Magellan Health, Inc. (NASDAQ: MGLN) today announced financial
results for the first quarter ended March 31, 2020, as summarized
below:
Three Months Ended March 31 (In millions, except per
share amounts)
2020
2019
Chg
Net revenue
$
1,794.3
$
1,739.5
3.2%
Net income
$
18.3
$
0.4
4134.3%
Segment profit [1]
$
74.8
$
45.6
64.3%
Adjusted net income [1]
$
28.6
$
9.6
199.3%
Earnings per share
$
0.73
$
0.02
3550.0%
Adjusted earnings per share [1]
$
1.15
$
0.40
187.5%
[1] Refer to the Basis of Presentation for a discussion of non-GAAP
financial measures.
Highlights:
- Net revenue increased 3.2 percent over the first quarter of
2019 to $1.8 billion.
- Net income increased 4134.3 percent over the first quarter of
2019 to $18.3 million.
- Segment profit increased 64.3 percent over the first quarter of
2019 to $74.8 million.
- Adjusted net income increased 199.3 percent over the first
quarter of 2019 to $28.6 million.
- Unrestricted cash and investments were $281.2 million as of
March 31, 2020. Approximately $123.3 million of the unrestricted
cash and investments at March 31, 2020 is related to excess capital
and undistributed earnings held at regulated entities.
- The Company is maintaining its full year 2020 earnings
guidance.
- On March 18, 2020, the Company announced the offering of
several services and resources in response to the spread of the
novel coronavirus (COVID-19) including the digital cognitive
behavioral therapy (DCBT) app, RESTORE®, at no cost for
individuals experiencing sleep difficulty and insomnia.
- On March 20, 2020, the Company expanded telehealth services and
implemented additional initiatives to help support clients during
the COVID-19 pandemic.
- On April 10, 2020, the Company opened a free national 24-hour
crisis line for all first responders and healthcare workers who are
serving on the front lines battling the coronavirus pandemic.
- On April 30, 2020, the Company and Molina Healthcare, Inc.
entered into definitive agreements to divest Magellan Complete
Care.
“Magellan Health has a vital, ongoing and shared responsibility
in protecting the mental and physical health of millions of
people,” said Kenneth Fasola, chief executive officer of Magellan
Health. “In fact, the coronavirus pandemic has made abundantly
clear what we already knew – the behavioral health of individuals
remains a critical societal need, presenting challenges for health
plans, employers and government payors – a challenge and
opportunity Magellan is well positioned to address.”
Divestiture of Magellan Complete Care
On April 30, 2020, the Company announced that it entered into a
definitive agreement with Molina Healthcare, Inc. to sell its
Magellan Complete Care (MCC) business to Molina for a cash purchase
price of $850 million, subject to regulatory approvals and other
customary closing conditions. MCC, with revenue of over $2.7
billion in 2019, manages full-service Medicaid and Medicare health
plans including Magellan Complete Care in Arizona, Florida and
Virginia; Senior Whole Health in Massachusetts and New York; and
TMG by Magellan in Wisconsin. The transaction is expected to be
completed by the end of the first quarter of 2021.
“The sale of Magellan Complete Care tightens our focus,
strengthens our balance sheet and creates a new, multi-faceted
strategic relationship with Molina Healthcare, a Fortune 500
company with a strong reputation for serving states and their
beneficiaries’ health care needs,” said Fasola. “This divestiture
will provide Magellan with additional financial flexibility to
invest in our remaining businesses and supports our vision to
become the leading independent payor services company offering
behavioral health, specialty health, and pharmacy management
solutions for high cost, chronic populations on a carve-out or
integrated basis.”
Net Revenue
Net revenue for the first quarter ended March 31, 2020, was $1.8
billion, which represents an increase of three percent over the
same period in 2019. This increase was mainly driven by growth
within Magellan Complete Care.
Segment Profit
Segment profit was $74.8 million for the first quarter, compared
to $45.6 million in the prior year quarter, including approximately
$12 million of favorable out-of-period items, primarily related to
MCC reserve development.
- Healthcare segment profit was $62.1 million, which represents
an increase of $17.1 million versus the first quarter of 2019. This
increase is driven by favorable prior period development and
utilization results, particularly in MCC of Virginia and New York,
as well as reinstatement of the Health Insurer Fee.
- Pharmacy Management segment profit was $20.9 million, which was
an increase of $12.6 million from the first quarter of 2019. This
year-over-year increase was primarily driven by improved gross
margins from our PBM business as well strong performance within our
specialty drug management portfolio.
- Corporate costs inclusive of eliminations, but excluding stock
compensation expense, totaled $8.2 million, compared to $7.7
million in the prior year’s quarter.
Cash Flow & Balance Sheet
Cash flow from operations for the quarter ended March 31, 2020,
was $31.7 million, as compared to $35.4 million in the first
quarter of 2019.
As of March 31, 2020, the Company’s unrestricted cash and
investments totaled $281.2 million, an increase of $85.8 million
from the balance at December 31, 2019. Approximately $123 million
of the unrestricted cash and investments at March 31, 2020 is
related to excess capital and undistributed earnings held at
regulated entities, including $94 million at MCC entities. Thus,
the Company had over $150 million in unrestricted cash at the
parent as of March 31, 2020.
“Magellan posted strong first quarter results and while COVID-19
presents uncertainties, our business fundamentals are on track,”
said Jonathan N. Rubin, chief financial officer, Magellan Health.
“We’ve taken bold steps to refine our strategy, lock in value, and
provide financial flexibility to the company moving forward.”
Earnings Conference Call
Management will discuss the Company’s first quarter results on a
conference call scheduled for Monday, May 11, 2020 at 8:00 a.m.
Eastern. To participate in the conference call, dial 1-888-566-5773
and use passcode “1st Quarter 2020 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 MagellanHealth.com. A telephonic replay will be available
shortly after the conclusion of the call through June 10, 2020.
This replay may be accessed by dialing 1-800-374-1820 (Domestic) or
1-402-998-0909 (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 press release, and oral statements made in connection with
this release, include statements which may constitute
forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995,
the accuracy of which are necessarily subject to risks,
uncertainties, and assumptions as to future events that may not
prove to be accurate. 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. These statements
include, but are not limited to, express or implied forward-looking
statements relating to 2020 guidance for net revenue, income before
income taxes, net income, earnings per share, segment profit,
adjusted net income, and adjusted earnings per share; growth and
margin opportunities and initiatives; business environment, long
term opportunities and strategy; transformation, process
improvement and innovation initiatives; our expectations regarding
the benefits to the Company of the transaction to sell the Magellan
Complete Care business (the “transaction”), the ability of the
Company to obtain regulatory approvals for the transaction and to
satisfy other closing conditions, the anticipated timing of the
closing of the transaction, the benefits to the Company of the
commercial agreements entered into in connection with the
transaction, the ability of the Company to use the proceeds of the
transaction to fund future growth initiatives or otherwise create
value for the Company, the ability of the Company to strategically
focus on enhancing its behavioral and specialty health business, as
well as the continued growth of its pharmacy business, and the
ability of the Company to achieve our strategic and growth goals.
These statements are neither promises nor guarantees, but are
subject to a variety of risks and uncertainties, many of which are
beyond our control, which could cause actual results to differ
materially from those contemplated in these forward-looking
statements. Existing and prospective investors are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Factors that could cause actual
results to differ materially from those expressed or implied
include the effectiveness of business continuity plans during the
COVID-19 pandemic, 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 members; risks and uncertainties
associated with the pharmacy benefits management industry; 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 most recent Annual
Report on Form 10-K, its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2020, to be filed with the Securities and
Exchange Commission later today which contains updated or
supplemental risk factors on information security and
cyber-security matters, and extraordinary events including the
COVID-19 pandemic, and subsequent reports on Forms 10-Q and 8-K.
The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise, except as may be required under
applicable securities law.
MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS (In thousands) December
31, 2019 March 31, 2020 (unaudited) ASSETS
Current Assets: Cash and cash equivalents
$
325,249
$
383,963
Accounts receivable, net
890,065
923,716
Short-term investments
334,489
350,192
Pharmaceutical inventory
44,962
42,333
Other current assets
78,278
106,820
Total Current Assets
1,673,043
1,807,024
Property and equipment, net
138,422
143,260
Long-term investments
10,668
6,289
Deferred income taxes
1,840
698
Other long-term assets
82,700
96,389
Goodwill
1,018,156
1,018,156
Other intangible assets, net
167,344
153,095
Total Assets
$
3,092,173
$
3,224,911
LIABILITIES AND STOCKHOLDERS' EQUITY Current
Liabilities: Accounts payable
$
88,415
$
104,359
Accrued liabilities
284,024
320,826
Medical claims payable
409,533
392,141
Other medical liabilities
124,684
128,454
Current debt, finance lease and deferred financing obligations
3,491
84,402
Total Current Liabilities
910,147
1,030,182
Long-term debt, finance lease and deferred financing obligations
679,125
647,624
Deferred income taxes
17,034
23,235
Tax contingencies
14,841
16,021
Deferred credits and other long-term liabilities
73,243
76,246
Total Liabilities
1,694,390
1,793,308
Stockholders’ Equity: Ordinary common stock
543
546
Additional paid-in capital
1,386,616
1,402,797
Retained earnings
1,475,207
1,493,044
Accumulated other comprehensive income (loss)
144
(57
)
Ordinary common stock in treasury, at cost
(1,464,727
)
(1,464,727
)
Total Stockholders’ Equity
1,397,783
1,431,603
Total Liabilities and Stockholders’ Equity
$
3,092,173
$
3,224,911
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (In thousands, except per share amounts)
Three Months Ended March 31,
2019
2020
Net revenue: Managed care and other
$
1,223,979
$
1,272,936
PBM
515,510
521,371
Total net revenue
1,739,489
1,794,307
Costs and expenses: Cost of care
941,961
951,642
Cost of goods sold
489,793
486,142
Direct service costs and other operating expenses (1)(2)
271,924
287,731
Depreciation and amortization
30,708
28,684
Interest expense
9,107
9,029
Interest and other income
(4,974
)
(3,759
)
Total costs and expenses
1,738,519
1,759,469
Income before income taxes
970
34,838
Provision for income taxes
539
16,588
Net income
$
431
$
18,250
Weighted average number of common shares outstanding — basic
23,946
24,728
Weighted average number of common shares outstanding — diluted
24,213
24,869
Net income per common share — basic
$
0.02
$
0.74
Net income per common share — diluted
$
0.02
$
0.73
Net income
$
431
$
18,250
Other comprehensive income: Unrealized gains (losses) on
available-for-sale securities (3)
320
(201
)
Comprehensive income
$
751
$
18,049
(1) Includes stock compensation expense of $9,607 and $6,057 for
the three months ended March 31, 2019 and 2020, respectively.
(2) Includes changes in fair value of contingent
consideration of $144 for the three months ended March 31, 2019.
(3) Net of income tax provision (benefit) of $100 and $(67)
for the three months ended March 31, 2019 and 2020, respectively.
MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited) (In
thousands)
Three Months Ended
March 31,
2019
2020
Cash flows from operating activities: Net income
$
431
$
18,250
Adjustments to reconcile net income to net cash from operating
activities: Depreciation and amortization
30,708
28,684
Non-cash interest expense
326
585
Non-cash stock compensation expense
9,607
6,057
Non-cash income tax (benefit) provision
(250
)
7,802
Non-cash amortization on investments
(192
)
325
Changes in assets and liabilities, net of effects from acquisitions
of businesses: Accounts receivable, net
(23,804
)
(33,291
)
Pharmaceutical inventory
(6,333
)
2,629
Other assets
(10,835
)
(41,862
)
Accounts payable and accrued liabilities
20,399
52,746
Medical claims payable and other medical liabilities
19,671
(13,622
)
Contingent consideration
(1,609
)
-
Tax contingencies
83
925
Deferred credits and other long-term liabilities
(2,889
)
3,003
Other
111
(505
)
Net cash provided by operating activities
35,424
31,726
Cash flows from investing activities: Capital
expenditures
(12,642
)
(15,719
)
Acquisitions and investments in businesses, net of cash acquired
(320
)
(369
)
Purchases of investments
(172,766
)
(164,311
)
Proceeds from maturities and sales of investments
128,748
152,394
Net cash used in investing activities
(56,980
)
(28,005
)
Cash flows from financing activities: Proceeds from
borrowings on revolving line of credit
-
80,000
Payments to acquire treasury stock
(4,124
)
-
Proceeds from exercise of stock options
2,045
10,903
Payments on debt, finance lease and deferred financing obligations
(7,323
)
(34,774
)
Payments on contingent consideration
(6,247
)
-
Other
(1,702
)
(1,136
)
Net cash (used in) provided by financing activities
(17,351
)
54,993
Net (decrease) increase in cash and cash equivalents
(38,907
)
58,714
Cash and cash equivalents at beginning of period
272,308
325,249
Cash and cash equivalents at end of period
$
233,401
$
383,963
MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED
OPERATING RESULTS BY BUSINESS SEGMENT (Unaudited) (In
thousands)
Three Months Ended
March 31,
2019
2020
Healthcare Managed care and other
revenue
$
1,164,253
$
1,208,674
Cost of care
(941,961
)
(951,642
)
Direct service costs and other
(179,190
)
(196,909
)
Stock compensation expense (1)
1,750
2,021
Changes in fair value of contingent consideration (1)
144
-
Healthcare segment profit
44,996
62,144
Pharmacy Management Managed
care and other revenue
59,895
64,435
PBM revenue
556,565
573,778
Cost of goods sold
(530,207
)
(537,574
)
Direct service costs and other
(79,635
)
(81,866
)
Stock compensation expense (1)
1,672
2,107
Pharmacy Management segment profit
8,290
20,880
Corporate and Elimination (2)
Managed care and other revenue
(169
)
(173
)
PBM revenue
(41,055
)
(52,407
)
Cost of goods sold
40,414
51,432
Direct service costs and other
(13,099
)
(8,956
)
Stock compensation expense (1)
6,185
1,929
Corporate and Elimination
(7,724
)
(8,175
)
Consolidated Managed care and
other revenue
1,223,979
1,272,936
PBM revenue
515,510
521,371
Cost of care
(941,961
)
(951,642
)
Cost of goods sold
(489,793
)
(486,142
)
Direct service costs and other
(271,924
)
(287,731
)
Stock compensation expense (1)
9,607
6,057
Changes in fair value of contingent consideration (1)
144
-
Consolidated segment profit
$
45,562
$
74,849
Reconciliation of income before income taxes to
segment profit: Income before income taxes
$
970
$
34,838
Stock compensation expense
9,607
6,057
Changes in fair value of contingent consideration
144
-
Depreciation and amortization
30,708
28,684
Interest expense
9,107
9,029
Interest and other income
(4,974
)
(3,759
)
Segment profit
$
45,562
$
74,849
(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
March 31,
2019
2020
Net income
$
431
$
18,250
Adjusted for acquisitions starting in 2013 Changes in fair value of
contingent consideration
144
-
Amortization of acquired intangibles
12,272
14,191
Tax impact
(3,282
)
(3,816
)
Adjusted net income
$
9,565
$
28,625
Net income per common share—diluted
$
0.02
$
0.73
Adjusted for acquisitions starting in 2013 Changes in fair value of
contingent consideration
0.01
-
Amortization of acquired intangibles
0.50
0.57
Tax impact
(0.13
)
(0.15
)
Adjusted earnings per share
$
0.40
$
1.15
(MGLN-GEN)
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version on businesswire.com: https://www.businesswire.com/news/home/20200511005228/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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