Magellan Health (MGLN) Issues Strong FY17 Outlook

November 22, 2016 6:36 AM EST

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Magellan Health, Inc. (Nasdaq: MGLN) announced that in 2017, it expects to generate net revenue in the range of $5.8 billion to $6.1 billion, and net income in the range of $90 million to $114 million, which translates into diluted earnings per share (EPS) in the range of $3.80 to $4.81. Adjusted net income* for 2017 is expected to be in the range of $123 million to $145 million, which equates to adjusted EPS* in the range of $5.19 to $6.12, and segment profit* is expected to be in the range of $329 million to $349 million. The company also expects cash flow from operations in the range of $186 million to $220 million. For 2017, fully diluted shares are assumed to be 23.7 million, inclusive of share repurchases through November 18, 2016.

*** The Street sees FY17 revenue of $5.22 billion and EPS of $354.

With respect to 2016, the company confirmed its guidance, which was most recently updated earlier in November.

“Over the past three years, we’ve discussed our goal of becoming a company which consistently produces top and bottom line growth, and improves health outcomes and affordability for the members and customers we serve. We have made much progress toward this objective, and as a result, we are well positioned for sustainable long-term growth,” said Barry M. Smith, chairman and chief executive officer of Magellan Health. “Through the successful execution of our strategy, our 2017 guidance represents the third consecutive year of segment profit growth for Magellan.

“We recently entered into an agreement to acquire Veridicus, a privately held pharmacy benefit manager (PBM) with a unique set of clinical services and capabilities. Veridicus leverages proprietary analytics and clinical software that integrates pharmacy, medical and lab data to drive targeted interventions, resulting in better health outcomes and lower costs for complex populations. Veridicus serves approximately 225,000 lives, the majority under a long-term contract with a trust administering benefits for participating employers.”

“I’m pleased with our positive outlook for 2017,” said Jonathan N. Rubin, chief financial officer of Magellan Health. “As reflected in our guidance, our projected growth in segment profit comprises continued strong growth in our pharmacy business, meaningful performance improvement in MCC and growth in our healthcare business. We look forward to executing on our 2017 plan and making further strides towards achieving our long-term growth objectives.

“The acquisition of Veridicus is expected to close before the end of this year and is estimated to generate net revenues of approximately $220 million and segment profit of $9 million during 2017. This expectation is included in our overall 2017 guidance. We expect the 2017 impact of Veridicus to be dilutive by 11 cents on EPS and accretive by 12 cents on adjusted EPS.”

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

Earnings Results Conference Call

Management will host a conference call at 9:00 a.m. Eastern on Tuesday, November 22, 2016. To participate in the conference call, interested parties should call 1-800-857-1812 and reference the pass code 2017 Guidance 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.

Magellan Health, Inc. and Subsidiaries
Fiscal 2017 Plan Guidance - Income Statement
(In millions, except per share amounts)

Low

High

Net revenue $5,795.0 $6,095.0
Costs and expenses:
Cost of care 2,174.0 2,304.0
Cost of goods sold 2,277.0 2,407.0
Direct service costs and other operating expenses (1) 1,057.0 1,071.0
Depreciation and amortization 117.0 113.0
Interest expense 23.0 13.0
Interest income (2.0) (2.0)
Income before income taxes 149.0 189.0
Provision for income taxes 59.0 75.0
Net income $90.0 $114.0
Weighted average shares outstanding - diluted 23.7 23.7
EPS - diluted $3.80 $4.81
(1) Includes stock compensation expense of $40 million to $36 million, and changes in fair value of
contingent consideration of $2.0 million to $0.0 million for low and high guidance, respectively.
Reconciliation of segment profit to income before income taxes:
Segment profit $329.0 $349.0
Stock compensation expense (40.0) (36.0)
Changes in fair value of contingent consideration (2.0)

-

Depreciation and amortization (117.0) (113.0)
Interest expense (23.0) (13.0)
Interest income 2.0 2.0
Income before income taxes $149.0 $189.0

Magellan Health, Inc. and SubsidiariesFiscal 2017 Plan Guidance - Non-GAAP Measures(In millions, except per share amounts)

Low

High

Adjusted Net Income $123.0 $145.0
Adjusted for acquisitions since January 1, 2013
Stock compensation expense (16.7) (16.7)
Changes in fair value of contingent consideration (2.0)

-

Amortization of acquired intangibles (34.0) (34.0)
Tax impact 19.7 19.7
Net income $90.0 $114.0
Adjusted EPS $5.19 $6.12
Adjusted for acquisitions since January 1, 2013
Stock compensation expense (0.71) (0.71)
Changes in fair value of contingent consideration (0.08)

-

Amortization of acquired intangibles (1.43) (1.43)
Tax impact 0.83 0.83
EPS - diluted $3.80 $4.81
Magellan Health, Inc. and SubsidiariesFiscal 2017 Plan Guidance - Cash Flow(In millions)

Low

High

Cash flows from operating activities
Net income $90.0 $114.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 117.0 113.0
Non-cash stock compensation expense 40.0 36.0
Non-cash income tax expense (4.0) (10.0)
Other net cash flows from changes in assets and liabilities (57.0) (33.0)
Net cash provided by operating activities 186.0 220.0
Cash flows from investing activities
Capital expenditures (75.0) (65.0)
Acquisitions and investments in businesses, net (2.0)

-

Non-cash investment activity (4.0) (2.0)
Net cash used in investing activities (81.0) (67.0)
Cash flows from financing activities
Payments on long-term debt and capital leases, net (81.0) (79.0)
Payments on contingent consideration (10.0) (8.0)
Other (1.0) 1.0
Net cash used in financing activities (92.0) (86.0)
Net increase in cash, cash equivalents and unrestricted investments $13.0 $67.0


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