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Analysis

Magellan Health Net Income Drops by $86M in 2018

By Jack O'Brien  
   February 28, 2019

The Scottsdale, Arizona-based company saw its full year income drop to $24.2 million, a 78% decline year-over-year.

Magellan Health suffered a difficult end to 2018, posting a $28 million net loss in the final quarter and finishing the year with a net income of $24.2 million, according to its Q4 earnings report released Thursday morning.

The for-profit managed care company recorded an increase in revenues, $1.84 billion in Q4 and $7.3 billion for the full year, but those were the lone highlights of its most recent financials.

Segment profit fell to $16 million in Q4, down 83.8% year-over-year, and only reached $228 million in 2018, a 26.7% drop. 

Both earnings per share (EPS) and adjusted EPS fell dramatically for the company, including losses in Q4 and declines of at least 58% for the full year.

In explaining the company's challenging end to 2018, Magellan Health CFO Jonathan Rubin stated in the report that the losses were attributable to $50 million in "out-of-period and non-recurring items," adding that he does not expect these circumstances to have a material impact in 2019.

Related: Magellan Health Posts $1.8B Revenues, Lowers Guidance

Magellan Health's year-end cash flows from operations were up slightly, totalling $164.8 million compared to $162.3 million this time last year. The company's unrestricted cash and investments were halved during 2018, falling to $130.4 million.

C-suite perspective:

"While 2018 was challenging, we are only mid-way through our work to create a stronger, more sustainable foundation for the Company," Barry M. Smith, CEO of Magellan Health, said in a statement. "For decades, Magellan was the leader in the carve-out specialty and behavioral health space. While these capabilities remain valuable and relevant today, the reality is that the market has changed to a much more integrated model. We recognized this and proactively took steps to transform our business in a significant way. We have made solid progress in shifting our revenue stream into growth markets over the last five years. 2018 will continue to be a year of focused execution for Magellan, and our strategy remains unchanged."

Despite the company's lacking performance in 2018, it is confirming its full year guidance for 2019.

This includes net revenues in the range of $7.2 billion and $7.5 billion, net income between $52 million and $79 million, as well as an EPS between $2.14 and $3.25 per share.

Related: Magellan Health and Envision Healthcare Added to Fortune 500 List

Magellan's stock sank after the Q4 earnings report was released, trading down by more than 4% in the early morning session Thursday. 

Additional Magellan Q4 earnings report highlights: 

  • Restricted cash and investments increased $62.3 million to $527.7 million by the end of 2018.
  • Magellan's pharmacy management segment profit declined $35.5 million during the year, totalling $104.4 million.
  • CEO Barry Smith added that the company is implementing a multi-year margin improvement plan with the goal of achieving a net income margin exceeding 2%.  

For complete financial information, review Magellan's filing with the Securities and Exchange Commission.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

Photo credit: KIEV, UKRAINE - Jan 3, 2019: Magellan Health Managed care company logo seen displayed on smart phone - Image / Editorial credit: IgorGolovniov / Shutterstock.com


KEY TAKEAWAYS

Segment profit fell to $16 million in Q4, down 83.8% year-over-year, and only reached $228 million in 2018, a 26.7% drop. 

Net revenues for 2018 did increase more than 25%, a lone bright spot for Magellan.

CEO Barry Smith remains confident despite the significant financial declines over the past year.


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