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Feb 29, 2016
Magellan Health Reports Fourth Quarter and Full Year 2015 Financial Results
Revenue exceeds $4.5 billion for the first time

SCOTTSDALE, Ariz.--(BUSINESS WIRE)-- Magellan Health, Inc. (NASDAQ:MGLN) today reported financial results for the fourth quarter and full year of 2015, as summarized below. For the year ended December 31, 2015, the company reported net revenue of $4.60 billion, segment profit of $275.7 million, and net income of $31.4 million, or $1.21 per diluted common share. In addition, the company reported adjusted net income of $91.8 million and adjusted earnings per share of $3.55. As of December 31, 2015, the company had unrestricted cash and investments of $160.2 million.

   
 

Fourth Quarter and Full Year 2015 Results*
         
        Three Months Ended     Year Ended
        December 31     December 31
                    Inc/                 Inc/
 

(Millions, except per share results)

         2015         2014     (Dec)         2015         2014     (Dec)
  Net Revenue     $ 1,268.7     $ 982.5     29.1 %    

$

 4,597.4     $ 3,760.1     22.3 %
  Segment Profit*         102.2         83.2     22.8 %         275.7         266.9     3.3 %
  Adjusted Net Income*         33.8         35.0    

(3.4)

%

         91.8         110.6    

(17.0)

%
  Net Income         27.3         21.6     26.4 %         31.4         79.4    

(60.5)

%
                                       
  Per Share Results:                                    
  Adjusted Earnings per Share*         1.39         1.33     4.5 %         3.55         4.04    

(12.1)

%
  Earnings per Share         1.12         0.82     36.6 %         1.21         2.90    

(58.3)

%
                                       
 

* Refer to the Basis of Presentation for a discussion of non-GAAP financial measures.

Variances for the three months ended December 31, 2015 versus December 31, 2014:

  • The increase in revenue between periods resulted primarily from the inclusion of revenues from acquired entities, the impact of new business and same store growth, which were partially offset by the loss of revenues associated with contract terminations.
  • The increase in segment profit between periods was primarily due to the net impact of favorable year-over-year medical claims development, new business, same store growth, strong specialty pharmacy earnings and the inclusion of 4D results in the current year quarter, which were partially offset by the impact of contract terminations, cost of care trends, and a higher level of favorable customer settlements and retroactive revenue adjustments in the prior year quarter. Included in segment profit for the current year quarter are approximately $10 million of net favorable non-recurring items, mainly related to medical claims development in the healthcare segment.
  • The decrease in adjusted net income between periods was mainly due to higher depreciation and amortization expense and a higher effective income tax rate in the current year quarter, partially offset by the increase in segment profit.
  • The increase in net income was due to the items affecting adjusted net income described above, as well as a decrease in contingent consideration expense and stock compensation expense related to acquisitions.

"We had a very strong fourth quarter and completed 2015 with segment profit, adjusted net income and adjusted EPS above our previous guidance range, surpassing $4.5 billion in revenue for the first time," said Barry M. Smith, chairman and chief executive officer of Magellan Health. "Operationally, we made strong advances this year, consolidating into two businesses, strengthening our leadership team, developing new capabilities and further refining our MCC and pharmacy strategies."

Results and Outlook

"Overall, I'm very pleased with our fourth quarter 2015 results, and the progress we are making on our strategic initiatives. I believe this provides us with positive momentum as we begin 2016," said Jonathan N. Rubin, chief financial officer of Magellan Health.

"The TMG acquisition is expected to close later today, and we anticipate that TMG will generate revenues during the last ten months of 2016 of approximately $40 million, with segment profit of approximately $3 million. The impact to adjusted net income and adjusted EPS is an increase of approximately $3 million, or $0.12 per share. The impact to net income and EPS in 2016 will not be material. We will be updating our guidance for 2016 to reflect this acquisition."

Earnings Conference Call

Management will host a conference call at 10:00 a.m. Eastern on Monday, February 29, 2016. To participate in the conference call, interested parties should call 1-800-857-1812 and reference the pass code Fourth Quarter 2015 Earnings Call 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 MagellanHealth.com.

About Magellan Health: Headquartered in Scottsdale, Ariz., Magellan Health, Inc. 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 develops innovative solutions that combine advanced analytics, agile technology and clinical excellence to drive better decision making, positively impact health outcomes and optimize the cost of care for the members we serve — all within a customer-first culture. 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.

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

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, the anticipated impact of the TMG acquisition on the company's financial results for the remainder of 2016, 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 March 3, 2014, 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 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.

     
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share amounts)
 
                         
      Three Months Ended December 31,    

Twelve Months Ended December 31,
      2014    

2015 (1)

     2014    

2015 (1)
      (unaudited)     (unaudited)            
                         
Net revenue:                        
Managed care and other     $ 753,489       $ 863,506       $ 2,968,374       $ 3,197,645  
PBM and dispensing       228,970         405,237         791,744         1,399,755  
Total net revenue       982,459         1,268,743         3,760,118         4,597,400  
                         
Costs and expenses:                        
Cost of care       506,090         587,816         2,088,595         2,274,755  
Cost of goods sold       212,905         381,817         732,949         1,321,877  
Direct service costs and other operating expenses (2)(3)       202,814         205,901         723,498         822,392  
Depreciation and amortization       24,405         27,605         91,070         102,844  
Interest expense       1,668         1,648         7,387         6,581  
Interest income and other income       (474 )       (568 )       (1,301 )       (2,165 )
Total costs and expenses       947,408         1,204,219         3,642,198         4,526,284  
Income before income taxes       35,051         64,524         117,920         71,116  
Provision for income taxes       15,305         39,543         43,689         42,409  
Net income       19,746         24,981         74,231         28,707  
Less: net income (loss) attributable to non-controlling interest       (1,819 )       (2,309 )       (5,173 )       (2,706 )
Net income attributable to Magellan Health, Inc.     $ 21,565       $ 27,290       $ 79,404       $ 31,413  
                         
Weighted average number of common shares outstanding — basic       25,558         23,582         26,689         24,865  
Weighted average number of common shares outstanding — diluted       26,382         24,402         27,355         25,877  
                         
Net income per common share attributable to Magellan Health, Inc. - basic     $ 0.84       $ 1.16       $ 2.98       $ 1.26  
Net income per common share attributable to Magellan Health, Inc. - diluted     $ 0.82       $ 1.12       $ 2.90       $ 1.21  
                         
Net income     $ 19,746       $ 24,981       $ 74,231       $ 28,707  
Other comprehensive income (loss):                        
Unrealized losses on available-for-sale securities (4)       (52 )       (148 )       (50 )       (119 )
Comprehensive income       19,694         24,833         74,181         28,588  
Less: comprehensive income (loss) attributable to non-controlling interest       (1,819 )       (2,309 )       (5,173 )       (2,706 )
Comprehensive income attributable to Magellan Health, Inc.     $ 21,513       $ 27,142       $ 79,354       $ 31,294  
                         
 
     
(1)  

For a more detailed discussion of Magellan Health's results for the year ended December 31, 2015, refer to the Company's Annual Report on Form 10-K, which
will be filed with the SEC on Monday, February 29, 2016, and the live broadcast or taped replay of the Company's earnings conference call on Monday, February 29,
2016, which will be available at MagellanHealth.com.
     
(2)  

Includes stock compensation expense of $14,601 and $9,791 for the three months ended December 31, 2014 and 2015, respectively, and $40,584 and $50,384 for
the years ended December 31, 2014 and 2015, respectively.
 
(3)  

Includes changes in fair value of contingent consideration of $6,172 and $(3,017) for the three months ended December 31, 2014 and 2015, respectively, and
$6,172 and $44,257 for the years ended December 31, 2014 and 2015, respectively.
 
(4)  

Net of income tax benefit of $(34) and $(93) for the three months ended December 31, 2014 and 2015, respectively, and $(33) and $(68) for the years ended
December 31, 2014 and 2015, respectively.
     
 
                         
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
NON-GAAP MEASURES
(In thousands, except per share amounts)
 
                         
      Three Months Ended December 31,     Twelve Months Ended December 31,
      2014    

2015 (1)

     2014    

2015 (1)
      (unaudited)     (unaudited)            
                         
Adjusted net income     $ 35,043       $ 33,771       $ 110,555       $ 91,775  
Adjusted for acquisitions starting in 2013                        
Stock compensation expense relating to acquisitions       (11,398 )       (6,476 )       (27,594 )       (32,235 )
Changes in fair value of contingent consideration       (6,172 )       3,017         (9,304 )       (44,257 )
Amortization of acquired intangibles       (4,320 )       (5,740 )       (13,696 )       (21,371 )
Tax impact       8,412         2,718         19,443         37,501  
Net income attributable to Magellan Health, Inc.     $ 21,565       $ 27,290       $ 79,404       $ 31,413  
                         
                         
Adjusted EPS     $ 1.33       $ 1.39       $ 4.04       $ 3.55  
Adjusted for acquisitions starting in 2013                        
Stock compensation expense relating to acquisitions       (0.43 )       (0.27 )       (1.01 )       (1.25 )
Changes in fair value of contingent consideration       (0.24 )       0.13         (0.34 )       (1.71 )
Amortization of acquired intangibles       (0.16 )       (0.24 )       (0.50 )       (0.83 )
Tax impact       0.32         0.11         0.71         1.45  
Net income per common share attributable to Magellan Health, Inc. - diluted     $ 0.82       $ 1.12       $ 2.90       $ 1.21  
                         
 
     
(1)   The Company's Annual Report on Form 10-K for the year ended December 31, 2015 will be filed with the SEC on Monday, February 29, 2016.
     
 
                 
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                 
                 
      Year Ended December 31,
      2014    

2015 (1)
                 
Cash flows from operating activities:                
Net income     $ 74,231       $ 28,707  
Adjustments to reconcile net income to net cash provided by                
operating activities:                
Depreciation and amortization         91,070             102,844  
Non-cash interest expense           3,987             399  
Non-cash stock compensation expense           40,584             50,384  
Non-cash income tax benefit           (4,291 )           (26,990 )
Non-cash amortization on investments           5,050             7,118  
Cash flows from changes in assets and liabilities, net of effects                
from acquisitions of businesses:                
Restricted cash (2)           21,371             81,728  
Accounts receivable, net           (74,604 )           (52,394 )
Pharmaceutical inventory           10,234             (11,374 )
Other assets           (7,557 )           4,149  
Accounts payable and accrued liabilities           5,887             (36,043 )
Medical claims payable and other medical liabilities           55,670             36,187  
Contingent consideration           -             55,035  
Tax contingencies           (14,955 )           (1,030 )
Deferred credits and other long-term liabilities           4,045             294  
Other           322             171  
Net cash provided by operating activities           211,044             239,185  
                 
Cash flows from investing activities:                
Capital expenditures           (62,337 )           (71,584 )
Acquisitions and investments in businesses, net of cash acquired           (128,277 )           (55,818 )
Purchase of investments           (340,961 )           (470,093 )
Maturity of investments           276,446             404,308  
Net cash used in investing activities           (255,129 )           (193,187 )
                 
Cash flows from financing activities:                
Proceeds from issuance of debt       250,000             -  
Payments to acquire treasury stock           (197,533 )           (206,044 )
Proceeds from exercise of stock options and warrants           52,994             53,493  
Payments on long-term debt and capital lease obligations           (8,045 )           (17,038 )
Payments on contingent consideration           -             (20,762 )
Tax benefit from exercise of stock options and vesting of stock awards           3,218             4,073  
Other           (4,433 )           409  
Net cash provided by (used in) financing activities           96,201             (185,869 )
                 
Net increase (decrease) in cash and cash equivalents           52,116             (139,871 )
Cash and cash equivalents at beginning of period           203,187             255,303  
Cash and cash equivalents at end of period     $ 255,303       $ 115,432  
                             
 
     
(1)  

The Company's Annual Report on Form 10-K for the year ended December 31, 2015 will be filed with the SEC on Monday,
February 29, 2016.
     
(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 year ended December 31, 2014 and 2015, restricted cash of $25,997 and
$105,281, respectively, was shifted to restricted investments that resulted in an operating cash flow source.
     
 
             
MAGELLAN HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS BY BUSINESS SEGMENT
(In thousands)
       
       
       

Three Months Ended December 31,

     Twelve months Ended December 31,
        2014    

2015 (1)

    

2014

    

2015 (1)
        (unaudited)     (unaudited)            
                           

Healthcare

                          
Managed care and other net revenue       $ 697,585       $ 788,891       $ 2,780,905       $ 2,959,252  
Cost of care         506,088         587,811         2,090,352         2,274,755  
Direct service costs and other         114,754         113,324         420,092         438,019  
Stock compensation expense (2)         (657 )       (604 )         (2,899 )       (2,556 )  
Changes in fair value of contingent consideration (2)         (38 )       766         (38 )       1,404  
Non-controlling interest - segment profit (loss) (3)         (1,786 )       (2,121 )         (5,087 )       (2,439 )  
Healthcare segment profit         79,224         89,715         278,485         250,069  
                           

Pharmacy Management

                          
Managed Care and other net revenue         55,904         74,628         205,524         238,456  
PBM and dispensing revenue         254,397         433,092         844,512         1,510,180  
Cost of care         2         5         16,298         -  
Cost of goods sold         237,396         408,480         784,758         1,427,680  
Direct service costs and other         60,142         58,431         182,833         265,661  
Stock compensation expense (2)         (14,848 )       (6,582 )         (28,829 )       (34,864 )  
Changes in fair value of contingent consideration (2)         (6,134 )       2,251         (6,134 )       (45,661 )  
Pharmacy Management segment profit         33,743         45,135         101,110         135,820  
                           

Corporate and Other

                          
Corporate and Other         28,854         35,351         121,532         123,397  
Stock compensation expense (2)         904         (2,605 )         (8,856 )       (12,964 )  
Non-controlling interest - segment profit (loss) (3)         -         (116 )         -         (195 )  
Corporate and Other (excluding eliminations)         (29,758 )       (32,630 )         (112,676 )       (110,238 )  
                           

Eliminations (4)

                          
Managed Care and other net revenue         -         (13 )         (18,055 )       (63 )  
PBM and dispensing revenue         (25,427 )       (27,855 )         (52,768 )       (110,425 )  
Cost of care         -         -         (18,055 )       -  
Cost of goods sold         (24,491 )       (26,663 )         (51,809 )       (105,803 )  
Corporate and other         (936 )       (1,205 )         (959 )       (4,685 )  
Eliminations         -         -         -         -  
                           

Consolidated

                          
Managed care and other net revenue         753,489         863,506         2,968,374         3,197,645  
PBM and dispensing revenue         228,970         405,237         791,744         1,399,755  
Cost of care         506,090         587,816         2,088,595         2,274,755  
Cost of goods sold         212,905         381,817         732,949         1,321,877  
Direct service costs and other         202,814         205,901         723,498         822,392  
Stock compensation expense (2)         (14,601 )       (9,791 )         (40,584 )       (50,384 )  
Changes in fair value of contingent consideration (2)         (6,172 )       3,017         (6,172 )       (44,257 )  
Non-controlling interest - segment profit (loss) (3)         (1,786 )       (2,237 )         (5,087 )       (2,634 )  
Consolidated segment profit       $ 83,209       $ 102,220       $ 266,919       $ 275,651  
                           
                           
Reconciliation of segment profit to income                          
before income taxes:                          
Segment profit       $ 83,209       $ 102,220       $ 266,919       $ 275,651  
Stock compensation expense         (14,601 )       (9,791 )         (40,584 )       (50,384 )  
Changes in fair value of contingent consideration         (6,172 )       3,017         (6,172 )       (44,257 )  
Non-controlling interest segment profit (loss)         (1,786 )       (2,237 )         (5,087 )       (2,634 )  
Depreciation and amortization         (24,405 )       (27,605 )         (91,070 )       (102,844 )  
Interest expense         (1,668 )       (1,648 )         (7,387 )       (6,581 )  
Interest and other income         474         568         1,301         2,165  
Income before income taxes       $ 35,051       $ 64,524       $ 117,920       $ 71,116  
                           
 
     
(1)  

The Company's Annual Report on Form 10-K for the year ended December 31, 2015 will be filed with the SEC on Monday, February 29, 2016.
     
(2)  

Stock compensation expense, as well as changes in the fair value of contingent consideration recorded in relation to the acquisitions, 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)  

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.
     
 

 

Magellan Health, Inc.
Media:
Colleen Flanagan Johnson, 860-507-1923
cefjohnson@magellanhealth.com
or
Investors:
Renie Shapiro Silver, 877-645-6464
rshapiro@magellanhealth.com

Source: Magellan Health, Inc.

 

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