MAGELLAN HEALTH INC0000019411false00000194112021-04-302021-04-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):

April 30, 2021

MAGELLAN HEALTH, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware

1-6639

58-1076937

(State or Other Jurisdiction

(Commission File

(IRS Employer

of Incorporation)

Number)

Identification No.)

4801 E. Washington Street

Phoenix, Arizona

85034

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 642-1716

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

MGLN

The NASDAQ Global Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Item 2.02. Results of Operations and Financial Condition

On April 30, 2021, Magellan Health, Inc. (the “Company”) reported operating results for the quarter ended March 31, 2021. Attached and incorporated herein by reference as Exhibit 99.1 is a copy of the press release dated April 30, 2021.

Item 9.01. Financial Statements, Pro Forma Financial Information and Exhibits

(a)  Financial Statements of business acquired:              Not applicable.

(b)  Pro forma financial information:                  Not applicable.

(d)  Exhibits:See Exhibit Index.

2

Exhibit Index

Exhibit Number

   

Description of Exhibit

99.1

Press release dated April 30, 2021.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MAGELLAN HEALTH, INC.

Date: April 30, 2021

By:

/s/ David P. Bourdon

Name:   David P. Bourdon

Title:     Chief Financial Officer

4

Exhibit 99.1

Graphic

NEWS RELEASE

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

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

Magellan Health Reports First Quarter 2021 Financial Results

PHOENIX – April 30, 2021 – 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)

###