Magellan Health Reports Third Quarter 2016 Financial Results
Raises 2016 Guidance
Third Quarter Financial Results* |
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Three Months Ended |
Nine Months Ended |
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(Millions, except per share results) | 2016 | 2015 | Inc/ (Dec) |
2016 | 2015 | Inc/ (Dec) |
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Net Revenue | $ | 1,292.1 | $ | 1,190.1 | 8.6 | % | $ | 3,573.5 | $ | 3,328.7 | 7.4 | % | |||||||
Net Income (Loss) | 25.5 | (7.8 | ) | N/A | 42.7 | 4.1 | 941.5 | % | |||||||||||
Segment Profit* | 82.8 | 55.3 | 49.7 | % | 199.6 | 173.4 | 15.1 | % | |||||||||||
Adjusted Net Income* | 33.3 | 18.9 | 76.2 | % | 67.1 | 58.0 | 15.7 | % | |||||||||||
Per Share Results: | |||||||||||||||||||
Earnings (Loss) per Share | 1.06 | (0.31 | ) | N/A | 1.75 | 0.16 | 993.8 | % | |||||||||||
Adjusted Earnings per Share* | 1.39 | 0.76 | 82.9 | % | 2.76 | 2.20 | 25.5 | % | |||||||||||
____________________________________________________________________ |
* Refer to the Basis of Presentation for a discussion of non-GAAP financial measures. |
Variances for the three months ended
- The increase in net revenue is attributable to new business and same store growth, as well as revenue from the
Armed Forces Services Corporation (AFSC) andThe Management Group (TMG) acquisitions, partially offset by the loss of revenues associated with terminated contracts. - The change in net income between periods is due to the after-tax impact of higher segment profit, and a reduction in contingent consideration expense and stock compensation expense related to acquisitions.
- The increase in segment profit is primarily due to new business, improved results in our Magellan Complete Care (MCC) business, net same store growth, and the inclusion of AFSC and TMG results in the current quarter, partially offset by the impact of contract terminations. Included in segment profit this quarter is approximately
$13 million of net favorable out-of-period items, primarily related to favorable medical claims development in the healthcare segment. - The change in adjusted net income between periods was mainly due to the after-tax impact of higher segment profit in the current quarter.
“I am very pleased with this quarter’s results. Over the last several years we’ve built an exceptionally capable senior leadership team, and our results reflect strong execution across all of our business units. We remain focused on delivering strong shareholder value, today and in the future, through both the results we deliver and the positive impact we have on the lives of the individuals we serve,” said
Results and Outlook
“We had strong results this quarter in both our pharmacy and healthcare segments,” said
“We are raising our guidance for full year 2016 to reflect the improved performance of MCC of
“Looking ahead, as compared to our updated segment profit guidance range for 2016, we currently expect that we will have solid segment profit growth in 2017. Our positive update to 2016 guidance reflects our strong operating performance, as well as successful execution of our growth strategy. This positions us well for next year, and I look forward to further discussing our 2017 guidance and sharing the details for our plan for solid earnings growth during our guidance call later this month.”
Earnings Conference Call
Management will host a conference call at
About
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
Included in the tables issued with this press release are the reconciliations from non-GAAP measures to the corresponding GAAP measures.
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 updated 2016 guidance for revenue, net income, earnings per share, segment profit, adjusted net income, adjusted earnings per share and cash flow from operations, 2017 segment profit, 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
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Three Months Ended |
Nine Months Ended |
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2015 |
2016 (1) |
2015 |
2016 (1) |
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Net revenue: | ||||||||||||||||
Managed care and other | $ | 809,249 | $ | 751,589 | $ | 2,334,139 | $ | 2,127,911 | ||||||||
PBM and dispensing | 380,833 | 540,543 | 994,518 | 1,445,588 | ||||||||||||
Total net revenue | 1,190,082 | 1,292,132 | 3,328,657 | 3,573,499 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Cost of care | 596,323 | 480,243 | 1,686,939 | 1,410,403 | ||||||||||||
Cost of goods sold | 360,444 | 509,673 | 940,060 | 1,362,062 | ||||||||||||
Direct service costs and other operating expenses (2)(3)(4) | 220,586 | 229,094 | 616,491 | 635,627 | ||||||||||||
Depreciation and amortization | 26,721 | 26,885 | 75,239 | 77,472 | ||||||||||||
Interest expense | 1,654 | 3,038 | 4,933 | 6,780 | ||||||||||||
Interest income | (631 | ) | (741 | ) | (1,597 | ) | (2,116 | ) | ||||||||
Total costs and expenses | 1,205,097 | 1,248,192 | 3,322,065 | 3,490,228 | ||||||||||||
(Loss) income before income taxes | (15,015 | ) | 43,940 | 6,592 | 83,271 | |||||||||||
(Benefit) provision for income taxes | (7,254 | ) | 18,631 | 2,866 | 43,259 | |||||||||||
Net (loss) income | (7,761 | ) | 25,309 | 3,726 | 40,012 | |||||||||||
Less: net income (loss) attributable to non-controlling interest | 47 | (200 | ) | (397 | ) | (2,692 | ) | |||||||||
Net (loss) income attributable to |
$ | (7,808 | ) | $ | 25,509 | $ | 4,123 | $ | 42,704 | |||||||
Weighted average number of common shares outstanding — basic | 24,892 | 23,052 | 25,297 | 23,394 | ||||||||||||
Weighted average number of common shares outstanding — diluted | 24,892 | 24,005 | 26,372 | 24,343 | ||||||||||||
Net (loss) income per common share attributable to |
$ | (0.31 | ) | $ | 1.11 | $ | 0.16 | $ | 1.83 | |||||||
Net (loss) income per common share attributable to |
$ | (0.31 | ) | $ | 1.06 | $ | 0.16 | $ | 1.75 | |||||||
Net (loss) income | $ | (7,761 | ) | $ | 25,309 | $ | 3,726 | $ | 40,012 | |||||||
Other comprehensive (loss) income: | ||||||||||||||||
Unrealized gains (losses) on available-for-sale securities (5) | 53 | (127 | ) | 29 | 109 | |||||||||||
Comprehensive (loss) income | (7,708 | ) | 25,182 | 3,755 | 40,121 | |||||||||||
Less: comprehensive income (loss) attributable to non-controlling interest | 47 | (200 | ) | (397 | ) | (2,692 | ) | |||||||||
Comprehensive (loss) income attributable to |
$ | (7,755 | ) | $ | 25,382 | $ | 4,152 | $ | 42,813 | |||||||
(1) For a more detailed discussion of |
(2) Includes stock compensation expense of |
(3) Includes changes in fair value of contingent consideration of |
(4) Includes impairment of intangible assets of |
(5) Net of income tax provision (benefit) of |
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NON-GAAP MEASURES | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Three Months Ended |
Nine Months Ended |
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2015 |
2016 (1) |
2015 |
2016 (1) |
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Adjusted net income | $ | 18,898 | $ | 33,322 | $ | 58,004 | $ | 67,102 | ||||||||
Adjusted for acquisitions starting in 2013 | ||||||||||||||||
Stock compensation relating to acquisitions | (8,923 | ) | (5,105 | ) | (25,759 | ) | (14,217 | ) | ||||||||
Changes in fair value of contingent consideration | (29,738 | ) | (313 | ) | (47,274 | ) | (510 | ) | ||||||||
Amortization of acquired intangibles | (5,988 | ) | (6,649 | ) | (15,631 | ) | (17,938 | ) | ||||||||
Impairment of intangible assets, net of non-controlling interest | - | - | - | (3,936 | ) | |||||||||||
Tax impact | 17,943 | 4,254 | 34,783 | 12,203 | ||||||||||||
Net (loss) income attributable to |
$ | (7,808 | ) | $ | 25,509 | $ | 4,123 | $ | 42,704 | |||||||
Adjusted EPS | $ | 0.76 | $ | 1.39 | $ | 2.20 | $ | 2.76 | ||||||||
Adjusted for acquisitions starting in 2013 | ||||||||||||||||
Stock compensation relating to acquisitions | (0.36 | ) | (0.22 | ) | (0.98 | ) | (0.59 | ) | ||||||||
Changes in fair value of contingent consideration | (1.19 | ) | (0.01 | ) | (1.79 | ) | (0.02 | ) | ||||||||
Amortization of acquired intangibles | (0.24 | ) | (0.28 | ) | (0.59 | ) | (0.74 | ) | ||||||||
Impairment of intangible assets, net of non-controlling interest | - | - | - | (0.16 | ) | |||||||||||
Tax impact | 0.72 | 0.18 | 1.32 | 0.50 | ||||||||||||
Net (loss) income per common share attributable to |
$ | (0.31 | ) | $ | 1.06 | $ | 0.16 | $ | 1.75 | |||||||
(1) The Company's Quarterly Report on Form 10-Q for the quarterly period ended |
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CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Nine Months Ended |
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2015 |
2016 (1) |
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Cash flows from operating activities: | ||||||||
Net income | $ | 3,726 | $ | 40,012 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization | 75,239 | 77,472 | ||||||
Non-cash impairment of intangible assets | - | 4,800 | ||||||
Non-cash interest expense | 297 | 385 | ||||||
Non-cash stock compensation expense | 40,593 | 27,573 | ||||||
Non-cash income tax (benefit) provision | (1,018 | ) | 2,998 | |||||
Non-cash amortization on investments | 5,106 | 4,224 | ||||||
Cash flows from changes in assets and liabilities, net of effects from acquisitions of businesses: |
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Restricted cash (2) | 79,959 | 78,958 | ||||||
Accounts receivable, net | (41,428 | ) | (31,926 | ) | ||||
Pharmaceutical inventory | (5,277 | ) | (10,425 | ) | ||||
Other assets | (48,653 | ) | (72,374 | ) | ||||
Accounts payable and accrued liabilities | (46,035 | ) | 23,342 | |||||
Medical claims payable and other medical liabilities | 59,819 | (18,017 | ) | |||||
Contingent consideration | 59,223 | (50,591 | ) | |||||
Tax contingencies | (2,290 | ) | (111 | ) | ||||
Deferred credits and other long-term liabilities | (1,110 | ) | (5,393 | ) | ||||
Other | (26 | ) | (57 | ) | ||||
Net cash provided by operating activities | 178,125 | 70,870 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (54,604 | ) | (44,345 | ) | ||||
Acquisitions and investments in businesses, net of cash acquired | (55,818 | ) | (127,504 | ) | ||||
Purchase of investments | (391,785 | ) | (365,521 | ) | ||||
Maturity of investments | 283,619 | 373,694 | ||||||
Net cash used in investing activities | (218,588 | ) | (163,676 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of debt | - | 290,000 | ||||||
Payments to acquire treasury stock | (150,763 | ) | (106,806 | ) | ||||
Proceeds from exercise of stock options and warrants | 50,074 | 10,933 | ||||||
Payments on long-term debt and capital lease obligations | (12,665 | ) | (13,569 | ) | ||||
Payments on contingent consideration | (8,932 | ) | (40,559 | ) | ||||
Tax benefit from exercise of stock options and vesting of stock awards | 3,887 | 528 | ||||||
Other | 408 | 1,274 | ||||||
Net cash (used in) provided by financing activities | (117,991 | ) | 141,801 | |||||
Net (decrease) increase in cash and cash equivalents | (158,454 | ) | 48,995 | |||||
Cash and cash equivalents at beginning of period | 255,303 | 115,432 | ||||||
Cash and cash equivalents at end of period | $ | 96,849 | $ | 164,427 | ||||
(1) The Company's Quarterly Report on Form 10-Q for the quarterly period |
(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 nine months ended |
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CONSOLIDATED OPERATING RESULTS BY BUSINESS SEGMENT | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
2015 |
2016 (1) |
2015 |
2016 (1) |
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Healthcare |
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Managed care and other net revenue | $ | 748,297 | $ | 690,572 | $ | 2,170,361 | $ | 1,947,470 | ||||||||
Cost of care | 596,323 | 480,243 | 1,686,944 | 1,410,403 | ||||||||||||
Direct service costs and other | 108,108 | 134,587 | 329,617 | 367,555 | ||||||||||||
Stock compensation expense (2) | (1,902 | ) | (2,267 | ) | (6,874 | ) | (6,737 | ) | ||||||||
Changes in fair value of contingent consideration (2) | 809 | (313 | ) | 638 | (383 | ) | ||||||||||
Impairment of intangible assets (2) | - | - | - | (4,800 | ) | |||||||||||
Non-controlling interest - segment profit (loss) (3) | 75 | (189 | ) | (318 | ) | (1,325 | ) | |||||||||
Healthcare segment profit | 44,884 | 78,511 | 160,354 | 182,757 | ||||||||||||
Allocated corporate costs (4) | 15,473 | 18,405 | 47,211 | 51,019 | ||||||||||||
Healthcare segment profit after corporate allocations | 29,411 | 60,106 | 113,143 | 131,738 | ||||||||||||
Pharmacy Management |
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Managed care and other net revenue | 60,978 | 61,106 | 163,828 | 180,658 | ||||||||||||
PBM and dispensing revenue | 409,371 | 570,231 | 1,077,088 | 1,535,864 | ||||||||||||
Cost of care | - | - | (5 | ) | - | |||||||||||
Cost of goods sold | 387,834 | 538,113 | 1,019,200 | 1,448,699 | ||||||||||||
Direct service costs and other | 87,611 | 61,145 | 208,461 | 177,878 | ||||||||||||
Stock compensation expense (2) | (9,769 | ) | (5,368 | ) | (29,513 | ) | (16,338 | ) | ||||||||
Changes in fair value of contingent consideration (2) | (30,547 | ) | - | (47,912 | ) | (127 | ) | |||||||||
Pharmacy Management segment profit | 35,220 | 37,447 | 90,685 | 106,410 | ||||||||||||
Allocated corporate costs (4) | 4,273 | 5,330 | 12,694 | 13,524 | ||||||||||||
Pharmacy Management segment profit after corporate allocations | 30,947 | 32,117 | 77,991 | 92,886 | ||||||||||||
Corporate and Other (including eliminations) (5) |
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Managed care and other net revenue eliminations | (26 | ) | (89 | ) | (50 | ) | (217 | ) | ||||||||
PBM and dispensing revenue eliminations | (28,538 | ) | (29,688 | ) | (82,570 | ) | (90,276 | ) | ||||||||
Cost of care eliminations | - | - | - | - | ||||||||||||
Cost of goods sold eliminations | (27,390 | ) | (28,440 | ) | (79,140 | ) | (86,637 | ) | ||||||||
Corporate and eliminations | 24,867 | 33,362 | 78,413 | 90,194 | ||||||||||||
Stock compensation expense (2) | (1,226 | ) | (1,541 | ) | (4,206 | ) | (4,498 | ) | ||||||||
Non-controlling interest - segment profit (loss) (3) | (28 | ) | (5 | ) | (79 | ) | (16 | ) | ||||||||
Corporate and Other (including eliminations) | (24,787 | ) | (33,153 | ) | (77,608 | ) | (89,536 | ) | ||||||||
Allocated corporate costs (4) | (19,746 | ) | (23,735 | ) | (59,905 | ) | (64,543 | ) | ||||||||
Corporate costs and eliminations after corporate allocations | (5,041 | ) | (9,418 | ) | (17,703 | ) | (24,993 | ) | ||||||||
Consolidated |
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Managed care and other net revenue | 809,249 | 751,589 | 2,334,139 | 2,127,911 | ||||||||||||
PBM and dispensing revenue | 380,833 | 540,543 | 994,518 | 1,445,588 | ||||||||||||
Cost of care | 596,323 | 480,243 | 1,686,939 | 1,410,403 | ||||||||||||
Cost of goods sold | 360,444 | 509,673 | 940,060 | 1,362,062 | ||||||||||||
Direct service costs and other | 220,586 | 229,094 | 616,491 | 635,627 | ||||||||||||
Stock compensation expense (2) | (12,897 | ) | (9,176 | ) | (40,593 | ) | (27,573 | ) | ||||||||
Changes in fair value of contingent consideration (2) | (29,738 | ) | (313 | ) | (47,274 | ) | (510 | ) | ||||||||
Impairment of intangible assets (2) | - | - | - | (4,800 | ) | |||||||||||
Non-controlling interest - segment profit (loss) (3) | 47 | (194 | ) | (397 | ) | (1,341 | ) | |||||||||
Consolidated segment profit | $ | 55,317 | $ | 82,805 | $ | 173,431 | $ | 199,631 | ||||||||
Reconciliation of segment profit to (loss) income before income taxes: |
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Segment profit | $ | 55,317 | $ | 82,805 | $ | 173,431 | $ | 199,631 | ||||||||
Stock compensation expense | (12,897 | ) | (9,176 | ) | (40,593 | ) | (27,573 | ) | ||||||||
Changes in fair value of contingent consideration | (29,738 | ) | (313 | ) | (47,274 | ) | (510 | ) | ||||||||
Impairment of intangible assets | - | - | - | (4,800 | ) | |||||||||||
Non-controlling interest segment profit (loss) | 47 | (194 | ) | (397 | ) | (1,341 | ) | |||||||||
Depreciation and amortization | (26,721 | ) | (26,885 | ) | (75,239 | ) | (77,472 | ) | ||||||||
Interest expense | (1,654 | ) | (3,038 | ) | (4,933 | ) | (6,780 | ) | ||||||||
Interest and other income | 631 | 741 | 1,597 | 2,116 | ||||||||||||
(Loss) income before income taxes | $ | (15,015 | ) | $ | 43,940 | $ | 6,592 | $ | 83,271 | |||||||
(1) The Company's Quarterly Report on Form 10-Q for the quarterly period ended |
(2) Stock compensation expense, changes in the fair value of contingent consideration recorded in relation to the 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. |
(3) The non-controlling portion of AlphaCare's segment profit (loss) is excluded from the computation of segment profit. |
(4) Effective |
(5) Healthcare subcontracts with Pharmacy Management to provide pharmacy benefits management services for certain of Healthcare’s customers. In addition, 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 these arrangements are eliminated. |
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