Authorizes $200 Million Share Repurchase
Program; Updates Guidance
Magellan Health, Inc. (NASDAQ:MGLN) today reported financial
results for the third quarter 2014, as summarized below. For the
quarter ended September 30, 2014, the company reported net revenue
of $923.2 million, segment profit of $62.2 million and net income
of $27.1 million, or $1.00 per diluted common share.
Third Quarter Financial Results1
Three Months Ended
September 30, 2014
Nine Months Ended
September 30, 2014
(Millions, except per share
results)
2014 2013
Increase/
2014 2013
Increase/ (Decrease)
(Decrease) Revenue $ 923.2 $
873.6 5.7 % $ 2,777.7 $ 2,538.1 9.4 %
Segment Profit2
62.2 59.2 5.1 % 183.7 203.5 (9.7 )% Net Income 27.1 47.2 (42.6 )%
57.8 106.8 (45.9 )%
Adjusted Net Income3
35.2 47.2 (25.4 )% 73.4 106.8 (31.3 )% Earnings per Share 1.00 1.70
(41.2 )% 2.09 3.87 (46.0 )% Adjusted Earnings per Share3 1.30 1.70
(23.5 )% 2.66 3.87 (31.3 )%
- Revenue increased due to the inclusion
of Partners Rx and CDMI in the current year quarter, new business,
same store growth and rate increases, partially offset by the loss
of revenues associated with terminated contracts.
- Third quarter segment profit increased
mainly due to stronger results in the Commercial and Pharmacy
Management segments, partially offset by terminated contracts, as
well as administrative start-up costs and estimated operating
losses for Magellan Complete Care.
- Net income, earnings per share,
adjusted net income and adjusted earnings per share decreased
mainly due to a higher effective tax rate resulting from the
non-deductibility of Health Insurer Fees, lower reversals of tax
contingencies, and increased valuation allowances in the current
year for certain deferred tax assets, offset by an increase in
segment profit. Reversals of tax contingencies affecting the tax
provision were $15.6 million in the current year quarter, and $22.7
million in the prior year quarter.
1 Included in the tables issued with this press release are the
reconciliations from non-GAAP measures to the corresponding GAAP
measures.
2 Segment profit is equal to net revenues 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, as well as stock
compensation expense.
3 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, as well as amortization
of identified acquisition intangibles.
As of September 30, 2014, the company had unrestricted cash and
investments of $390.8 million, which includes proceeds from the
drawdown of the $250 million term loan under the company’s new
credit facility.
“This has been a transitional year for Magellan,” said Barry M.
Smith, chairman and chief executive officer of Magellan Health. “We
stabilized our business, made important acquisitions, and continued
to advance our growth strategies. As we approach the end of the
year, we remain firmly focused on the work necessary to achieve our
aggressive long-term growth targets as the leader in special
population management.
“Our three core businesses – including Magellan Complete Care –
provide a broad range of next generation solutions to address
today’s healthcare challenges and tomorrow’s healthcare
opportunities. I am extremely pleased that we are anticipating
solid growth next year, and are well positioned for continued
growth in the future.”
Share Repurchase Program
Year-to-date through Tuesday, October 21, 2014, the company
repurchased approximately 2.8 million shares for a total cost of
$161.8 million, at average price of $57.54, and has completed
approximately $277.7 million of the current $300 million
authorization. The Board of Directors has authorized a new share
repurchase program of up to $200 million over a two year period
until October 22, 2016. The shares may be purchased from
time-to-time on the open market, under 10b5-1 plans, or in
privately negotiated transactions. There are a number of factors
that impact the timing and pace of purchases, such as stock price,
capital needs, acquisitions and determination of open and closed
trading windows.
Results and Outlook
“The third quarter of 2014 was a strong one for Magellan,
particularly in our Commercial, Specialty Solutions and Pharmacy
Management segments,” said Jonathan N. Rubin, chief financial
officer. “We resolved the cost of care issues that we experienced
on one of our risk behavioral health contracts. The care costs
recorded in the quarter for Magellan Complete Care of Florida
resulted in an estimated Medical Loss Ratio of approximately 100
percent, which is within the range of our expectations for the
start-up phase of the program. It’s important to note, however,
that these estimates are based on limited data, as we only have
leading indicators of drug costs and inpatient pre-authorizations.
We expect to have a more complete view of full claims data in early
2015.
“Given the results to date, we are now expecting our full year
2014 guidance for net revenue in the range of $3.6 to $3.8 billion,
net income of $63 to $77 million, segment profit in the range of
$243 million to $258 million, and cash flow from operations of $207
million to $226 million. Taking into account the impact of share
repurchase activity through October 21, 2014, but not considering
any potential future share repurchases, our guidance range for
fully diluted EPS is estimated to be $2.30 to $2.81, based on a
fully diluted share count of 27.4 million. We are also revising our
2014 guidance range for full-year adjusted net income of $88.0
million to $102.0 million. We have updated our guidance for
adjusted earnings per share to a range of $3.21 to $3.72, based on
the updated fully diluted share count.
“Looking ahead, we expect to have solid segment profit growth in
2015. We will provide detailed 2015 guidance during our December
call.”
Earnings Conference Call
Management will host a conference call at 10 a.m. Eastern time
on Friday, October 24, 2014. To participate in the conference call,
interested parties should call 1-800-857-1812 and reference the
pass code Third Quarter 2014 Earnings Call approximately 15 minutes
before the start of the call. The conference call will also be
available via a live webcast at Magellan’s investor relations page
at MagellanHealth.com.
About Magellan Health: Headquartered in Scottsdale,
Ariz., Magellan Health, Inc. is a healthcare management company
that focuses on fast-growing, complex and high-cost areas of
healthcare, with an emphasis on special population management.
Magellan delivers innovative solutions to improve quality outcomes
and optimize the cost of care for those we serve. Magellan’s
customers include health plans, managed care organizations,
insurance companies, employers, labor unions, various military and
government agencies, third party administrators, consultants and
brokers. For more information, visit MagellanHealth.com.
Cautionary Statement
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. All statements, other than statements of historical
information provided herein, may be deemed to be forward-looking
statements including, without limitation, statements regarding
estimates of 2014 net revenue, net income, adjusted net income,
segment profit, cash flow from operations, earnings per share,
adjusted earnings per share, capital deployment, 2015 segment
profit growth 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 health care 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; health care 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, 2013, filed
with the Securities and Exchange Commission on March 3, 2014, and
the company’s subsequent Quarterly Reports on Form 10-Q filed
during 2014. 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 information referred to herein may be
considered a non-GAAP financial measure. Further information
regarding this measure, 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 STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (In thousands, except per share amounts)
Three Months Ended Nine
Months Ended September 30, September 30,
2013
2014 (1
)
2013
2014 (1
)
Net revenue: Managed care and other $ 770,113 $ 703,020 $
2,239,422 $ 2,214,885 PBM and dispensing 103,485
220,150 298,685 562,774
Total net revenue 873,598 923,170
2,538,107 2,777,659 Costs and
expenses: Cost of care 564,537 495,180 1,627,194 1,582,505 Cost of
goods sold 97,503 202,180 281,190 520,044 Direct service costs and
other operating expenses (2) 156,834 176,928 440,958 520,684
Depreciation and amortization 17,654 23,956 50,770 66,665 Interest
expense 789 2,879 2,191 5,719 Interest income (291 )
(241 ) (1,002 ) (827 ) Total costs and expenses
837,026 900,882 2,401,301
2,694,790 Income before income taxes 36,572 22,288
136,806 82,869 (Benefit) provision for income taxes (10,660
) (3,490 ) 30,036 28,384 Net
income 47,232 25,778 106,770 54,485 Less: net income (loss)
attributable to non-controlling interest -
(1,355 ) - (3,354 ) Net income attributable to
Magellan Health, Inc. $ 47,232 $ 27,133 $ 106,770
$ 57,839 Weighted average number of common
shares outstanding — Basic 26,990 26,703 26,976 27,070 Weighted
average number of common shares outstanding — Diluted 27,704 27,242
27,563 27,684 Net income per common share attributable to
Magellan Health, Inc. - Basic $ 1.75 $ 1.02 $ 3.96 $ 2.14 Net
income per common share attributable to Magellan Health, Inc. -
Diluted $ 1.70 $ 1.00 $ 3.87 $ 2.09 Net income $ 47,232 $
25,778 $ 106,770 $ 54,485 Other comprehensive income: Unrealized
gains (losses) on available-for-sale securities (3) 110
(111 ) (37 ) 2 Comprehensive
income 47,342 25,667 106,733 54,487 Less: comprehensive income
(loss) attributable to non-controlling interest -
(1,355 ) - (3,354 ) Comprehensive
income attributable to Magellan Health, Inc. $ 47,342 $
27,022 $ 106,733 $ 57,841
(1) For a more detailed discussion of
Magellan Health's results for the quarterly period ended September
30, 2014, refer to the Company's Quarterly
Report on Form 10-Q, which will be filed with the SEC on, or
shortly after, Friday, October 24, 2014, and the live broadcast or
taped replay of the Company's earnings conference call on Friday,
October 24, 2014, which will be available at
www.MagellanHealth.com. (2) Includes stock compensation
expense of $4,524 and $11,961 for the three months ended September
30, 2013 and 2014, respectively, and $14,764 and $25,983 for the
nine months ended September 30, 2013 and 2014, respectively.
(3) Net of income tax provision (benefit) of $74 and $(74) for the
three months ended September 30, 2013 and 2014, respectively, and
$(25) and $1 for the nine months ended September 30, 2013 and 2014,
respectively.
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,
2013
2014 (1
)
2013
2014 (1
)
Adjusted Net Income $ 47,232 $ 35,192 $ 106,770 $ 73,448
Adjusted for acquisitions starting in 2013 Amortization of acquired
intangibles - (4,317 ) - (9,376 ) Stock compensation relating to
acquisitions - (8,885 ) - (16,196 ) Tax impact -
5,143 - 9,963 Net income attributable
to Magellan Health, Inc. $ 47,232 $ 27,133 $ 106,770 $
57,839 Adjusted EPS $ 1.70 $ 1.30 $ 3.87 $
2.66 Adjusted for acquisitions starting in 2013 Amortization of
acquired intangibles - (0.16 ) - (0.34 ) Stock compensation
relating to acquisitions - (0.33 ) - (0.59 ) Tax impact -
0.19 - 0.36 Net income per
common share attributable to Magellan Health, Inc. - Diluted $ 1.70
$ 1.00 $ 3.87 $ 2.09 (1) The Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2014 will be filed with the SEC on, or shortly after,
Friday, October 24, 2014.
MAGELLAN HEALTH, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
Nine Months Ended September 30, 2013
2014 (1)
Cash flows from operating activities: Net income $
106,770 $ 54,485 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
50,770
66,665 Non-cash interest expense 552 3,888 Non-cash stock
compensation expense 14,764 25,983 Non-cash income tax (benefit)
expense (164) 813 Non-cash amortization on investments 7,273 3,620
Realized loss on sale of investments - 40 Cash flows from changes
in assets and liabilities, net of effects from acquisitions of
businesses: Restricted cash (2) 17,987 71,530 Accounts receivable,
net (19,231) (19,492) Pharmaceutical inventory (1,680) 8,710 Other
assets (9,781) (22,378) Accounts payable and accrued liabilities
6,685 (28,461) Medical claims payable and other medical liabilities
16,144 39,940 Tax contingencies (22,981) (15,179) Deferred credits
and other long-term liabilities 2,221 3,940 Other 1,953
138 Net cash provided by operating activities 171,282
194,242
Cash flows from investing activities:
Capital expenditures (42,091) (50,597) Acquisitions and investments
in businesses, net of cash acquired - (132,210) Purchase of
investments (235,946) (216,958) Maturity of investments 233,723
220,191 Other (7,900) - Net cash used in investing
activities (52,214) (179,574)
Cash flows
from financing activities: Proceeds from issuance of debt -
250,000 Payments to acquire treasury stock (49,462) (139,316)
Proceeds from exercise of stock options and warrants 24,548 41,685
Payments on capital lease obligations (2,310) (2,606) Other
484 655 Net cash (used in) provided by financing activities
(26,740) 150,418 Net increase in cash and cash
equivalents 92,328 165,086 Cash and cash equivalents at beginning
of period 189,464 203,187 Cash and cash equivalents
at end of period $ 281,792 $ 368,273 (1) The
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2014 will be filed with the SEC on, or shortly
after, Friday, October 24, 2014. (2) Includes the net shift
of restricted funds between cash and investments that results in an
operating cash flow change that is directly offset by an investing
cash flow change. During the nine months ended September 30, 2013
and 2014, restricted cash of $33,610 and $28,806, respectively, was
shifted to restricted investments that resulted in an operating
cash flow source.
MAGELLAN HEALTH, INC. AND
SUBSIDIARIES CONSOLIDATED OPERATING RESULTS BY BUSINESS
SEGMENT (Unaudited) (In thousands)
Three Months Ended
Nine Months Ended September 30, September 30,
2013
2014 (1)
2013
2014 (1)
Managed care and other revenue - Commercial $ 190,655 $
144,257 $ 578,030 $ 531,173 - Public Sector 445,260 388,682
1,266,739 1,206,579 - Specialty Solutions 94,125 120,808 277,118
345,568 - Pharmacy Management (2) 57,164 49,273 166,092 149,620 -
Elimination (2) (17,091) - (48,557)
(18,055) Total managed care and other revenue 770,113
703,020 2,239,422 2,214,885 PBM and dispensing
revenue - Pharmacy Management (2) 103,485 241,226 298,685 590,115 -
Elimination (2) - (21,076) - (27,341)
Total PBM and dispensing revenue 103,485 220,150
298,685 562,774 Cost of care - Commercial
118,022 71,264 354,520 299,318 - Public Sector (2) 382,913 337,128
1,095,694 1,034,754 - Specialty Solutions 65,403 86,787 182,212
250,192 - Pharmacy Management 15,290 1 43,325 16,296 - Elimination
(2) (17,091) - (48,557) (18,055) Total
cost of care 564,537 495,180 1,627,194
1,582,505 Cost of goods sold - Pharmacy Management (2)
97,503 223,251 281,190 547,362 - Elimination (2) -
(21,071) - (27,318) Total cost of goods sold
97,503 202,180 281,190 520,044 Direct
service costs and other operating expenses - Commercial 47,032
37,513 129,823 120,319 - Public Sector 27,826 45,789 82,403 134,138
- Specialty Solutions 13,990 17,843 41,224 50,881 - Pharmacy
Management 32,281 45,535 93,216 122,691 - Corporate 35,705
30,248 94,292 92,655 Total direct service
costs and other operating expenses 156,834 176,928
440,958 520,684 Stock compensation expense (3)
- Commercial (124) (164) (390) (476) - Public Sector (259) (225)
(833) (729) - Specialty Solutions (384) (269) (1,275) (1,037) -
Pharmacy Management (198) (8,122) (898) (13,981) - Corporate
(3,559) (3,181) (11,368) (9,760) Total stock
compensation expense (4,524) (11,961) (14,764)
(25,983) Less: non-controlling interest segment
profit (loss) - Public Sector (4) - (1,323) - (3,301)
Segment profit (loss) - Commercial 25,725 35,644 94,077 112,012 -
Public Sector 34,780 7,313 89,475 41,717 - Specialty Solutions
15,116 16,447 54,957 45,532 - Pharmacy Management 15,773 29,834
47,944 67,367 - Corporate and Elimination (32,146)
(27,072) (82,924) (82,918) Total segment profit $
59,248 $ 62,166 $ 203,529 $ 183,710
Reconciliation
of segment profit to income before income taxes: Segment
profit $ 59,248 $ 62,166 $ 203,529 $ 183,710 Stock compensation
expense (4,524) (11,961) (14,764) (25,983) Non-controlling interest
segment profit (loss) - (1,323) - (3,301) Depreciation and
amortization (17,654) (23,956) (50,770) (66,665) Interest expense
(789) (2,879) (2,191) (5,719) Interest income 291 241
1,002 827 Income before income taxes $ 36,572 $
22,288 $ 136,806 $ 82,869 (1) The Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
2014 will be filed with the SEC on, or shortly after, Friday,
October 24, 2014. (2) Public Sector subcontracts with
Pharmacy Management to provide pharmacy benefits management
services for certain of Public Sector's customers. In addition,
Pharmacy Management provides pharmacy benefits management for
Magellan's employees covered under its medical plan. As such,
revenue, cost of care, cost of goods sold and direct service costs
and other operating expenses related to these arrangements are
eliminated. (3) Stock compensation expense is included in
direct service costs and other operating expenses; however, this
amount is excluded from the computation of segment profit since it
is managed on a consolidated basis. (4) The non-controlling
portion of AlphaCare's segment profit (loss) is excluded from the
computation of segment profit.
Media:Colleen Flanagan Johnson,
860-507-1923cefjohnson@magellanhealth.comorInvestor:Renie
Shapiro Silver, 877-645-6464rshapiro@magellanhealth.com
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