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Jul 29, 2020
Magellan Health Reports Second Quarter 2020 Financial Results

Updates Guidance to Reflect Pending Magellan Complete Care Divestiture

PHOENIX--(BUSINESS WIRE)--Jul. 29, 2020-- Magellan Health, Inc. (NASDAQ: MGLN) today announced financial results for the second quarter ended June 30, 2020, as summarized below:

               
  Three Months Ended   Six Months Ended
  June 30   June 30
(In millions, except per share amounts)              
Continuing Operations

 

2020

 

2019

Chg

 

 

2020

 

2019

 

Chg

Net revenue

$

1,100.1

$

1,154.3

-4.7

%

 

$

2,222.5

$

2,273.3

 

-2.2

%

Net income (loss)

$

47.1

$

7.2

552.9

%

 

$

46.0

$

(1.0

)

NM

 

Segment profit [1]

$

57.0

$

53.6

6.4

%

 

$

98.6

$

84.3

 

17.0

%

Adjusted net income [1]

$

21.3

$

12.9

64.7

%

 

$

27.3

$

10.4

 

161.7

%

Earnings (loss) per share

$

1.86

$

0.30

520.0

%

 

$

1.84

$

(0.04

)

NM

 

Adjusted earnings per share [1]

$

0.84

$

0.53

58.5

%

 

$

1.09

$

0.43

 

153.5

%

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

Magellan Complete Care Business Reflected as Discontinued Operations

As previously announced, on April 30, 2020, the Company and Molina Healthcare, Inc. (Molina) entered into a Stock and Asset Purchase Agreement in which the Company has agreed to sell its Magellan Complete Care (MCC) business to Molina. Therefore, the consolidated financial statements for all periods presented now reflect the MCC business as discontinued operations. In addition, the Company’s updated 2020 guidance now reflects its continuing operations, thereby excluding the MCC business from guidance for the full fiscal year 2020.

Second Quarter 2020 Highlights (all percentage changes compare second quarter 2020 to second quarter 2019 for continuing operations unless otherwise noted):

  • Net revenue decreased 4.7 percent to $1.1 billion.
  • Net income increased 552.9 percent to $47.1 million.
  • Segment profit increased 6.4 percent to $57.0 million.
  • Adjusted net income increased 64.7 percent to $21.3 million.
  • Unrestricted cash and investments were $161.5 million as of June 30, 2020. Approximately $29 million of the unrestricted cash and investments at June 30, 2020 is related to excess capital and undistributed earnings held at regulated entities of continuing operations. In addition, the Company had approximately $160 million of excess capital and undistributed earnings held at regulated entities of discontinued operations at June 30, 2020.
  • On June 24, 2020, the Company announced the election of Christopher J. Chen, M.D., and Mural R. (Joe) Josephson to Magellan’s board of directors at the 2020 Annual Meeting of Stockholders.
  • On June 16, 2020, the Company announced the appointment of Dr. Caroline Carney as the chief medical officer.
  • On July 6, 2020, the Company announced the appointment of Darren Lehrich as the chief investor relations officer.

“Throughout the COVID-19 pandemic, I continue to be inspired by the dedication and resilience of our organization,” said Kenneth Fasola, chief executive officer, Magellan Health.

“As we look to the balance of 2020, our strategic priorities remain intact. We are resolute in delivering on our existing commitments, lowering our operating cost structure, strengthening our capabilities through innovation, and improving our ability to capitalize on growth opportunities. The culmination of these efforts will strengthen our competitive position and lead to stronger growth in the future,” continued Fasola.

Net Revenue

Net revenue for the second quarter of 2020, was $1.1 billion, representing a 4.7 percent decrease from the second quarter of 2019. This decrease was largely attributable to net contract losses within the healthcare segment.

Segment Profit

Segment profit was $57.0 million for the second quarter, compared to $53.6 million in the second quarter of 2019.

  • Healthcare segment profit was $60.8 million, representing an increase of $19.7 million from the second quarter of 2019. This year-over-year increase was primarily driven by lower utilization trends in the specialty healthcare reporting unit due to COVID-19.
  • Pharmacy Management segment profit was $13.2 million, representing a decrease of $17.6 million from the second quarter of 2019. This year-over-year decrease was primarily driven by losses in the Medicare Part D business, customer settlements related to prior periods, and start-up costs associated with the Medi-Cal contract implementation.
  • Corporate costs inclusive of eliminations, but excluding stock compensation expense, totaled $17.1 million, as compared to $18.3 million in the second quarter of 2019.

Other Items

The Company recorded a $38.9 million income tax benefit during the second quarter of 2020 associated with deferred tax assets in connection with the pending divestiture of MCC to Molina. The Company recorded a special charge of $8.3 million during the second quarter of 2020 associated with lease terminations and abandonments related to planned reductions to the Company’s real estate footprint. The non-recurring tax benefit and the special charge are reflected as reconciling items for the adjusted net income calculation.

Income from discontinued operations, net of tax, for the second quarter of 2020 was $36.4 million, as compared to $6.4 million during the second quarter of 2019. This improvement was primarily driven by lower utilization trends due to COVID-19.

Cash Flow & Balance Sheet

Cash flow used in operations for the six months ended June 30, 2020, was $7.5 million, as compared to cash provided by operations of $45.9 million for the six months ended June 30, 2019. The year over year change is primarily attributable to timing of accounts receivable and other working capital.

As of June 30, 2020, the Company’s unrestricted cash and investments totaled $161.5 million, an increase of $80.5 million from the balance at December 31, 2019. Approximately $29 million of the unrestricted cash and investments at June 30, 2020 is related to excess capital and undistributed earnings held at regulated entities of continuing operations. In addition, the Company had approximately $160 million of excess capital and undistributed earnings held at regulated entities of discontinued operations at June 30, 2020. At June 30, 2020, the Company had $320 million of undrawn capacity on the Company’s $400 million revolving credit facility.

“We were pleased with solid second quarter results, and believe our key initiatives for the balance of 2020 should establish a stronger foundation for future growth. We will also have significant financial flexibility to add shareholder value following the completion of the MCC sale, and we will remain disciplined as we evaluate opportunities to deploy capital,” said Jonathan N. Rubin, chief financial officer, Magellan Health.

Updated 2020 Guidance

The Company announced its updated 2020 fiscal year guidance parameters for continuing operations. This updated guidance excludes the MCC business, which is now reflected as discontinued operations retrospective to January 1, 2020.

     
Updated 2020 Guidance    
(In millions, except per share results)   Low High
Net revenue  

$

4,400.0

 

$

4,600.0

 

Income (loss) before income taxes  

$

(22.0

)

$

(2.0

)

Net income  

$

15.0

 

$

27.0

 

Segment Profit[1]  

$

145.0

 

$

165.0

 

Adjusted net income[1]  

$

16.0

 

$

28.0

 

       
Diluted per share results:      
Earnings per share[2]  

$

0.59

 

$

1.06

 

Adjusted earnings per share[1][2]  

$

0.63

 

$

1.10

 

[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 July 24, 2020, but excludes the impact of any potential future activity. Based on average fully diluted shares of 25.4 million.

The Company expects net revenue in the range of $4.4 billion to $4.6 billion. Net income is expected to be in the range of $15 million to $27 million, which equates to a diluted earnings per share range of $0.59 to $1.06. Adjusted net income is expected to be in the range of $16 million to $28 million, which equates to an adjusted EPS range of $0.63 to $1.10. Segment profit for the full year 2020 is expected to be in the range of $145 million to $165 million. This updated segment profit guidance includes $25 million to $30 million of stranded overhead costs that were previously allocated to the MCC business, but are required to be reclassified to continuing operations in accordance with GAAP. Following the closing of the MCC transaction, the Company expects approximately half of the stranded overhead costs to be mitigated through planned cost reductions, while the remaining amount is expected to be largely offset in 2021 by payments under a transition services agreement with Molina.

Earnings Conference Call

Management will discuss the Company’s second quarter 2020 results on a conference call scheduled for Wednesday, July 29, 2020 at 9:30 a.m. Eastern. The conference call may be accessed by dialing (877) 269-7756 (Domestic) and (201) 689-7817 (International) using conference ID code 13707398. A telephonic replay will be available shortly after the conclusion of the call through August 28, 2020. This replay may be accessed by dialing (877) 660-6853 (Domestic) or (201) 612-7415 (International) using the same conference ID code. The conference call will also be available live via webcast at Magellan's investor relations page at MagellanHealth.com. 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, 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.

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 (loss) before income taxes, net income, segment profit, adjusted net income, earnings per share and adjusted earnings per share; growth and margin opportunities and initiatives; business environment, long term opportunities and strategy; transformation, process improvement and innovation initiatives; new product offerings, digital tools and advanced analytics capabilities; 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 offset stranded overhead costs associated with the transaction, 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, 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 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 June 30, 2020, 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
(Unaudited)
(In thousands)
             
       
      December 31, 2019     June 30, 2020
ASSETS          
             
Current Assets:          
Cash and cash equivalents  

$

115,752

 

   

$

160,419

 

Accounts receivable, net  

 

680,569

 

   

 

753,065

 

Short-term investments  

 

98,797

 

   

 

75,671

 

Pharmaceutical inventory  

 

44,962

 

   

 

36,694

 

Other current assets  

 

69,687

 

   

 

80,375

 

Current portion of assets held for sale  

 

663,276

 

   

 

1,145,904

 

Total Current Assets  

 

1,673,043

 

   

 

2,252,128

 

Property and equipment, net  

 

131,712

 

   

 

141,035

 

Long-term investments  

 

2,864

 

   

 

-

 

Deferred income taxes  

 

1,840

 

   

 

28,519

 

Other long-term assets  

 

58,905

 

   

 

60,770

 

Goodwill  

 

806,421

 

   

 

806,421

 

Other intangible assets, net  

 

81,675

 

   

 

62,330

 

Assets held for sale, less current portion  

 

335,713

 

   

 

-

 

Total Assets  

$

3,092,173

 

   

$

3,351,203

 

             
LIABILITIES AND STOCKHOLDERS' EQUITY        
             
Current Liabilities:          
Accounts payable  

$

83,790

 

   

$

99,199

 

Accrued liabilities  

 

191,854

 

   

 

187,286

 

Medical claims payable  

 

128,114

 

   

 

112,077

 

Other medical liabilities  

 

92,915

 

   

 

110,268

 

Current debt, finance lease and deferred financing obligations  

 

3,491

 

   

 

84,942

 

Current portion of liabilities held for sale  

 

409,983

 

   

 

504,459

 

Total Current Liabilities  

 

910,147

 

   

 

1,098,231

 

Long-term debt, finance lease and deferred financing obligations  

 

679,125

 

   

 

641,950

 

Deferred income taxes  

 

1,971

 

   

 

-

 

Tax contingencies  

 

9,453

 

   

 

11,097

 

Deferred credits and other long-term liabilities  

 

56,393

 

   

 

56,956

 

Liabilities held for sale, less current portion  

 

37,301

 

   

 

-

 

Total Liabilities  

 

1,694,390

 

   

 

1,808,234

 

             
Stockholders’ Equity:          
Ordinary common stock  

 

543

 

   

 

550

 

Additional paid-in capital  

 

1,386,616

 

   

 

1,429,995

 

Retained earnings  

 

1,475,207

 

   

 

1,576,549

 

Accumulated other comprehensive income  

 

144

 

   

 

602

 

Ordinary common stock in treasury, at cost  

 

(1,464,727

)

   

 

(1,464,727

)

Total Stockholders’ Equity  

 

1,397,783

 

   

 

1,542,969

 

Total Liabilities and Stockholders’ Equity  

$

3,092,173

 

   

$

3,351,203

 

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

Three Months Ended

 

Six Months Ended

   

June 30,

 

June 30,

   

2019

 

 

2020

 

2019

 

 

2020

Net revenue:                    
Managed care and other  

$

608,614

 

   

$

548,711

 

 

$

1,175,162

 

   

$

1,101,879

 

PBM  

 

545,675

 

   

 

551,364

 

 

 

1,098,133

 

   

 

1,120,575

 

Total net revenue  

 

1,154,289

 

   

 

1,100,075

 

 

 

2,273,295

 

   

 

2,222,454

 

                     
Costs and expenses:                    
Cost of care  

 

408,911

 

   

 

321,831

 

 

 

778,008

 

   

 

670,939

 

Cost of goods sold  

 

501,081

 

   

 

528,067

 

 

 

1,027,395

 

   

 

1,061,308

 

Direct service costs and other operating expenses (1)  

 

195,907

 

   

 

199,756

 

 

 

398,207

 

   

 

403,997

 

Depreciation and amortization  

 

28,191

 

   

 

23,888

 

 

 

53,608

 

   

 

47,246

 

Interest expense  

 

9,070

 

   

 

7,995

 

 

 

18,107

 

   

 

16,953

 

Interest and other income  

 

(1,821

)

   

 

(551

)

 

 

(3,580

)

   

 

(1,770

)

Special charges  

 

-

 

   

 

8,309

 

 

 

-

 

   

 

8,309

 

Total costs and expenses  

 

1,141,339

 

   

 

1,089,295

 

 

 

2,271,745

 

   

 

2,206,982

 

Income from continuing operations before income taxes  

 

12,950

 

   

 

10,780

 

 

 

1,550

 

   

 

15,472

 

Provision (benefit) for income taxes  

 

5,735

 

   

 

(36,328

)

 

 

2,526

 

   

 

(30,566

)

Net income (loss) from continuing operations  

 

7,215

 

   

 

47,108

 

 

 

(976

)

   

 

46,038

 

Income from discontinued operations, net of tax  

 

6,398

 

   

 

36,397

 

 

 

15,020

 

   

 

55,717

 

Net Income  

$

13,613

 

   

$

83,505

 

 

$

14,044

 

   

$

101,755

 

                     
Weighted average number of common shares outstanding — basic  

 

24,101

 

   

 

25,054

 

 

 

24,024

 

   

 

24,891

 

Weighted average number of common shares outstanding — diluted  

 

24,416

 

   

 

25,278

 

 

 

24,315

 

   

 

25,074

 

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

$

0.30

 

   

$

1.88

 

 

$

(0.04

)

   

$

1.85

 

Discountinued operations  

 

0.26

 

   

 

1.45

 

 

 

0.62

 

   

 

2.24

 

Consolidated operations  

$

0.56

 

   

$

3.33

 

 

$

0.58

 

   

$

4.09

 

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

$

0.30

 

   

$

1.86

 

 

$

(0.04

)

   

$

1.84

 

Discountinued operations  

 

0.26

 

   

 

1.44

 

 

 

0.62

 

   

 

2.22

 

Consolidated operations  

$

0.56

 

   

$

3.30

 

 

$

0.58

 

   

$

4.06

 

                     
Net income  

$

13,613

 

   

$

83,505

 

 

$

14,044

 

   

$

101,755

 

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

 

419

 

   

 

659

 

 

 

739

 

   

 

458

 

Comprehensive income  

$

14,032

 

   

$

84,164

 

 

$

14,783

 

   

$

102,213

 

(1) Includes stock compensation expense of $5,207 and $6,592 for the three months ended June 30, 2019 and 2020, respectively, and $14,607 and $12,389 for the six months ended June 30, 2019 and 2020, respectively.
                     
(2) Net of income tax provision of $131 and $219 for the three months ended June 30, 2019 and 2020, respectively, and $231 and $152 for the six months ended June 30, 2019 and 2020, respectively.
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
           
   

Six Months Ended

   

June 30,

   

2019

 

 

2020

Cash flows from operating activities:          
Net income  

$

14,044

 

   

$

101,755

 

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

 

64,198

 

   

 

57,951

 

Special charges  

 

-

 

   

 

8,309

 

Non-cash interest expense  

 

679

 

   

 

941

 

Non-cash stock compensation expense  

 

15,021

 

   

 

13,015

 

Non-cash income tax provision (benefit)  

 

1,026

 

   

 

(29,443

)

Non-cash (amortization) accretion on investments  

 

(327

)

   

 

907

 

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

 

(51,544

)

   

 

(24,535

)

Pharmaceutical inventory  

 

(4,793

)

   

 

8,268

 

Other assets  

 

(23,890

)

   

 

(38,322

)

Accounts payable and accrued liabilities  

 

20,821

 

   

 

62,970

 

Medical claims payable and other medical liabilities  

 

4,329

 

   

 

10,510

 

Contingent consideration  

 

(3,758

)

   

 

-

 

Tax contingencies  

 

610

 

   

 

1,343

 

Deferred credits and other long-term liabilities  

 

(7,429

)

   

 

(2,537

)

Other  

 

372

 

   

 

(289

)

Net cash provided by operating activities  

 

29,359

 

   

 

170,843

 

Net cash (used in) provided by operating activities from discontinued operations  

 

(16,574

)

   

 

178,326

 

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

 

45,933

 

   

 

(7,483

)

           
Cash flows from investing activities:          
Capital expenditures  

 

(27,804

)

   

 

(38,305

)

Acquisitions and investments in businesses, net of cash acquired  

 

(320

)

   

 

(369

)

Purchases of investments  

 

(295,768

)

   

 

(417,688

)

Proceeds from maturities and sales of investments  

 

288,290

 

   

 

288,137

 

Net cash used in investing activities  

 

(35,602

)

   

 

(168,225

)

Net cash used in investing activities from discontinued operations  

 

(3,210

)

   

 

(156,800

)

Net cash used in investing activities from continuing operations  

 

(32,392

)

   

 

(11,425

)

           
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  

 

20,647

 

   

 

29,825

 

Payments on debt, finance lease and deferred financing obligations  

 

(15,543

)

   

 

(40,264

)

Payments on contingent consideration  

 

(6,247

)

   

 

-

 

Other  

 

(446

)

   

 

(1,136

)

Net cash (used in) provided by financing activities  

 

(5,713

)

   

 

68,425

 

Net cash provided by financing activities from discontinued operations  

 

-

 

   

 

4,850

 

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

 

(5,713

)

   

 

63,575

 

           
Net increase in cash and cash equivalents  

 

7,828

 

   

 

44,667

 

Cash and cash equivalents at beginning of period  

 

86,923

 

   

 

115,752

 

Cash and cash equivalents at end of period  

$

94,751

 

   

$

160,419

 

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

Three Months Ended

 

Six Months Ended

   

June 30,

 

June 30,

   

2019

 

 

2020

 

2019

 

 

2020

Healthcare                    
Managed care and other revenue  

$

546,113

 

   

$

481,021

 

 

$

1,052,935

 

   

$

969,927

 

Cost of care  

 

(408,911

)

   

 

(321,831

)

 

 

(778,008

)

   

 

(670,939

)

Direct service costs and other  

 

(98,314

)

   

 

(100,450

)

 

 

(198,424

)

   

 

(206,386

)

Stock compensation expense (1)  

 

2,237

 

   

 

2,102

 

 

 

3,780

 

   

 

3,863

 

Healthcare segment profit  

 

41,125

 

   

 

60,842

 

 

 

80,283

 

   

 

96,465

 

                     
Pharmacy Management                    
Managed care and other revenue  

 

62,648

 

   

 

67,867

 

 

 

122,543

 

   

 

132,302

 

PBM revenue  

 

550,010

 

   

 

556,195

 

 

 

1,106,575

 

   

 

1,129,973

 

Cost of goods sold  

 

(505,203

)

   

 

(532,685

)

 

 

(1,035,410

)

   

 

(1,070,259

)

Direct service costs and other  

 

(78,776

)

   

 

(80,082

)

 

 

(158,411

)

   

 

(161,948

)

Stock compensation expense (1)  

 

2,124

 

   

 

1,939

 

 

 

3,796

 

   

 

4,046

 

Pharmacy Management segment profit  

 

30,803

 

   

 

13,234

 

 

 

39,093

 

   

 

34,114

 

                     
Corporate and Elimination (2)                    
Managed care and other revenue  

 

(147

)

   

 

(177

)

 

 

(316

)

   

 

(350

)

PBM revenue  

 

(4,335

)

   

 

(4,831

)

 

 

(8,442

)

   

 

(9,398

)

Cost of goods sold  

 

4,122

 

   

 

4,618

 

 

 

8,015

 

   

 

8,951

 

Direct service costs and other  

 

(18,817

)

   

 

(19,224

)

 

 

(41,372

)

   

 

(35,663

)

Stock compensation expense (1)  

 

846

 

   

 

2,551

 

 

 

7,031

 

   

 

4,480

 

Corporate and Elimination  

 

(18,331

)

   

 

(17,063

)

 

 

(35,084

)

   

 

(31,980

)

                     
Consolidated                    
Managed care and other revenue  

 

608,614

 

   

 

548,711

 

 

 

1,175,162

 

   

 

1,101,879

 

PBM revenue  

 

545,675

 

   

 

551,364

 

 

 

1,098,133

 

   

 

1,120,575

 

Cost of care  

 

(408,911

)

   

 

(321,831

)

 

 

(778,008

)

   

 

(670,939

)

Cost of goods sold  

 

(501,081

)

   

 

(528,067

)

 

 

(1,027,395

)

   

 

(1,061,308

)

Direct service costs and other  

 

(195,907

)

   

 

(199,756

)

 

 

(398,207

)

   

 

(403,997

)

Stock compensation expense (1)  

 

5,207

 

   

 

6,592

 

 

 

14,607

 

   

 

12,389

 

Segment profit from continuing operations  

$

53,597

 

   

$

57,013

 

 

$

84,292

 

   

$

98,599

 

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

$

12,950

 

   

$

10,780

 

 

$

1,550

 

   

$

15,472

 

Stock compensation expense  

 

5,207

 

   

 

6,592

 

 

 

14,607

 

   

 

12,389

 

Depreciation and amortization  

 

28,191

 

   

 

23,888

 

 

 

53,608

 

   

 

47,246

 

Interest expense  

 

9,070

 

   

 

7,995

 

 

 

18,107

 

   

 

16,953

 

Interest and other income  

 

(1,821

)

   

 

(551

)

 

 

(3,580

)

   

 

(1,770

)

Special charges  

 

-

 

   

 

8,309

 

 

 

-

 

   

 

8,309

 

Segment profit from continuing operations  

$

53,597

 

   

$

57,013

 

 

$

84,292

 

   

$

98,599

 

(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 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
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
(In thousands, except per share amounts)
                     
                     
   

Three Months Ended

 

Six Months Ended

   

June 30,

 

June 30,

   

2019

 

 

2020

 

2019

 

 

2020

                     
Net income (loss) from continuing operations  

$

7,215

 

   

$

47,108

 

 

$

(976

)

   

$

46,038

 

Adjustments                    
Amortization of acquired intangibles  

 

7,749

 

   

 

9,573

 

 

 

15,501

 

   

 

19,259

 

Special charges  

 

-

 

   

 

8,309

 

 

 

-

 

   

 

8,309

 

Tax impact  

 

(2,047

)

   

 

(4,808

)

 

 

(4,097

)

   

 

(7,413

)

Nonrecurring tax benefit - divestiture  

 

-

 

   

 

(38,907

)

 

 

-

 

   

 

(38,907

)

Adjusted net income from continuing operations  

$

12,917

 

   

$

21,275

 

 

$

10,428

 

   

$

27,286

 

                     
                     
Net income (loss) per common share — Diluted  

$

0.30

 

   

$

1.86

 

 

$

(0.04

)

   

$

1.84

 

Adjustments                    
Amortization of acquired intangibles  

 

0.32

 

   

 

0.38

 

 

 

0.64

 

   

 

0.77

 

Special charges  

 

-

 

   

 

0.33

 

 

 

-

 

   

 

0.33

 

Tax impact  

 

(0.09

)

   

 

(0.19

)

 

 

(0.17

)

   

 

(0.30

)

Nonrecurring tax benefit - divestiture  

 

-

 

   

 

(1.54

)

 

 

-

 

   

 

(1.55

)

Adjusted earnings per share  

$

0.53

 

   

$

0.84

 

 

$

0.43

 

   

$

1.09

 

 
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
FISCAL 2020 CONTINUING OPERATIONS GUIDANCE
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In millions, except per share amounts)
             
       
      July 29, 2020
      Low     High
             
Net income  

$

15.0

 

   

$

27.0

 

Adjusted for acquisitions starting in 2013          
Amortization of acquired intangibles   ~39.0
Special charges   ~15.0
Tax impact   ~(14.0)
Nonrecurring tax benefit - divestiture   ~(39.0)
Adjusted net income  

$

16.0

 

   

$

28.0

 

             
             
             
Net income per common share —Diluted  

$

0.59

 

   

$

1.06

 

Adjusted for acquisitions starting in 2013          
Amortization of acquired intangibles   ~1.54
Special charges   ~0.59
Tax impact   ~(0.55)
Nonrecurring tax benefit - divestiture   ~(1.54)
Adjusted earnings per share  

$

0.63

 

   

$

1.10

 

             
             
             
Reconciliation of income (loss) before income taxes to segment profit:        
Income (loss) before income taxes  

$

(22.0

)

   

$

(2.0

)

Stock compensation expense   ~25.0
Depreciation and amortization   ~98.0
Interest expense   ~31.0
Interest income   ~(2.0)
Special charges   ~15.0
Segment profit  

$

145.0

 

   

$

165.0

 

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

Year Ended

 

Three Months Ended

 

Year Ended

 

Three Months Ended

   

December 31,

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

December 31,

 

March 31,

 

June 30,

   

2018

 

2019

 

2019

 

2019

 

2019

 

2019

 

2020

 

2020

Net revenue:                                
Managed care and other  

$

2,350,576

 

 

$

566,548

 

 

$

608,614

 

 

$

591,229

 

 

$

580,544

 

 

$

2,346,935

 

 

$

553,168

 

 

$

548,711

 

PBM  

 

2,606,946

 

 

 

552,458

 

 

 

545,675

 

 

 

567,314

 

 

 

553,231

 

 

 

2,218,678

 

 

 

569,211

 

 

 

551,364

 

Total net revenue  

 

4,957,522

 

 

 

1,119,006

 

 

 

1,154,289

 

 

 

1,158,543

 

 

 

1,133,775

 

 

 

4,565,613

 

 

 

1,122,379

 

 

 

1,100,075

 

                                 
Costs and expenses:                                
Cost of care  

 

1,554,691

 

 

 

369,097

 

 

 

408,911

 

 

 

397,697

 

 

 

367,819

 

 

 

1,543,524

 

 

 

349,108

 

 

 

321,831

 

Cost of goods sold  

 

2,452,703

 

 

 

526,314

 

 

 

501,081

 

 

 

523,973

 

 

 

507,917

 

 

 

2,059,285

 

 

 

533,241

 

 

 

528,067

 

Direct service costs and other operating expenses (1)(2)  

 

773,915

 

 

 

202,300

 

 

 

195,907

 

 

 

195,844

 

 

 

207,616

 

 

 

801,667

 

 

 

204,241

 

 

 

199,756

 

Depreciation and amortization  

 

112,284

 

 

 

25,417

 

 

 

28,191

 

 

 

28,890

 

 

 

27,869

 

 

 

110,367

 

 

 

23,358

 

 

 

23,888

 

Interest expense  

 

35,180

 

 

 

9,037

 

 

 

9,070

 

 

 

8,935

 

 

 

8,826

 

 

 

35,868

 

 

 

8,958

 

 

 

7,995

 

Interest and other income  

 

(4,884

)

 

 

(1,759

)

 

 

(1,821

)

 

 

(1,699

)

 

 

(1,578

)

 

 

(6,857

)

 

 

(1,219

)

 

 

(551

)

Special charges  

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,309

 

Total costs and expenses  

 

4,923,889

 

 

 

1,130,406

 

 

 

1,141,339

 

 

 

1,153,640

 

 

 

1,118,469

 

 

 

4,543,854

 

 

 

1,117,687

 

 

 

1,089,295

 

Income (loss) from continuing operations before income taxes  

 

33,633

 

 

 

(11,400

)

 

 

12,950

 

 

 

4,903

 

 

 

15,306

 

 

 

21,759

 

 

 

4,692

 

 

 

10,780

 

Provision (benefit) for income taxes  

 

11,457

 

 

 

(3,209

)

 

 

5,735

 

 

 

782

 

 

 

5,854

 

 

 

9,162

 

 

 

5,762

 

 

 

(36,328

)

Net income (loss) from continuing operations  

 

22,176

 

 

 

(8,191

)

 

 

7,215

 

 

 

4,121

 

 

 

9,452

 

 

 

12,597

 

 

 

(1,070

)

 

 

47,108

 

Income from discontinued operations, net of tax  

 

2,005

 

 

 

8,622

 

 

 

6,398

 

 

 

17,153

 

 

 

11,132

 

 

 

43,305

 

 

 

19,320

 

 

 

36,397

 

Net Income  

$

24,181

 

 

$

431

 

 

$

13,613

 

 

$

21,274

 

 

$

20,584

 

 

$

55,902

 

 

$

18,250

 

 

$

83,505

 

                                 
Weighted average number of common shares outstanding — basic  

 

24,349

 

 

 

23,946

 

 

 

24,101

 

 

 

24,426

 

 

 

24,491

 

 

 

24,243

 

 

 

24,728

 

 

 

25,054

 

Weighted average number of common shares outstanding — diluted  

 

25,035

 

 

 

24,213

 

 

 

24,416

 

 

 

24,708

 

 

 

24,905

 

 

 

24,563

 

 

 

24,869

 

 

 

25,278

 

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

$

0.91

 

 

$

(0.34

)

 

$

0.30

 

 

$

0.17

 

 

$

0.39

 

 

$

0.52

 

 

$

(0.04

)

 

$

1.88

 

Discontinued operations  

 

0.08

 

 

 

0.36

 

 

 

0.26

 

 

 

0.70

 

 

 

0.45

 

 

 

1.79

 

 

 

0.78

 

 

 

1.45

 

Consolidated operations  

$

0.99

 

 

$

0.02

 

 

$

0.56

 

 

$

0.87

 

 

$

0.84

 

 

$

2.31

 

 

$

0.74

 

 

$

3.33

 

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

$

0.89

 

 

$

(0.34

)

 

$

0.30

 

 

$

0.17

 

 

$

0.38

 

 

$

0.52

 

 

$

(0.04

)

 

$

1.86

 

Discontinued operations  

 

0.08

 

 

 

0.36

 

 

 

0.26

 

 

 

0.69

 

 

 

0.45

 

 

 

1.76

 

 

 

0.78

 

 

 

1.44

 

Consolidated operations  

$

0.97

 

 

$

0.02

 

 

$

0.56

 

 

$

0.86

 

 

$

0.83

 

 

$

2.28

 

 

$

0.74

 

 

$

3.30

 

(1) Includes stock compensation expense of $28,936 and $24,673 for the years ended December 31, 2018 and 2019, respectively, and $9,400, $5,207, $4,604, $5,462, $5,797 and $6,592 for the three months ended March 31, June 30, September 30 and December 31, 2019 and March 31 and June 30, 2020, respectively.
                                 
(2) Includes changes in fair value of contingent consideration of $1,108 for the year ended December 31, 2018.
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONTINUING OPERATIONS RESULTS BY BUSINESS SEGMENT
(Unaudited)
(In thousands)
                                 
                                 
   

Year Ended

Three Months Ended

 

Year Ended

 

Three Months Ended

   

December 31,

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

December 31,

 

March 31,

 

June 30,

   

2018

 

2019

 

2019

 

2019

 

2019

 

2019

 

2020

 

2020

Healthcare                                
Managed care and other revenue  

$

2,110,756

 

 

$

506,822

 

 

$

546,113

 

 

$

521,379

 

 

$

507,774

 

 

$

2,082,088

 

 

$

488,906

 

 

$

481,021

 

Cost of care  

 

(1,554,691

)

 

 

(369,097

)

 

 

(408,911

)

 

 

(397,697

)

 

 

(367,819

)

 

 

(1,543,524

)

 

 

(349,108

)

 

 

(321,831

)

Direct service costs and other  

 

(401,083

)

 

 

(100,110

)

 

 

(98,314

)

 

 

(99,416

)

 

 

(104,166

)

 

 

(402,006

)

 

 

(105,936

)

 

 

(100,450

)

Stock compensation expense (1)  

 

6,446

 

 

 

1,543

 

 

 

2,237

 

 

 

1,995

 

 

 

1,864

 

 

 

7,639

 

 

 

1,761

 

 

 

2,102

 

Changes in fair value of contingent consideration (1)  

 

1,108

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Healthcare segment profit  

 

162,536

 

 

 

39,158

 

 

 

41,125

 

 

 

26,261

 

 

 

37,653

 

 

 

144,197

 

 

 

35,623

 

 

 

60,842

 

                                 
Pharmacy Management                                
Managed care and other revenue  

 

240,427

 

 

 

59,895

 

 

 

62,648

 

 

 

69,968

 

 

 

72,928

 

 

 

265,439

 

 

 

64,435

 

 

 

67,867

 

PBM revenue  

 

2,625,417

 

 

 

556,565

 

 

 

550,010

 

 

 

572,086

 

 

 

558,168

 

 

 

2,236,829

 

 

 

573,778

 

 

 

556,195

 

Cost of goods sold  

 

(2,468,170

)

 

 

(530,207

)

 

 

(505,203

)

 

 

(528,500

)

 

 

(512,599

)

 

 

(2,076,509

)

 

 

(537,574

)

 

 

(532,685

)

Direct service costs and other  

 

(298,713

)

 

 

(79,635

)

 

 

(78,776

)

 

 

(79,842

)

 

 

(84,909

)

 

 

(323,162

)

 

 

(81,866

)

 

 

(80,082

)

Stock compensation expense (1)  

 

5,458

 

 

 

1,672

 

 

 

2,124

 

 

 

1,669

 

 

 

2,369

 

 

 

7,834

 

 

 

2,107

 

 

 

1,939

 

Pharmacy Management segment profit  

 

104,419

 

 

 

8,290

 

 

 

30,803

 

 

 

35,381

 

 

 

35,957

 

 

 

110,431

 

 

 

20,880

 

 

 

13,234

 

                                 
Corporate and Elimination (2)                                
Managed care and other revenue  

 

(607

)

 

 

(169

)

 

 

(147

)

 

 

(118

)

 

 

(158

)

 

 

(592

)

 

 

(173

)

 

 

(177

)

PBM revenue  

 

(18,471

)

 

 

(4,107

)

 

 

(4,335

)

 

 

(4,772

)

 

 

(4,937

)

 

 

(18,151

)

 

 

(4,567

)

 

 

(4,831

)

Cost of goods sold  

 

15,467

 

 

 

3,893

 

 

 

4,122

 

 

 

4,527

 

 

 

4,682

 

 

 

17,224

 

 

 

4,333

 

 

 

4,618

 

Direct service costs and other  

 

(74,119

)

 

 

(22,555

)

 

 

(18,817

)

 

 

(16,586

)

 

 

(18,541

)

 

 

(76,499

)

 

 

(16,439

)

 

 

(19,224

)

Stock compensation expense (1)  

 

17,032

 

 

 

6,185

 

 

 

846

 

 

 

940

 

 

 

1,229

 

 

 

9,200

 

 

 

1,929

 

 

 

2,551

 

Corporate and Elimination  

 

(60,698

)

 

 

(16,753

)

 

 

(18,331

)

 

 

(16,009

)

 

 

(17,725

)

 

 

(68,818

)

 

 

(14,917

)

 

 

(17,063

)

                                 
Consolidated                                
Managed care and other revenue  

 

2,350,576

 

 

 

566,548

 

 

 

608,614

 

 

 

591,229

 

 

 

580,544

 

 

 

2,346,935

 

 

 

553,168

 

 

 

548,711

 

PBM revenue  

 

2,606,946

 

 

 

552,458

 

 

 

545,675

 

 

 

567,314

 

 

 

553,231

 

 

 

2,218,678

 

 

 

569,211

 

 

 

551,364

 

Cost of care  

 

(1,554,691

)

 

 

(369,097

)

 

 

(408,911

)

 

 

(397,697

)

 

 

(367,819

)

 

 

(1,543,524

)

 

 

(349,108

)

 

 

(321,831

)

Cost of goods sold  

 

(2,452,703

)

 

 

(526,314

)

 

 

(501,081

)

 

 

(523,973

)

 

 

(507,917

)

 

 

(2,059,285

)

 

 

(533,241

)

 

 

(528,067

)

Direct service costs and other  

 

(773,915

)

 

 

(202,300

)

 

 

(195,907

)

 

 

(195,844

)

 

 

(207,616

)

 

 

(801,667

)

 

 

(204,241

)

 

 

(199,756

)

Stock compensation expense (1)  

 

28,936

 

 

 

9,400

 

 

 

5,207

 

 

 

4,604

 

 

 

5,462

 

 

 

24,673

 

 

 

5,797

 

 

 

6,592

 

Changes in fair value of contingent consideration (1)  

 

1,108

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Segment profit from continuing operations  

$

206,257

 

 

$

30,695

 

 

$

53,597

 

 

$

45,633

 

 

$

55,885

 

 

$

185,810

 

 

$

41,586

 

 

$

57,013

 

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

$

33,633

 

 

$

(11,400

)

 

$

12,950

 

 

$

4,903

 

 

$

15,306

 

 

$

21,759

 

 

$

4,692

 

 

$

10,780

 

Stock compensation expense  

 

28,936

 

 

 

9,400

 

 

 

5,207

 

 

 

4,604

 

 

 

5,462

 

 

 

24,673

 

 

 

5,797

 

 

 

6,592

 

Changes in fair value of contingent consideration  

 

1,108

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Depreciation and amortization  

 

112,284

 

 

 

25,417

 

 

 

28,191

 

 

 

28,890

 

 

 

27,869

 

 

 

110,367

 

 

 

23,358

 

 

 

23,888

 

Interest expense  

 

35,180

 

 

 

9,037

 

 

 

9,070

 

 

 

8,935

 

 

 

8,826

 

 

 

35,868

 

 

 

8,958

 

 

 

7,995

 

Interest and other income  

 

(4,884

)

 

 

(1,759

)

 

 

(1,821

)

 

 

(1,699

)

 

 

(1,578

)

 

 

(6,857

)

 

 

(1,219

)

 

 

(551

)

Special charges  

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,309

 

Segment profit from continuing operations  

$

206,257

 

 

$

30,695

 

 

$

53,597

 

 

$

45,633

 

 

$

55,885

 

 

$

185,810

 

 

$

41,586

 

 

$

57,013

 

(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 the Company’s employees covered under its medical plan. As such, revenue, cost of goods sold and direct service costs and other related to this arrangements are eliminated.

(MGLN-GEN)

Media Contact: Lilly Ackley, ackleyl@magellanhealth.com, (860) 507-1923
Investor Contact: Darren Lehrich, lehrichd@magellanhealth.com, (860) 507-1814

Source: Magellan Health, Inc.