MGLN Magellan Health Inc

Magellan Health, Inc. (NASDAQ: MGLN) today announced financial results for the first quarter ended March 31, 2021, as summarized below:

Three Months Ended March 31 (In millions, except per share amounts)

 

 

 

 

 

Continuing Operations

2021

 

2020

 

Chg

Net revenue

$

1,161.6

$

1,122.4

 

3.5

%

Net income (loss)

$

28.5

$

(1.1

)

NM

 

Segment profit [1]

$

75.1

$

41.6

 

80.6

%

Adjusted net income [1]

$

35.5

$

6.0

 

490.1

%

Earnings (loss) per share

$

1.07

$

(0.04

)

NM

 

Adjusted earnings per share [1]

$

1.33

$

0.25

 

432.0

%

  [1] Refer to the Basis of Presentation for a discussion of non-GAAP financial measures. NM = "not meaningful"

First Quarter 2021 Highlights and Other Recent Developments:

• Net revenue increased 3.5% percent over the first quarter of 2020 to $1.16 billion.
• Net income increased by $29.6 million over the first quarter of 2020 to $28.5 million.
• Segment profit increased 80.6% percent over the first quarter of 2020 to $75.1 million.
• Adjusted net income and adjusted earnings per share were $35.5 million and $1.33 as compared to the prior year period of $6.0 million and $0.25, respectively.
• On March 18, 2021, Magellan announced that it had been selected to, once again, serve as a contractor for the Military and Family Life Counseling program, which provides counseling for adults and children in the military community.
• On March 31, 2021, Magellan’s shareholders adopted the plan of merger with Centene Corporation (“Centene”). The Merger Agreement provides for the acquisition by Centene at a price of $95 per share of Magellan common stock in cash. The Company continues to expect the transaction to close during the second half of 2021.

“I am pleased with our first quarter 2021 results, which reflect the progress of the collective efforts of our associates to transform, innovate and grow our businesses. Our pipeline of potential new business opportunities continues to build as customers recognize the growing value of our solutions in the market,” said Kenneth Fasola, chief executive officer, Magellan Health.

“We are also making significant progress in our integration planning efforts with Centene, and we remain enthusiastic about the transaction,” continued Fasola. “We look forward to a new chapter of growth and innovation as a payer services business operating independently under Centene’s Health Care Enterprises division.”

Net Revenue

Net revenue from continuing operations was $1.16 billion for the first quarter of 2021, an increase of 3.5% compared to first quarter of 2020 primarily due to growth in the Healthcare segment, partially offset by a modest decline in the Pharmacy Management segment created by the decision to exit Medicare Part D as a plan sponsor.

Segment Profit

Segment profit from continuing operations was $75.1 million for first quarter of 2021, compared to $41.6 million in the first quarter of 2020.

• Healthcare segment profit was $41.3 million, representing an increase of $5.7 million from 2020. This year-over-year increase was primarily driven by net business growth partially off-set by an increase in corporate allocations.

• Pharmacy Management segment profit was $43.7 million, representing an increase of $22.8 million from 2020. This year-over-year increase was primarily driven by revenue growth across specialty, government and commercial PBM, improved gross margin, proceeds from the settlement of a legal matter, and the exit from Medicare Part D. These gains were partially off-set by an increase in corporate allocations and start-up costs associated with a new contract implementation.

• Corporate segment costs inclusive of eliminations, but excluding stock compensation expense, totaled $9.9 million, as compared to $14.9 million in 2020. This decrease was primarily driven by the reduction of stranded corporate overhead expenses associated with discontinued operations in the prior year quarter.

Other Items

The Company recorded a special charge of $1.2 million during the first quarter of 2021 primarily associated with non-cash lease termination and abandonment costs for planned reductions to the Company’s real estate footprint and severance related to the transformation operational initiatives.

The loss from discontinued operations, net of tax, for the first quarter of 2021 was $0.7 million, as compared to income from discontinued operations of $19.3 million during the first quarter of 2020. This decrease is due to the sale of Magellan Complete Care business (“MCC Business”) to Molina Healthcare, Inc. (“Molina”) effective December 31, 2020. Ongoing discontinued operations post the closing of this transaction reflect transaction related costs as well as changes to accounting estimates associated with this divestiture.

Cash Flow & Balance Sheet

Cash flow used in operating activities from continuing operations for the three months ended March 31, 2021, was $77.9 million, as compared to cash flow used in operating activities of $4.1 million for the three months ended March 31, 2020. This year over year change is largely due to unfavorable changes in working capital and increased tax payments.

As of March 31, 2021, the Company’s unrestricted cash and investments totaled $934.4 million, as compared to $1,148.8 million at December 31, 2020. This decrease is largely due to voluntary term loan repayments of $100 million in March and unfavorable changes in working capital. Approximately $50.0 million of the unrestricted cash and investments at March 31, 2021 is related to excess capital and undistributed earnings held at regulated entities of continuing operations.

Earnings Conference Call

Due to the pending transaction with Centene, the Company is not hosting a conference call in conjunction with its first quarter 2021 earnings release and does not expect to do so in future quarters. Please direct any questions regarding this earnings release to Magellan’s Investor Relations or Media contacts.

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 and the settlement of a legal matter, 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 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, special charges, and any impact related to the sale of MCC.

Included in the tables issued with this press release are the reconciliations from GAAP measures to the corresponding non-GAAP measures.

MCC Business Reflected as Discontinued Operations

Due to the sale of the MCC Business to Molina, the consolidated financial statements for all periods presented reflect the MCC Business as discontinued operations.

About Magellan Health: Magellan Health, Inc. 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 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 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. Important proposed merger-related and other risk factors that may cause such differences include: (i) the occurrence of any event, change or other circumstances that could give rise to the termination of the proposed merger; (ii) the transaction closing conditions may not be satisfied in a timely manner or at all, including due to the failure to obtain regulatory approvals; (iii) the announcement and pendency of the proposed merger may disrupt the Company’s business operations (including the threatened or actual loss of employees, customers or suppliers); and (iv) the Company could experience financial or other setbacks if the transaction encounters unanticipated problems. Other important factors that could cause actual results to differ materially from those expressed or implied include the effectiveness of business continuity plans during, and the risks associated with, the COVID-19 pandemic; termination or non-renewal of customer contracts; changes in rates paid to and/or by the Company by customers and/or providers; our ability to develop and maintain satisfactory relationships with providers; higher utilization of healthcare services by the Company’s members; risks and uncertainties associated with the pharmacy benefits management industry; costs to maintain or upgrade our information technology and other business systems and the effectiveness and security of such systems; cyberattacks, other privacy/data security incidents, and/or our failure to comply with related regulations; delays, higher costs or inability to obtain and/or implement new business or other Company initiatives; the impact of changes in the contracting model for Medicaid contracts; impairment of our goodwill and intangible assets; the impact of new or amended laws or regulations; costs and other liabilities associated with litigation, government investigations, audits or reviews; 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, Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, to be filed with the Securities and Exchange Commission later today, 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, 2020

 

 

March 31, 2021

 

 

 

(unaudited)

ASSETS   Current Assets: Cash and cash equivalents

$

1,144,450

 

$

456,309

 

Accounts receivable, net

 

743,502

 

 

793,504

 

Short-term investments

 

140,847

 

 

625,600

 

Pharmaceutical inventory

 

43,334

 

 

46,389

 

Other current assets

 

84,264

 

 

101,462

 

Total Current Assets

 

2,156,397

 

 

2,023,264

 

Property and equipment, net

 

136,739

 

 

142,084

 

Long-term investments

 

2,612

 

 

4,830

 

Deferred income taxes

 

1,842

 

 

921

 

Other long-term assets

 

108,797

 

 

119,947

 

Goodwill

 

873,779

 

 

873,830

 

Other intangible assets, net

 

79,689

 

 

71,631

 

Total Assets

$

3,359,855

 

$

3,236,507

 

  LIABILITIES AND STOCKHOLDERS' EQUITY   Current Liabilities: Accounts payable

$

137,380

 

$

149,760

 

Accrued liabilities

 

354,906

 

 

266,217

 

Medical claims payable

 

111,851

 

 

116,580

 

Other medical liabilities

 

126,921

 

 

123,109

 

Current debt, finance lease and deferred financing obligations

 

6,521

 

 

6,543

 

Total Current Liabilities

 

737,579

 

 

662,209

 

Long-term debt, finance lease and deferred financing obligations

 

631,855

 

 

526,682

 

Deferred income taxes

 

7,102

 

 

13,602

 

Tax contingencies

 

11,002

 

 

11,867

 

Deferred credits and other long-term liabilities

 

69,283

 

 

79,276

 

Total Liabilities

 

1,456,821

 

 

1,293,636

 

Redeemable non-controlling interest

 

33,062

 

 

33,303

 

Stockholders’ Equity: Ordinary common stock

 

555

 

 

558

 

Additional paid-in capital

 

1,477,219

 

 

1,488,975

 

Retained earnings

 

1,857,130

 

 

1,884,957

 

Accumulated other comprehensive loss

 

(205

)

 

(195

)

Ordinary common stock in treasury, at cost

 

(1,464,727

)

 

(1,464,727

)

Total Stockholders’ Equity

 

1,869,972

 

 

1,909,568

 

Total Liabilities and Stockholders’ Equity

$

3,359,855

 

$

3,236,507

 

MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands, except per share amounts)      

Three Months Ended

March 31,

2020

 

 

2021

Net revenue: Managed care and other

$

553,168

 

$

626,076

 

PBM

 

569,211

 

 

535,573

 

Total net revenue

 

1,122,379

 

 

1,161,649

 

  Costs and expenses: Cost of care

 

349,108

 

 

379,191

 

Cost of goods sold

 

533,241

 

 

492,370

 

Direct service costs and other operating expenses (1)

 

204,241

 

 

231,021

 

Legal matter settlement

 

-

 

 

(9,000

)

Depreciation and amortization

 

23,358

 

 

21,417

 

Interest expense

 

8,958

 

 

6,426

 

Interest and other income

 

(1,219

)

 

(341

)

Special charges

 

-

 

 

1,151

 

Total costs and expenses

 

1,117,687

 

 

1,122,235

 

Income from continuing operations before income taxes

 

4,692

 

 

39,414

 

Provision for income taxes

 

5,762

 

 

10,905

 

Net (loss) income from continuing operations

 

(1,070

)

 

28,509

 

Income (loss) from discontinued operations, net of tax

 

19,320

 

 

(682

)

Net Income

$

18,250

 

$

27,827

 

  Weighted average number of common shares outstanding — basic

 

24,728

 

 

25,948

 

Weighted average number of common shares outstanding — diluted

 

24,869

 

 

26,553

 

  Net (loss) income per common share — basic Continuing operations

$

(0.04

)

$

1.10

 

Discontinued operations

 

0.78

 

 

(0.03

)

Consolidated operations

$

0.74

 

$

1.07

 

Net (loss) income per common share — diluted Continuing operations

$

(0.04

)

$

1.07

 

Discontinued operations

 

0.78

 

 

(0.03

)

Consolidated operations

$

0.74

 

$

1.04

 

  Net income

$

18,250

 

$

27,827

 

Other comprehensive income: Unrealized (loss) gain on available-for-sale securities (2)

 

(201

)

 

10

 

Comprehensive income

$

18,049

 

$

27,837

 

 

(1)

Includes stock compensation expense of $5,797 and $7,057 for the three months ended March 31, 2020 and 2021, respectively.

 

(2)

Net of income tax (benefit) provision of $(67) and $3 for the three months ended March 31, 2020 and 2021, respectively.

MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)  

Three Months Ended

March 31,

2020

 

 

2021

Cash flows from operating activities: Net income

$

18,250

 

$

27,827

 

Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization

 

28,684

 

 

21,417

 

Special charges

 

-

 

 

1,151

 

Non-cash interest expense

 

585

 

 

355

 

Non-cash stock compensation expense

 

6,057

 

 

7,057

 

Non-cash income tax provision

 

7,802

 

 

7,603

 

Non-cash accretion on investments

 

325

 

 

592

 

Changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable, net

 

(33,291

)

 

(50,013

)

Pharmaceutical inventory

 

2,629

 

 

(3,055

)

Other assets

 

(41,862

)

 

(27,283

)

Accounts payable and accrued liabilities

 

52,746

 

 

(76,183

)

Medical claims payable and other medical liabilities

 

(13,622

)

 

917

 

Tax contingencies

 

925

 

 

680

 

Deferred credits and other long-term liabilities

 

3,003

 

 

9,993

 

Other

 

(505

)

 

1,067

 

Net cash provided by (used in) operating activities

 

31,726

 

 

(77,875

)

Net cash provided by operating activities from discontinued operations

 

35,805

 

 

-

 

Net cash used in operating activities from continuing operations

 

(4,079

)

 

(77,875

)

  Cash flows from investing activities: Capital expenditures

 

(15,719

)

 

(19,540

)

Acquisitions and investments in businesses, net of cash acquired

 

(369

)

 

(2,372

)

Purchases of investments

 

(164,311

)

 

(673,169

)

Proceeds from maturities and sales of investments

 

152,394

 

 

185,619

 

Net cash used in investing activities

 

(28,005

)

 

(509,462

)

Net cash used in investing activities from discontinued operations

 

(19,154

)

 

-

 

Net cash used in investing activities from continuing operations

 

(8,851

)

 

(509,462

)

  Cash flows from financing activities: Proceeds from borrowings on revolving line of credit

 

80,000

 

 

-

 

Proceeds from exercise of stock options

 

10,903

 

 

7,467

 

Payments on debt, finance lease and deferred financing obligations

 

(34,774

)

 

(105,506

)

Other

 

(1,136

)

 

(2,765

)

Net cash provided by (used in) financing activities

 

54,993

 

 

(100,804

)

Net cash provided by financing activities from discontinued operations

 

-

 

 

-

 

Net cash provided by (used in) financing activities from continuing operations

 

54,993

 

 

(100,804

)

  Net increase (decrease) in cash and cash equivalents

 

42,063

 

 

(688,141

)

Cash and cash equivalents at beginning of period

 

115,752

 

 

1,144,450

 

Cash and cash equivalents at end of period

$

157,815

 

$

456,309

 

MAGELLAN HEALTH, INC. AND SUBSIDIARIES CONTINUING OPERATIONS RESULTS BY BUSINESS SEGMENT (Unaudited) (In thousands)    

Three Months Ended

March 31,

2020

 

 

2021

Healthcare Managed care and other revenue

$

488,906

 

$

533,010

 

Cost of care

 

(349,108

)

 

(379,191

)

Direct service costs and other

 

(105,936

)

 

(114,993

)

Stock compensation expense (1)

 

1,761

 

 

2,519

 

Healthcare segment profit

 

35,623

 

 

41,345

 

  Pharmacy Management Managed care and other revenue

 

64,435

 

 

93,227

 

PBM revenue

 

573,778

 

 

538,972

 

Cost of goods sold

 

(537,574

)

 

(495,593

)

Direct service costs and other

 

(81,866

)

 

(104,596

)

Legal matter settlement

 

-

 

 

9,000

 

Stock compensation expense (1)

 

2,107

 

 

2,696

 

Pharmacy Management segment profit

 

20,880

 

 

43,706

 

  Corporate and Elimination (2) Managed care and other revenue

 

(173

)

 

(161

)

PBM revenue

 

(4,567

)

 

(3,399

)

Cost of goods sold

 

4,333

 

 

3,223

 

Direct service costs and other

 

(16,439

)

 

(11,432

)

Stock compensation expense (1)

 

1,929

 

 

1,842

 

Corporate and Elimination

 

(14,917

)

 

(9,927

)

  Consolidated Managed care and other revenue

 

553,168

 

 

626,076

 

PBM revenue

 

569,211

 

 

535,573

 

Cost of care

 

(349,108

)

 

(379,191

)

Cost of goods sold

 

(533,241

)

 

(492,370

)

Direct service costs and other

 

(204,241

)

 

(231,021

)

Legal matter settlement

 

-

 

 

9,000

 

Stock compensation expense (1)

 

5,797

 

 

7,057

 

Segment profit from continuing operations

$

41,586

 

$

75,124

 

    Reconciliation of income from continuing operations before income taxes (GAAP) to segment profit (non-GAAP): Income from continuing operations before income taxes

$

4,692

 

$

39,414

 

Stock compensation expense

 

5,797

 

 

7,057

 

Depreciation and amortization

 

23,358

 

 

21,417

 

Interest expense

 

8,958

 

 

6,426

 

Interest and other income

 

(1,219

)

 

(341

)

Special charges

 

-

 

 

1,151

 

Segment profit from continuing operations

$

41,586

 

$

75,124

 

  (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) Pharmacy Management provides pharmacy benefits management for certain Healthcare customers, and 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 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) (In thousands, except per share amounts)    

Three Months Ended

March 31,

2020

 

 

2021

  Net (loss) income from continuing operations

$

(1,070

)

$

28,509

 

Adjustments Stock compensation expense

 

-

 

 

246

 

Amortization of acquired intangibles

 

9,686

 

 

8,059

 

Special charges

 

-

 

 

1,151

 

Tax impact

 

(2,605

)

 

(2,492

)

Adjusted net income from continuing operations

$

6,011

 

$

35,473

 

    Net (loss) income per common share attributable to Magellan —Diluted

$

(0.04

)

$

1.07

 

Adjustments Stock compensation expense

 

-

 

 

0.01

 

Amortization of acquired intangibles

 

0.39

 

 

0.30

 

Special charges

 

-

 

 

0.04

 

Tax impact

 

(0.10

)

 

(0.09

)

Adjusted earnings per share

$

0.25

 

$

1.33

 

 

(MGLN-GEN)

View source version on businesswire.com: https://www.businesswire.com/news/home/20210430005084/en/

Media Contact: Lilly Ackley, ackleyl@magellanhealth.com, (860) 507-1923

Investor Contact: Darren Lehrich, lehrichd@magellanhealth.com, (860) 507-1814