Magellan Health Services Reports Second Quarter 2012 Financial Results

Magellan Health Services Inc. (NASDAQ: MGLN) today reported financial results for the second quarter of 2012, as summarized below. For the quarter ended June 30, 2012, the company reported net revenue of $805.5 million, segment profit of $64.8 million, and net income of $27.0 million or $0.97 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
Second Quarter Financial Results at a Glance                    
  Three Months Ended June 30   Six Months Ended June 30
    Increase/       Increase/
(Millions, except per share results)   2012   2011   (Decrease)   2012   2011   (Decrease)
Revenue $805.5 $698.3 15.4 % $1,578.7 $1,391.1 13.5 %
Segment Profit 64.8 75.9 (14.6 )% 120.2 151.7 (20.8 )%
Net Income 27.0 34.2 (21.1 )% 47.8 68.5 (30.2 )%
Earnings per Share 0.97 1.07 (9.3 )% 1.72 2.09 (17.7 )%
 

As of June 30, 2012, the company had unrestricted cash and investments of $239.5 million.

“Magellan had a strong second quarter, allowing us to complete a solid first half of the year,” said René Lerer, M.D., chairman and chief executive officer. “Each of our business segments contributed to our favorable results, and each continues to make strides in expanding our existing business and achieving new business growth.

“We’ve had several achievements recently that demonstrate our momentum in the marketplace and the execution of our growth strategy. We have been awarded a PBM contract, subject to negotiation of final terms, by a large employer. This represents an important step in advancing our Total Drug Solutions SM suite of products and our pharmacy growth strategy. We also continued our groundbreaking work to create a new model of care for individuals with serious mental illness, and to advance our Medicaid strategy by customizing it to compete for business in key states like Arizona, Massachusetts and Florida. Across the company, we are focused on taking the necessary steps to fuel profitable growth – by developing new products and services, committing to operational excellence and expanding into new markets.”

Outlook

“Magellan performed well during the quarter generating strong financial results, and made excellent progress on our growth initiatives,” said Jonathan N. Rubin, chief financial officer. “This progress continues to give us confidence that our strategic investments will yield future profitable growth.

“We are reaffirming our guidance for 2012, which reflects net revenue in the range of $3.2 billion to $3.4 billion, and net income in the range of $91 million to $109 million, translating into diluted earnings per share in the range of $3.25 to $3.89. Additionally, we continue to expect segment profit for 2012 to be in the range of $240 million to $260 million, and unrestricted cash and investments to increase between $91 million and $136 million. Our guidance does not assume the impact of any future share repurchases.”

Earnings Results Conference Call

Management will host a conference call at 10:00 a.m. Eastern Time on Friday, July 27, 2012. To participate in the conference call, interested parties should call 1-888-566-8408 and reference the passcode Second Quarter 2012 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 www.MagellanHealth.com.

About Magellan Health Services: 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. As of June 30, 2012, Magellan’s customers include health plans, employers and government agencies, serving approximately 33.7 million members in our behavioral health business, 17.1 million members in our radiology benefits management segment, and 7 million members in our medical pharmacy management product. In addition, the specialty pharmaceutical segment served 40 health plans and several pharmaceutical manufacturers and state Medicaid programs. The company’s Medicaid Administration segment served 24 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 2012 net revenue, net income, segment profit, earnings per share, changes in unrestricted cash and investments, profitable 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 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, 2011, filed with the Securities and Exchange Commission on February 28, 2012, and the company’s subsequent Quarterly Report on Form 10-Q 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 COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)
 
 
 
Three Months Ended June 30, Six Months Ended June 30,
2011

2012 (1)
2011

2012 (1)
 
Net revenue $ 698,338 $ 805,473 $ 1,391,093 $ 1,578,686
 
Cost and expenses:
Cost of care 441,446 521,830 875,146 1,027,123
Cost of goods sold 53,404 82,855 109,923 163,893
Direct service costs and other operating expenses (2) 131,779 140,333 263,346 276,922
Depreciation and amortization 14,267 15,152 28,219 29,933
Interest expense 494 576 965 1,176
Interest income   (858 )   (857 )   (1,673 )   (1,269 )
  640,532     759,889     1,275,926     1,497,778  
Income before income taxes 57,806 45,584 115,167 80,908
Provision for income taxes   23,575     18,611     46,638     33,145  
Net income 34,231 26,973 68,529 47,763
Other comprehensive (loss) income (3)   (19 )   (85 )   78     88  
Comprehensive income $ 34,212   $ 26,888   $ 68,607   $ 47,851  
 
Weighted average number of common shares outstanding — basic   31,301     27,317     32,171     27,258  
Weighted average number of common shares outstanding — diluted   31,903     27,717     32,775     27,732  
 
Net income per common share — basic $ 1.09   $ 0.99   $ 2.13   $ 1.75  
Net income per common share — diluted $ 1.07   $ 0.97   $ 2.09   $ 1.72  
 
   

(1)

For a more detailed discussion of Magellan's results for the quarterly period ended June 30, 2012, refer to the Company's Quarterly Report on Form 10-Q, which will be filed with the SEC on July 27, 2012, and the live broadcast or taped replay of the Company's earnings conference call on July 27, 2012, which will be available at www.MagellanHealth.com.
 

(2)

Includes stock compensation expense of $4,205 and $4,365 for the three months ended June 30, 2011 and 2012, respectively, and $8,983 and $9,467 for the six months ended June 30, 2011 and 2012, respectively.
 

(3)

Amounts are net of income tax provision (benefit) of $(12) and $(55) for the three months ended June 30, 2011 and 2012, respectively, and $49 and $56 for the six months ended June 30, 2011 and 2012, respectively.
 
     
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
 
Six Months Ended June 30,
2011

2012 (1)
 
Cash flows from operating activities:
Net income $ 68,529 $ 47,763
 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 28,219

 
29,933
Non-cash interest expense 213 360
Non-cash stock compensation expense 8,983 9,467
Non-cash income tax expense 6,885 7,143
Non-cash amortization on investments 6,648 3,720

 

Cash flows from changes in assets and liabilities, net of effects from acquisitions of businesses:
Restricted cash (2) 13,697 (22,845 )
Accounts receivable, net (77,031 ) 1,428
Pharmaceutical inventory (17,117 ) 1,213
Other assets (4,024 ) (3,066 )
Accounts payable and accrued liabilities (27,098 ) (20,022 )
Medical claims payable and other medical liabilities (12,390 ) 20,208
Other   2,598     (270 )
Net cash (used in) provided by operating activities   (1,888 )   75,032  
 
Cash flows from investing activities:
Capital expenditures (26,693 ) (36,877 )
Acquisitions and investments in businesses, net of cash acquired (274 ) -
Purchase of investments (187,807 ) (143,155 )
Maturity of investments   123,043     150,890  
Net cash used in investing activities   (91,731 )   (29,142 )
 
Cash flows from financing activities:
Payments to acquire treasury stock (211,451 ) -
Proceeds from issuance of equity 20,000 -
Proceeds from exercise of stock options and warrants 28,842 3,003
Other   391     (735 )
Net cash (used in) provided by financing activities   (162,218 )   2,268  
 
Net (decrease) increase in cash and cash equivalents (255,837 ) 48,158
Cash and cash equivalents at beginning of period   337,179     119,862  
Cash and cash equivalents at end of period $ 81,342   $ 168,020  
 
   

(1)

The Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 will be filed with the SEC on July 27, 2012.
 

(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 six months ended June 30, 2011 and 2012, restricted investments of $84,077 and $19,474 respectively, were 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 June 30, Six Months Ended June 30,
2011

2012 (1)
2011

2012 (1)
 
Net revenue
- Commercial $ 139,686 $ 178,227 $ 289,721 $ 358,751
- Public Sector 362,284 410,136 712,800 799,024
- Radiology Benefits Management 90,608 88,826 179,820 165,683
- Specialty Pharmaceutical Management 69,366 101,976 139,596 202,174
- Medicaid Administration (2) 56,637 43,026 109,930 90,880
- Elimination (2)   (20,243 )   (16,718 )   (40,774 )   (37,826 )
Total net revenue   698,338     805,473    

1,391,093
    1,578,686  
 
Cost of care
- Commercial 79,122 110,847 154,435 223,019
- Public Sector (2) 309,934 355,113 614,855 699,425
- Radiology Benefits Management 53,828 57,874 108,545 108,284
- Medicaid Administration 18,805 14,714 38,085 34,221
- Elimination (2)   (20,243 )   (16,718 )   (40,774 )   (37,826 )
Total cost of care   441,446     521,830     875,146     1,027,123  
 
Cost of goods sold - Specialty Pharmaceutical Management   53,404     82,855     109,923     163,893  
 
Direct service costs and other operating expenses
- Commercial 39,112 42,456 76,920 84,818
- Public Sector 16,486 23,304 33,462 43,901
- Radiology Benefits Management 15,858 13,582 32,563 27,068
- Specialty Pharmaceutical Management 6,083 6,206 12,095 12,673
- Medicaid Administration 25,849 20,742 51,835 43,294
- Corporate   28,391     34,043     56,471     65,168  
Total direct service costs and other operating expenses   131,779     140,333     263,346     276,922  
 
Stock compensation expense (3)
- Commercial (218 ) (270 ) (469 ) (537 )
- Public Sector (214 ) (269 ) (436 ) (556 )
- Radiology Benefits Management (401 ) (360 ) (883 ) (760 )
- Specialty Pharmaceutical Management (133 ) (152 ) (259 ) (324 )
- Medicaid Administration (41 ) (84 ) (64 ) (142 )
- Corporate   (3,198 )   (3,230 )   (6,872 )   (7,148 )
Total stock compensation expense   (4,205 )   (4,365 )   (8,983 )   (9,467 )
 
Segment profit (loss)
- Commercial 21,670 25,194 58,835 51,451
- Public Sector 36,078 31,988 64,919 56,254
- Radiology Benefits Management 21,323 17,730 39,595 31,091
- Specialty Pharmaceutical Management 10,012 13,067 17,837 25,932
- Medicaid Administration 12,024 7,654 20,074 13,507
- Corporate and Elimination   (25,193 )   (30,813 )   (49,599 )   (58,020 )
Total segment profit $ 75,914   $ 64,820   $ 151,661   $ 120,215  
 
 

Reconciliation of segment profit to income before income taxes:
Segment profit $ 75,914 $ 64,820 $ 151,661 $ 120,215
Stock compensation expense (4,205 ) (4,365 ) (8,983 ) (9,467 )
Depreciation and amortization (14,267 ) (15,152 ) (28,219 ) (29,933 )
Interest expense (494 ) (576 ) (965 ) (1,176 )
Interest income   858     857     1,673     1,269  
Income before income taxes $ 57,806   $ 45,584   $ 115,167   $ 80,908  
 
 

(1)

The Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 will be filed with the SEC on July 27, 2012.
 

(2)

Public Sector has subcontracted with Medicaid Administration to provide pharmacy benefits management services on a limited risk basis for one of Public Sector's customers. As such, revenue and cost of care related to this intersegment arrangement are eliminated.
 

(3)

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.
 

Copyright Business Wire 2010