Magellan Health Reports Second Quarter 2017 Financial Results

Magellan Health, Inc. (NASDAQ: MGLN) today announced financial results for the second quarter ended June 30, 2017, as summarized below:

Highlights Include:

• Second quarter net revenue was $1.4 billion, a 22 percent increase over second quarter of 2016.
• Segment profit was $54.3 million, a 5 percent decrease over the second quarter of 2016.
• Net income was $5.5 million, an increase of 39 percent over the same quarter of 2016.
• Adjusted net income was $14.1 million compared to $14.4 million in the second quarter of 2016.
• Unrestricted cash and investments were $273.3 million as of June 30, 2017. Approximately $116.6 million of the unrestricted cash and investments related to excess capital and undistributed earnings held at regulated entities.
• The Company repurchased approximately 90,000 shares of its common stock year to date through July 21, 2017 for approximately $6.4 million. The Company has $68.4 million remaining in its share repurchase authorization program. On July 26, 2017, the Board of Directors extended this program for one year through October 26, 2018.
• On July 13, 2017, the Company announced that it entered into a definitive agreement to acquire Senior Whole Health, a healthcare company focused on serving, complex, high-risk populations, providing both Medicare and Medicaid dual-eligible benefits in New York and Massachusetts. The Company anticipates the impact of this acquisition to be accretive in the twelve months following closing of approximately $0.60 earnings per share and $1.00 adjusted earnings per share. Beyond 2018, the Company anticipates synergies of approximately $10 million annually as a result of savings from insourcing pharmacy and behavioral health services, as well as administrative expense efficiencies. The acquisition is subject to certain state and federal regulatory approvals and is expected to close by the end of the first quarter 2018.
• On August 1, 2017, the Company will begin serving members in the Tidewater region in Virginia, through the Commonwealth Coordinated Care Plus (CCC Plus) program. The CCC Plus program is Virginia's initiative around Managed Long Term Services and Supports (MLTSS), and will serve approximately 214,000 individuals with complex care needs. The CCC Plus program will phase in MLTSS members by region from August 2017 through January 2018.

“I’m pleased with the progress against our strategic initiatives and excited about the Senior Whole Health acquisition. This acquisition will strengthen our capabilities in dual-eligible long-term care programs, enhance our presence in New York and provide entry into the Massachusetts long-term care market,” said Barry M. Smith, chairman and chief executive officer of Magellan Health. “For the balance of the year, we are focused on the successful implementation of our Virginia program and actions to improve results for our commercial healthcare business.”

Net Revenue

Net revenue for the second quarter of 2017 increased 22 percent to $1.4 billion versus $1.2 billion in the second quarter of 2016. The year-over-year increase is primarily due to net business growth and the annualization of revenue from prior year acquisitions.

Healthcare Segment Profit

Healthcare segment profit for the quarter ended June 30, 2017 decreased 13 percent to $30.0 million versus $34.4 million in the second quarter of 2016. The year over year decrease was primarily due to the moratorium on the Health Insurer Fee, cost pressures in two of our commercial healthcare accounts, contract implementation costs and net unfavorable out-of-period items, partially offset by improved results in our government healthcare business and contributions from AFSC, which was acquired in July 2016.

Pharmacy Management Segment Profit

Pharmacy segment profit for the quarter ended June 30, 2017 increased 5 percent to $33.9 million versus $32.3 million for the second quarter of 2016. This year-over-year increase was driven by net business growth and earnings from the Veridicus acquisition, partially offset by higher investments to support growth initiatives.

Corporate

Corporate costs, inclusive of eliminations but excluding stock compensation expense, were $9.6 million, versus $9.8 million during the second quarter of 2016.

Cash Flow & Balance Sheet

Cash flow provided by operations for the six months ended June 30, 2017 was $3.8 million, as compared to cash flow used by operations of $119.2 million for the six months ended June 30, 2016. The prior year operating cash flow was impacted by several factors, including a contingent consideration payment related to the CDMI acquisition, the initial build-up of Part D receivables, and the run-out of claims related to our former contract with the state of Iowa.

As of June 30, 2017, the Company’s unrestricted cash and investments totaled $273.3 million, which represents a decrease of $20.6 million from the balance at December 31, 2016. Approximately $116.6 million of the unrestricted cash and investments at June 30, 2017 is related to excess capital and undistributed earnings held at regulated entities.

Restricted cash and investments at June 30, 2017 of $316.9 million is comparable to the balance at December 31, 2016 of $315.9 million.

Outlook

“While we are reiterating our guidance for 2017, we now expect our results to be approximately at the lower end of the ranges,” said Jonathan N. Rubin, chief financial officer. “Compared to the first half of 2017, we expect an increased segment profit run rate for the remainder of the year due to the following factors: the implementation of actions to improve results in commercial healthcare, business growth, rate increases, normal earnings seasonality in our Part D plan and timing of customer settlements across our businesses.”

Earnings Conference Call

Management will discuss the Company’s second quarter results on a conference call scheduled for Friday, July 28, 2017 at 8:30 a.m. Eastern. To participate in the conference call, dial 1-800-857-1812 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 August 28, 2017. This replay may be accessed by dialing 1-866-467-2412 (domestic) or 1-203-369-1448 (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 revenues 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. 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 2017 guidance for net revenue, net income, earnings per share, segment profit, adjusted net income, adjusted earnings per share, cash flow from operations, segment profit run rate, anticipated accretion and synergies from the Senior Whole Health acquisition, growth 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 health care 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; health care 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, 2016, filed with the Securities and Exchange Commission on February 24, 2017, and the Company’s subsequent Quarterly Reports on Form 10-Q filed during 2017. 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170728005101/en/