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Mar 29, 2011
Magellan Health Services Reports First Quarter 2011 Financial Results
- Raises 2011 Guidance -

AVON, Conn.--(BUSINESS WIRE)-- Magellan Health Services, Inc. (NASDAQ: MGLN) today reported financial results for the first quarter of 2011, as summarized below, and increased guidance for the full year. For the quarter ended March 31, 2011, the Company reported net revenue of $692.8 million, segment profit of $75.7 million, and net income of $34.3 million or $1.02 per diluted common share. Segment profit represents income from operations before stock compensation expense, depreciation and amortization, interest expense, interest income, gain on sale of assets, special charges or benefits, and income taxes.

Financial Results

             
First Quarter Financial Results at a Glance
    Three Months Ended March 31
            Increase/
(Millions, except per share results)   2011   2010   (Decrease)
Revenue   $692.8   $728.1   (4.8)%
Segment Profit   75.7   61.4   23.3%
Net Income   34.3   25.5   34.5%
Earnings per Share   1.02   0.73   39.7%
             
 

As of March 31, 2011, the Company had unrestricted cash and investments of $356.3 million. In addition, the Company reported year-to-date share repurchases through April 27, 2011 of 3.2 million shares for a total cost of $155.8 million.

"Magellan had solid first quarter performance, which gives us a strong foundation for the rest of 2011," said René Lerer, M.D., chairman and chief executive officer. "Our success during the quarter resulted from ongoing effective care management and strong overall business performance. Magellan offers financial stability and a unique focus as a clinically driven organization. Our comprehensive suite of solutions allows us to manage the most challenging and costly areas of specialty health care. Taken together, these create an enterprise platform that improves quality and cost for our customers. During the quarter, we also made excellent progress in returning capital to shareholders by continuing to move forward with our share repurchase program. To date, we have completed approximately $237.2 million or over half of our $450 million authorization.

"We remain focused on helping our customers adapt to the changing health care environment, which challenges them with rising costs and complexity. As an impactful partner, we continuously evolve our solutions to address the high-cost, high-need, high-touch areas of specialty health care."

"Each of our business segments — behavioral health, radiology benefits, specialty pharmaceutical management and Medicaid administration — performed well during the quarter and remains focused on operational execution, customer growth and retention, and product development and innovation," said Karen S. Rohan, Magellan's president. "Overall, I am pleased with our momentum in the first quarter and the prospects for the remainder of the year."

2011 Outlook

"As a result of our updated business outlook and the share repurchases through Wednesday, we are increasing our 2011 guidance," said Jonathan N. Rubin, chief financial officer. "We now expect full-year segment profit in the range of $255 million to $275 million and net income of $105.5 million to $122.5 million. This equates to diluted earnings per share of $3.24 to $3.76, which reflects the impact of repurchases so far this year, but excludes any potential repurchases that may occur during the remainder of the year. Regarding our guidance for cash flow from operations, we expect that the increase in segment profit will be offset by working capital changes. Therefore, we are maintaining our original cash flow from operations range of $180.5 million to $211.5 million."

Earnings Results Conference Call

Management will host a conference call at 10:00 a.m. Eastern Time on Friday, April 29, 2011. To participate in the conference call, interested parties should call 1-888-566-8408 and reference the passcode First Quarter Earnings Call 2011 approximately 15 minutes before the start of the call. The conference call will also be available via a live Webcast at Magellan's investor relations page at www.MagellanHealth.com.

About Magellan: Headquartered in Avon, Conn., Magellan Health Services, Inc., is a leading specialty health care management organization with expertise in managing behavioral health, radiology and specialty pharmaceuticals, as well as public sector pharmacy benefits programs. Magellan delivers innovative solutions to improve quality outcomes and optimize the cost of care for those we serve. Magellan's customers include health plans, employers and government agencies, serving approximately 31.5 million members in our behavioral health business, 18.5 million members in our radiology benefits management segment, and 4.9 million members in our medical pharmacy management product. In addition, the specialty pharmaceutical segment serves 41 health plans and several pharmaceutical manufacturers and state Medicaid programs. The Company's Medicaid Administration segment serves 25 states and the District of Columbia. For more information, visit www.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 2011 net income, segment profit, earnings per share, cash flow from operations 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 health care 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, 2010, filed with the Securities and Exchange Commission on February 25, 2011, and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, expected to be filed with the Securities and Exchange Commission and posted on the Company's website later today. 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 information referred to herein may be considered a non-GAAP financial measure. Further information regarding this measure, 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.

           
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
           
           
           
    Three Months Ended March 31,
    2010    

2011 (1)
           
Net revenue   $ 728,053       $ 692,755  
           
Cost and expenses:          
Cost of care     476,679         433,700  
Cost of goods sold     56,296         56,519  
Direct service costs and other operating expenses (2)     138,254         131,567  
Depreciation and amortization     13,422         13,952  
Interest expense     685         471  
Interest income     (817 )       (815 )
      684,519         635,394  
Income before income taxes     43,534         57,361  
Provision for income taxes     18,015         23,063  
Net income     25,519         34,298  
Other comprehensive income     26         97  
Comprehensive income   $ 25,545       $ 34,395  
           
Weighted average number of common shares outstanding — basic     34,382         33,051  
Weighted average number of common shares outstanding — diluted     35,074         33,656  
           
Net income per common share — basic   $ 0.74       $ 1.04  
Net income per common share — diluted   $ 0.73       $ 1.02  
           
 
     

(1)

  

For a more detailed discussion of Magellan's results for the quarter ended March 31, 2011, refer to the Company's Quarterly Report on Form 10-Q, which will be filed with the SEC on April 29, 2011, and the live broadcast or taped replay of the Company's earnings conference call on April 29, 2011, which will be available at www.MagellanHealth.com.
       

(2)

  

Includes stock compensation expense of $4,528 and $4,778 for the three months ended March 31, 2010 and 2011, respectively.
     
 
           
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
           
           
    Three Months Ended March 31,
    2010    

2011 (1)
           
Cash flows from operating activities:          
Net income   $ 25,519       $ 34,298  
           
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization     13,422         13,952  
Non-cash interest expense     219         107  
Non-cash stock compensation expense     4,528         4,778  
Non-cash income tax expense     7,880         (472 )

Cash flows from changes in assets and liabilities, net of effects from acquisitions of businesses:

          
Restricted cash (2)     38,208         15,623  
Accounts receivable, net     (764 )       (6,144 )
Other assets     4,217         (3,430 )
Accounts payable and accrued liabilities     (21,561 )       (25,792 )
Medical claims payable and other medical liabilities     (13,397 )       (10,122 )
Other     2,001         6,470  
Net cash provided by operating activities     60,272         29,268  
           
Cash flows from investing activities:          
Capital expenditures     (10,005 )       (10,090 )
Purchase of investments     (30,942 )       (179,772 )
Maturity of investments     37,035         73,015  
Acquisitions and investments in businesses, net of cash acquired     -         (274 )
Net cash used in investing activities     (3,912 )       (117,121 )
           
Cash flows from financing activities:          
Payments on long-term debt and capital lease obligations     (499 )       -  
Proceeds from issuance of equity     -         20,000  
Payments to acquire treasury stock     (59,279 )       (122,071 )
Proceeds from exercise of stock options and warrants     14,510         8,016  
Other     (1,331 )       (563 )
Net cash used in financing activities     (46,599 )       (94,618 )
           
Net increase (decrease) in cash and cash equivalents     9,761         (182,471 )
Cash and cash equivalents at beginning of period     196,507         337,179  
Cash and cash equivalents at end of period   $ 206,268       $ 154,708  
           
 
     

(1)

  

The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 will be filed with the SEC on April 29, 2011.
     

(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 quarter ended March 31, 2010, restricted cash of $1,181 was shifted to restricted investments that resulted in an operating cash flow source. During the quarter ended March 31, 2011, restricted investments of $13,259 was shifted to restricted cash that resulted in an operating cash flow use.
     
 
           
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS BY BUSINESS SEGMENT
(Unaudited)
(In thousands)
           
           
           
    Three Months Ended March 31,
    2010     2011
           
Net revenue          
- Commercial   $ 161,702       $ 150,035  
- Public Sector     349,468         350,516  
- Radiology Benefits Management     109,457         89,212  
- Specialty Pharmaceutical Management     68,138         70,230  
- Medicaid Administration (1)     39,288         53,293  
- Elimination (1)     -         (20,531 )
Total net revenue     728,053         692,755  
           
Cost of care          
- Commercial     90,672         75,313  
- Public Sector (1)     309,062         304,921  
- Radiology Benefits Management     76,945         54,717  
- Medicaid Administration     -         19,280  
- Elimination (1)     -         (20,531 )
Total cost of care     476,679         433,700  
           
Cost of goods sold - Specialty Pharmaceutical Management     56,296         56,519  
           
Direct service costs and other operating expenses          
- Commercial     37,468         37,807  
- Public Sector     17,547         16,976  
- Radiology Benefits Management     14,838         16,705  
- Specialty Pharmaceutical Management     5,551         6,012  
- Medicaid Administration     32,588         25,986  
- Corporate     30,262         28,081  
      138,254         131,567  
           
Stock compensation expense (2)          
- Commercial     (238 )       (250 )
- Public Sector     (201 )       (222 )
- Radiology Benefits Management     (393 )       (482 )
- Specialty Pharmaceutical Management     (143 )       (126 )
- Medicaid Administration     (18 )       (23 )
- Corporate     (3,535 )       (3,675 )
Total stock compensation expense     (4,528 )       (4,778 )
           
Segment profit (loss)          
- Commercial     33,800         37,165  
- Public Sector     23,060         28,841  
- Radiology Benefits Management     18,067         18,272  
- Specialty Pharmaceutical Management     6,434         7,825  
- Medicaid Administration     6,718         8,050  
- Corporate and Elimination     (26,727 )       (24,406 )
Total segment profit   $ 61,352       $ 75,747  
           
           

Reconciliation of segment profit to income before income taxes:

          
Segment profit   $ 61,352       $ 75,747  
Stock compensation expense     (4,528 )       (4,778 )
Depreciation and amortization     (13,422 )       (13,952 )
Interest expense     (685 )       (471 )
Interest income     817         815  
Income before income taxes   $ 43,534       $ 57,361  
           
 
     

(1)

  

Effective September 1, 2010, Public Sector has subcontracted with Medicaid Administration to provide pharmacy benefits management services on a risk basis for one of Public Sector's customers. As such, revenue and cost of care related to this intersegment arrangement have been eliminated for the quarter ended March 31, 2011.
     

(2)

  

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.
     
 

 

Magellan Health Services, Inc.
Media Contact:
David W. Carter, 860-507-1909
dwcarter@magellanhealth.com
or
Investor Contact:
Renie Shapiro, 877-645-6464
rshapiro@magellanhealth.com

Source: Magellan Health Services, Inc.

 

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