Nov 7, 2018
Magellan Health Reports Third Quarter 2018 Financial Results

Lowers 2018 Earnings Guidance

SCOTTSDALE, Ariz.--(BUSINESS WIRE)--Nov. 7, 2018-- Magellan Health, Inc. (NASDAQ: MGLN) today announced financial results for the third quarter ended September 30, 2018, as summarized below:

             
    Three Months Ended   Nine Months Ended
    September 30   September 30
(In millions, except per share amounts)                        
    2018   2017   Chg   2018   2017   Chg
Net revenue   $ 1,853.5   $ 1,419.4   30.6 %   $ 5,469.5   $ 4,144.2   32.0 %
Net income   $ 27.1   $ 32.5   -16.4 %   $ 52.1   $ 55.7   -6.4 %
Segment profit [1]   $ 88.3   $ 87.7   0.7 %   $ 211.9   $ 211.9   0.0 %
Adjusted net income [1]   $ 36.2   $ 40.4   -10.5 %   $ 80.2   $ 80.6   -0.5 %
Per share results:                        
Earnings per share   $ 1.09   $ 1.32   -17.4 %   $ 2.06   $ 2.30   -10.4 %
Adjusted earnings per share [1]   $ 1.45   $ 1.64   -11.6 %   $ 3.17   $ 3.33   -4.8 %
                         
[1] Refer to the Basis of Presentation for a discussion of non-GAAP financial measures.
         

Highlights Include:

  • Net revenue increased 31 percent over the third quarter of 2017 to $1.9 billion.
  • Net income decreased 16 percent over the third quarter of 2017 to $27.1 million.
  • Segment profit was $88.3 million compared to $87.7 million in the third quarter of 2017.
  • Adjusted net income decreased 11 percent from the third quarter of 2017 to $36.2 million.
  • Unrestricted cash and investments were $232.2 million as of September 30, 2018. Approximately $134.2 million of the unrestricted cash and investments at September 30, 2018 related to excess capital and undistributed earnings held at regulated entities.
  • The Company is lowering its full year 2018 earnings guidance.

“In light of our recent performance and lowering of guidance, we acknowledge that our financial results have been below our expectations. In the short-term, we expect the environment to remain challenging, but we see significant long-term opportunity in both our Healthcare and Pharmacy businesses,” said Barry M. Smith, chairman and chief executive officer of Magellan Health. “We are focused on partnering with our customers to increase the quality of healthcare for our members while effectively managing both the cost of care and administrative expenses.”

Net Revenue

Net revenue for the third quarter ended September 30, 2018, was $1.9 billion, an increase of 31 percent over the same period in 2017. This increase was mainly driven by net business growth and the annualization of revenue from prior year acquisitions.

Segment Profit

Segment profit was $88.3 million for the third quarter, compared to $87.7 million in the prior year quarter.

  • Healthcare segment profit was $61.7 million, which represents an increase of 7 percent compared to the third quarter of 2017. Healthcare results for the quarter include net favorable out of period adjustments of approximately $22 million, largely driven by favorable client settlements. Other material drivers of the quarterly change in segment profit included the incremental losses in Virginia and the impact of the October 2017 rate reduction in Florida, partially offset by the incremental earnings contribution from the Senior Whole Health acquisition that closed on October 31, 2017.
  • Pharmacy management segment profit was $33.6 million, which was a decrease of 13 percent compared to the third quarter of 2017. This year over year decrease was primarily driven by a decline in earnings in our specialty carve-out business resulting from lost formulary management contracts.
  • Corporate costs inclusive of eliminations, but excluding stock compensation expense, totaled $7.0 million, compared to $8.5 million in the third quarter of 2017. This change was due to costs in the prior year quarter related to the Senior Whole Health acquisition.

Cash Flow & Balance Sheet

Cash flow from operations for the nine months ended September 30, 2018, was $34.0 million versus $112.7 million in the nine months ended September 30, 2017. This year over year change is primarily related to the timing of receivable collections from states in the Company’s MCC businesses.

As of September 30, 2018, the Company’s unrestricted cash and investments totaled $232.2 million versus $261.2 million from the balance at December 31, 2017. Approximately $134.2 million of the unrestricted cash and investments at September 30, 2018, is related to excess capital and undistributed earnings held at regulated entities.

Restricted cash and investments at September 30, 2018, was $380.8 million versus the balance at December 31, 2017 of $465.4 million. This decrease was primarily due to accounts receivable increases as well as improved capital efficiency through substituting a letter of credit for statutory surplus in one of the Company’s MCC markets.

Year to date through October 31, 2018, we repurchased approximately 680,000 shares for $53.2 million. We have approximately $200 million remaining in our share repurchase authorization program which runs through October 22, 2020.

Outlook

The Company is lowering its 2018 full year earnings guidance ranges.

         
2018 Guidance   Nov 7, 2018   July 27, 2018
   

Low

 

High

 

Low

 

High

Net revenue   $ 7,300.0   $ 7,500.0   $ 7,300.0   $ 7,500.0
Income before income taxes   $ 97.0   $ 131.0   $ 132.0   $ 170.0
Net income   $ 68.0   $ 88.0   $ 93.0   $ 117.0
Segment Profit[1]   $ 290.0   $ 310.0   $ 330.0   $ 350.0
Adjusted net income[1]   $ 107.0   $ 123.0   $ 132.0   $ 152.0
                 
Per share results:                
Earnings per share[2]   $ 2.71   $ 3.51   $ 3.65   $ 4.59
Adjusted earnings per share[1][2]   $ 4.26   $ 4.90   $ 5.18   $ 5.96
                 
[1] Refer to the Basis of Presentation for a discussion of non-GAAP financial measures.

[2] 2018 EPS and Adjusted EPS guidance includes share repurchases and option exercises through the
close of business October 31, 2018, but excludes the impact of any potential future activity.

 

The reduction in earnings guidance reflects the following:

  • Utilization pressures in our Healthcare business;
  • In MCC of Virginia, the unfavorable update to the Company’s expected risk scores for 2018;
  • Modestly lower margins in the Pharmacy business as a result of delayed timing of network rate improvement actions; and,
  • As result of operating efficiency initiatives, an initial estimate of severance and other costs that the Company anticipates to recognize in 2018.

The Company now estimates net income for the full year 2018 to be in the range of $68 million to $88 million, adjusted net income in the range of $107 million to $123 million, EPS in the range of $2.71 to $3.51 and adjusted EPS in the range of $4.26 to $4.90. The full year segment profit guidance is expected to be in the range of $290 million to $310 million. The Company is maintaining its revenue range of $7.3 billion to $7.5 billion.

“After transforming our business and achieving strong top line growth over the past few years, we have significant earnings power in our current portfolio as we work to increase our margins to industry competitive levels,” said Jonathan N. Rubin, chief financial officer of Magellan Health.

Earnings Conference Call

Management will discuss the Company’s third quarter results on a conference call scheduled for Wednesday, November 7, 2018 at 8:00 a.m. Eastern. To participate in the conference call, dial 1-800-857-1812 and use passcode “3rd Quarter 2018” 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 December 7, 2018. This replay may be accessed by dialing 1-866-501-2962 (Domestic) or 1-203-369-1830 (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 2018 guidance for net revenue, income before income taxes, net income, earnings per share, segment profit, adjusted net income, adjusted earnings per share, an initial estimate of severance and other costs that we anticipate to recognize in 2018, growth opportunities, business environment, long term opportunities and strategy. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, the possible election of certain of the Company’s customers to manage the healthcare services of their members directly; changes in rates paid to and/or by the Company by customers and/or providers; higher utilization of healthcare services by the Company’s risk members; delays, higher costs or inability to implement new business or other Company initiatives; the impact of changes in the contracting model for Medicaid contracts; termination or non-renewal of customer contracts; the impact of new or amended laws or regulations; governmental inquiries; litigation; competition; operational issues; 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, 2017, filed with the Securities and Exchange Commission on March 1, 2018, and the Company’s subsequent Quarterly Reports on Form 10-Q filed during 2018. 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, 2017     September 30, 2018
          (unaudited)
ASSETS          
           
Current Assets:          
Cash and cash equivalents   $ 398,732       $ 234,264  
Accounts receivable, net     660,775         820,748  
Short-term investments     310,578         374,669  
Pharmaceutical inventory     40,945         44,035  
Other current assets     72,323         102,829  
Total Current Assets     1,483,353         1,576,545  
Property and equipment, net     158,638         154,826  
Long-term investments     17,287         4,090  
Deferred income taxes     813         1,071  
Other long-term assets     22,567         51,391  
Goodwill     1,006,288         1,015,076  
Other intangible assets, net     268,288         245,516  
Total Assets   $ 2,957,234       $ 3,048,515  
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current Liabilities:          
Accounts payable   $ 74,300       $ 73,144  
Accrued liabilities     193,635         209,012  
Short-term contingent consideration     6,892         7,131  
Medical claims payable     327,625         402,497  
Other medical liabilities     177,002         162,009  
Current debt, capital lease and deferred financing obligations     112,849         64,778  
Total Current Liabilities     892,303         918,571  
Long-term debt, capital lease and deferred financing obligations     740,888         733,969  
Deferred income taxes     12,298         12,802  
Tax contingencies     14,226         14,326  
Long-term contingent consideration     1,925         2,137  
Deferred credits and other long-term liabilities     19,100         34,959  
Total Liabilities     1,680,740         1,716,764  
           
Stockholders’ Equity:          
Ordinary common stock     530         535  
Additional paid-in capital     1,274,811         1,324,176  
Retained earnings     1,399,495         1,447,416  
Accumulated other comprehensive loss     (380 )       (373 )
Ordinary common stock in treasury, at cost     (1,397,962 )       (1,440,003 )
Total Stockholders’ Equity     1,276,494         1,331,751  
Total Liabilities and Stockholders’ Equity   $ 2,957,234       $ 3,048,515  
           
 
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)
                     
                     
                     
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2017   2018   2017   2018
Net revenue:                    
Managed care and other   $ 834,358     $ 1,235,787   $ 2,385,397     $ 3,670,890
PBM   585,048     617,719   1,758,771     1,798,616
Total net revenue   1,419,406     1,853,506   4,144,168     5,469,506
                     
Costs and expenses:                    
Cost of care   569,306     938,031   1,634,624     2,802,506
Cost of goods sold   543,682     571,145   1,648,670     1,689,229
Direct service costs and other operating expenses (1)(2)   227,372     265,471   680,230     793,700
Depreciation and amortization   28,189     33,047   82,896     97,302
Interest expense   7,663     8,990   16,711     26,034
Interest and other income   (1,781)     (4,139)   (3,801)     (9,978)
Total costs and expenses   1,374,431     1,812,545   4,059,330     5,398,793
Income before income taxes   44,975     40,961   84,838     70,713
Provision for income taxes   11,739     13,816   29,206     18,565
Net income   33,236     27,145   55,632     52,148
Less: net income (loss) attributable to non-controlling interest   785     -   (66)     -
Net income attributable to Magellan   $ 32,451     $ 27,145   $ 55,698     $ 52,148
                     
Weighted average number of common shares outstanding — basic   23,282     24,433   23,135     24,451
Weighted average number of common shares outstanding — diluted   24,563     24,928   24,241     25,316
                     
Net income attributable to Magellan per common share — basic   $ 1.39     $ 1.11   $ 2.41     $ 2.13
Net income attributable to Magellan per common share — diluted   $ 1.32     $ 1.09   $ 2.30     $ 2.06
                     
Net income   $ 33,236     $ 27,145   $ 55,632     $ 52,148
Other comprehensive income:                    
Unrealized gain on available-for-sale securities (3)   26     194   27     7
Comprehensive income   33,262     27,339   55,659     52,155
Less: comprehensive income (loss) attributable to non-controlling interest   785     -   (66)     -
Comprehensive income attributable to Magellan   $ 32,477     $ 27,339   $ 55,725     $ 52,155
                     
                     

(1) Includes stock compensation expense of $10,323 and $9,320 for the three months ended September 30, 2017 and 2018, respectively, and $31,834
and $27,405 for the nine months ended September 30, 2017 and 2018, respectively.

                     

(2) Includes changes in fair value of contingent consideration of $(834) and $148 for the three months ended September 30, 2017 and 2018,
respectively, and $(631) and $451 for the nine months ended September 30, 2017 and 2018, respectively.

                     

(3) Net of income tax provision of $16 and $61 for the three months ended September 30, 2017 and 2018, respectively, and $18 and $3 for the nine
months ended September 30, 2017 and 2018, respectively.

 
           
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
           
           
    Nine Months Ended
    September 30,
    2017     2018
Cash flows from operating activities:          
Net income   $ 55,632       $ 52,148  
Adjustments to reconcile net income to net cash from operating activities:          
Depreciation and amortization     82,896         97,302  
Non-cash interest expense     3,120         919  
Non-cash stock compensation expense     31,834         27,405  
Non-cash income tax (benefit) provision     (2,160 )       1,814  
Non-cash amortization on investments     3,052         1,404  
Changes in assets and liabilities, net of effects from acquisitions of businesses:          
Accounts receivable, net     (13,539 )       (160,904 )
Pharmaceutical inventory     9,609         (3,090 )
Other assets     (15,481 )       (60,008 )
Accounts payable and accrued liabilities     (70,006 )       (13,781 )
Medical claims payable and other medical liabilities     25,578         73,667  
Contingent consideration     (631 )       451  
Tax contingencies     158         100  
Deferred credits and other long-term liabilities     2,408         16,497  
Other     210         93  
Net cash provided by operating activities     112,680         34,017  
           
Cash flows from investing activities:          
Capital expenditures     (42,703 )       (51,244 )
Acquisitions and investments in businesses, net of cash acquired     (3,200 )       (402 )
Purchases of investments     (341,280 )       (453,007 )
Proceeds from maturities and sales of investments     320,045         400,683  
Net cash used in investing activities     (67,138 )       (103,970 )
           
Cash flows from financing activities:          
Proceeds from issuance of debt     949,239         -  
Payments to acquire treasury stock     (15,457 )       (41,039 )
Proceeds from exercise of stock options     28,328         22,587  
Payments on debt, capital lease and deferred financing obligations     (798,359 )       (75,043 )
Payments on contingent consideration     (1,032 )       -  
Other     (8,005 )       (1,020 )
Net cash provided by (used in) financing activities     154,714         (94,515 )
           
Net increase (decrease) in cash and cash equivalents     200,256         (164,468 )
Cash and cash equivalents at beginning of period     304,508         398,732  
Cash and cash equivalents at end of period   $ 504,764       $ 234,264  
           
                     
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS BY BUSINESS SEGMENT
(Unaudited)
(In thousands)
                     
                     
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2017     2018   2017     2018

Healthcare

                   
Managed care and other revenue   $ 769,451       $ 1,176,439     $ 2,190,097       $ 3,488,928  
Cost of care     (569,306 )       (938,031 )     (1,634,624 )       (2,802,506 )
Direct service costs and other     (143,550 )       (179,022 )     (428,432 )       (543,258 )
Stock compensation expense (1)     2,623         2,165       8,388         7,857  
Changes in fair value of contingent consideration (1)     (834 )       148       (631 )       451  
Less: non-controlling interest segment profit (loss) (2)     789         -       (56 )       -  
Healthcare segment profit     57,595         61,699       134,854         151,472  
                     

Pharmacy Management

                   
Managed care and other revenue     65,131         59,500       195,970         182,410  
PBM revenue     618,178         665,734       1,856,856         1,940,726  
Cost of goods sold     (575,327 )       (618,463 )     (1,742,610 )       (1,827,327 )
Direct service costs and other     (74,976 )       (74,491 )     (225,782 )       (221,018 )
Stock compensation expense (1)     5,680         1,359       17,094         4,252  
Pharmacy Management segment profit     38,686         33,639       101,528         79,043  
                     

Corporate and Elimination (3)

                   
Managed care and other revenue     (224 )       (152 )     (670 )       (448 )
PBM revenue     (33,130 )       (48,015 )     (98,085 )       (142,110 )
Cost of goods sold     31,645         47,318       93,940         138,098  
Direct service costs and other     (8,846 )       (11,958 )     (26,016 )       (29,424 )
Stock compensation expense (1)     2,020         5,796       6,352         15,296  
Less: non-controlling interest segment profit (loss) (2)     (1 )       -       (3 )       -  
Corporate and Elimination     (8,534 )       (7,011 )     (24,476 )       (18,588 )
                     

Consolidated

                   
Managed care and other revenue     834,358         1,235,787       2,385,397         3,670,890  
PBM revenue     585,048         617,719       1,758,771         1,798,616  
Cost of care     (569,306 )       (938,031 )     (1,634,624 )       (2,802,506 )
Cost of goods sold     (543,682 )       (571,145 )     (1,648,670 )       (1,689,229 )
Direct service costs and other     (227,372 )       (265,471 )     (680,230 )       (793,700 )
Stock compensation expense (1)     10,323         9,320       31,834         27,405  
Changes in fair value of contingent consideration (1)     (834 )       148       (631 )       451  
Less: non-controlling interest segment profit (loss) (2)     788         -       (59 )       -  
Consolidated segment profit   $ 87,747       $ 88,327     $ 211,906       $ 211,927  
                     
                     
Reconciliation of income before income taxes to segment profit:                    
Income before income taxes   $ 44,975       $ 40,961     $ 84,838       $ 70,713  
Stock compensation expense     10,323         9,320       31,834         27,405  
Changes in fair value of contingent consideration     (834 )       148       (631 )       451  
Non-controlling interest segment (profit) loss     (788 )       -       59         -  
Depreciation and amortization     28,189         33,047       82,896         97,302  
Interest expense     7,663         8,990       16,711         26,034  
Interest and other income     (1,781 )       (4,139 )     (3,801 )       (9,978 )
Segment profit   $ 87,747       $ 88,327     $ 211,906       $ 211,927  
                     
                     

(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) The non-controlling portion of AlphaCare's segment profit (loss) is excluded from the computation of segment profit.

                     

(3) 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   Nine Months Ended
    September 30,   September 30,
    2017     2018   2017     2018
                     
Net income attributable to Magellan   $ 32,451       $ 27,145     $ 55,698       $ 52,148  
Adjusted for acquisitions starting in 2013                    
Stock compensation expense     4,960         -       14,718         530  
Changes in fair value of contingent consideration     (834 )       148       (631 )       451  
Amortization of acquired intangibles     8,424         12,079       25,189         36,676  
Tax impact     (4,605 )       (3,220 )     (14,372 )       (9,577 )
Adjusted net income   $ 40,396       $ 36,152     $ 80,602       $ 80,228  
                     
                     
Net income per common share attributable to Magellan —diluted   $ 1.32       $ 1.09     $ 2.30       $ 2.06  
Adjusted for acquisitions starting in 2013                    
Stock compensation expense     0.20         -       0.61         0.02  
Changes in fair value of contingent consideration     (0.03 )       0.01       (0.03 )       0.02  
Amortization of acquired intangibles     0.34         0.48       1.04         1.45  
Tax impact     (0.19 )       (0.13 )     (0.59 )       (0.38 )
Adjusted earnings per share   $ 1.64       $ 1.45     $ 3.33       $ 3.17  
                     
                 
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
FISCAL 2018 GUIDANCE
(In millions, except per share amounts)
                     
                     
    July 27, 2018   November 7, 2018
    Low     High   Low     High
                     
Net revenue   $ 7,300.0     $ 7,500.0   $ 7,300.0     $ 7,500.0
Income before income taxes     132.0       170.0     97.0       131.0
Net income     93.0       117.0     68.0       88.0
Segment profit (1)     330.0       350.0     290.0       310.0
Adjusted net income (1)     132.0       152.0     107.0       123.0
Per share results:                    
Earnings per share (2)     3.65       4.59     2.71       3.51
Adjusted earnings per share (1)(2)     5.18       5.96     4.26       4.90
                     
                     
(1) Refer to the Reconciliation of GAAP to Non-GAAP measures table.
                     

(2) Based on average fully diluted shares of 25.5 million and 25.1 million for July 27, 2018 guidance and November 7,
2018 guidance, respectively.

 
                     
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
FISCAL 2018 GUIDANCE
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
                     
                     
    July 27, 2018   November 7, 2018
    Low     High   Low     High
                     
Net income attributable to Magellan   $ 93.0       $ 117.0     $ 68.0       $ 88.0  
Adjusted for acquisitions starting in 2013                    
Stock compensation expense     1.0         1.0       1.0         1.0  
Changes in fair value of contingent consideration     -         -       -         -  
Amortization of acquired intangibles     52.0         47.0       52.0         47.0  
Tax impact     (14.0 )       (13.0 )     (14.0 )       (13.0 )
Adjusted net income   $ 132.0       $ 152.0     $ 107.0       $ 123.0  
                     
                     
                     
Net income per common share attributable to Magellan —Diluted   $ 3.65       $ 4.59     $ 2.71       $ 3.51  
Adjusted for acquisitions starting in 2013                    
Stock compensation expense     0.04         0.04       0.04         0.04  
Changes in fair value of contingent consideration     -         -       -         -  
Amortization of acquired intangibles     2.04         1.84       2.07         1.87  
Tax impact     (0.55 )       (0.51 )     (0.56 )       (0.52 )
Adjusted earnings per share   $ 5.18       $ 5.96     $ 4.26       $ 4.90  
                     
                     
                     
Reconciliation of income before income taxes to segment profit:                    
Income before income taxes   $ 132.0       $ 170.0     $ 97.0       $ 131.0  
Stock compensation expense     35.0         33.0       35.0         31.0  
Changes in fair value of contingent consideration     -         -       -         -  
Depreciation and amortization     137.0         127.0       135.0         129.0  
Interest expense     37.0         33.0       36.0         34.0  
Interest income     (11.0 )       (13.0 )     (13.0 )       (15.0 )
Segment profit   $ 330.0       $ 350.0     $ 290.0       $ 310.0  
                     
       
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
HEALTHCARE SEGMENT HISTORICAL RECLASSIFICATION (1)
(Unaudited)
(In thousands)
                                 
    For the Quarter Ended     Year Ended
   

 

 

 

           
   

March 31,

 

June 30,

  September   December 31,   December 31,
Healthcare Segment Results  

2017

  2017   30, 2017   2017   2017
Behavioral & Specialty Health revenue                              

Risk-based, non-EAP

  $ 315,344     $ 385,042     $ 372,755     $ 388,018       $ 1,461,159  
EAP risk-based     97,920       100,009       90,000       94,118         382,047  
ASO     56,291       61,080       66,785       73,154         257,310  
Magellan Complete Care revenue                                
Risk-based, non-EAP     183,076       196,281       226,905       447,654         1,053,916  
ASO     12,745       12,858       13,006       13,236         51,845  
Managed care and other revenue   $ 665,376    

$

755,270     $ 769,451     $ 1,016,180       $ 3,206,277  
                                 
MLR Behavioral & Specialty Health risk     87.5 %     91.4 %     89.3 %     85.7 %       88.5 %
MLR Behavioral & Specialty Health EAP risk     71.7 %     69.5 %     65.8 %     67.0 %       68.6 %
MLR Magellan Complete Care risk     74.3 %     82.4 %     78.1 %     85.7 %       81.5 %
                                 
Membership                                
Behavioral & Specialty Health                                
Risk (2)     12,000       12,771       13,232       13,029          
EAP risk     14,533       14,144       14,228       14,472          
ASO     26,983       28,475       28,337       27,824          
Magellan Complete Care                                
Risk     72       73       77       120          
ASO     20       20       20       21          
      53,608       55,483       55,894       55,466          
                                 
                                 
    For the Quarter Ended  
       

 

             
    March 31,  

June 30,

  September          
Healthcare Segment Results   2018   2018   30, 2018          
Behavioral & Specialty Health revenue                              
Risk-based, non-EAP   $ 373,052     $ 378,076     $ 377,615                
EAP risk-based     94,658       91,275       79,854                
ASO     62,639       61,276       65,326                
Magellan Complete Care revenue                                
Risk-based, non-EAP     613,829       610,358       639,584                
ASO     13,423       13,903       14,060                
Managed care and other revenue   $ 1,157,601     $ 1,154,888     $ 1,176,439                
                                 
MLR Behavioral & Specialty Health risk     86.8 %     86.7 %     87.7 %              
MLR Behavioral & Specialty Health EAP risk     68.9 %     69.2 %     68.2 %              
MLR Magellan Complete Care risk     87.9 %     89.3 %     86.4 %              
                                 
Membership                                
Behavioral & Specialty Health                                
Risk (2)     12,334       12,258       12,325                
EAP risk     15,343       14,890       15,140                
ASO     29,533       27,064       26,551                
Magellan Complete Care                                
Risk     131       132       144                
ASO     21       22       22                
      57,362       54,366       54,182                
                                 

(1) During the third quarter of 2018, the Company re-evaluated how it was managing the Healthcare business segment
and decided a reorganization was necessary to effectively manage the business going forward. As a result of this
business reorganization, the Company concluded that changes to Healthcare’s reporting units were warranted.
Healthcare now consists of two reporting units – Behavioral & Specialty Health and Magellan Complete Care (“MCC”).

                                 

(2) May include some duplicate count of membership for customers that contract with Magellan for both behavioral and
other specialty management services.

(MGLN-GEN)

 

Source: Magellan Health, Inc.

For Magellan Health, Inc.
Media:
Lilly Ackley, 860-507-1923
ackleyl@magellanhealth.com
or
Investors:
Joe Bogdan, 860-507-1910
jbogdan@magellanhealth.com