Magellan Health (MGLN) Issues FY13 Outlook; Names Director Smith as New CEO

December 11, 2012 6:33 AM EST
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Magellan Health Services Inc. (Nasdaq: MGLN) announced that, for 2013, it expects to generate net revenue in the range of $3.56 to $3.74 billion, and net income in the range of $91 million to $109 million, which translates into diluted earnings per share in the range of $3.22 to $3.85 inclusive of share repurchases to date. The company also expects segment profit (which represents income before income taxes, excluding stock compensation expense, depreciation and amortization, interest expense, interest income, gain on the sale of assets, and special charges or benefits) for 2013 to be in the range of $250 million to $270 million.

*** The Street is modeling FY13 revs of $3.64 billion and EPS of $4.24.

With regard to Magellan’s share repurchase program, during the period October 26th through December 10th, the company repurchased 336,622 shares for a total cost of $16.8 million. To date, $49.5 million of the $200 million program authorized by our Board of Directors in October 2011 has been completed. As of December 10, 2012, there are approximately 27.4 million shares outstanding.

With respect to 2012, the company confirmed its current guidance for segment profit, net income, EPS and cash flow, which was most recently updated in October.

“Magellan will complete 2012 with solid financial performance, and is well positioned as we enter 2013,” said René Lerer, M.D. “We are pleased with our results across all of our business lines, and the new contracts we won in 2012. In the coming year, we will focus on retention of our current business, particularly in Maricopa County, Arizona, where in partnership with the State we have transformed the behavioral health system over the past five years. We will continue to execute on our growth initiatives, make strategic investments to fuel our success, and maintain a capital strategy which allows us to maximize shareholder return, while retaining sufficient liquidity to pursue strategic options and invest in our future growth.”

“I am pleased with our 2013 outlook for strong top line growth and profitability, even after funding $25 million of investments and net start up losses in our strategic initiatives,” said Jon Rubin, Chief Financial Officer. “These investments in our Medicaid and Pharmacy initiatives position us well for the future.”

Executive Transition

The company announced that effective January 1, 2013, Barry M. Smith, a member of the company’s board, will be appointed CEO, and that Chairman and CEO René Lerer, M.D. will become the full-time Executive Chairman. He will serve in that role through 2013, becoming Non-Executive Chairman for 2014. Upon mutual agreement between Dr. Lerer and the board, he may remain as Non-Executive Chairman for a third year, with potential board tenure beyond that. These changes are part of a multi-year arrangement that will ensure continuity for all stakeholders.

Smith has deep knowledge of health care gained through direct industry experience as well as service on Magellan’s board. Throughout his career he has been instrumental in driving transformational change. His experience includes health care integration, and the linkages between PBM’s, behavioral health and population management. Since 2011, Smith has served as an operating partner for Health Evolution Partners, which invests in rapidly growing companies across the health care industry. His prior industry experience includes serving as the founder, chairman, president and CEO of VistaCare, chairman and CEO of ValueRx, a division of Value Health, Inc., and senior roles in both PCS, Inc. and Baxter International. He served on Magellan’s board of directors from 2005 through 2008, and rejoined the board in 2011. He is currently the lead director of CenseoHealth, the chairman of Optimal Radiology, and the lead director of Halcyon Health Services.

“This is the right time to make a transition because the company is financially strong and is executing well on our growth strategy” said René Lerer, M.D. “Barry Smith is a recognized health care industry leader with a track record of success and someone who has a deep understanding of Magellan having served on our board. He is the right person to lead Magellan into the next phase of our transformation. I’m looking forward to my new role as Executive Chairman, and working in partnership with Barry.”

“I am honored to be named as Magellan’s CEO,” said Barry M. Smith. “I have respected this company and its employees for many years as I have watched its transformation into a leading diversified specialty and integrated health care management company. Magellan is driven by a commitment to bring better health outcomes to the millions of people it serves, at affordable costs to its customers. I’m also pleased to be able to work with René Lerer, who has been instrumental in the company’s success for the past decade, and the more than 5,000 employees who keep our customers, members and their families at the forefront of everything they do.”

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