News Releases
AVON, Conn.--(BUSINESS WIRE)--Feb. 29, 2008--Magellan Health Services, Inc. (Nasdaq:MGLN) today reported operating results for the fourth quarter and fiscal year 2007.
Financial Results
For the fiscal year ended December 31, 2007, the Company reported net revenue of $2.2 billion and net income of $94.2 million, or $2.36 per diluted common share. For the prior year, net revenue was $1.7 billion and net income was $86.3 million, or $2.23 per diluted common share. For 2007, the Company's segment profit (which represents income from continuing operations before stock compensation expense, depreciation and amortization, interest expense, interest income, gain on sale of assets, special charges or benefits, income taxes and minority interest) was $223.3 million, compared with $216.3 million in the prior year.
For the fourth quarter of 2007, the Company reported net revenue of $658.0 million, compared with $461.3 million in the prior year fourth quarter. Net income in the quarter was $31.3 million, or $0.78 per diluted common share, compared with $22.5 million, or $0.58 per diluted common share in the fourth quarter of 2006. Segment profit for the fourth quarter was $66.2 million, compared with $62.3 million in the prior year quarter.
See the attached tables detailing the Company's operating results, including results by segment.
The Company ended the quarter with unrestricted cash and investments of $353.6 million. Cash flow from operations for 2007 was $194.6 million compared with $197.0 million for the prior year period.
Rene Lerer, M.D., president and chief executive officer, said, "I am pleased to be starting my tenure as CEO on the heels of a very good year for the Company overall. Our results reflect particular success in two of our high-growth segments - public sector behavioral health and radiology benefits management. We won and successfully implemented the Maricopa contract, the nation's largest public sector behavioral contract, and implemented our first two risk contracts for our radiology benefits management business. The simultaneous implementation of these contracts is an accomplishment that speaks to our expertise in managing large-scale transitions and to the dedication of Magellan employees to ensuring clinical and service excellence for all of our stakeholders. I am particularly proud to be leading an organization that exemplifies such a can-do spirit and commitment to quality."
Commenting on segment performance, Mark S. Demilio, chief financial officer, said, "Our behavioral health line of business again delivered strong financial results, with all three segments performing favorably. Our specialty pharmaceutical management business results for the fourth quarter were in line with our expectations."
"Results for our radiology benefits management segment for the year also were in line with our expectations." Demilio continued. "In the fourth quarter, we recorded $1.7 million of unfavorable care development and $1.3 million of unfavorable contractual adjustments in this segment that related to the third quarter. With more claims payment experience since the end of the third quarter, we now believe that care in this segment is running slightly above the middle of our range of estimates rather than at the low end of that range, but we feel confident that we now have seen enough claims completion experience in this new business to properly assess the care costs. We are pleased with the progression of this business and are maintaining our 2008 guidance for this segment."
Outlook
The Company reiterated that, for fiscal 2008, it expects to generate net revenue in the range of $2.53 billion to $2.66 billion; net income in the range of $77 million to $96 million; and segment profit in the range of $200 million to $220 million. These results are expected to yield earnings per share in the range of $1.88 to $2.34 on a diluted basis.
"In 2008, our focus will be on capitalizing on the positive momentum we generated in 2007 to generate growth in each of our business lines while continuing to execute well on our existing business," Lerer said. "In the behavioral arena, we look forward in particular to being competitive in the TennCare procurement through our collaboration with Coventry HealthCare and in shifting our primary focus in Maricopa from contract start-up activities to further achieving the goals the State set out for the program. In radiology and specialty pharmacy, our attention is on growth through ramped-up marketing and sales activity. We are actively pursuing new risk radiology contracts and refocusing efforts in specialty pharmacy on our traditional sales generator, the rebate business."
"As I settle into the role of CEO, I will be working with Mark and the rest of the management team to consider key next steps for the organization as a whole and its strategy. As I said earlier this week, my transition to CEO is a natural point at which to step back and assess where the Company has been and where it is going in its development. I am backed by a strong management team and thousands of committed employees who are driven to provide value to our customers and high quality service to our members and providers. This team is well-positioned to deliver continued success as we enter 2008."
Earnings Results Conference Call
Management will discuss the Company's financial results during a conference call beginning at 8:30 a.m. Eastern time today, February 29, 2008. To participate in the conference call, interested parties should call 1-888-390-4698 and reference the passcode Fourth Quarter Earnings approximately 15 minutes before the start of the call.
The conference call also will be available via a live Webcast at Magellan's investor relations page at www.MagellanHealth.com.
A taped replay of the conference call will be available for one week following the call. The call-in numbers for the replay are 1-800-294-0344 and 1-402-220-9747 (from outside the U.S.).
About Magellan: Headquartered in Avon, Conn., Magellan Health Services, Inc. (Nasdaq:MGLN) is a leading specialty health care management organization, managing behavioral health, radiology benefits and specialty pharmaceuticals for government agencies, health plans and corporations.
Cautionary Statement: Certain of the statements made in this press release including, without limitation, statements regarding the Company's outlook for 2008 net revenue, net income, segment profit and earnings per share, the TennCare contract procurement, the public sector behavioral business in Maricopa County, Arizona, growth in the radiology benefits management and specialty pharmacy segments, and other matters constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and are subject to known and unknown uncertainties and risks which could cause actual results to differ materially from those contemplated or implied by such forward-looking statements, including (among others) risk concerning the possible election of certain of the Company's health plan customers to manage the behavioral health care services of their members directly; renegotiation of rates paid to and/or by the Company by customers and/or to providers; higher utilization of behavioral health treatment services by members; delays, higher costs or inability to implement the Company's initiatives; termination or non-renewal of contracts by customers; the impact of new or amended laws or regulations; governmental inquiries and/or litigation; the impact of increased competition on the Company's ability to maintain or obtain contracts; the impact of increased competition on rates paid to or by the Company; and other factors. Any forward-looking statements made in this document are qualified in their entirety by the more complete discussion of risks set forth in the section entitled "Risk Factors" in Magellan's Annual Report on Form 10-K for the year ended December 31, 2007, to be filed with the Securities and Exchange Commission today and posted on the Company's Web site. Segment profit information referred to in this press release may be considered a non-GAAP financial measure. Further information regarding this measure, including the reasons management considers this information useful to investors, will be included in Magellan's Annual Report on Form 10-K for the year ended December 31, 2007.
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Year Ended December 31,
December 31,
------------------------ ------------------------
2006 2007 (1) 2006 2007 (1)
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Net revenue $461,254 $658,005 $1,690,270 $2,155,953
Cost and expenses:
Cost of care 276,634 452,058 1,081,080 1,409,103
Cost of goods sold 26,597 41,533 41,809 149,585
Direct service costs
and other operating
expenses (2) 108,651 105,521 385,478 404,003
Equity in earnings
of unconsolidated
subsidiaries - - (390) -
Depreciation and
amortization 13,776 15,974 48,862 57,524
Interest expense 1,795 1,359 7,292 6,386
Interest income (4,210) (6,696) (17,628) (23,836)
Gain on sale of
assets - - (5,148) -
----------- ----------- ----------- -----------
423,243 609,749 1,541,355 2,002,765
----------- ----------- ----------- -----------
Income from
continuing
operations before
income taxes and
minority interest 38,011 48,256 148,915 153,188
Provision for income
taxes 15,526 16,739 62,695 58,669
----------- ----------- ----------- -----------
Income from
continuing
operations before
minority interest 22,485 31,517 86,220 94,519
Minority interest,
net (2) 216 (42) 361
----------- ----------- ----------- -----------
Net income 22,487 31,301 86,262 94,158
Other comprehensive
income (loss) 47 (9) 609 31
----------- ----------- ----------- -----------
Comprehensive income $ 22,534 $ 31,292 $ 86,871 $ 94,189
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding
-- basic 37,144 39,485 36,986 38,942
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding
-- diluted 38,762 40,380 38,621 39,837
=========== =========== =========== ===========
Net income per
common share --
basic $ 0.61 $ 0.79 $ 2.33 $ 2.42
=========== =========== =========== ===========
Net income per
common share --
diluted $ 0.58 $ 0.78 $ 2.23 $ 2.36
=========== =========== =========== ===========
(1) For a more detailed discussion of Magellan's results for the year
ended December 31, 2007, refer to the Company's Annual Report on Form
10-K which will be filed with the SEC on February 29, 2008, and the
live broadcast or taped replay of the Company's earnings conference
call on February 29, 2008, which will be available at
www.MagellanHealth.com.
(2) Includes stock compensation expense of $12,958 and $7,332 for the
three months ended December 31, 2006 and 2007, respectively, and
$33,991 and $29,994 for the years ended December 31, 2006 and 2007,
respectively.
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December
31,
----------------------
2006 2007
---------- ----------
Cash flows from operating activities:
Net income $ 86,262 $ 94,158
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of assets (5,148) -
Depreciation and amortization 48,862 57,524
Equity in earnings of unconsolidated
subsidiaries (390) -
Non-cash interest expense 1,389 2,681
Non-cash stock compensation expense 33,991 29,994
Non-cash income tax expense 57,487 38,677
Cash flows from changes in assets and
liabilities, net of effects from acquisitions
of businesses:
Restricted cash 8,941 (111,731)
Accounts receivable, net 128 2,707
Other assets (4,365) (5,233)
Accounts payable and accrued liabilities (8,062) 15,056
Medical claims payable and other medical
liabilities (23,155) 69,824
Other 1,024 906
---------- ----------
Net cash provided by operating activities 196,964 194,563
---------- ----------
Cash flows from investing activities:
Capital expenditures (25,477) (47,553)
Acquisitions and investments in businesses, net
of cash acquired (283,005) (17,790)
Proceeds from sale of assets 22,200 -
Purchase of investments (69,807) (133,643)
Maturity of investments 254,397 134,367
Proceeds from note receivable 3,000 -
---------- ----------
Net cash used in investing activities (98,692) (64,619)
---------- ----------
Cash flows from financing activities:
Payments on long-term debt and capital lease
obligations (25,202) (27,855)
Proceeds from exercise of stock options and
warrants 9,628 32,403
Tax benefit from exercise of stock options - 14,357
Other - (214)
---------- ----------
Net cash (used in) provided by financing
activities (15,574) 18,691
---------- ----------
Net increase in cash and cash equivalents 82,698 148,635
Cash and cash equivalents at beginning of
period 81,039 163,737
---------- ----------
Cash and cash equivalents at end of period $ 163,737 $ 312,372
========== ==========
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except membership amounts in millions)
Three Months Ended Year Ended December 31,
December 31,
------------------------ ------------------------
2006 2007 2006 2007
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Net revenue
- Health Plan $174,374 $162,444 $ 656,022 $ 658,384
- Employer 31,430 31,829 128,746 126,149
- Public Sector 210,106 345,136 808,657 1,020,839
- Radiology
Benefits
Management 10,811 68,995 41,617 170,240
- Specialty
Pharmaceutical
Management 34,533 49,601 55,228 180,341
----------- ----------- ----------- -----------
Total revenue 461,254 658,005 1,690,270 2,155,953
----------- ----------- ----------- -----------
Cost of care
- Health Plan 91,544 86,588 363,121 365,144
- Employer 7,003 6,799 28,945 27,181
- Public Sector 178,087 304,143 689,014 902,594
- Radiology
Benefits
Management - 54,528 - 114,184
----------- ----------- ----------- -----------
Total cost of
care 276,634 452,058 1,081,080 1,409,103
----------- ----------- ----------- -----------
Cost of goods sold -
Specialty
Pharmaceutical
Management 26,597 41,533 41,809 149,585
----------- ----------- ----------- -----------
Direct service costs
- Health Plan 27,812 24,040 105,981 99,516
- Employer 16,844 16,716 67,723 64,284
- Public Sector 10,052 16,907 36,321 51,922
- Radiology
Benefits
Management 13,376 12,521 40,136 48,841
- Specialty
Pharmaceutical
Management 4,806 5,796 7,437 21,529
----------- ----------- ----------- -----------
Total direct
services costs 72,890 75,980 257,598 286,092
----------- ----------- ----------- -----------
Other operating
expenses -
Corporate & Other 35,761 29,541 127,880 117,911
----------- ----------- ----------- -----------
Equity in earnings
of unconsolidated
subsidiaries -
Health Plan - - (390) -
----------- ----------- ----------- -----------
Stock compensation
expense (1)
- Health Plan (356) (485) (1,313) (1,837)
- Employer (36) (97) (282) (440)
- Public Sector (44) (402) (647) (1,172)
- Radiology
Benefits
Management (2,852) (38) (3,739) (1,708)
- Specialty
Pharmaceutical
Management (2,269) (2,286) (3,577) (8,769)
- Corporate &
Other (7,401) (4,024) (24,433) (16,068)
----------- ----------- ----------- -----------
Total stock
compensation
expense (12,958) (7,332) (33,991) (29,994)
----------- ----------- ----------- -----------
Segment profit
(loss)
- Health Plan 55,374 52,301 188,623 195,561
- Employer 7,619 8,411 32,360 35,124
- Public Sector 22,011 24,488 83,969 67,495
- Radiology
Benefits
Management 287 1,984 5,220 8,923
- Specialty
Pharmaceutical
Management 5,399 4,558 9,559 17,996
- Corporate &
Other (28,360) (25,517) (103,447) (101,843)
----------- ----------- ----------- -----------
Total segment
profit $ 62,330 $ 66,225 $ 216,284 $ 223,256
=========== =========== =========== ===========
Reconciliation of
segment profit to
income from
continuing
operations before
income taxes and
minority interest:
Segment profit $ 62,330 $ 66,225 $ 216,284 $ 223,256
Stock compensation
expense (12,958) (7,332) (33,991) (29,994)
Depreciation and
amortization (13,776) (15,974) (48,862) (57,524)
Interest expense (1,795) (1,359) (7,292) (6,386)
Interest income 4,210 6,696 17,628 23,836
Gain on sale of
assets - - 5,148 -
----------- ----------- ----------- -----------
Income from
continuing
operations
before income
taxes and
minority
interest $ 38,011 $ 48,256 $ 148,915 $ 153,188
=========== =========== =========== ===========
Membership
- Health Plan 26.5
- Employer 14.2
- Public Sector 2.3
- Radiology
Benefits
Management 21.3
-----------
Total
membership 64.3
===========
(1) Stock compensation expense is included in direct service costs and
other operating expenses; however, this amount is excluded from the
computation of segment profit since it is managed on a consolidated
basis.
CONTACT:
Magellan Health Services, Inc.
Investors:
Melissa Rose, 877-645-6464
or
Media:
Erin Somers, 410-953-2405
SOURCE: Magellan Health Services, Inc.