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Analysis

Magellan Health's Net Income Drops by 96% in Q1

By Jack O'Brien  
   May 02, 2019

The Scottsdale, Arizona-based for-profit managed care company experienced a horrid Q1 across nearly all financial metrics.

Magellan Health put another brutal quarter in the books with net income totaling $4 million, down 96% year-over-year, according to its Q1 earnings report released Thursday morning.

The for-profit managed care company reported earnings per share (EPS) that dropped by 95.6% and adjusted EPS that fell by 50.6%.

While revenues were a lone bright spot for the Scottsdale, Arizona-based company in Q4 2018, the same could not be said in Q1.

Net revenues fell 3.6% year-over-year to $1.7 billion, segment profit fell by 18% to $45.6 million, and adjusted net income slid 54% to $9.6 million.

Related: Magellan Health Net Income Drops by $86M in 2018

In the Q4 2018 earnings report, CFO Jonathan Rubin stated that some of the losses faced by Magellan Health were attributable to "out-of-period and non-recurring items," adding that he does not expect these circumstances to have a material impact in 2019.

In Thursday's earnings report, he reiterated his confidence in the company's "long-term growth strategy," adding that the fundamentals of the business "remain strong."

C-suite perspective:

"Overall, our Healthcare results were solid, and our Pharmacy results for the quarter were impacted by some unfavorable out-of-period and timing items related to network costs," Barry M. Smith, CEO of Magellan Health, said in a statement. "I'm pleased with the actions we completed during the first quarter in 2019 which represent significant progress towards achieving our margin improvement plan. We’re seeing the benefits of the strong leadership we’ve put in place over the last six months, particularly in our MCC segment. We have a clear path to achieve our full year earnings guidance, and I’m confident in the team and our ability to execute."

Magellan Health's cash flows from operations totaled $35.4 million down from $81 million in Q1 2018, due to what the company said were "unusually" high cash flows in 2018 as a result of the "favorable timing of working capital."

Meanwhile, the company's unrestricted cash and investments reached $194.9 million at the end of Q1, with $88.4 million related to excess capital and undistributed earnings.

The company stated that it would reaffirm its 2019 guidance but "modestly" lowered its net revenue guidance to a range between $7 billion to $7.2 billion, down from a range of $7.2 billion and $7.5 billion.

Additional Magellan Q1 earnings report highlights: 

  • Restricted cash and investments decreased by $58.8 million to $468.8 million by the end of Q1.
  • Magellan's pharmacy management segment profit declined $7.2 million during the year, totaling $8.3 million.
  • Healthcare segment profit was $45 million in Q1, down $900,000 year-over-year.

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

After net income dropped by $86 million in 2018, Magellan Health continued its slide into 2019.

Earnings per share dropped by 95.6% while adjusted earnings per share fell by 50.6%.

CEO Barry Smith said he's still "pleased with the actions" Magellan completed in Q1.


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