolio if differentiated solutions creates value for our clients, customers and shareholders
Forces of change and disruption
Outlook and expectations for balance of 2013
Long-term outlook and strategies—3 to 5 years
─ David Cordani, CEO—Q2-2013 Earnings Call
“…“We are creating value for our customers and clients in each of our business segments through sustained investments in capabilities and innovation to deliver on our ongoing commitment to quality, service and affordability. Our performance this quarter continues Cigna’s track record
of attractive financial results driven by the effective execution of our strategy across all of our business lines. Our performance this quarter continues Cigna’s track record of attractive financial results driven by the effective execution of our strategy across all of our business lines.”
─ David Cordani, CEO
Q2-2013 Press Release
“Overall, this quarter is another example of the effective execution of our focus strategy and demonstrates the strong fundamentals of each of our operating businesses. The strength of these results provides us with good momentum and confidence to increase our full year financial outlook in 2013.”
“Our second quarter 2013 consolidated results reflect the strength of our global portfolio of businesses and a continued track record of effective execution of our focus strategy. The fundamentals in our business remained
strong as evidenced by our second quarter results, which reflected attractive growth in revenue and earnings in each of our ongoing businesses to finalization of the strategic pharmacy benefits arrangement to deliver market-leading value to customers and continued targeted strategic investments, which will enable sustained growth into the future.”
“As a result of the continued effective execution of our strategy, our second quarter results reflect strong revenue and earnings contributions from each on our ongoing businesses, as well as significant free cash flow.”
“…Overall, our capital position and updated outlook are strong and reflects the underlying performance of our operating segments, and our capital deployment strategies and priorities remain unchanged.”
─ Tom McCarthy, CFO —Q2-2013 Earnings Call
“Overall, we continue to have good financial flexibility. Our subsidiaries remain well capitalized and are generating significant free cash flow to the parent, with strong return on capital in each of our ongoing businesses.” ―Tom McCarthy, CFO
Q2-2013 Capital Deployment & 2013 Outlook
Q2-2013 ending Parent company Cash: $575 M
Liquidity needs set aside $250 M
Repurchased 7.2 mill. shares of stock thru July: $500 M
Parent company Cash—expected end of 2013:$500 M
Expect 2013 Cash for deployment—rest of 2013: $ 1.0 B
Reinsurance premium paid to Berkshire Hathaway: $ 2.2 B
Operating Cash Flow is 1.6X adjusted inc. fr. ops. $803 M
Consolidated from all Segments
1 Special Item is cash paid to Berkshire Hathaway to effectively exit the Run-off Reinsurance business.
Earnings per Share (EPS) are diluted
Pleased with results of $2.6 billion commercial loan portfolio
Annual review: improvement in loan-to-value ratio at 64% and improvement in debt service coverage ratios
Success of start-up operations in Turkey with Finansbank: “very pleased with the first year progress there.” Positive outlook. No meaningful contribution to profit for 2013.
Liabilities includes redeemable non-controlling interests of Finansbank
Adj. Inc.-Op. is annualized for ROE calculation: 6 mos. ended:
6-30-13 = $1,009
6-30-12 = $ 793
Equity Ratio = Equity ÷ Assets
ROE uses Adj. Inc. fr. Operations
When Analysts talk about Cigna’s Assets, they are usually referring to the business portfolio of products and services, or to the business units, such as HealthSpring.
“We continue to see an attractive growth outlook for Cigna over the long term.”
M&A priorities: Global portfolio; Seniors market, including duals; expand retail portfolio of capabilities (“retail” rather than “individual”)
ASO business: Competitors? Good growth over last couple of years. Over 80% of portfolio is ASO. Employers want a “more engaged wellness preventative care model with their employees.”
Competition in ASO business, impact on Cigna’s future? We’ll continue to be innovative. “Down market” of smaller employers—delivery platform different. See strong growth opportunities.
Distribution, beyond private exchanges. Movement from group to individual. Growth opportunity in supplemental and voluntary benefits—direct sales, affinity partners. We have both wholesale and retail experience.
Relative advantages in this market of life or health players, or both? “Don’t want to speculate.”
Ability to grow Medicare Advantage membership next year
with impact of rates
ASO National Account membership up or down end of year? Range from minus 1% or 2%, to plus 1%.
Pace of ASO conversions, 5 mos. before 2014?
No meaningful employer acceleration.
Existing markets for seniors business. See
exit (attrition) of 2% to 3% of current MA
Targets for CACexpansion. 1 million lives now.
Do not aggregate medical costs flowing through it. Been in space 6 years and 10 years with HealthSpring. Use CAC as preferred network in Go Deep markets. Will grow significantly.
Global Supplemental Benefits: Percent Turkey? Minimal in 2013. Will become big to rival Korea.
Performance by Segments6 mos. ended:
Policies & Lives in 000’s
Medical customers up by 443,000 in last 12 mos.
Benefits + Op. Exp. UP 18.5%
* Adjusted Margin After Tax = Adj. Inc. fr. Ops After Tax ÷ Segment Revenues
Environment for international business. Slowdown. Have two international businesses: globally mobile population—products to corporations, government /quasi-governmental organizations (IGOs, NGOs) and targeted high net-worth individuals; and Global Supplemental business.
Impact of environment on small group ability to self-insure. We are highly engaged but not a targeted business for Cigna (under 50).
Private exchanges: many questions, much discussion—outlook over 3-5 years? Two early to tell. We will be a player. Size of market, nature of coverage, self-insured, full risk. Will take many different forms.
Rollout of public exchanges under ACA: opportunities? Don’t play under 50 life or individual guarantee cost market. Pilots for last 3 years, 10 cities. Learned much.
Competitive landscape for ASO? No broad change. Pricing might become more competitive.
Medicare Advantage: Market exits due to competition? We will grow our customer base in 2014. Will see 2% to 3% exit of our covered lives.
Guaranteed Cost business: Pricing from competitors. No dramatic change seen.
Well positioned for future growth
Target annual EPS growth over next 3-5 years of 10-13%
Will continue our Go Deep, Go Global and Go Individual strategies
We will make targeted acquisitions, globally and in the US
Opportunities in U.S. retail market and global business market
Largest network of health care professionals in the world
Our “differentiated value proposition” is being well received and implemented—leverage marketing and distribution capabilities
Our markets:U.S. Health U.S. Seniors Global Employer Group Disability and Life Global businesses, mobile population
U.S. Seniors: 10,000 people daily into Medicare--our “differentiated physician partnership model positions us to excel over long term”
“We have increased our outlook for 2013 again this quarter. The strength of our second quarter and our track record of effective execution of our strategy gives me confidence that we will achieve our full year outlook.
“Further, our broad portfolio of products with differentiated capabilities, position in global markets with attractive growth potential gives us confidence that we will deliver competitively attractive revenue and earnings performance in 2014.”
─ David Cordani, CEO
Q2-2013 Earnings Call
“We're pleased with our strong second quarter results. They reinforce consistent, effective execution of our Go Deep, Go Global, and Go Individual strategy, which guides our 35,000-plus Cigna colleagues around the world who work each and every day to help our customers. The combination of our clear strategy, consistent execution, outstanding team and sustained investments and capabilities positions us well to deliver competitively attractive results for the remainder of 2013 and beyond.”
─ David Cordani, CEO—Q2-2013 Earnings Call
Thank you for joining the Business Acumen Earnings Call review.
QUESTIONS & COMMENTS?