Magellan Health, Inc. (NASDAQ: MGLN) today announced financial
results for the fourth quarter and full year ended December 31,
2019, as summarized below:
Three Months Ended Years Ended December 31
December 31 (In millions, except per share results)
2019
2018
Chg
2019
2018
Chg
Net revenue
$
1,802.7
$
1,844.6
-2.3
%
$
7,159.4
$
7,314.2
-2.1
%
Net income (loss)
$
20.6
$
(28.0
)
n/m
$
55.9
$
24.2
131.2
%
Segment profit [1]
$
72.9
$
16.0
354.4
%
$
252.7
$
228.0
10.8
%
Adjusted net income (loss) [1]
$
30.8
$
(18.6
)
n/m
$
91.7
$
61.7
48.7
%
Diluted per share results: Earnings (Loss) per share
$
0.84
$
(1.16
)
n/m
$
2.28
$
0.97
135.1
%
Adjusted earnings (loss) per share [1]
$
1.24
$
(0.77
)
n/m
$
3.73
$
2.46
51.6
%
[1] Refer to the Basis of Presentation for a discussion of non-GAAP
financial measures.
Highlights Include:
- Net revenue for the year ended December 31, 2019 was $7.2
billion largely consistent with 2018.
- Net income for the year ended December 31, 2019 increased to
$55.9 million from 2018.
- Segment profit for the year ended December 31, 2019 increased
to $252.7 million from 2018.
- Adjusted net income for the year ended December 31, 2019
increased to $91.7 million from 2018.
- Unrestricted cash and investments totaled $195.4 million, which
represents an increase of $65.0 million from the balance at
December 31, 2018. Approximately $134.8 million of the unrestricted
cash and investments at December 31, 2019 is related to excess
capital and undistributed earnings held at regulated entities.
- On December 20, 2019, the Company entered into a contract with
the California Department of Health Care Services (DHCS) for the
provision of pharmacy benefit administration services statewide
effective January 1, 2021.
- On December 5, 2019, the Company’s Board of Directors announced
the appointment of James Murray as president and chief operating
officer of Magellan Health.
- On February 3, 2020, the Company’s Board of Directors announced
the appointment of David Haddock as general counsel and secretary
of Magellan Health.
“We have made significant investments in Magellan Complete Care
and Magellan Rx Management, and, as a result, we have experienced
recent growth within those businesses, including the pharmacy PBA
win in California,” said Kenneth J. Fasola, chief executive
officer. “I believe we have far more growth potential across our
businesses. In particular, I see a large market for a revitalized
and expanded suite of payer solutions within our Behavioral and
Specialty Health business.”
Net Revenue
For the year ended December 31, 2019, revenue was $7.2 billion,
largely consistent with 2018. Net revenue growth in Magellan
Complete Care (MCC) was largely offset by the loss of a health plan
PBM customer due to an acquisition and the planned reduction in the
geographic scope of the Company’s Part D pharmacy plan.
Segment Profit
For the year ended December 31, 2019, segment profit increased
10.8 percent to $252.7 million from $228.0 million for the year
ended December 31, 2018.
- Healthcare segment profit for the full year ended December 31,
2019, was $177.4 million compared to $149.1 million in 2018. The
2019 increase was primarily driven by MCC cost of care improvements
in Virginia, partially offset by the contraction in the MCC Florida
footprint and the Behavioral and Specialty utilization
pressure.
- Pharmacy Management segment profit of $110.4 million for the
year ended December 31, 2019, which was an increase from the $104.4
million in 2018. The year-over-year increase was primarily due to
the strong results in the specialty division and improved margins
in the PBM business, partially off-set by lower discretionary
benefits in 2018.
- Corporate costs inclusive of eliminations, but excluding stock
compensation expense, totaled $35.2 million for the year ended
December 31, 2019, compared to $25.6 million in 2018. The increase
is mainly due to lower discretionary benefits in 2018.
Cash Flow & Balance Sheet
Cash flow from operations for the year ended December 31, 2019,
was $115.8 million, compared to $164.8 million for the prior year.
The decline is largely due to the timing of receipt of MCC
capitation payments.
As of December 31, 2019, the Company’s unrestricted cash and
investments totaled $195.4 million, which represents an increase of
$65.0 million from the balance at December 31, 2018. Approximately
$134.8 million of the unrestricted cash and investments at December
31, 2019 is related to excess capital and undistributed earnings
held at regulated entities.
Restricted cash and investments at December 31, 2019, of $475.0
million reflected a decrease of $52.6 million from the balance at
December 31, 2018. This decrease is primarily attributable to a
delay in health plan capitation payments from the state of New
York, partially off-set by growth in MCC Virginia.
2020 Guidance
The Company announced its 2020 full year guidance
parameters:
2020 Guidance (In millions, except per share results)
Low High
Net revenue
$
7,000.0
$
7,400.0
Income before income taxes
$
79.0
$
109.0
Net income
$
42.0
$
62.0
Segment Profit[1]
$
250.0
$
280.0
Adjusted net income[1]
$
83.0
$
103.0
Diluted per share results: Earnings per share[2]
$
1.69
$
2.49
Adjusted earnings per share[1][2]
$
3.34
$
4.14
[1] Refer to the Basis of Presentation for a discussion of non-GAAP
financial measures. [2] 2020 EPS and Adjusted EPS guidance includes
share repurchases and option exercises through the close of
business February 21, 2020, but excludes the impact of any
potential future activity.
The Company expects net revenue in the range of $7.0 to $7.4
billion. Net income is expected to be in the range of $42 to $62
million, which equates to a diluted earnings per share range of
$1.69 to $2.49. Adjusted net income is expected to be in the range
of $83 to $103 million, which equates to an adjusted EPS range of
$3.34 to $4.14. Segment profit for the full year 2020 is expected
to be in the range of $250 to $280 million.
“We ended 2019 with solid fourth quarter results, and I believe
that our 2020 guidance strikes a good balance between current
earnings and the necessary investments to establish a strong
foundation for growth and margin expansion in 2021 and beyond,”
said Jonathan N. Rubin, chief financial officer.
Earnings Conference Call
Management will discuss the Company’s fourth quarter and year
end results along with 2020 financial guidance on a conference call
scheduled for Friday, February 28, 2020 at 8:30 a.m. Eastern. To
participate in the conference call, dial 1-888-566-5773 and use
passcode “4th Quarter 2019 Earnings and 2020 Guidance”
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 MagellanHealth.com. A
telephonic replay will be available shortly after the conclusion of
the call through March 31, 2020. This replay may be accessed by
dialing 1-800-766-1882 (Domestic) or 1-402-998-0968
(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 2020 guidance for net revenue, income before
income taxes, net income, earnings per share, segment profit,
adjusted net income, adjusted earnings per share; growth and margin
opportunities and initiatives; business environment, long term
opportunities and strategy; and transformation, process improvement
and innovation initiatives. 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 including its transformation, process
improvement and innovation 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, 2019, to be filed with the Securities and Exchange Commission
later today, and the Company’s subsequent Quarterly Reports on Form
10-Q to be filed during 2020. 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 December 31, 2019 ASSETS Current
Assets: Cash and cash equivalents
$
272,308
$
325,249
Accounts receivable, net
756,059
890,065
Short-term investments
382,582
334,489
Pharmaceutical inventory
40,818
44,962
Other current assets
95,400
78,278
Total Current Assets
1,547,167
1,673,043
Property and equipment, net
150,748
138,422
Long-term investments
3,161
10,668
Deferred income taxes
3,411
1,840
Other long-term assets
24,530
82,700
Goodwill
1,018,156
1,018,156
Other intangible assets, net
231,883
167,344
Total Assets
$
2,979,056
$
3,092,173
LIABILITIES AND STOCKHOLDERS' EQUITY Current
Liabilities: Accounts payable
$
72,077
$
88,415
Accrued liabilities
231,356
284,024
Short-term contingent consideration
8,000
-
Medical claims payable
393,547
409,533
Other medical liabilities
169,639
124,684
Current debt, finance lease and deferred financing obligations
24,274
3,491
Total Current Liabilities
898,893
910,147
Long-term debt, finance lease and deferred financing obligations
728,608
679,125
Deferred income taxes
11,167
17,034
Tax contingencies
16,478
14,841
Long-term contingent consideration
2,124
-
Deferred credits and other long-term liabilities
36,483
73,243
Total Liabilities
1,693,753
1,694,390
Stockholders’ Equity: Ordinary common stock
535
543
Additional paid-in capital
1,326,645
1,386,616
Retained earnings
1,419,449
1,475,207
Accumulated other comprehensive (loss) income
(324
)
144
Ordinary common stock in treasury, at cost
(1,461,002
)
(1,464,727
)
Total Stockholders’ Equity
1,285,303
1,397,783
Total Liabilities and Stockholders’ Equity
$
2,979,056
$
3,092,173
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In
thousands, except per share amounts)
Three Months Ended
Years Ended
December 31,
December 31,
2018
2019
2018
2019
(unaudited) (unaudited) Net revenue: Managed care and
other
$
1,207,552
$
1,292,335
$
4,878,442
$
5,103,393
PBM
637,093
510,322
2,435,709
2,056,030
Total net revenue
1,844,645
1,802,657
7,314,151
7,159,423
Costs and expenses: Cost of care
959,906
983,678
3,762,412
3,940,531
Cost of goods sold
593,793
465,614
2,283,022
1,898,871
Direct service costs and other operating expenses (1)(2)
277,835
286,051
1,071,535
1,090,731
Depreciation and amortization
35,358
33,154
132,660
131,509
Interest expense
9,362
8,898
35,396
36,153
Interest and other income
(4,090
)
(4,224
)
(14,068
)
(19,189
)
Total costs and expenses
1,872,164
1,773,171
7,270,957
7,078,606
(Loss) income before income taxes
(27,519
)
29,486
43,194
80,817
Provision for income taxes
448
8,902
19,013
24,915
Net (loss) income
$
(27,967
)
$
20,584
$
24,181
$
55,902
Weighted average number of common shares outstanding — basic
24,048
24,491
24,349
24,243
Weighted average number of common shares outstanding — diluted
24,048
24,905
25,035
24,563
Net (loss) income per common share — basic
$
(1.16
)
$
0.84
$
0.99
$
2.31
Net (loss) income per common share — diluted
$
(1.16
)
$
0.84
$
0.97
$
2.28
Net (loss) income
$
(27,967
)
$
20,584
$
24,181
$
55,902
Other comprehensive income (loss): Unrealized gains (losses) on
available-for-sale securities (3)
48
(173
)
56
468
Comprehensive (loss) income
$
(27,919
)
$
20,411
$
24,237
$
56,370
(1) Includes stock compensation expense of $2,067 and $5,669 for
the three months ended December 31, 2018 and 2019, respectively,
and $29,472 and $25,501 for the years ended December 31, 2018 and
2019, respectively. (2) Includes changes in fair value of
contingent consideration of $856 and $(123) for the three months
ended December 31, 2018 and 2019, respectively, and $1,307 and
$(2,124) for the years ended December 31, 2018 and 2019,
respectively. (3) Net of income tax provision (benefit) of
$15 and $(52) for the three months ended December 31, 2018 and
2019, respectively, and $18 and $150 for the years ended December
31, 2018 and 2019, respectively.
MAGELLAN HEALTH, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
December 31,
2018
2019
Cash flows from operating activities: Net income
$
24,181
$
55,902
Adjustments to reconcile net income to net cash from operating
activities: Depreciation and amortization
132,660
131,509
Non-cash interest expense
1,221
1,537
Non-cash stock compensation expense
29,472
25,501
Non-cash income tax (benefit) provision
(1,725
)
7,052
Non-cash amortization on investments
1,344
(433
)
Changes in assets and liabilities, net of effects from acquisitions
of businesses: Accounts receivable, net
(99,295
)
(133,999
)
Pharmaceutical inventory
127
(4,144
)
Other assets
(25,774
)
19,492
Accounts payable and accrued liabilities
9,139
56,843
Medical claims payable and other medical liabilities
72,347
(28,969
)
Contingent consideration
1,307
(3,877
)
Tax contingencies
1,803
(1,352
)
Deferred credits and other long-term liabilities
18,020
(10,668
)
Other
17
1,452
Net cash provided by operating activities
164,844
115,846
Cash flows from investing activities: Capital
expenditures
(68,275
)
(60,402
)
Acquisitions and investments in businesses, net of cash acquired
(958
)
(727
)
Purchases of investments
(557,232
)
(514,324
)
Proceeds from maturities and sales of investments
498,032
555,960
Net cash used in investing activities
(128,433
)
(19,493
)
Cash flows from financing activities: Payments to
acquire treasury stock
(62,640
)
(4,125
)
Proceeds from exercise of stock options
23,064
32,708
Payments on debt, finance lease and deferred financing obligations
(122,239
)
(67,511
)
Payments on contingent consideration
-
(6,247
)
Other
(1,020
)
1,763
Net cash used in financing activities
(162,835
)
(43,412
)
Net (decrease) increase in cash and cash equivalents
(126,424
)
52,941
Cash and cash equivalents at beginning of period
398,732
272,308
Cash and cash equivalents at end of period
$
272,308
$
325,249
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS BY BUSINESS SEGMENT (In
thousands)
Three Months Ended
Years Ended
December 31,
December 31,
2018
2019
2018
2019
(unaudited) (unaudited) Healthcare Managed care and other revenue
$
1,149,694
$
1,219,565
$
4,638,622
$
4,838,546
Cost of care
(959,906
)
(983,678
)
(3,762,412
)
(3,940,531
)
Direct service costs and other
(192,108
)
(191,261
)
(735,366
)
(726,937
)
Stock compensation expense (1)
(875
)
2,071
6,982
8,467
Changes in fair value of contingent consideration (1)
856
(123
)
1,307
(2,124
)
Healthcare segment (loss) profit
(2,339
)
46,574
149,133
177,421
Pharmacy Management Managed
care and other revenue
58,017
72,928
240,427
265,439
PBM revenue
684,691
558,168
2,625,417
2,236,829
Cost of goods sold
(640,843
)
(512,599
)
(2,468,170
)
(2,076,509
)
Direct service costs and other
(77,695
)
(84,909
)
(298,713
)
(323,162
)
Stock compensation expense (1)
1,206
2,369
5,458
7,834
Pharmacy Management segment profit
25,376
35,957
104,419
110,431
Corporate and Elimination (2)
Managed care and other revenue
(159
)
(158
)
(607
)
(592
)
PBM revenue
(47,598
)
(47,846
)
(189,708
)
(180,799
)
Cost of goods sold
47,050
46,985
185,148
177,638
Direct service costs and other
(8,032
)
(9,881
)
(37,456
)
(40,632
)
Stock compensation expense (1)
1,736
1,229
17,032
9,200
Corporate and Elimination
(7,003
)
(9,671
)
(25,591
)
(35,185
)
Consolidated Managed care and
other revenue
1,207,552
1,292,335
4,878,442
5,103,393
PBM revenue
637,093
510,322
2,435,709
2,056,030
Cost of care
(959,906
)
(983,678
)
(3,762,412
)
(3,940,531
)
Cost of goods sold
(593,793
)
(465,614
)
(2,283,022
)
(1,898,871
)
Direct service costs and other
(277,835
)
(286,051
)
(1,071,535
)
(1,090,731
)
Stock compensation expense (1)
2,067
5,669
29,472
25,501
Changes in fair value of contingent consideration (1)
856
(123
)
1,307
(2,124
)
Consolidated segment profit
$
16,034
$
72,860
$
227,961
$
252,667
Reconciliation of (loss) income before income
taxes to segment profit: (Loss) income before income taxes
$
(27,519
)
$
29,486
$
43,194
$
80,817
Stock compensation expense
2,067
5,669
29,472
25,501
Changes in fair value of contingent consideration
856
(123
)
1,307
(2,124
)
Depreciation and amortization
35,358
33,154
132,660
131,509
Interest expense
9,362
8,898
35,396
36,153
Interest and other income
(4,090
)
(4,224
)
(14,068
)
(19,189
)
Segment profit
$
16,034
$
72,860
$
227,961
$
252,667
(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 (In thousands, except per share
amounts)
Three Months Ended
Years Ended
December 31,
December 31,
2018
2019
2018
2019
(unaudited) (unaudited) Net (loss) income
$
(27,967
)
$
20,584
$
24,181
$
55,902
Adjusted for acquisitions starting in 2013 Stock compensation
expense
-
-
530
-
Changes in fair value of contingent consideration
856
(123
)
1,307
(2,124
)
Amortization of acquired intangibles
12,402
14,273
49,078
51,090
Tax impact
(3,858
)
(3,906
)
(13,435
)
(13,167
)
Adjusted net (loss) income
$
(18,567
)
$
30,828
$
61,661
$
91,701
Net (loss) income per common share—diluted
$
(1.16
)
$
0.84
$
0.97
$
2.28
Adjusted for acquisitions starting in 2013 Stock compensation
expense
-
-
0.02
-
Changes in fair value of contingent consideration
0.03
(0.01
)
0.05
(0.09
)
Amortization of acquired intangibles
0.52
0.57
1.96
2.08
Tax impact
(0.16
)
(0.16
)
(0.54
)
(0.54
)
Adjusted (loss) earnings per share
$
(0.77
)
$
1.24
$
2.46
$
3.73
MAGELLAN HEALTH, INC. AND SUBSIDIARIES FISCAL 2020
GUIDANCE (In millions, except per share amounts)
February 28, 2020
Low
High
Net revenue
$
7,000.0
$
7,400.0
Income before income taxes
79.0
109.0
Net income
42.0
62.0
Segment profit (1)
250.0
280.0
Adjusted net income (1)
83.0
103.0
Diluted per share results: Earnings per share (2)
1.69
2.49
Adjusted earnings per share (1)(2)
3.34
4.14
(1) Refer to the Reconciliation of GAAP to Non-GAAP measures table.
(2) Based on average fully diluted shares of 24.9 million.
MAGELLAN HEALTH, INC. AND SUBSIDIARIES FISCAL 2020
GUIDANCE RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
February 28, 2020 Low High Net income
attributable to Magellan
$
42.0
$
62.0
Adjusted for acquisitions starting in 2013 Amortization of acquired
intangibles ~56.0 Tax impact ~(15.0) Adjusted net income
$
83.0
$
103.0
Net income per common share attributable to
Magellan —Diluted
$
1.69
$
2.49
Adjusted for acquisitions starting in 2013 Amortization of acquired
intangibles ~2.25 Tax impact ~(0.60) Adjusted earnings per share
$
3.34
$
4.14
Reconciliation of income before income taxes
to segment profit: Income before income taxes
$
79.0
$
109.0
Stock compensation expense ~29.0 Depreciation and amortization
~122.0 Interest expense ~34.0 Interest income ~(14.0) Segment
profit
$
250.0
$
280.0
(MGLN-GEN)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200228005082/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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