Cigna Corporation (CI) Q3 2026 Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by for Cigna Group's Third Quarter 26 Results Review. At this time, all callers are in a listen-only mode. We will conduct a Q&A session later during the conference. Review procedures on how to enter the queue to ask questions at that time. If you should require assistance during the call, please press 0 on your touch tone phone. A reminder, ladies and gentlemen, this conference, including the Q and A session, is being recorded. We will begin by turning the conference over to Ralph Giacobbe, Please go ahead.

Ralph Giacobbe: Great, thanks. Good morning. Thank you for joining today's call. I am Ralph Giacobbe, Senior Vice President of Investor Relations. With me on the line this morning are Brian C. Evanko, Cigna Group's President and Chief Executive Officer and Ann Dennison, chief financial officer. In our remarks today, Brian and Ann will cover a number of topics, including our third quarter 2026 financial results, our financial outlook for 2026. Following their prepared remarks,, Brian and Ann will be available for Q and A. As noted in our earnings release, when describing our financial results, we use certain financial measures, including adjusted income from operations, and adjusted revenues, are not determined in accordance with accounting principles generally accepted in The United States otherwise known as GAAP. A reconciliation of these measures to the most directly comparable GAAP measures, shareholders' net income, and total revenues, respectively, is contained in today's earnings release which is posted in the Investor Relations section of the cignagroup.com. We use the term labeled adjusted income from operations and adjusted earnings per share on the same basis as our principal measures of financial performance. In our remarks today, we will be making some forward looking statements including statements regarding our outlook for 2026 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 these risks and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC. Regarding our results in the third quarter, we recorded after tax special item charges of $146 million or $0.55 per share, Details of the special items are included in our quarterly financial supplement. Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2026 outlook, we will do so on a basis that includes the potential impact of future share repurchases, and anticipated 2026 dividends. With that, I will turn the call over to Brian.

Brian C. Evanko: Thanks, Ralph. Good morning, everyone, and thank you for joining our call. I am pleased to share that the Cigna Group delivered strong performance in the third quarter as we continue executing on our strategy. Today, I will cover our results for the quarter and key drivers. Our profitable growth strategy and how we are advancing toward our long-term e-growth algorithm of 10% to 14% which we laid out at our recent Investor Day. As well as how our strategic growth framework positions us to build momentum in 2020. Then Ann will share additional details about our financial results and outlook for the rest of the year. and we will take your questions. During the quarter, we delivered adjusted revenue of $73.8 billion adjusted after tax earnings of $2.1 billion and adjusted earnings per share of $7.98 The work we have done over several years to deliberately shape our portfolio is delivering results. And we are built for the fastest growing areas of health care, with a proven ability to execute through a dynamic environment. Our strong performance through the first 9 months of the year gives us confidence to raise our full year outlook. And we now expect adjusted earnings per share of at least $30.60 And importantly, we are building on that strong foundation as we look beyond 2026. At our recent Investor Day, we announced our Lead to 1 vision, which is centered on delivering personalization at scale to improve affordability, and the health care experience for every customer and patient we serve. Lead to 1 brings together all of our medical, pharmacy, behavioral health, and specialty care capabilities around the individual By responsibly leveraging our data, clinical expertise, and technology, we can identify needs earlier, deliver more personalized support, and improve health outcomes while lowering the total cost of care. Our Lead to 1 vision will benefit all customers, and we see a particular opportunity with the most clinically complex patient needs. Health care costs are increasingly concentrated, representing over 50% of total health care spending. Lead to 1 is underpinned by a clear strategic growth framework comprised of 3 pillars. First, we will deliver core growth. Second, we will leverage distinct capabilities And third, we will execute with discipline. These 3 pillars taken together give us a clear path to build on the strength of our business today creating the next chapter of sustainable growth and greater value for those we serve. Now let me walk through some of our highlights in the quarter across Evernorth Health Services and Cigna Healthcare. Starting in EverNorth, third quarter earnings were in line with expectations. Our Specialty and Care Services businesses delivered attractive performance including pretax adjusted earnings growth of 15% year over year. This was fueled by secular tailwinds and disciplined execution across our specialty pharmacy and distribution capabilities. We also drove continued strong biosimilar and specialty generic utilization. Today, Revlimid, a widely used oncology drug, is seeing specialty generic adoption rates around 90%. Across our specialty businesses, we are leveraging our distinct capabilities for patients with complex needs. Who require a higher level of care, support, and coordination to manage their conditions. For example, in our specialty pharmacy Accredo, has industry leading access with more than 330 highly complex limited distribution and exclusive products. Demonstrates the strength of our manufacturer relationships, and the trust they place in us to partner in serving some of the most clinically complex patient needs. That access also positions us to capture growth as new specialty therapies come to market. I am also pleased to share that we continue to expand our capacity for these limited distribution products with our network of clean rooms, the fifth of which is now in a build phase. These highly sterile environments take years to build, license, and operationalize. To safely mix and compound some of the most complex medicines. These clean rooms are just 1 example of the durable competitive advantage in our specialty business that we have constructed over the past few decades. Finally, our expanded distribution channels are unlocking new opportunities. CuraScript SD is a leader in specialty distribution with access to 40 exclusive distribution drugs. And our recently launched EverNorth Wholesale, has begun fulfilling orders to our distribution centers to be able to serve customers. In our pharmacy Services business in Evernorth, we delivered third quarter pretax adjusted earnings of $765 million We continue to see strong momentum for the 2027 sales season, supporting our core growth. Along with strong retention rates in the high 90s. Next, I would like to spend a moment on our signature model transition. We are pioneering this new approach to pharmacy benefits, want you to have further context around current status and why we are so confident in our path. You can think of our signature implementation in 3 broad phases. Phase 1, our design phase, is complete. Ann this time last year, phase 1 included designing signature, our market defining innovation, driven by core principles of affordability, simplicity, transparency, and value. Inherent in the model is our price assured capability. Which is designed to ensure patients, pay the lowest available out of pocket cost when they fill prescriptions. And will save an average of 30% on high cost branded drugs. Price Assure is already in market and being leveraged by about 10% of our current clients. And the signature model is consistent with the direction of regulatory changes including the Consolidated Appropriations Act of 2026, and the Department of Labor's recently finalized PBM fee disclosure rule. Phase 2, our build phase, is well underway. Currently, we are working on adoption planning alongside market education. Key stakeholders include brokers, pharmaceutical manufacturers, network pharmacy partners and clients. The work is largely complete, for brokers, and we are actively advancing contracts with pharmaceutical manufacturers and network pharmacies. Phase 3, our adoption phase is on track. The next milestone is the adoption of signature for our Cigna Healthcare fully insured book on January 1, 2027. Early client conversations for the 2028 benefits year have been encouraging. And indicate strong interest in the model for a broader EverNorth book of pharmacy benefit service clients. In our very strong 2027 selling season, reinforces that clients value innovation and see us as a multiyear partner on their pharmacy benefits journey. Clients see value in signature's focus on patient affordability and transparency. And in how it supports their efforts to meet evolving regulatory requirements and their fiduciary responsibilities. They also see a model that can encourage adherence. With improved health outcomes and workforce productivity. In summary, we are proud of the progress we are making on signature. We have completed phase 1, and are on track to deliver against phases 2 and 3. Broader client adoption expected to ramp in 2028. We will share some further detail on the progress across phases 2 and 3 during our fourth quarter earnings call. Finally, we continue to leverage our distinct capabilities in pharmacy benefit services to generate industry leading affordability outcomes. Including our deep supply chain expertise, clinical safety checks, and connectivity in the rapidly evolving pharmaceutical market. To meet the needs of clients and customers. And we are continuing to enhance our technology platforms better connecting the different components of the pharmacy benefit to create a simpler, more flexible experience for patients and clients. Turning to Cigna Healthcare. We delivered another quarter of strong growth with results ahead of expectations. With pretax adjusted earnings growth of 15% year over year. Our disciplined pricing coupled with advanced analytics and insights enable our steady medical care ratio performance. While medical cost trends continue to be elevated, they are consistent with our expectations and pricing assumptions. This quarter, we also benefited from stronger net investment income and favorable SG and A performance. We also introduced new capabilities in Cigna Healthcare in September, with the launch of HealthSense. Our data and technology powered customer engagement solution, that will start with oncology but broaden to other conditions over time. By connecting a customer's health needs benefits, pharmacy coverage, costs, claims, prior interactions, our clinical teams have context and a more complete picture enabling earlier interventions. As a reminder, costs are increasingly concentrated in complex conditions with 8% of patients generating 55% of total health care spent. We are excited about the early positive reception to HealthSense from clients and customers and are taking an agile approach to launching additional components as they are built. As we look to 2027, we remain confident in the strength of our strategic growth framework, and our ability to perform through a dynamic environment. During our fourth quarter call, we will provide our comprehensive 2027 guidance. We continue to expect adjusted earnings per share growth of at least 10% 27, off our run rate earnings for our ongoing businesses. And remain confident in 2030 adjusted earnings per share of at least $45 that we outlined at our Investor Day. Today, I will briefly cover the primary tailwinds and headwinds for 2027. Starting with the tailwinds, First, in our Cigna Healthcare business, we are driving continued improvement in our stop loss margins. Second, we are pleased with a strong 2027 selling season in both EverNorth and Cigna Healthcare. High client retention and new business wins reinforce the strength of our value proposition and innovation. And will contribute to attractive enterprise revenue growth in 2027. And third, our accelerate to 1 modernization and productivity initiative will drive savings across the enterprise. Turning to the headwinds we expect in 2027. First, within EverNorth Pharmacy Benefit Services, the compression of industry rebate pools and lower employer coverage of GLP ones for weight loss. Consistent with our commentary from Investor Day. Second, within Evernorth Specialty and Care Services, a more limited pipeline of biosimilar and specialty generic launches in the coming year. And finally, as you would expect, the known exit from the ACA exchange business remove that contribution from Cigna Healthcare. To ensure our success, we are focused on disciplined execution across the enterprise. Part of our DNA is our proven ability to evolve. Throughout our 2 hundred 34 year history, we have continuously adapted to lead through change and innovated to drive what comes next. Across our businesses, we are coupling data and insights, with our clinical and analytical expertise. Resulting in disciplined pricing, timely patient support, and consultative solutions for clients. And we are building a future ready, efficient, and effective workforce. While optimizing accountability and decision making with our accelerate to 1 initiative. All while driving run rate savings of $3 billion by 2030. You will hear more about from Ann in a few moments. Now let me close with a few key takeaways. First, we are generating core growth in each of our 3 business platforms. We have deliberately shaped our portfolio with capabilities that are focused on the most attractive subsectors of health care, where needs and spending are concentrated, with multiple growth engines across specialty and care services and benefit services in EverNorth, along with Cigna Healthcare. Second, we are leveraging our distinct capabilities that strengthen our position for the future. Our expertise in complex care, combined with our clinical capabilities, data, advanced analytics, and AI, enables us to deliver greater personalization at scale improve affordability, and create more value for the people we serve. You see that strategy coming to life through capabilities like HealthSense, expanding specialty infrastructure, and continued innovation across our pharmacy businesses. Third, disciplined execution continues to differentiate our company. This quarter, that showed up in strong client demand. Disciplined pricing, stable medical cost trends, continued specialty growth, and our ability to adapt our solutions as the market evolves. And as we look to 2027, we have clear visibility into the puts and takes ahead and have multiple levers across the enterprise to deliver against our commitments. Importantly, we are not dependent on any 1 single business, market trend, or innovation to deliver our long term expectations. Our third quarter performance reinforces our confidence in our Lead to 1 vision and in our long term strategy. Leading to durable, profitable growth and compelling long term shareholder value creation. With that, I will turn it over to Ann.

Ann Dennison: Thanks, Brian, and good morning, everyone. As Brian mentioned, our third quarter results reflect the strength of our enterprise and the consistency of our execution. For our Lead to 1 vision, we are delivering core growth across a deliberately shaped portfolio of businesses, leveraging our distinct capabilities to deliver greater personalization at scale, particularly for patients with complex conditions, and executing with discipline. That combination of focused strategy and execution continues to translate into strong results. During the quarter, we delivered adjusted revenues of $73.8 billion adjusted after tax earnings of $2.1 billion and adjusted earnings per share of $7.98 With our strong third quarter performance, we are raising our full year 2026 adjusted earnings per share outlook to at least $30.60 Now turning to our segment results. I will start with Evernor. Where we continue to execute on the strategy Matt Pearlberg and Adam Kausner outlined at Investor Day, to strengthen our specialty leadership while evolving pharmacy benefit services to deliver greater affordability and transparency. Third quarter 26 revenues grew 6% year over year to $63.8 billion and pretax adjusted earnings were $1.8 billion Specialty and Care Services delivered strong performance with pretax adjusted earnings growing 15% year over year to $1.1 billion in line with expectations. This growth reflects our distinct specialty capabilities across Accredo and CuraScript and our clinical expertise and patient support services. Which together are driving momentum in our fastest growing business. Consistent with our Lead to 1 strategy, we continue to make specialty care more affordable, by accelerating access to lower cost alternatives which benefit patients and clients while driving growth for the business. We continue to drive strong adoption of biosimilars led by our $0 patient out of pocket offerings for both Humira. Both biosimilar Humira and Stelara. Adoption of new specialty generics continue to ramp during the quarter, including generic Revlimid, where penetration is now approximately 90%. And finally, income from our investment in Shields Health contributed to the growth in the quarter. Within Pharmacy Benefit Services, pretax adjusted earnings were $765 million in line with expectations. As we outlined at Investor Day, this business is in a period of transition, and our performance continues to reflect the previously discussed renewals and extensions of large client contracts. As well as investments to support the transition to our new signature model. Overall, Evernor's third quarter results reflect continued growth in our Specialty and Care Services business, powered by our distinct capabilities across both pharmacy and medical benefits. And disciplined execution as we evolve our pharmacy benefit service business towards signature. Delivering greater affordability and transparency for patients and clients. Turning to Cigna Healthcare, where we continue to execute on the strategy Brian C. Evanko outlined at Investor Day. Deepening client relationships and expanding share in the employer market through our integrated medical, pharmacy, and behavioral model. With a particular focus on customers with complex care needs. We see significant opportunity to improve outcomes and affordability for these customers through more personalized care. Third quarter 26 adjusted revenues grew 9% year over year to $11.7 billion and pretax adjusted earnings were $1.2 billion Cigna Healthcare adjusted earnings were ahead of expectations, primarily driven by favorable net investment income and ongoing operating efficiencies. The medical care ratio for the third quarter was 85% in line with expectations as trend remained elevated but stable, and costs remained consistent with our pricing assumptions. Total medical customers have grown 2% year to date, to 18.5 million customers. We continue to see strong growth in our Select segment, which serves US employers with fewer than 500 employees. With medical customers up 5% year to date reflecting market share gains that we highlighted at Investor Day. Overall, Cigna Healthcare continues to deliver strong growth driven by our distinct capabilities along with disciplined pricing and expense management. Now turning to our updated outlook for 2020 The strength of our third quarter performance gives us the confidence to increase our full year adjusted earnings per share outlook to at least $30.60 Within Evernorth, we continue to expect full year pretax adjusted earnings of at least $6.9 billion Within Cigna Healthcare, we are raising our full year pretax adjusted earnings outlook to at least $4.6 billion and with greater visibility into full year performance, we are updating our full year MCR outlook, maintaining our prior midpoint of 84.2% and tightening our range to plus or minus 25 basis points. Turning to our 2026 capital management position. Third quarter operating cash flow was $2.6 billion and we continue to expect strong cash flow from operations in the fourth quarter consistent with the pattern we observed in the prior 2 years. During the quarter, we reduced our debt to capitalization ratio by approximately 100 basis points to 41.8% as of September 30. And we remain on track to achieve our long term target of approximately 40% by year end. Additionally, in the third quarter, we repurchased approximately 900 thousand shares of common stock for approximately $250 million. Now turning to some early thoughts on 2027. I will provide some additional directional comments building on the headwinds and tailwinds Brian discussed. First, our 2020 fixed run-rate earnings. As you think about the appropriate starting point, it is important to consider our previous announced exit from the ACA exchange market. For 2026, we continue to expect our ACA exchange business to generate positive margins though below our 4% to 6% margin target. And we expect some runoff and stranded overhead costs to remain next year. Based on our current estimates, this represents an approximately $200 million headwind in Cigna Healthcare resulting in a 2020 run-rate adjusted EPS of approximately $30 Regarding our outlook for our business segments, in Cigna Healthcare, we expect another year of strong growth, with adjusted income from operations growing within our long term target of 6% to 9% off of our reported 2026 results. Or above the high end of our long term target after adjusting for the exit from the ACA exchange market. This reflects strong core growth, continued momentum in Select, where our distinct capabilities position us to gain market share, and disciplined execution in our pricing to improve margin and stop loss. In our Specialty and Care Services business, despite more limited biosimilar and specialty generic launches in 2027, we still expect adjusted earnings to grow within the 8% to 12% long term target range. Though towards the low end. In pharmacy benefit services, as Brian mentioned and as we discussed at our investor day, we anticipate near term headwinds, including industry wide compression in gross rebates and lower employer coverage of GLP-1s for weight loss. Consistent with our prior comments. Taken together, we expect Evernorth earnings to be up low single digits in 2027. Regarding our capital management in 2027, consistent with the deployment framework we outlined at Investor Day, we continue to view share repurchase as an attractive use of capital. As I mentioned earlier, we expect to achieve our debt to capital target of approximately 40% by year-end 2026 and we expect greater flexibility in capital deployment next year. In summary, we remain confident in delivering at least 10% adjusted earnings per share growth in 2027 off of our 2026 run-rate of approximately $30. This reflects our exit from the ACA exchange business. We believe this is a prudent starting point, and we look forward to providing further guidance on our fourth quarter call. Underpinning our confidence in our ability to deliver in 2027 and through 2030 is Accelerate to 1. This modernization and productivity initiative which we announced at our recent Investor Day, will lower our cost to serve and create operating leverage for the enterprise. We expect this initiative to contribute $3 billion in gross savings by 2030. Notably, we expect to reinvest some of these savings back into the business to fund growth and innovation, while a portion will benefit operating results. This initiative further reinforces our confidence in our ability to deliver attractive earnings growth in 2027 and over the long term. And we look forward to providing periodic updates on our progress. Now to recap. Our third quarter results reflect strong core growth our distinct capabilities in both Evernorth and Cigna Healthcare and disciplined execution across the enterprise. We are pleased with our year to date performance and confident in our increased full year 2026 adjusted earnings per share outlook of at least $30.60 and we remain confident in our long term framework of 10% to 14% average annual adjusted earnings per share growth and at least $45 of adjusted earnings per share in 2030, which we discussed at Investor Day. With that, we will turn it over to the operator for the Q and A portion of the call.

Operator: Please press 1 on your touch tone phone. If someone asks a question ahead of you, you can remove yourself from the queue by pressing 2. Also, if you are using a speakerphone, please pick up your handset before pressing the button. 1 moment please for the first question. Our first question comes from Lisa Gill with JPMorgan. You may ask your question.

Lisa Gill: Brian and Ann. I really just want to dig into a few things when we think about the progression in the PBS side of the business. I heard you talk about kind of the next stage where you are building adoption, educating the market, signing manufacturing and pharmacy agreements. Can you help us to understand 1, what that looks like 2, what the progression looks like in 2027? And you talked about low single digits overall for Evernorth. So it does not feel like there is a big progression versus what we are seeing here in 2026 in the PBS. Segment specifically. So if you could just help us to bridge that and talk a little bit about how you make progress in the contracting.

Brian C. Evanko: Good morning, Lisa. I will start. and if there is anything you want to add, feel free to jump in here. So I think a few components to your question there, starting with signature and then I believe your reference to the low single digit was the EverNorth aggregate income growth expectation that we outlined there. But just relative to where we are with signature, first off, we are proud to lead the industry. With our new Signature pharmacy benefits offering. If you step back, affordability continues to be the number 1 challenge facing patients. With the affordability of prescription drugs being a primary pain point. And that is particularly acute for high cost branded prescriptions which represent just 10% of all prescriptions in America, but 90% of the total drug spending. And when you look back, 1 of the great success stories in American healthcare is the way PBMs have led generic adoption to now reach some 90% of all prescriptions at very affordable price points. So the next frontier is frontier is attacking the remaining 10% of prescriptions that are in very high cost branded drugs and represent some 90% of drug spending. So our signature model is designed to attack that 10% of high cost brand drugs. And provide a simple fee based transparent solution for clients and customers. As I talked about earlier, there are 3 phases of our signature model implementation. Maybe I would share a little bit more color on some of those components. Phase 1 was the design phase, which is now complete. Which was the decision we made to move to a simple future fee based no rebate model. And its architecture leverages the same value creators for clients and customers, meaning procuring drugs at the most affordable unit costs, wrapping those with clinical programs that drive adherence and administering complex benefit plan designs. And phase 2 is our build phase. And I think your question was pointing at this specifically in terms of where are we with manufacturer network contracts. This is actively underway. Our team's doing quite a bit of heavy lifting here relative to recontracting as we speak. We will talk about more details on this on our fourth quarter call. But we are actively negotiating with the largest pharmaceutical manufacturers as we speak to get the signature contracts fully landed This phase also includes all the technology enhancements the implementation readiness work that is required. Finally, for the upcoming sales season, we have been working hard to educate brokers, the employer community, current clients across on what the signature model entails. Then phase 3, as I alluded to earlier, is our adoption phase, and that is well on track. The next milestone is our Cigna Healthcare fully insured book, will adopt Signature on 1/1/27 and then the broader ramp will transpire throughout 2028. So picturing receptivity from each of those different stakeholders. We continue to expect 2028 will be the year where we see significant adoption across the broader EverNorth book of business. To the second part of your question, as Ann indicated in her comments, we expect Evernorth 2027 income to be up low single digits. We expect our Specialty and Care business to be within our long term growth algorithm of 8% to 12%, albeit at the lower end. Which implies our pharmacy benefit services income will be down single digits in 2027 from where we are in 2026,. Due to the industry wide pressure on gross rebate pools. As well as a downtick in the percentage of employers covering GLP-1s for weight management. We talked about on prior calls, 2026 and 2027 are transitional years for our pharmacy benefit services business, and we continue to expect at least 4% up to 4% compounded income growth from 2026 to 30 in the PBS business. And continue to expect at least $45 per share of 2030 adjusted EPS. So a lot in there. Hopefully, that got to all the components of your question. Thank you.

Operator: And this question comes from Kevin Fischbeck with Bank of America. You may ask your question.

Kevin Fischbeck: Great. Thanks. I guess just kind of 2 follow-up questions on the guidance. For 2027. I guess, first, the $0.60 drag, it sounds like some of it is core earnings and some of it is kind of stranded costs. Can you quantify how much that $0.60 might be recaptured in 2028 and beyond? And then as far as the headwind to 2027 regarding the fewer launches. The specialty side. Is there any early look on 2028? Is that a more normal year in your view? Or is that also a little bit lower?

Brian C. Evanko: Kevin, I will have Ann take the first part of your question in terms of the individual exchange exit and the impact on 2026, 2027, how to think about 2028, then I will take the second piece relative to the specialty in care.

Ann Dennison: And Great. Morning, Kevin. So just on the ACA, just to level set, the results for the quarter this quarter were largely in line with expectations. And so I mentioned this in my prepared remarks, but as a reminder, we expect the business to be profitable this year, but with margins a little below our 4% to 6% target range. So there is 2 things to think about as we look at the impact of the ACA exchange exit on our 2027 outlook. The first is what the business contributes today, and then the second is the differential overhead and other costs that come along with exiting a business, which is what you would expect. So when you put those 2 together based on our current projections, we expect an all in headwind of about $200 million from exiting the exchange market. As we specifically related to your question on reCAPTCH in 2028, of course, as we always do, we would be looking to get out any of the runoff costs and the stranded overhead that remains once we exited the business. Thanks, Ann.

Operator: And on the second component of your question, Kevin,, in terms of the headwind that we flagged relative to the Specialty and Care business, it is specifically, 2027 is a bit of a slower year for new biosimilar and specialty generics.

Brian C. Evanko: If you step back and look over a longer period of time, new introduction of biosimilars and specialty generics has been a great success story for American Health Care. And over the past 3 years, Humira having biosimilar competition in 2024, Stellara having biosimilar competition in 2025, generic Revlimid having supply constraints eased in 2026, Each of those provided tailwinds for 2024, 2025, and 2026. And when you look back at our specialty and care business, between 2023 and 2026, we have compounded income growth of 13%. Which is above our long-term growth algorithm for specialty and care. Now from year to year, there will be some ebb and flow on the timing and magnitude of drugs that will see new biosimilar and specialty generic competition. So for 2027 specifically, again, the pipeline indicates less material new biosimilars and specialty generics being introduced. But I would view that as a temporary slowdown. As we look ahead to 2028, 2029, and 2030, there are several biosimilars coming to market for drugs often covered under the medical benefit. So think oncology drugs, MS drugs. We are preparing for these introductions. Now stepping back from all of this, we are actively encouraging the approval and adoption of these low cost alternatives. it is a great means to improve affordability And finally, the continued momentum across our broader specialty and care portfolio allows us to overcome this headwind to specialty growth And as Ann noted, we do expect on 2027 Specialty and Care earnings growth near the low end of our long term income growth algorithm of 8% to 12% per year, which speaks to the strength of our broad suite of specialty capabilities as well as our expertise in serving patients with the most complex health care needs. Hopefully, that helps.

Operator: Thank you Our next question comes from A. J. Rice with UBS. You may ask your question.

AJ Rice: Thanks. Hi, everybody. Just to make sure I understand, so as you deploy the new Signature model, next year to your fully insured book, You did not mention that as a headwind or tailwind for either side of the business. Is there any short term pressure either on the insurance side or on the Evernorth side that then abates over time as it gets more mature and just also on the signature model, you did reference various regulatory things, the PBM reform legislation, from January, the Department of Labor announcement, Are you naturally going to comply with all of the provisions there, as you move to the signature model, or is there anything incrementally from an investment perspective you need to do to comply with those as they phase in by 2028 and so forth?

Brian C. Evanko: Hi. Good morning, AJ. Few different components in there. Relative to the first piece of your question, the signature model implementation for our fully insured business for 1/1/27 within Cigna Healthcare. As I mentioned earlier, in Lisa's question, fully on track. To implement that effective January 1. To your point, that is not a headwind, you know, relative to 2027. The reason for that is since it is fully insured business, any change in economics is essentially in the price. it is in the price that we have implemented through our standard underwriting process as we go through case by case client by client, and put the appropriate price in place. So the 2027 headwinds we talked about, specifically for PBS, are limited to the GLP 1 weight management coverage ticking down. Our employer book, and secondarily, the compression on industry wide rebates. Again, 2026, 2027, think of those as transitional years for PBS. 2028, 2029, and 2030, we will see income growth over that time period. On the second piece of your question relative to some of the PBM rules regulations and reform changes that have gone through most recently, the Department of Labor PBM transparency rule was issued just a few weeks ago, and really this issue or this rule speaks to the primary challenge of our health care system, which again is affordability. And we support the underlying spirit implied by this rule. Specifically the use of objective, data driven, transparent information in order to drive more educated purchasing and utilization That said, we think it is very unlikely that this rule will result in lower prescription drug spending there is some redundancy in the DOL rule and the Consolidated Appropriations Act and there is some areas where the 2 are actually contradictory. Our team is actively engaging to drive clarity. On these issues for the benefit of our clients and customers. As it relates to the DOL rule itself, we will, of course, comply with the requirements This will add some administrative cost and burden to the system. But you should not think of that as a material amount of new spending. Something that I would view as normal course for our PBS business. But, again, coming back to our signature model, that is our 1 bold way that we are taking action ourselves to drive change in the system with a focus on affordability and a focus on actionable transparency. This model also provides that patient guarantee of the lowest out of pocket cost when they fill a prescription. Finally, the signature model is designed to comply with evolving regulations, including both the CAA and the DOL transparency rule while reducing fiduciary risk for employers who adopt the model. So we are very excited about the signature model. Looking forward to it scaling across the EverNorth book starting in 2028. Thanks for the question.

Operator: Thank you. Our next question comes from Justin Lake with Wolfe Research. Line is open. You may ask your question.

Justin Lake: Thanks. Good morning. On the 3 headwinds, to Evernorth next year, are all 3 about similar size or maybe you can rank order them for us in terms of impact. And then you did not mention investment gains in 2026 as a headwind for the health care business next year. By my math, it looks like it could be north of $100 million How should we think about that? Thanks.

Brian C. Evanko: Good morning, Justin. I will start. and, Ann, if you could pick up on the. How to think about the quant on the 3 headwinds as well as the question Justin asked about the investment income. We are going to wait until the fourth quarter to get into our detailed guidance relative to subsegment and segment guides for 2027. What we are trying to do today was give you a little bit of texture in terms of how to think about the 2027 versus 2026 income trajectory for each of our businesses. But as I said earlier to the question that Kevin asked on specialty, will still be within our 8% to 12% income growth algorithm, albeit at the lower end. So that headwind in the big picture is more than offset by the underlying strong secular growth that we see in specialty. By the continued expansion of our distribution capabilities, by the improvement in our cost to fill through initiatives like our Pharmacy Forward. So big picture, you should not think of that as a substantial headwind in a dollars and cents standpoint. And then the PBS headwind that we made reference to contributes to the total income being down single digits in 2027 relative to 2026. So that gives you a bit of just ballpark dimensioning of how to think about the magnitude. Ann, can you pick up anything else on the headwinds and then the investment income component?

Ann Dennison: Sure. Just to Brian's point around pharmacy benefit and the headwinds there, we look forward to quantifying, you know, the specific numbers coming out of the fourth quarter. You can think about those 2 headwinds referenced as relatively equal. On the investment gains, in Cigna Healthcare for this year, I would not characterize that as a headwind going into 2027. Thank you.

Operator: Our next question comes from Scott Fidel with Goldman Sachs. You may ask your question.

Scott Fidel: Hi. Thanks, and good morning. Wanted to just ask about the new initiative, the Lead to 1 that you discussed at the Investor Day. And I know it sounds like already there is sort of execution on that. that is going on within the company. And Brian and Ann, maybe just, you know, in particular, if you can give us any visibility into a level of run rate savings that you expect to potentially be accrued into the 2027 outlook that you are contemplating and the potential, you know, sort of key drivers of that. And then also just any 1-time costs that we may anticipate may hit the, you know, the gap in p and l just in the back half of this year or into next year as you implement workforce rationalization and other elements of the Lead to 1 strategy. Thanks.

Brian C. Evanko: Good morning, Scott. I will start and then Ann, you could pick up. So Scott referenced Lead to 1. I think he was bridging over to our accelerate to 1 initiative as well in his question relative to the $3 billion of run rate save that we expect to see by 2030. So step back, Lead to 1 is our vision for the future, which is essentially driving personalization at scale. We see the emergence of data, modern technologies, advanced analytics, AI allowing us to drive personalization in ways that we could not even 3, 5 years ago, and we are excited to do that across all the customers and patients we serve with a particular emphasis on those who have the most clinically complex healthcare needs, which as I said in my earlier comments, that now represents 55% of total spending even though it is just 8% of patients Our Accelerate to 1 initiative specifically is using a combination of technology, workforce effectiveness, vendor rationalization in order to drive that $3 billion of run-rate save by 2030, $3 billion of gross run rate savings by 202 thousand. Ann, can you pick up a little bit in terms of how to think about the timing, the emergence of investment spend to that part of Scott's question?

Ann Dennison: Sure. So as Brian mentioned, $3 billion of gross run rate savings. We are focused on 3 areas: automation and process modernization talent effectiveness, and how we manage our suppliers, partners, and vendors. All of this is enabled by technology and AI, continuous improvement, and a lot of execution rigor. So the goal is to go we are gonna fund reinvestment in the business, so not all of it is going to fall to the bottom line. But also, we want to support our 10% to 14% long term adjusted growth commitment. So ultimately, this is going to help us reduce our cost to serve, create operating leverage, be more competitive, have the capacity to keep investing in the growth. In terms of where the savings come from, we expect roughly 70% to 80% of that $3 billion in gross savings to come from automation, modernization, and talent effectiveness. The remaining 20% to 30% from improvements in the vendor space So we are targeting those savings over the 5-year period that began this year. We look forward to providing some more color on the shaping and cadence in the fourth quarter earnings call. And I would just point you on your question specifically related to the cost. The costs that are in order to execute this are reflected in the strategic Optimization Program disclosures that will come as part of the Q. And I would describe them as mostly concentrated on the employee side, severance, other sort of 1-time costs in order to execute some of the savings that we are doing this year that will carry into next year.

Operator: Our next question comes from Jason Cassorla with Guggenheim Securities. You may ask your question.

Jason Cassorla: Great. Thanks. Good morning. I wanted to ask a little bit more on Evernorth for 2027. 1 of the headwinds for PBM segment this year was lower customer script growth due to declines in client plan membership. I guess I am just curious how you are thinking about that paradigm for 2027. If you are assuming some level of headwind there, that is perhaps more than more than offset by the, strong 2020 2027 selling season. Just any color around that would be, helpful. Thanks.

Brian C. Evanko: Good morning, Jason. So appreciate the question there. And you are right. Relative to 2026, we have seen some decline in the pharmacy benefit service business, both in terms of scripts and overall customer counts. I just would remind everyone, script counts are not really a great indicator of the financial health or success of this business anymore, particularly as specialty drugs have proliferated representing a small percentage of prescriptions, but over half of total drug spending. Another reminder is we serve many health plan clients and our customer and script volumes are partially dependent upon their own membership growth or decline. So year to date, we did see some reduction in volumes from our EverNorth health plan clients specifically, partially driven by how some approach their Medicare and Medicaid products and pricing strategies. All that was broadly in line with expectations. And as we indicated, our overall Evernorth business delivered solid financial performance through the third quarter of 2026, and we are pleased to reaffirm the full year outlook for Evernorth, incorporating all of those dynamics. As it relates to 2027 and how to think about this dynamic, relative to the selling season, we are tracking toward retention in the high 90s, as I indicated earlier, similar to what we saw in 2026. Consistent with historical norms. Additionally, our 2027 new business performance is very strong. We are tracking to at least 2 million new PBS customers in 2027. With that new business written at targeted profit levels. And that is been generated from a combination of traditional PBM competitors as well as some smaller alternate PBMs. And as I indicated earlier, our new signature model is generating considerable interest both from existing clients as well as prospects as we look to scale it in 2028 and beyond. All this is evidence that our clients see us as a multiyear thought partner as they prepare for future changes in their pharmacy benefit programs. So taken altogether, these factors have been incorporated into the outlook that Ann introduced this morning. As I mentioned in 1 of my earlier comments, enterprise revenue for the entire Cigna group is on track for an attractive rate of growth here in 2027. Thanks for the question.

Operator: Thank you. Our next question comes from Charles Rhyee with TD Cowen. You may ask your question.

Charles Rhyee: Yes. Thanks for taking the question. As you have kind of talked about 340B exposure here, it is not including the headwinds for specialty care and services. Can you help us understand a little bit why this might be a little bit of an impact for you guys here versus maybe some of your peers.

Brian C. Evanko: Morning, Charles. Appreciate the question. Maybe I will start with a little bit of background on the program and how we participate. And to the core of your question on the 2027 implications. The 340B program has been in place since the early '90s, as you know. Designed to support access to care for vulnerable patients by allowing those hospitals who serve them to purchase drugs essentially at a lower cost. And this remains a critical lifeline for many rural and safety net hospitals. Over the years, we have seen the program experience changes around eligibility, contract pharmacy access, manufacturer participation, but it has endured given the criticality of the program's underlying purpose to support those rural and safety net hospitals. The way we participate in the 340B program is multifaceted. The most direct way is through Accredo. We serve as a contract pharmacy in the 340B program. Now importantly, our total number of 340B contract pharmacies is far below that of the large retail pharmacy chains. So our exposure as a result is a small fraction of what those competitors would have or what those pharmacy chains would have. Overall, you should think of Accredo's participation as a 340B contract pharmacy as being a relatively small contributor to overall Evernorth earnings. I would also note that the contribution of 340B is reflected within the specialty portion of Evernorth specifically. Now as it relates to 2027, there will be some modest downward pressure on our 2027 results from the evolved 340B program requirements, but it is just not significant enough for us to call it out as a substantial headwind. And the continued momentum across our broader specialty and care portfolio, as I described earlier, strong secular growth distribution expansion, cost to fill improvements. Allows us to generate income growth that will be near the low end of our long term growth algorithm for specialty and care of 8% to 12% per year. So it will be toward the lower end of Again, all that speaks to strength of the broad suite of capabilities we have across specialty and our expertise in serving those individuals with the most complex healthcare needs. So modest headwind, but more than overcome by those other factors. Can I follow up with the OPPS cuts for Part b sort of infusion services, does that have any impact? I know it does not really get consolidated into your results, but just thinking about shields, sort of the work they do, would that have an impact for Shields at all, or is that maybe an opportunity for Shields?

Charles Rhyee: In helping hospitals?

Brian C. Evanko: Yeah. I appreciate that question as well. So your point, we have an investment position in Shield, so the underlying performance of the Shields business does not consolidate into our income. We have essentially a preferred investment, so there is some income from that, but the underlying performance of the asset does not consolidate into our results. To the core of your question though, when the 340B rules and regulations change and the program gets more complicated, the demand for Shield services actually increases. So we have seen a lot of interest over the course of the last 12 to 24 months from hospitals and health systems. Who are seeking to optimize their own in house pharmacies, their own in house specialty capabilities for the services that Shields provides. The Shields performance has been really outstanding the last couple of years when you look at the underlying performance in both the top and bottom line. And a lot of that is many of these hospitals and health systems do not have the expertise in terms of inventory management, clinical coordination, accreditation services. So we are able to essentially support them via shields and there is some synergy relative to client cross sells between our EverNorth portfolio and Shields client base. So broadly speaking, that is how I would encourage you to think about the Shields component.

Charles Rhyee: Great. That was really helpful. Thanks. Appreciate the comments.

Operator: Thank you. Our next question comes from Elizabeth Anderson with Evercore ISI. May ask your question.

Analyst: Hi, guys. Good morning, and thanks so much for the question. I had a question about stop loss. Obviously, seeing some nice growth in sort of the middle market and the premium is growing nicely there. Can you tell us a little bit more about like how stop loss is performing relative to our Select segment and sort of how your current expectation January 1 pricing versus trend you are seeing there? Thank you.

Brian C. Evanko: Good morning, Elizabeth. I will start and then hand it over to Ann to get into more of the specifics in terms of current performance and 2027 implications. Big picture, our stop loss book is performing well. And in line with, what we talked about before in terms of 2026 and 2027 being the years where we are increasing the margin profile in that book of business back to target levels. Most of that has been accomplished here in 2026 with the price actions we were able to and I have been really pleased with the strong retention on that book of business, which speaks to the strong consultation, the and client management teams within Cigna Healthcare doing great work. To ensure that we, continue with those long term relationships. But the overall stop loss book continues to perform well. And as we indicated earlier, that is 1 of the 3 enterprise tailwinds for 2027 as we step into the new year. And can you pick up a bit in terms of current year performance in the 2027 price increases?

Ann Dennison: Sure. So, as Brian said, in tracking in line with what we expected, as we talked about before, we built out our analytics and clinical data so we can price at the right levels and also see early performance. And so those indicators are tracking well. I will give you an example. Year to date, we have seen relatively stable frequency trends in high cost claimants across multiple attachment point levels. And that is played out consistent with our expectations, but also consistent with what we observed last year So when we put it all together, along with the other indicators we watch we are we are feeling good about stop loss book, where and where we expect to finish this year. Performance is in line with our pricing and planning and our margin recapture targets. As Brian just mentioned, our plan is to recapture a portion of the margin over this year and a portion next year. So with our visibility into the performance this year, our expectations from next year, our pricing, you know, it captures this objective, and we are executing well against the plan. So we remain confident in our MCR range for this year, including stop loss and also executing on our. The remainder of our margin recapture plan as we go through 2027.

Analyst: Great. Thank you very much.

Operator: Thank you. Our next question comes from Whit Mayo with Leerink Partners. You may ask your question.

Analyst: Hi, good morning. This is Stephen Gonzalez on for Whit. After some noise surrounding Arkansas last year, you reemphasized the value of integrating PBM and pharmacy capabilities with Tennessee moving in a similar direction. Being a bit of a different story considering Accredo's Memphis footprint. Has that at all changed how you think about Evernorth's operating model? And the general flexibility you might need going forward? Thank you.

Brian C. Evanko: Good morning, Stephen. I will take that 1. So stepping back, I think your question is about some of the state level activity relative to, I will call it, vertical integration, for lack of a better term. Just to put an umbrella term over it. And as we talked about some of the prior questions here this morning, it is clear that our current healthcare system on an unsustainable trajectory with affordability fragmented patient experiences being common pain points, We are seeing some policymakers, legislators focusing on vertical integration as a potential root cause of these challenges in the healthcare system. For us, we do not pursue integration for its own sake. Rather, we see tremendous benefits to patients through connecting data with individual contexts along with coordinating care across providers, plan designs, etcetera, And our Lead to 1 vision is designed to drive personalization at scale. As I said earlier, a particular emphasis on those with the most clinically complex health care needs. And our integrated capabilities allows us to do this even better and more effectively. And we have strong evidence of improved greater patient satisfaction when care is integrated and coordinated. For example, in our HealthSense oncology patient solution. We provided a few examples of this during the investor day. For example, the evidence showing that a cancer patient integrated journey saves $28 thousand per person per year. $2,000 per person per year in savings for an integrated customer who has cardio, diabetes. And it is not just affordability. it is also better health outcomes for Cigna Healthcare,, integrated customers show 12% lower A1C for people with diabetes. So these are all examples of our integrated model. Playing itself out in the form of improved affordability, better patient experiences, and improved health outcomes. So we believe the current composition of the Cigna group and our 3 growth platforms, Cigna Healthcare, Specialty and Care Pharmacy Benefits services is optimal, and we believe we are creating real value for customers in the market and value for shareholders with the current composition of the Cigna Group. Thank you.

Operator: Our last question comes from Erin Wilson Wright with Morgan Stanley. You may ask your question.

Erin Wright: Great, thanks. At Investor Day, you talked about the next leg of growth in specialty, including greater opportunity across medical benefits side as well as on the distribution side too. Are these drivers that we think about for 2027, or are drivers that we are thinking about more longer term or anything you can quantify on that front? Thanks.

Brian C. Evanko: Good morning, Erin. Appreciate the question. You are right. Those are 2 specific areas that will continue to drive attractive growth in the specialty and care portfolio over time. And to the core of your question, distribution as well as the medical benefit are areas where we are comparatively under represented relative to the overall specialty space today. So if you think about our distribution capabilities, CuraScript today it is a $25 billion business. So already sizable, and it is been growing double digits for many years in a row. Yet we see substantial opportunity to grow that even more rapidly in the future. So the introduction of our EverNorth Wholesale capability that we talked about at the Investor Day is 1 example of expanding our reach in the distribution space. And you heard from Matt Pearlberg at Investor Day, we expect $20 billion of net new revenue in distribution in specialty by 2030. So $25 billion from today will go to $45 billion by 2030 reflecting that distribution expansion. 2027 will not see an outsized benefit per se from that. You should think of it as more a gradual build in that space over the course of the next 3 to 4 years. And on the medical benefit, to your point, when you step back specialty market in aggregate is, call it, a $480 billion addressable market. Roughly 60% of that. Is direct to patient. that is where we have particularly strong capabilities strong market share. Our Accredo specialty pharmacy is pointed there. We have attractive market share. We continue to win business in the market, but we are already strong in that space. The medical benefit, the other 40%, it is often provider administered specialty medications. Have comparatively small share in that space with just 6% or 7% Similar to the distribution question, 2027 will not see outsized growth. In our specialty medical business. In the later years, in the decade when some of those biosimilars under the medical benefits start to hit. that is when we will see an uptick in the growth rate there. So again, think of biosimilars for oncology, biosimilars for MS. We will start to see more of an uptick later in the decade. So neither 1 of those is specific outsized contributor to 2027, but they are both exciting opportunities for our specialty and care portfolio to continue to perpetuate its growth. Thank you.

Operator: I will turn the call back over to Brian C. Evanko for closing remarks.

Brian C. Evanko: Thank you very much, and thanks for all of those questions. Let me just close with this. it is an exciting time here at the Cigna Group as our company unifies. Around a single vision, Lead to 1. And begins to compound the distinctive capabilities we developed to capture the opportunity set in front of us. We have a clear strategic growth framework for creating long term value. And we will continue to execute with discipline across the enterprise. As we wrap up 2026 and look ahead to 2027, we are energized by our strategy and execution momentum. We have a proven ability to lead and navigate change, and it is a privilege to do so while serving our customers, patients, and shareholders. With that, I want to thank our team around the world for their commitment to our customers, for their partnership and collaboration, for their adaptability. Thank you for your time today and your interest in the Cigna Group.

Operator: Ladies and gentlemen, this concludes the Cigna Group's third quarter 26 results review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing (866) 405-7.29 thousand or (203) 369-0603. There is no passcode required for this replay. Thank you for participating. We will now disconnect.