UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarterly Period Ended | |
Or | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to | |
Commission File No.
(Exact name of registrant as specified in its charter)
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(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of Magellan Health, Inc.’s common stock outstanding as of September 30, 2021 was
FORM 10-Q
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
INDEX
1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31, | September 30, | |||||
2020 |
| 2021 | ||||
(Unaudited) | ||||||
ASSETS | ||||||
Current Assets: | ||||||
Cash and cash equivalents ($ | $ | | $ | | ||
Accounts receivable, net |
| |
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Short-term investments ($ |
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Pharmaceutical inventory |
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Other current assets ($ |
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Total Current Assets |
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Property and equipment, net |
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Long-term investments ($ |
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| — | ||
Deferred income taxes | | — | ||||
Other long-term assets |
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Goodwill |
| |
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Other intangible assets, net |
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Total Assets | $ | | $ | | ||
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued liabilities |
| |
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Medical claims payable |
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Other medical liabilities |
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Current debt, finance lease and deferred financing obligations |
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Total Current Liabilities |
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Long-term debt, finance lease and deferred financing obligations |
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Deferred income taxes | | | ||||
Tax contingencies |
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Deferred credits and other long-term liabilities |
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Total Liabilities |
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Redeemable non-controlling interest |
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Stockholder's Equity: | ||||||
Preferred stock, par value $ | ||||||
Authorized— |
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Common stock, par value $ | ||||||
Authorized— |
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Other Stockholders’ Equity: | ||||||
Additional paid-in capital |
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Retained earnings |
| |
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Accumulated other comprehensive loss |
| ( |
| ( | ||
Treasury stock, at cost, |
| ( |
| ( | ||
Total Stockholders’ Equity |
| |
| | ||
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity | $ | | $ | | ||
See accompanying notes to consolidated financial statements.
2
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, | |||||||||||||
2020 |
| 2021 |
| 2020 |
| 2021 |
| |||||||
Net revenue: | ||||||||||||||
Managed care and other | $ | | $ | | $ | | $ | | ||||||
PBM |
| |
| |
| |
| | ||||||
Total net revenue |
| |
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| |
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Costs, expenses and other income: | ||||||||||||||
Cost of care |
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Cost of goods sold |
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Direct service costs and other operating expenses (1) |
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Legal matter settlement | — | — | — | ( | ||||||||||
Depreciation and amortization |
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| |
| |
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Interest expense |
| |
| |
| |
| | ||||||
Interest and other income |
| ( |
| ( |
| ( |
| ( | ||||||
Special charges and other | | | | | ||||||||||
Total costs, expenses and other income |
| |
| |
| |
| | ||||||
(Loss) income from continuing operations before income taxes |
| ( |
| |
| ( |
| | ||||||
(Benefit) provision for income taxes |
| ( |
| |
| ( |
| | ||||||
Net (loss) income from continuing operations | ( | ( | | | ||||||||||
Income from discontinued operations, net of tax | | | | | ||||||||||
Net income | $ | | $ | | $ | | $ | | ||||||
Net income (loss) per common share: | ||||||||||||||
Basic (See Note B) | ||||||||||||||
Continuing operations | $ | ( | $ | ( | $ | | $ | | ||||||
Discontinued operations | | | | | ||||||||||
Consolidated operations | $ | | $ | | $ | | $ | | ||||||
Diluted (See Note B) | ||||||||||||||
Continuing operations | $ | ( | $ | ( | $ | | $ | | ||||||
Discontinued operations | | | | | ||||||||||
Consolidated operations | $ | | $ | | $ | | $ | | ||||||
Other comprehensive income | ||||||||||||||
Unrealized (losses) gains on available-for-sale securities (2) |
| ( |
| ( |
| ( |
| | ||||||
Comprehensive income | $ | | $ | | $ | | $ | | ||||||
| (1) | Includes stock compensation expense of $ |
| (2) | Net of income tax (benefit) provision of $( |
See accompanying notes to consolidated financial statements.
3
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
| Accumulated |
|
| |||||||||||||||||||||
| Common Stock | Additional | Other | Total |
| |||||||||||||||||||
Common Stock | In Treasury | Paid in | Retained | Comprehensive | Stockholders’ |
| ||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| (Loss) Income |
| Equity |
| ||||||||
Balance at June 30, 2020 | | $ | |
| ( | $ | ( | $ | | $ | | $ | | $ | | |||||||||
Stock compensation expense | — |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||||||
Exercise of stock options | |
| |
| — |
| — |
| |
| — |
| — |
| | |||||||||
Issuance of equity | |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||||||
Net income | — |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||||||
Other comprehensive loss—other | — | — | — | — | — | — | ( |
| ( | |||||||||||||||
Balance at September 30, 2020 | | $ | | ( | $ | ( | $ | | $ | | $ | | $ | | ||||||||||
Balance at June 30, 2021 | | $ | |
| ( | $ | ( | $ | | $ | | $ | ( | $ | | |||||||||
Stock compensation expense | — |
| — |
| — |
| — |
| |
| — |
| — |
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Exercise of stock options | |
| |
| — |
| — |
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| — |
| — |
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Issuance of equity | |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | |||||||||
Accretion of non-controlling interest | — | — | — | — | — | ( | — | ( | ||||||||||||||||
Net income | — |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||||||
Other comprehensive loss—other | — | — | — | — | — | — | ( | ( | ||||||||||||||||
Balance at September 30, 2021 | | $ | |
| ( | $ | ( | $ | | $ | | $ | ( | $ | | |||||||||
Balance at December 31, 2019 |
| | $ | |
| ( | $ | ( | $ | | $ | | $ | | $ | | ||||||||
Stock compensation expense |
| — |
| — |
| — |
| — |
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| — |
| — |
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Exercise of stock options |
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| — |
| — |
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| — |
| — |
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Issuance of equity |
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| — |
| — |
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| — |
| — |
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Net income |
| — |
| — |
| — |
| — |
| — |
| |
| — |
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Other comprehensive loss—other | — | — | — | — | — | — | ( |
| ( | |||||||||||||||
Adoption of ASC 326 |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Balance at September 30, 2020 | | $ | | ( | $ | ( | $ | | $ | | $ | | $ | | ||||||||||
Balance at December 31, 2020 |
| | $ | |
| ( | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
Stock compensation expense |
| — |
| — |
| — |
| — |
| |
| — |
| — |
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Exercise of stock options |
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| — |
| — |
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| — |
| — |
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Issuance of equity |
| |
| |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||||
Accretion of non-controlling interest | — | — | — | — | — | ( | — | ( | ||||||||||||||||
Net income |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Other comprehensive income—other | — | — | — | — | — | — | | | ||||||||||||||||
Balance at September 30, 2021 |
| | $ | |
| ( | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
See accompanying notes to consolidated financial statements.
4
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
| 2020 |
| 2021 | ||||
Cash flows from operating activities: | |||||||
Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash from operating activities: | |||||||
Depreciation and amortization |
| |
| | |||
Special charges and other | | | |||||
Gain on sale of MCC | — | ( | |||||
Non-cash interest expense |
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Non-cash stock compensation expense |
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Non-cash income tax (benefit) provision |
| ( |
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Non-cash accretion on investments |
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Changes in assets and liabilities, net of effects from acquisitions of businesses: | |||||||
Accounts receivable, net |
| ( |
| ( | |||
Pharmaceutical inventory |
| |
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Other assets |
| ( |
| ( | |||
Accounts payable and accrued liabilities |
| |
| ( | |||
Medical claims payable and other medical liabilities |
| |
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Tax contingencies |
| |
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Deferred credits and other long-term liabilities |
| ( |
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Other |
| ( |
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Net cash provided by operating activities | | | |||||
Net cash provided by operating activities from discontinued operations | | — | |||||
Net cash provided by operating activities from continuing operations |
| |
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Cash flows from investing activities: | |||||||
Capital expenditures |
| ( |
| ( | |||
Acquisitions and investments in businesses, net of cash acquired |
| ( |
| ( | |||
Purchases of investments |
| ( |
| ( | |||
Proceeds from maturities and sales of investments |
| |
| | |||
Net cash used in investing activities | ( | ( | |||||
Net cash used in investing activities from discontinued operations | ( | — | |||||
Net cash used in investing activities from continuing operations |
| ( |
| ( | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings on revolving line of credit |
| |
| — | |||
Proceeds from exercise of stock options |
| |
| | |||
Payments on debt, finance lease and deferred financing obligations | ( | ( | |||||
Other |
| |
| ( | |||
Net cash provided by (used in) financing activities | | ( | |||||
Net cash used in financing activities from discontinued operations | ( | — | |||||
Net cash provided by (used in) financing activities from continuing operations |
| |
| ( | |||
Net increase (decrease) in cash and cash equivalents from continuing operations |
| |
| ( | |||
Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | | |||
Supplemental cash flow data: | |||||||
Non-cash investing activities: | |||||||
Assets acquired under finance leases and deferred financing obligations | $ | | $ | — | |||
See accompanying notes to consolidated financial statements.
5
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
NOTE A—General
Basis of Presentation
The accompanying unaudited consolidated financial statements of Magellan Health, Inc., a Delaware corporation (“Magellan”), include Magellan and its subsidiaries (together with Magellan, the “Company”). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the Securities and Exchange Commission’s (the “SEC”) instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year. All significant intercompany accounts and transactions have been eliminated in consolidation.
On December 31, 2020, Magellan completed the sale of its Magellan Complete Care business (the “MCC Business”) to Molina Healthcare, Inc. (“Molina”), pursuant to a Stock and Asset Purchase Agreement, dated as of April 30, 2020, by and between the Company and Molina, for cash in the amount of $
On January 4, 2021, the Company and Centene Corporation (“Centene”) entered into an Agreement of Plan of Merger (the “Merger Agreement”) by and among the Company, Centene, and Mayflower Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Centene (“Merger Sub”), pursuant to which, subject to the terms and conditions set forth therein, Merger Sub will merge with and into the Company, with the Company surviving such merger (the “Merger”) as a wholly-owned subsidiary of Centene. Pursuant to the Merger Agreement, each issued and outstanding share of the Company’s common stock will be automatically canceled and converted into the right to receive $
The Merger has been approved by the Company’s board of directors, the Company’s stockholders and Centene’s board of directors. The completion of the Merger is subject to customary closing conditions, including, among others, the receipt of various regulatory approvals. For additional information on the Merger Agreement and the Merger, please refer to the Company’s Current Reports on Forms 8-K, filed with the SEC on January 4, 2021 and March 31, 2021, and our definitive proxy statement filed with the SEC on February 19, 2021 (the “Proxy Statement”). The Company cannot guarantee that the Merger will be completed on a timely basis or at all or that, if completed, it will be completed on the terms set forth in the Merger Agreement.
These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021.
Business Overview
The Company provides managed care and pharmacy solutions for some of the most complex areas of healthcare. The Company offers innovative solutions that combine analytics, technology and clinical rigor to drive better decision making, positively impact members’ health outcomes and optimize the cost of care for the customers Magellan serves. The Company provides services to health plans and other managed care organizations (“MCOs”), employers, labor unions, various military and governmental agencies and third-party administrators (“TPAs”). Magellan operates
6
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2021
(Unaudited)
Healthcare Segment
The Healthcare Segment (“Healthcare”) customers include health plans, accountable care organizations (“ACOs”), employers, the United States military and various federal government agencies for whom Magellan provides carve-out management services for (i) behavioral health, (ii) employee assistance plans (“EAP”) and (iii) other areas of specialty healthcare including diagnostic imaging, musculoskeletal management, cardiac and physical medicine. These management services can be applied broadly across commercial, Medicaid and Medicare populations, or on a more targeted basis for our health plans and ACO customers. The segment also includes Magellan’s carve-out behavioral health contracts with various state Medicaid agencies, as well as certain provider assets that deliver primary care and behavioral healthcare services through an integrated approach.
Magellan’s coordination and management of these healthcare services are provided through its comprehensive network of medical and behavioral health professionals, clinics, hospitals, skilled nursing facilities, home care agencies and ancillary service providers. This network of credentialed providers is integrated with clinical and quality improvement programs to improve access to care and enhance the healthcare experience for individuals in need of care, while at the same time making the cost of these services more affordable for our customers. In addition to the Company’s provider assets where it provides treatment services in certain geographies, the Company also employs licensed behavioral health counselors to deliver non-medical counseling under certain government contracts.
The Company provides its Healthcare management services primarily through: (i) risk-based contractual arrangements, where the Company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed per member per month (“PMPM”) fee, or (ii) administrative services only (“ASO”) contractual arrangements, where the Company provides services such as utilization review, claims administration and/or provider network management, but does not assume full responsibility for the cost of the treatment services, in exchange for an administrative fee and, in some instances, a gain share.
Pharmacy Management Segment
The Pharmacy Management segment (“Pharmacy Management”) is comprised of services that provide clinical and financial management of pharmaceuticals paid under both the medical and the pharmacy benefit. Pharmacy Management’s customer solutions include: (i) pharmacy benefit management (“PBM”) services, including pharmaceutical dispensing operations; (ii) pharmacy benefit administration (“PBA”) for state Medicaid and other government sponsored programs; (iii) clinical and formulary management programs; (iv) medical pharmacy management programs; and (v) programs for the integrated management of specialty drugs across both the medical and pharmacy benefit that treat complex conditions, regardless of site of service, method of delivery, or benefit reimbursement.
These services are available individually, in combination, or in a fully integrated manner. The Company markets its pharmacy management services to managed care organizations, employers, third party administrators, state governments, and other government agencies, exchanges, brokers and consultants. In addition, the Company will continue to upsell its pharmacy services to its existing customers and market its pharmacy solutions to the Healthcare customer base, including through integrated Pharmacy Management and Healthcare service offerings.
Pharmacy Management contracts with its customers for services using risk-based, gain share or ASO arrangements.
On May 11, 2020, the Company announced its decision of the non-renewal of Pharmacy Management’s individual Part D Prescription Drug Plan (“PDP”) at the end of 2020. Any activity related to Medicare Part D business reflected in the nine months ended September 30, 2021 is related to final run-out of the 2020 Part D contract provision and is included in continuing operations. The Company continues to retain its Medicare Employer Group Waiver Plan as well as full capabilities to serve the PBM needs of its existing and prospective Medicare customers.
7
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2021
(Unaudited)
Corporate
This segment of the Company is comprised primarily of amounts not allocated to the Healthcare and Pharmacy Management segments that are largely associated with costs related to being a publicly traded company.
Summary of Significant Accounting Policies
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 was effective for the Company beginning in the first quarter of 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company can include, among other things, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. In addition, the Company also makes estimates in relation to revenue recognition under Accounting Standard Codification 606 (“ASC 606”) which are explained in more detail in “Revenue Recognition” below. Actual results could differ from those estimates.
8
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2021
(Unaudited)
Revenue Recognition
Virtually all of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue for the three and nine months ended September 30, 2020 and 2021 by major service line, type of customer and timing of revenue recognition (in thousands):
Three Months Ended September 30, 2020 | |||||||||||
Healthcare |
| Pharmacy Management |
| Elimination |
| Total | |||||
Major Service Lines | |||||||||||
Behavioral & Specialty Health | |||||||||||
Risk-based, non-EAP | $ | | $ | — | $ | ( | $ | | |||
EAP risk-based | | — | — | | |||||||
ASO | | | ( | | |||||||
PBM, including dispensing | — | | ( | | |||||||
Medicare Part D | — | | — | | |||||||
PBA | — | | — | | |||||||