Magellan reports $741.7M net revenue, $35.4M net income for second-quarter 2010

Magellan Health Services, Inc. (Nasdaq: MGLN) today reported financial results for the second quarter of 2010 and increased guidance for the full year. The Company also said that its Board of Directors approved a share repurchase program under which the Company is authorized to purchase up to $350 million of its outstanding common stock.

“I'm extremely pleased that we secured the fifth year extension of this contract through June 30, 2012. This extension is evidence of our strong partnership with the State in transforming the behavioral health system and achieving high quality outcomes for the members we serve in this community.”

Financial Results

For the quarter ended June 30, 2010, the Company reported net revenue of $741.7 million and net income of $35.4 million, or $1.05 per diluted common share. This compares to net revenue of $635.8 million and net income of $18.4 million or $0.53 per share, for the same period last year. Segment profit, representing income from continuing operations before stock compensation expense, depreciation and amortization, interest expense, interest income, gain on sale of assets, special charges or benefits, and income taxes, for the current year quarter was $78.5 million, compared to the prior year quarter of $46.7 million. The Company ended the quarter with unrestricted cash and investments of $304.8 million.

For the six months ended June 30, 2010, the Company reported net revenue of $1.5 billion and net income of $60.9 million, or $1.77 per diluted common share. For the prior year period, the Company reported net revenue of $1.3 billion and net income of $32.0 million, or $0.90 per diluted common share. Segment profit for the first six months of 2010 was $139.9 million versus $85.8 million for the prior year period.

"I am delighted with the second quarter and year-to-date results. The 63% increase in year-to-date segment profit over the prior year reflects the quality and effectiveness of our care management, the expansion of our Medicaid presence and product innovation across all of our business lines," said René Lerer, M.D., chairman and chief executive officer. "Our goal continues to be to maintain and strengthen our position as the country's premier diversified specialty health care management company, and we are pleased with the positioning of each of our specialty health businesses in their respective markets."

Lerer also commented on the decision by the State of Arizona to extend the Company's contract to manage behavioral health services in Maricopa County. "I'm extremely pleased that we secured the fifth year extension of this contract through June 30, 2012. This extension is evidence of our strong partnership with the State in transforming the behavioral health system and achieving high quality outcomes for the members we serve in this community."

Magellan's president, Karen S. Rohan, said, "We experienced particularly strong results in our behavioral health public sector and radiology benefits management businesses, as well as additional earnings from the Medicaid Administration business acquired in July 2009."

Rohan explained that Magellan's successful care management programs were the primary drivers of the Company's positive results. "We have expanded our use of evidence-based medicine and sophisticated, clinically sound algorithms to improve adherence to best practices and improve the quality of care being delivered in our networks," Rohan said. "This allows us to perform reviews in a highly consistent and clinically appropriate manner, driving best practices, efficiently supporting the provider community and increasing the quality of care for our members."

Share Repurchase Program

Under the share repurchase program approved by Magellan's Board, the Company is authorized to purchase up to $350 million of its outstanding common stock over a two year period. This is the third share repurchase program authorized. Since August 2008, the Company has purchased 8.2 million shares at an average price of $36.49, for a total cost of $300 million.

"This new share repurchase authorization is part of our ongoing effort to balance our pursuit of growth with a strong commitment to returning capital to our shareholders," said Jon Rubin, Magellan's chief financial officer.

Outlook

As a result of the strong year-to-date results and expectations for the balance of the year, management increased its earnings guidance for full year 2010. Full year segment profit is now expected to be in the range of $265 to $285 million, net income between $113 million and $132 million, and EPS between $3.29 and $3.85. As a result of the Company's improved earnings outlook, cash flow from operations is expected to be in the range of $225 million to $261 million, and a net increase in unrestricted cash and investments that is expected to be between $113 million and $149 million. EPS and cash flow guidance assumes no further share repurchase activity over the balance of the year.

Rubin commented that the increase in segment profit guidance includes favorable year-to-date out of period adjustments of approximately $13 million, the majority of which relates to favorable claims development. In addition, the higher projected segment profit reflects the Company's continued strong execution of care management initiatives for the balance of the year.