Magellan Health : Reports First Quarter 2015 Financial Results Updates Guidance

Magellan Health, Inc. (NASDAQ:MGLN) today reported financial results for the first quarter of 2015, as summarized below. For the quarter ended March 31, 2015, the company reported net revenue of $981.0 million, segment profit of $64.9 million, and net income of $7.3 million, or $0.28 per diluted common share. In addition, the company reported adjusted net income of $24.4 million and adjusted earnings per share of $0.94.

• The increase in revenue between periods resulted primarily from the impact of new business, same store growth and rate increases, and the inclusion of revenues from CDMI in the current year, which were partially offset by the loss of revenues associated with previously announced contract terminations.
• The decrease in segment profit between periods is primarily due to previously announced contract terminations, which were partially offset by new business, same store growth and the inclusion of CDMI results in the current year quarter.
• The decrease in net income is primarily due to the decrease in segment profit and non-cash expenses relating to acquisitions, comprised of $15.0 million of changes in the fair value of contingent consideration, $7.4 million of higher stock compensation expense, and $2.8 million of incremental amortization of acquired intangibles, offset by the tax impact of such items. The majority of the increase in the fair value of contingent consideration is due to an improved outlook for CDMI, resulting in increased estimates of the performance-related earn-outs.
• The decrease in adjusted net income between periods was mainly due to decreased segment profit.

As of March 31, 2015, the company had unrestricted cash and investments of $344.4 million.

“This year is off to a promising start, and we are well-positioned for future growth,” said Barry M. Smith, chairman and chief executive officer of Magellan Health. “We’ve seen strong momentum in our Pharmacy business, both with organic sales and with the acquisition of 4D Pharmacy Management Systems. We are focused on executing on all of our growth initiatives, and leveraging the knowledge we’ve gained through our core businesses, while finding new and innovative ways to look at special population management.”

Results and Outlook

“I’m pleased with our solid financial results in the quarter, as well as with our continued progress in executing on our growth strategy, including the successful acquisition of 4D Pharmacy Management Systems. 4D serves to further strengthen our growing pharmacy business,” said Jonathan N. Rubin, chief financial officer.

“4D is expected to generate revenues during the last nine months of 2015 of $300 million and segment profit of approximately $6 million. In the current year, the 4D acquisition is expected to be accretive to EPS by approximately five cents per share. Excluding the impact of non-cash acquisition-related items, the 4D acquisition is expected to be accretive to adjusted EPS by approximately thirteen cents per share in 2015.

“Relative to full year 2015, we are updating our guidance to reflect the impact of the 4D and HSM acquisitions, as well as the increase in the fair value of CDMI contingent consideration and share repurchase activity. We now expect revenue of $4.45 billion to $4.69 billion, net income of $45 million to $61 million, and segment profit of $272 million to $292 million. Adjusted net income for the year is now projected to range from $92 million to $104 million. We are revising our guidance for cash flow from operations to the range of $178 million to $202 million, excluding the net shift of restricted funds between cash and investments. Taking into account the impact of share repurchase activity through April 27, 2015, but not considering any potential future share repurchases, our guidance range for fully diluted EPS is estimated to be $1.67 to $2.26 and for fully diluted adjusted EPS of $3.41 to $3.85, based on an updated 27.0 million average fully diluted shares.”

Earnings Conference Call

Management will host a conference call at 10 a.m. Eastern on Thursday, April 30, 2015. To participate in the conference call, interested parties should call 1-800-857-1812 and reference the pass code First Quarter 2015 Earnings Call approximately 15 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.

About Magellan Health: Headquartered in Scottsdale, Ariz., Magellan Health, Inc. is a healthcare management company that focuses on fast-growing, complex and high-cost areas of healthcare, with an emphasis on special population management. Magellan delivers innovative solutions to improve quality outcomes and optimize the cost of care for those we serve. Magellan’s customers include health plans and other managed care organizations, employers, labor unions, various military and government agencies, third party administrators, consultants and brokers. For more information, visit MagellanHealth.com.

Cautionary Statement

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. All statements, other than statements of historical information provided herein, may be deemed to be forward‐looking statements including, without limitation, statements regarding estimates of 2015 net revenue, net income, changes in fair value of contingent consideration, adjusted net income, segment profit, cash flow from operations, earnings per share, adjusted earnings per share, the results of the 4D acquisition, and capital deployment, growth 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, 2014, filed with the Securities and Exchange Commission on February 26, 2015, and the company’s subsequent Quarterly Reports on Form 10‐Q filed during 2015 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 earnings per share information referred to herein may be considered to be non‐GAAP financial measures. 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.

¹ Included in the tables issued with this press release are the reconciliations from non-GAAP measures to the corresponding GAAP measures.

² 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, as well as stock compensation expense and changes in the fair value of contingent consideration recorded in relation to acquisitions.

³ 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, as well as amortization of identified acquisition intangibles and changes in the fair value of contingent consideration recorded in relation to acquisitions.

(1) For a more detailed discussion of Magellan Health's results for the three months ended March 31, 2015, refer to the Company's Quarterly Report on Form 10-Q, which will be filed with the SEC on, or shortly after, Thursday, April 30, 2015, and the live broadcast or taped replay of the Company's earnings conference call on Thursday, April 30, 2015, which will be available at MagellanHealth.com.

(2) Includes stock compensation expense of $4,472 and $13,901 for the three months ended March 31, 2014 and 2015, respectively.

(3) Includes changes in fair value of contingent consideration of $14,969 for the three months ended March 31, 2015.

(4) Net of income tax provision of $29 and $45 for the three months ended March 31, 2014 and 2015, respectively.

(1) The Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2015 will be filed with the SEC on, or shortly after, Thursday, April 30, 2015.

(1) The Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2015 will be filed with the SEC on, or shortly after, Thursday, April 30, 2015.

(2) Includes the net shift of restricted funds between cash and investments that results in an operating cash flow change that is directly offset by an investing cash flow change. During the three months ended March 31, 2014 and 2015, restricted cash of $28,207 and $13,410, respectively, was shifted to restricted investments that resulted in an operating cash flow source.

(1) The Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2015 will be filed with the SEC on, or shortly after, Thursday, April 30, 2015.

(2) Public Sector subcontracts with Pharmacy Management and Specialty Solutions to provide pharmacy benefits management services and radiology benefits management services for certain of Public Sector's customers. In addition, Pharmacy provides pharmacy benefits management for the Company's employees covered under its medical plan. As such, revenue, cost of care, cost of goods sold and direct service costs and other related to these arrangements are eliminated.

(3) Stock compensation expense and changes in fair value of contingent consideration are included in direct service costs and other operating expenses; however, these amounts are excluded from the computation of segment profit.

(4) The non-controlling interest portion of AlphaCare's segment profit (loss) is excluded from the computation of segment profit.