Magellan Health Reports 2020 Financial Results

PHOENIX--(BUSINESS WIRE)--Magellan Health, Inc. (NASDAQ: MGLN) today announced financial results for the fourth quarter and the year ended December 31, 2020, as summarized below:

Full Year 2020 Highlights and Other Recent Developments:

• Full year 2020 net revenue from continuing operations increased 0.3% to $4.6 billion as compared to 2019.
• Full year 2020 net income from continuing operations was $4.0 million as compared to $12.6 million for 2019. Net income was impacted by non-cash special charges related to a reduced real estate footprint and severance, higher discretionary benefits, and new contract implementation costs, partially offset by a deferred tax benefit realized from the sale of the Magellan Complete Care Business (the “MCC Business”) to Molina Healthcare, Inc. (“Molina”).
• Full year 2020 adjusted net income and adjusted earnings per share were $19.6 million and $0.77 as compared to $36.7 million and $1.49, respectively, for 2019.
• On December 22, 2020, the Company announced the acquisition of a majority interest in Bayless Integrated Healthcare, a leading integrated behavioral and primary care provider in Arizona.
• On December 31, 2020 the Company completed the sale of the MCC Business to Molina for cash in the amount of $850 million plus closing adjustments of $158 million (subject to post-closing adjustments, if any), and the assumption by Molina of liabilities of the MCC Business. The Company recorded a pre-tax gain of $348.1 million from the sale in discontinued operations.
• On January 4, 2021 the Company and Centene Corporation announced that they have entered into a definitive merger agreement under which Centene will acquire Magellan Health for $95 per share in cash for a total enterprise value of $2.2 billion. The transaction is expected to be completed in the second half of 2021, subject to customary regulatory and shareholder approvals.
• On January 13, 2021 the Company led a Series B financing in NeuroFlow, a digital health company combining workflow automation, consumer engagement solutions, and applied AI to promote behavioral health integration in all care settings.

“I am proud of our accomplishments in 2020, and I am grateful for all of our Magellan Health associates for how well they adapted to an environment dominated by the COVID-19 pandemic. During 2020, we remained focused on delivering on our commitments to members, customers and shareholders, while also making significant progress to rationalize our cost structure and advance our innovation and growth initiatives. Through the successful transition of the MCC Business to Molina on December, 31, 2020, we also achieved our goal to reposition Magellan’s business,” said Kenneth Fasola, chief executive officer, Magellan Health.

“On January 4, 2021, we announced that we entered into a definitive merger agreement under which Centene Corporation will acquire Magellan Health for $95 per share in cash. I am pleased with the energy and enthusiasm exhibited by both organizations about this transaction,” continued Fasola. “I expect Magellan to continue to have significant opportunities serving third-party customers and growing as a payer services business operating independently under Centene’s Health Care Enterprises division.”

Net Revenue

Net revenue from continuing operations was $4.58 billion for 2020, an increase of 0.3% compared to 2019 primarily due to growth in the Pharmacy Management segment, partially offset by a modest decline in the Healthcare segment.

Segment Profit

Segment profit from continuing operations was $144.0 million for 2020, compared to $185.8 million in 2019.

• Healthcare segment profit was $135.2 million, representing a decrease of $9.0 million from 2019. This year-over-year decrease was primarily driven by net contract losses and higher discretionary benefits, partially off-set by lower utilization.

• Pharmacy Management segment profit was $85.4 million, representing a decrease of $25.1 million from 2019. This year-over-year decrease was primarily driven by start-up costs associated with the Medi-Cal PBA contract, lower PBM gross margin and higher discretionary benefits, partially off-set by strong results from specialty pharmacy operations.

• Corporate segment costs inclusive of eliminations, but excluding stock compensation expense, totaled $76.6 million, as compared to $68.8 million in 2019. This increase was primarily driven by transaction related expenses and increased discretionary compensation.

Other Items

The Company recorded a special charge of $34.1 million during 2020 primarily associated with non-cash lease termination and abandonment costs for planned reductions to the Company’s real estate footprint and severance related to the transformation operational initiatives.

Income from discontinued operations, net of tax, for 2020 was $378.3 million, as compared to $43.3 million during 2019. This increase was primarily driven by a $348.1 million gain realized on the sale of the MCC Business to Molina and lower utilization trends due to COVID-19.

Cash Flow & Balance Sheet

Cash flow provided by operations from continuing operations for the year ended December 31, 2020, was $179.5 million, as compared to $183.6 million for the year ended December 31, 2019.

As of December 31, 2020, the Company’s unrestricted cash and investments totaled $1,148.8 million, as compared to $81.1 million at December 31, 2019. This increase is largely due to the receipt of proceeds from the sale of the MCC Business to Molina. Approximately $35.0 million of the unrestricted cash and investments at December 31, 2020 is related to excess capital and undistributed earnings held at regulated entities of continuing operations.

Earnings Conference Call

Due to the pending transaction with Centene, the Company is not hosting a conference call in conjunction with its 2020 earnings release and does not expect to do so in future quarters. Please direct any questions regarding this earnings release to Magellan’s Investor Relations or Media contacts.

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 revenue 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 to exclude non‑cash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, amortization of identified acquisition intangibles, as well as impairment of identified acquisition intangibles, special charges, and any impact related to the sale of MCC.

Included in the tables issued with this press release are the reconciliations from GAAP measures to the corresponding non-GAAP measures.

MCC Business Reflected as Discontinued Operations

Due to the sale of the MCC Business to Molina, the consolidated financial statements for all periods presented reflect the MCC Business as discontinued operations.

About Magellan Health: 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 supports innovative ways of accessing better health through technology, while remaining focused on the critical personal relationships that are necessary to achieve a healthy, vibrant life. 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.

Forward-Looking Statements

This press release include statements which may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. 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. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Important proposed merger-related and other risk factors that may cause such differences include: (i) the occurrence of any event, change or other circumstances that could give rise to the termination of the proposed merger; (ii) the transaction closing conditions may not be satisfied in a timely manner or at all, including due to the failure to obtain the Company stockholder approval and regulatory approvals; (iii) the announcement and pendency of the proposed merger may disrupt the Company’s business operations (including the threatened or actual loss of employees, customers or suppliers); and (iv) the Company could experience financial or other setbacks if the transaction encounters unanticipated problems. Other important factors that could cause actual results to differ materially from those expressed or implied include the effectiveness of business continuity plans during, and the risks associated with, the COVID-19 pandemic; termination or non-renewal of customer contracts; changes in rates paid to and/or by the Company by customers and/or providers; our ability to develop and maintain satisfactory relationships with providers; higher utilization of healthcare services by the Company’s members; risks and uncertainties associated with the pharmacy benefits management industry; costs to maintain or upgrade our information technology and other business systems and the effectiveness and security of such systems; cyberattacks, other privacy/data security incidents, and/or our failure to comply with related regulations; delays, higher costs or inability to implement new business or other Company initiatives; the impact of changes in the contracting model for Medicaid contracts; impairment of our goodwill and intangible assets; the impact of new or amended laws or regulations; costs and other liabilities associated with litigation, government investigations, audits or reviews; competition; operational issues; healthcare 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 most recent Annual Report on Form 10-K for the year ended December 31, 2020, to be filed with the Securities and Exchange Commission later today, and subsequent reports on Forms 10-Q and 8-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.

(MGLN-GEN)