Magellan Health Reports First Quarter 2019 Financial Results

SCOTTSDALE, Ariz.--(BUSINESS WIRE)-- Magellan Health, Inc. (NASDAQ: MGLN) today announced financial results for the first quarter ended March 31, 2019, as summarized below:

For First Quarter:

• Net revenue decreased 3.6 percent over the first quarter of 2018 to $1.7 billion.
• Net income decreased 96.2 percent over the first quarter of 2018 to $0.4 million.
• Segment profit decreased 18 percent over the first quarter of 2018 to $45.6 million.
• Adjusted net income decreased 54 percent over the first quarter of 2018 to $9.6 million.
• Unrestricted cash and investments were $194.9 million as of March 31, 2019. Approximately $88.4 million of the unrestricted cash and investments at March 31, 2019 is related to excess capital and undistributed earnings held at regulated entities.
• The Company is affirming its full year 2019 earnings guidance, but modestly lowering revenue guidance to a range of $7.0 to $7.2 billion.

“Overall, our Healthcare results were solid, and our Pharmacy results for the quarter were impacted by some unfavorable out-of-period and timing items related to network costs,” said Barry M. Smith, chairman and chief executive officer of Magellan Health. “I’m pleased with the actions we completed during the first quarter in 2019 which represent significant progress towards achieving our margin improvement plan. We’re seeing the benefits of the strong leadership we’ve put in place over the last six months, particularly in our MCC segment. We have a clear path to achieve our full year earnings guidance, and I’m confident in the team and our ability to execute.”

Net Revenue

Net revenue for the first quarter ended March 31, 2019, was $1.7 billion, a decrease of 3.6 percent over the same period in 2018. This decrease was mainly driven by our Magellan Complete Care (MCC) of Florida and Medicare Part D footprint reductions as well as the previously discussed PBM healthplan contract loss due to an acquisition, partially offset by growth in MCC of Virginia and new PBM employer business.

Segment Profit

Segment profit was $45.6 million for the first quarter, compared to $55.6 million in the prior year quarter.

• Healthcare segment profit was $45.0 million, which represents a decrease of $0.9 million versus the first quarter of 2018. This decrease was mainly driven by the MCC of Florida footprint reduction and lower margins in New York, partially offset by margin improvements in Virginia.
• Pharmacy Management segment profit was $8.3 million, which was a decrease of $7.2 million from the first quarter of 2018. This year-over-year decrease was primarily driven by specialty formulary management contract losses, non-recurring items, and lower PBM membership.
• Corporate costs inclusive of eliminations, but excluding stock compensation expense, totaled $7.7 million, compared to $5.8 million in the prior year’s quarter. This change was largely due to lower discretionary benefit expenses in the prior year quarter.

Cash Flow & Balance Sheet

Cash flow from operations for the quarter ended March 31, 2019, was $35.4 million, as compared to $81.0 million in the first quarter of 2018. The prior year’s quarterly cash flow was unusually high due to the favorable timing of working capital.

As of March 31, 2019, the Company’s unrestricted cash and investments totaled $194.9 million, which represents an increase of $64.5 million from the balance at December 31, 2018, primarily due to the collection of certain outstanding receivables. Approximately $88.4 million of the unrestricted cash and investments at March 31, 2019 is related to excess capital and undistributed earnings held at regulated entities.

Restricted cash and investments at March 31, 2019, of $468.8 million reflect a decrease of $58.8 million from the balance at December 31, 2018 due to timing. During the quarter the Company repurchased approximately 61 thousand shares for $3.7 million.

“The fundamentals of our business remain strong, and we are focused on continuing to execute our margin improvement plan for the balance of the year,” said Jonathan N. Rubin, chief financial officer of Magellan Health. “I remain confident in our long-term growth strategy.”

Outlook

The Company is affirming its 2019 earnings guidance ranges, but modestly lowering the revenue guidance to a range of $7.0 to $7.2 billion.

Earnings Conference Call

Management will discuss the Company’s first quarter results on a conference call scheduled for Thursday, May 2, 2019 at 7:30 a.m. Eastern. To participate in the conference call, dial 1-800-857-1812 and use passcode “1st Quarter 2019 Earnings Call” 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 IR.MagellanHealth.com. A telephonic replay will be available shortly after the conclusion of the call through June 2, 2019. This replay may be accessed by dialing 1-800-324-4693 (Domestic) or 1-203-369-3245 (International). A replay of the webcast will also be available at the site listed above for 30 days, beginning approximately two hours after its conclusion.

Basis of Presentation

In addition to results determined under Generally Accepted Accounting Principles (GAAP), Magellan provides certain non-GAAP financial measures that management believes are useful in assessing the Company’s performance. Following is a description of these important non-GAAP measures.

Segment profit is equal to net revenue less the sum of cost of care, cost of goods sold, direct service costs and other operating expenses, and includes income from unconsolidated subsidiaries, but excludes segment profit or loss from non-controlling interests held by other parties, stock compensation expense, special charges or benefits, as well as changes in the fair value of contingent consideration recorded in relation to acquisitions.

Adjusted net income and adjusted earnings per share reflect certain adjustments made for acquisitions completed after January 1, 2013, to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, amortization of identified acquisition intangibles, as well as impairment of identified acquisition intangibles.

Included in the tables issued with this press release are the reconciliations from GAAP measures to the corresponding non-GAAP measures.

About Magellan Health: Magellan Health, Inc., a Fortune 500 company, is a leader in managing the fastest growing, most complex areas of health, including special populations, complete pharmacy benefits and other specialty areas of healthcare. Magellan supports innovative ways of accessing better health through technology, while remaining focused on the critical personal relationships that are necessary to achieve a healthy, vibrant life. Magellan’s customers include health plans and other managed care organizations, employers, labor unions, various military and governmental agencies and third-party administrators. For more information, visit MagellanHealth.com.

Forward-Looking Statements

This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the Securities and Exchange Commission’s Fair Disclosure Regulation. This release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, as amended, which involve a number of risks and uncertainties, many of which are out of our control. All statements, other than statements of historical information provided herein, may be deemed to be forward-looking statements including, without limitation, statements regarding 2019 guidance for net revenue, income before income taxes, net income, earnings per share, segment profit, adjusted net income, adjusted earnings per share; and multi-year margin improvement plan, growth opportunities, business environment, long term opportunities and strategy. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, the possible election of certain of the Company’s customers to manage the healthcare services of their members directly; changes in rates paid to and/or by the Company by customers and/or providers; higher utilization of healthcare services by the Company’s risk members; delays, higher costs or inability to implement new business or other Company initiatives; the impact of changes in the contracting model for Medicaid contracts; termination or non-renewal of customer contracts; the impact of new or amended laws or regulations; governmental inquiries; litigation; competition; operational issues; healthcare reform; and general business conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 28, 2019, and the Company’s subsequent Quarterly Reports on Form 10-Q filed during 2019. 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.

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