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Magellan Health Reports Second Quarter 2020 Financial Results

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 30June 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)LowHigh
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, 2019June 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
LowHigh
 
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)

Contacts:

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

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