Lowers 2019 Earnings Guidance
Magellan Health, Inc. (NASDAQ: MGLN) today announced financial
results for the third quarter ended September 30, 2019, as
summarized below:
Three months ended
Year to date
September 30
September 30
(In millions, except per share amounts)
2019
2018
Chg
2019
2018
Chg
Net revenue
$
1,828.9
$
1,853.5
-1.3%
$
5,356.8
$
5,469.5
-2.1%
Net income
$
21.3
$
27.1
-21.6%
$
35.3
$
52.1
-32.3%
Segment profit [1]
$
72.2
$
88.3
-18.3%
$
179.8
$
211.9
-15.2%
Adjusted net income [1]
$
30.2
$
36.2
-16.3%
$
60.9
$
80.2
-24.1%
Earnings per share
$
0.86
$
1.09
-21.1%
$
1.44
$
2.06
-30.1%
Adjusted earnings per share [1]
$
1.23
$
1.45
-15.2%
$
2.49
$
3.17
-21.5%
[1] Refer to the Basis of Presentation for a discussion of non-GAAP
financial measures.
Highlights Include:
- Net revenue decreased 1.3 percent over the third quarter of
2018 to $1.8 billion.
- Net income decreased 21.6 percent over the third quarter of
2018 to $21.3 million.
- Segment profit decreased 18.3 percent over the third quarter of
2018 to $72.2 million.
- Adjusted net income decreased 16.3 percent over the third
quarter of 2018 to $30.2 million.
- Unrestricted cash and investments were $220.3 million as of
September 30, 2019. Approximately $105.4 million of the
unrestricted cash and investments at September 30, 2019 is related
to excess capital and undistributed earnings held at regulated
entities.
- The Company is revising its full year 2019 earnings
guidance.
- On October 31, 2019, the Company’s Board of Directors announced
the appointment of Kenneth J. Fasola as Chief Executive Officer,
effective November 14, 2019.
“I am delighted to introduce Ken Fasola as Magellan’s new Chief
Executive Officer to succeed me, effective November 14, 2019. The
Board and I are pleased that we have been able to attract someone
of Ken’s caliber, who has broad healthcare experience and a proven
leadership track record,” said Barry M. Smith, chief executive
officer of Magellan Health. “Over the past seven years, the Company
experienced a period of expansion through organic growth and
strategic acquisitions. Magellan’s portfolio of businesses—Magellan
Complete Care, Magellan Behavioral and Specialty Health and
Magellan Rx Management are poised for future success.”
Net Revenue
For the quarter, revenue was $1.8 billion, which represents a
decrease of 1.3 percent over the same period in 2018. Growth in MCC
Virginia and new business was essentially offset by MCC Florida and
Medicare Part D footprint reductions as well as the previously
discussed PBM health plan contract loss due to an acquisition.
Segment Profit
Segment profit was $72.2 million for the third quarter, compared
to $88.3 million in the prior year quarter.
- Healthcare segment profit for the third quarter of 2019 was
$44.7 million versus $61.7 million in the third quarter of 2018.
Healthcare results for the current quarter include net favorable
out of period adjustments of approximately $4 million, compared to
$22 million of net favorable out of period adjustments in the prior
year quarter. Adjusting for these out of period items, segment
profit was $1 million higher than the prior year quarter. This net
increase in segment profit is driven by the progress against the
cost of care initiatives in Virginia, offset by care pressure in
the Behavioral and Specialty Healthcare business and lower
discretionary benefits in 2018.
- Pharmacy Management segment profit was $35.4 million for the
quarter ended September 30, 2019, which was an increase of 5.2
percent from the third quarter of 2018. This year over year
increase was primarily driven by growth and improved profitability
in Magellan Rx Specialty.
- Corporate costs inclusive of eliminations, but excluding stock
compensation expense, totaled $8.0 million, compared to $7.0
million in the prior year’s quarter.
Cash Flow & Balance Sheet
Cash flow from operations for the nine months ended September
30, 2019 was $144.4 million. This year over year change is
primarily related to favorable working capital changes and lower
tax payments.
As of September 30, 2019, the Company’s unrestricted cash and
investments totaled $220.3 million compared to $130.4 million at
December 31, 2018. Approximately $105.4 million of the unrestricted
cash and investments at September 30, 2019 is related to excess
capital and undistributed earnings held at regulated entities.
Restricted cash and investments at September 30, 2019 decreased
to $500 million from $527.7 million at December 31, 2018. This
decrease was primarily due to changes in working capital of the
Company’s regulated subsidiaries.
“Our results for the quarter in MCC and Pharmacy were solid,”
said Jonathan N. Rubin, chief financial officer of Magellan Health.
“Despite the short term pressure we’re seeing in our Behavioral and
Specialty Healthcare business, we are making good progress on our
profitability improvement initiatives and are well positioned to
achieve earnings growth in 2020 and beyond.”
Outlook
The Company is lowering its 2019 full year earnings guidance
ranges.
2019 Guidance (In millions, except per share amounts)
Nov 1, 2019
July 30, 2019
Low
High
Low
High
Net revenue
$
7,000.0
$
7,200.0
$
7,000.0
$
7,200.0
Income before income taxes
$
66.0
$
94.0
$
75.0
$
117.0
Net income
$
47.0
$
65.0
$
52.0
$
79.0
Segment profit[1]
$
245.0
$
260.0
$
270.0
$
290.0
Adjusted net income[1]
$
82.0
$
98.0
$
90.0
$
114.0
Earnings per share[2]
$
1.92
$
2.65
$
2.14
$
3.25
Adjusted earnings per share[1][2]
$
3.35
$
4.00
$
3.70
$
4.69
[1] Refer to the Basis of Presentation for a discussion of non-GAAP
financial measures. [2] 2019 EPS and Adjusted EPS guidance includes
share repurchases and option exercises through the close of
business October 25, 2019, but excludes the impact of any potential
future activity.
The reduction in earnings guidance reflects the following:
- Pressure in Behavioral and Specialty Healthcare business,
primarily related to higher than anticipated demand for behavioral
inpatient services, and
- an estimate of severance and other costs that the Company
expects to recognize later in 2019.
Earnings Conference Call
Management will discuss the Company’s third quarter results on a
conference call scheduled for November 1, 2019 at 8:00 a.m.
Eastern. To participate in the conference call, dial 1-800-857-1812
and use passcode “3rd Quarter 2019 Earnings Call” approximately 10
minutes before the start of the call. The conference call will also
be available live via webcast at Magellan's investor relations page
at IR.MagellanHealth.com. A telephonic replay will be available
shortly after the conclusion of the call through December 1, 2019.
This replay may be accessed by dialing 1-800-570-8791 (Domestic) or
1-402-344-6824 (International). A replay of the webcast will also
be available at the site listed above for 30 days, beginning
approximately two hours after its conclusion.
Basis of Presentation
In addition to results determined under Generally Accepted
Accounting Principles (GAAP), Magellan provides certain non-GAAP
financial measures that management believes are useful in assessing
the Company’s performance. Following is a description of these
important non-GAAP measures.
Segment profit is equal to net revenue less the sum of cost of
care, cost of goods sold, direct service costs and other operating
expenses, and includes income from unconsolidated subsidiaries, but
excludes segment profit or loss from non-controlling interests held
by other parties, stock compensation expense, special charges or
benefits, as well as changes in the fair value of contingent
consideration recorded in relation to acquisitions.
Adjusted net income and adjusted earnings per share reflect
certain adjustments made for acquisitions completed after January
1, 2013, to exclude non‑cash stock compensation expense resulting
from restricted stock purchases by sellers, changes in the fair
value of contingent consideration, amortization of identified
acquisition intangibles, as well as impairment of identified
acquisition intangibles.
Included in the tables issued with this press release are the
reconciliations from GAAP measures to the corresponding non-GAAP
measures.
About Magellan Health: Magellan Health, Inc., a Fortune
500 company, is a leader in managing the fastest growing, most
complex areas of health, including special populations, complete
pharmacy benefits and other specialty areas of healthcare. Magellan
supports innovative ways of accessing better health through
technology, while remaining focused on the critical personal
relationships that are necessary to achieve a healthy, vibrant
life. Magellan's customers include health plans and other managed
care organizations, employers, labor unions, various military and
governmental agencies and third-party administrators. For more
information, visit MagellanHealth.com.
Forward-Looking Statements
This release is intended to be disclosure through methods
reasonably designed to provide broad, non-exclusionary distribution
to the public in compliance with the Securities and Exchange
Commission’s Fair Disclosure Regulation. This release contains
forward-looking statements within the meaning of the Securities
Exchange Act of 1934 and the Securities Act of 1933, as amended,
which involve a number of risks and uncertainties, many of which
are out of our control. All statements, other than statements of
historical information provided herein, may be deemed to be
forward-looking statements including, without limitation,
statements regarding 2019 guidance for net revenue, income before
income taxes, net income, earnings per share, segment profit,
adjusted net income, adjusted earnings per share; and multi-year
margin improvement plan, growth opportunities, business
environment, long term opportunities and strategy. These statements
are based on management’s analysis, judgment, belief and
expectation only as of the date hereof, and are subject to
uncertainty and changes in circumstances. Without limiting the
foregoing, the words “believes,” “anticipates,” “plans,” “expects,”
“may,” “should,” “could,” “estimate,” “intend” and other similar
expressions are intended to identify forward-looking statements.
Actual results could differ materially due to, among other things,
the possible election of certain of the Company’s customers to
manage the healthcare services of their members directly; changes
in rates paid to and/or by the Company by customers and/or
providers; higher utilization of healthcare services by the
Company’s risk members; delays, higher costs or inability to
implement new business or other Company initiatives; the impact of
changes in the contracting model for Medicaid contracts;
termination or non-renewal of customer contracts; the impact of new
or amended laws or regulations; governmental inquiries; litigation;
competition; operational issues; healthcare reform; and general
business conditions. Additional factors that could cause actual
results to differ materially from those reflected in the
forward-looking statements include, but are not limited to, the
risks discussed in the “Risk Factors” section included within the
Company’s Annual Report on Form 10-K for the year ended December
31, 2018, filed with the Securities and Exchange Commission on
February 28, 2019, and the Company’s subsequent Quarterly Reports
on Form 10-Q filed during 2019. Readers are cautioned not to place
undue reliance on these forward-looking statements. The Company
undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the
date of this release. Segment profit, adjusted net income, and
adjusted EPS information referred to herein may be considered a
non-GAAP financial measure. Further information regarding these
measures, including the reasons management considers this
information useful to investors, are included in the Company’s most
recent Annual Report on Form 10-K and on subsequent Form 10-Qs.
MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS (In thousands)
December 31, 2018 September 30, 2019
(unaudited) ASSETS Current
Assets: Cash and cash equivalents
$
272,308
$
376,703
Accounts receivable, net
756,059
812,741
Short-term investments
382,582
336,057
Pharmaceutical inventory
40,818
48,373
Other current assets
95,400
87,098
Total Current Assets
1,547,167
1,660,972
Property and equipment, net
150,748
141,506
Long-term investments
3,161
7,606
Deferred income taxes
3,411
2,618
Other long-term assets
24,530
129,086
Goodwill
1,018,156
1,018,156
Other intangible assets, net
231,883
181,777
Total Assets
$
2,979,056
$
3,141,721
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities: Accounts payable
$
72,077
$
92,362
Accrued liabilities
231,356
307,210
Short-term contingent consideration
8,000
123
Medical claims payable
393,547
430,345
Other medical liabilities
169,639
144,838
Current debt, finance lease and deferred financing obligations
24,274
3,546
Total Current Liabilities
898,893
978,424
Long-term debt, finance lease and deferred financing obligations
728,608
695,164
Deferred income taxes
11,167
15,088
Tax contingencies
16,478
16,228
Long-term contingent consideration
2,124
-
Deferred credits and other long-term liabilities
36,483
74,345
Total Liabilities
1,693,753
1,779,249
Stockholders’ Equity:
Ordinary common stock
535
541
Additional paid-in capital
1,326,645
1,371,718
Retained earnings
1,419,449
1,454,623
Accumulated other comprehensive (loss) income
(324
)
317
Ordinary common stock in treasury, at cost
(1,461,002
)
(1,464,727
)
Total Stockholders’ Equity
1,285,303
1,362,472
Total Liabilities and Stockholders’ Equity
$
2,979,056
$
3,141,721
MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In
thousands, except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2018
2019
2018
2019
Net revenue: Managed care and other
$
1,235,787
$
1,303,936
$
3,670,890
$
3,811,058
PBM
617,719
525,005
1,798,616
1,545,708
Total net revenue
1,853,506
1,828,941
5,469,506
5,356,766
Costs and expenses: Cost of care
938,031
1,013,006
2,802,506
2,956,853
Cost of goods sold
571,145
482,277
1,689,229
1,433,257
Direct service costs and other operating expenses (1)(2)
265,471
266,322
793,700
804,680
Depreciation and amortization
33,047
34,157
97,302
98,355
Interest expense
8,990
9,007
26,034
27,255
Interest and other income
(4,139
)
(4,970
)
(9,978
)
(14,965
)
Total costs and expenses
1,812,545
1,799,799
5,398,793
5,305,435
Income before income taxes
40,961
29,142
70,713
51,331
Provision for income taxes
13,816
7,868
18,565
16,013
Net income
$
27,145
$
21,274
$
52,148
$
35,318
Weighted average number of common shares outstanding — basic
24,433
24,426
24,451
24,159
Weighted average number of common shares outstanding — diluted
24,928
24,708
25,316
24,447
Net income per common share — basic
$
1.11
$
0.87
$
2.13
$
1.46
Net income per common share — diluted
$
1.09
$
0.86
$
2.06
$
1.44
Net income
$
27,145
$
21,274
$
52,148
$
35,318
Other comprehensive income: Unrealized gains (losses) on
available-for-sale securities (3)
194
(98
)
7
641
Comprehensive income
$
27,339
$
21,176
$
52,155
$
35,959
(1) Includes stock compensation expense of $9,320 and $4,811 for
the three months ended September 30, 2018 and 2019, respectively,
and $27,405 and $19,832 for the nine months ended September 30,
2018 and 2019, respectively. (2) Includes changes in fair
value of contingent consideration of $148 and $4 for the three
months ended September 30, 2018 and 2019, respectively, and $451
and $(2,001) for the nine months ended September 30, 2018 and 2019,
respectively. (3) Net of income tax provision (benefit) of
$61 and $(31) for the three months ended September 30, 2018 and
2019, respectively, and $3 and $201 for the nine months ended
September 30, 2018 and 2019, respectively.
MAGELLAN HEALTH, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
Nine Months Ended
September 30,
2018
2019
Cash flows from operating activities: Net income
$
52,148
$
35,318
Adjustments to reconcile net income to net cash from operating
activities: Depreciation and amortization
97,302
98,355
Non-cash interest expense
919
1,069
Non-cash stock compensation expense
27,405
19,832
Non-cash income tax provision
1,814
4,567
Non-cash amortization on investments
1,404
(509
)
Changes in assets and liabilities, net of effects from acquisitions
of businesses: Accounts receivable, net
(160,904
)
(54,261
)
Pharmaceutical inventory
(3,090
)
(7,555
)
Other assets
(60,008
)
(35,714
)
Accounts payable and accrued liabilities
(13,781
)
83,976
Medical claims payable and other medical liabilities
73,667
11,997
Contingent consideration
451
(3,754
)
Tax contingencies
100
(251
)
Deferred credits and other long-term liabilities
16,497
(9,566
)
Other
93
919
Net cash provided by operating activities
34,017
144,423
Cash flows from investing activities: Capital
expenditures
(51,244
)
(44,234
)
Acquisitions and investments in businesses, net of cash acquired
(402
)
(320
)
Purchases of investments
(453,007
)
(391,062
)
Proceeds from maturities and sales of investments
400,683
434,493
Net cash used in investing activities
(103,970
)
(1,123
)
Cash flows from financing activities: Payments to
acquire treasury stock
(41,039
)
(4,124
)
Proceeds from exercise of stock options
22,587
20,653
Payments on debt, finance lease and deferred financing obligations
(75,043
)
(50,950
)
Payments on contingent consideration
-
(6,247
)
Other
(1,020
)
1,763
Net cash used in financing activities
(94,515
)
(38,905
)
Net (decrease) increase in cash and cash equivalents
(164,468
)
104,395
Cash and cash equivalents at beginning of period
398,732
272,308
Cash and cash equivalents at end of period
$
234,264
$
376,703
MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED
OPERATING RESULTS BY BUSINESS SEGMENT (Unaudited) (In
thousands)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2018
2019
2018
2019
Healthcare Managed care and other
revenue
$
1,176,439
$
1,234,086
$
3,488,928
$
3,618,981
Cost of care
(938,031
)
(1,013,006
)
(2,802,506
)
(2,956,853
)
Direct service costs and other
(179,022
)
(178,538
)
(543,258
)
(535,676
)
Stock compensation expense (1)
2,165
2,202
7,857
6,396
Changes in fair value of contingent consideration (1)
148
4
451
(2,001
)
Healthcare segment profit
61,699
44,748
151,472
130,847
Pharmacy Management Managed
care and other revenue
59,500
69,968
182,410
192,511
PBM revenue
665,734
572,086
1,940,726
1,678,661
Cost of goods sold
(618,463
)
(528,500
)
(1,827,327
)
(1,563,910
)
Direct service costs and other
(74,491
)
(79,842
)
(221,018
)
(238,253
)
Stock compensation expense (1)
1,359
1,669
4,252
5,465
Pharmacy Management segment profit
33,639
35,381
79,043
74,474
Corporate and Elimination (2)
Managed care and other revenue
(152
)
(118
)
(448
)
(434
)
PBM revenue
(48,015
)
(47,081
)
(142,110
)
(132,953
)
Cost of goods sold
47,318
46,223
138,098
130,653
Direct service costs and other
(11,958
)
(7,942
)
(29,424
)
(30,751
)
Stock compensation expense (1)
5,796
940
15,296
7,971
Corporate and Elimination
(7,011
)
(7,978
)
(18,588
)
(25,514
)
Consolidated Managed care and
other revenue
1,235,787
1,303,936
3,670,890
3,811,058
PBM revenue
617,719
525,005
1,798,616
1,545,708
Cost of care
(938,031
)
(1,013,006
)
(2,802,506
)
(2,956,853
)
Cost of goods sold
(571,145
)
(482,277
)
(1,689,229
)
(1,433,257
)
Direct service costs and other
(265,471
)
(266,322
)
(793,700
)
(804,680
)
Stock compensation expense (1)
9,320
4,811
27,405
19,832
Changes in fair value of contingent consideration (1)
148
4
451
(2,001
)
Consolidated segment profit
$
88,327
$
72,151
$
211,927
$
179,807
Reconciliation of income before income taxes to
segment profit: Income before income taxes
$
40,961
$
29,142
$
70,713
$
51,331
Stock compensation expense
9,320
4,811
27,405
19,832
Changes in fair value of contingent consideration
148
4
451
(2,001
)
Depreciation and amortization
33,047
34,157
97,302
98,355
Interest expense
8,990
9,007
26,034
27,255
Interest and other income
(4,139
)
(4,970
)
(9,978
)
(14,965
)
Segment profit
$
88,327
$
72,151
$
211,927
$
179,807
(1) Stock compensation expense, changes in the fair value of
contingent consideration recorded in relation to acquisitions and
impairment of intangible assets are included in direct service
costs and other operating expenses; however, these amounts are
excluded from the computation of segment profit. (2)
Healthcare subcontracts with Pharmacy Management to provide
pharmacy benefits management services for certain of Healthcare’s
customers. In addition, Pharmacy Management provides pharmacy
benefits management for the Company’s employees covered under its
medical plan. As such, revenue, cost of goods sold and direct
service costs and other related to these arrangements are
eliminated.
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
NON-GAAP MEASURES (Unaudited) (In thousands,
except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2018
2019
2018
2019
Net income
$
27,145
$
21,274
$
52,148
$
35,318
Adjusted for acquisitions starting in 2013 Stock compensation
expense
-
-
530
-
Changes in fair value of contingent consideration
148
4
451
(2,001
)
Amortization of acquired intangibles
12,079
12,272
36,676
36,817
Tax impact
(3,220
)
(3,304
)
(9,577
)
(9,261
)
Adjusted net income
$
36,152
$
30,246
$
80,228
$
60,873
Net income per common share—diluted
$
1.09
$
0.86
$
2.06
$
1.44
Adjusted for acquisitions starting in 2013 Stock compensation
expense
-
-
0.02
-
Changes in fair value of contingent consideration
0.01
-
0.02
(0.08
)
Amortization of acquired intangibles
0.48
0.50
1.45
1.51
Tax impact
(0.13
)
(0.13
)
(0.38
)
(0.38
)
Adjusted earnings per share
$
1.45
$
1.23
$
3.17
$
2.49
MAGELLAN HEALTH, INC. AND SUBSIDIARIES FISCAL 2019
GUIDANCE (In millions, except per share amounts)
July 30, 2019 November 1, 2019 Low
High Low High Net revenue
$
7,000.0
$
7,200.0
$
7,000.0
$
7,200.0
Income before income taxes
75.0
117.0
66.0
94.0
Net income
52.0
79.0
47.0
65.0
Segment profit (1)
270.0
290.0
245.0
260.0
Adjusted net income (1)
90.0
114.0
82.0
98.0
Per share results: Earnings per share (2)
2.14
3.25
1.92
2.65
Adjusted earnings per share (1)(2)
3.70
4.69
3.35
4.00
(1) Refer to the Reconciliation of GAAP to Non-GAAP measures table.
(2) Based on average fully diluted shares of 24.3 million
and 24.5 million for July 30, 2019 guidance and November 1, 2019
guidance, respectively.
MAGELLAN HEALTH, INC. AND
SUBSIDIARIES FISCAL 2019 GUIDANCE RECONCILIATION OF
GAAP TO NON-GAAP MEASURES (In millions, except per share
amounts) July 30, 2019 November 1,
2019 Low High Low High Net
income attributable to Magellan
$
52.0
$
79.0
$
47.0
$
65.0
Adjusted for acquisitions starting in 2013 Changes in fair value of
contingent consideration
-
-
(2.0
)
(2.0
)
Amortization of acquired intangibles
52.0
47.0
51.0
48.0
Tax impact
(14.0
)
(12.0
)
(14.0
)
(13.0
)
Adjusted net income
$
90.0
$
114.0
$
82.0
$
98.0
Net income per common share attributable to
Magellan —Diluted
$
2.14
$
3.25
$
1.92
$
2.65
Adjusted for acquisitions starting in 2013 Changes in fair value of
contingent consideration
-
-
(0.08
)
(0.08
)
Amortization of acquired intangibles
2.14
1.93
2.08
1.96
Tax impact
(0.58
)
(0.49
)
(0.57
)
(0.53
)
Adjusted earnings per share
$
3.70
$
4.69
$
3.35
$
4.00
Reconciliation of income before income taxes
to segment profit: Income before income taxes
$
75.0
$
117.0
$
66.0
$
94.0
Stock compensation expense
33.0
29.0
27.0
25.0
Changes in fair value of contingent consideration
-
-
(2.0
)
(2.0
)
Depreciation and amortization
136.0
126.0
134.0
130.0
Interest expense
38.0
34.0
38.0
34.0
Interest income
(12.0
)
(16.0
)
(18.0
)
(21.0
)
Segment profit
$
270.0
$
290.0
$
245.0
$
260.0
(MGLN-GEN)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191101005122/en/
Media Contact: Lilly Ackley, ackleyl@magellanhealth.com,
(860) 507-1923 Investor Contact: Joe Bogdan,
jbogdan@magellanhealth.com, (860) 507-1910
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