Exhibit 99.1
| | NEWS RELEASE 16 Munson Road Farmington CT 06032 www.MagellanHealth.com |
For Immediate Release | | | |
| | Investor Contact: | Melissa Rose |
| | | 877-645-6464 |
| | | |
| | Media Contact: | Erin Somers |
| | | 410-953-2405 |
MAGELLAN HEALTH SERVICES REPORTS
FOURTH QUARTER AND FISCAL YEAR 2004 FINANCIAL RESULTS
Company Reaffirms 2005 Guidance
FARMINGTON, Conn. – March 3, 2005 – Magellan Health Services, Inc. (Nasdaq:MGLN) today reported operating results for the fourth quarter and fiscal year 2004. The Company also reaffirmed its guidance for 2005.
Financial Results
For the fiscal year ended December 31, 2004, the Company reported net revenue of $1.8 billion and net income of $88.4 million, or $2.43 per diluted common share. For the prior year, net revenue was $1.5 billion and net income was $451.8 million, or $10.86 per diluted common share. Net income in 2003 included net reorganization benefit with respect to the Company’s restructuring of $457.7 million (pre-tax) and a goodwill impairment charge of $28.8 million (pre-tax). For 2004, the Company’s segment profit (net revenue less salaries, cost of care, and other operating expenses plus equity in earnings of unconsolidated subsidiaries) was $233.2 million, compared with $192.1 million in the prior year.
For the fourth quarter of 2004, the Company reported net revenue of $445.2 million, compared with $337.8 million in the prior year quarter. Net income in the quarter was $20.5 million, or $0.56 per diluted common share, compared with $499.9 million, or $12.01 per diluted common share in the fourth quarter of 2003. Segment profit for the current year quarter was $59.6 million, compared with $68.0 million in the prior year quarter.
See the attached tables detailing the Company’s operating results, including results by segment.
“As we expected, Magellan continued its strong performance in the fourth quarter,” said Steven J. Shulman, chairman and chief executive officer of the Company. “Our results are the direct result of executing on our performance improvement plans, diligence in focusing on operating efficiency and careful management of administrative and care costs. While implementing this large-scale turn-around, we continued to deliver stellar service to our members, customers and providers.”
Balance Sheet Highlights
The Company ended the quarter with unrestricted cash, cash equivalents and investments of $355.3 million. Cash flow from operations for the year was $163.4 million compared with $178.3 million in 2003. Cash flow from operations for 2004 includes net payments of $66.7 million related to the Company’s Chapter 11
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proceedings, including professional fees and other expenses. Excluding the impact of these liabilities, cash flow from operations for the year ended December 31, 2004 was $230.1 million. The Company has not drawn on its $50.0 million revolving credit facility.
Mark S. Demilio, chief financial officer, said, “Our growing unrestricted cash and investments represent key strategic assets for the Company. As we move forward in 2005, we will continue to explore our options for the most effective and efficient use of these assets in achieving our strategic, operational and financial objectives.”
Outlook
The Company also reaffirmed the estimates for 2005 financial performance that it provided in December. The Company expects its segment profit to be in the range of $200 million to $220 million, yielding earnings per share in the range of $2.90 to $3.26 on a diluted basis.
“I am very pleased with our 2004 operating results, cash generation and improved capital structure,” Shulman said. “In addition to improving operational efficiency and effectiveness, we continue to make progress in product development. We are focused on addressing the evolving needs of our current customers and the larger marketplace and our product development initiatives are showing promise.
“These efforts, combined with our strong financial performance, lay the foundation for our strategy of leveraging our robust operating platform, unmatched behavioral health expertise and premier customer base to ignite growth. With a strong track record of accomplishment over the last year to build on, we are well positioned to execute our strategy and I am pleased with the Company’s prospects for 2005 and beyond,” Shulman added.
Earnings Results Conference Call
A conference call will be held to discuss the earnings at 9:00 a.m. Eastern time on Thursday, March 3, 2005. To participate in the call, interested parties should call 1-888-390-4698 and reference the passcode 2004 Earnings and conference leader Steve Shulman approximately 15 minutes before the start of the call.
The conference call also will be available via a live Webcast at Magellan’s investor relations page at www.MagellanHealth.com.
A taped replay of the conference call will be available from approximately 11:00 a.m. Eastern time on Thursday, March 3, until 12:00 midnight on Thursday, March 10. The call-in numbers for the replay are 1-866-395-4276 and 1-203-369-0484 (from outside the U.S.).
Those who plan to listen to the call and/or Webcast are encouraged to read Magellan’s Annual Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission on March 30, 2004, including the discussion of risks set forth in the section entitled “Cautionary Statements.” In addition, listeners are encouraged to read all other 2003 and 2004 reports filed with the Securities and Exchange Commission, including but not limited to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 29, 2004, and the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, to be filed with the Securities and Exchange Commission today, to learn about Magellan’s historical operational and financial results.
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About Magellan: Headquartered in Farmington, Conn., Magellan Health Services (Nasdaq:MGLN) is the country’s leading managed behavioral health care organization. Its customers include health plans, corporations and government agencies.
Safe Harbor Statement: Certain of the statements made in this press release including, without limitation, statements regarding estimates of future financial performance, including segment profit and earnings per share, product development, expectations concerning future investment and growth, execution of the Company’s business strategy, results of operations and other matters constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and are subject to known and unknown uncertainties and risks which could cause actual results to differ materially from those contemplated or implied by such forward-looking statements including election of certain of the Company’s health plan customers to manage the behavioral health care services of their members directly; renegotiation of rates paid to and/or by the Company by customers and/or to providers; higher utilization of behavioral health treatment services by members; delays, higher costs or inability to implement the Company’s initiatives; termination or non-renewal of contracts by customers; the impact of new or amended laws or regulations; governmental inquiries and/or litigation; the impact of increased competition on ability to maintain or obtain contracts; the impact of increased competition on rates paid to or by the Company; and other factors. Any forward-looking statements made in this document are qualified in their entirety by the complete discussion of risks set forth in the section entitled “Cautionary Statements” in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2004 to be filed with the Securities and Exchange Commission today and posted on the Company’s Web site. Segment profit information referred to in this press release may be considered a non-GAAP financial measure, and further information regarding this measure, including the reasons management considers this useful information to investors and a reconciliation to the comparable GAAP measure, is included in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2004.
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MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| | Predecessor Company | | Reorganized Company | | Predecessor Company | | Reorganized Company | |
| | Three Months Ended
December 31, 2003 | | Three Months Ended
December 31, 2004 (1) | | Fiscal Year Ended
December 31, 2003 | | Fiscal Year Ended
December 31, 2004 (1) | |
| | (unaudited) | | (unaudited) | | | | | |
| | | | | | | | | |
Net revenue | | $ | 337,795 | | $ | 445,168 | | $ | 1,510,746 | | $ | 1,795,402 | |
| | | | | | | | | |
Costs and expenses: | | | | | | | | | |
Salaries, cost of care and other operating expenses | | 272,884 | | 385,284 | | 1,324,886 | | 1,567,465 | |
Equity in (earnings) loss of unconsolidated subsidiaries | | (3,041 | ) | 284 | | (6,202 | ) | (5,277 | ) |
| | 269,843 | | 385,568 | | 1,318,684 | | 1,562,188 | |
Segment profit | | 67,952 | | 59,600 | | 192,062 | | 233,214 | |
| | | | | | | | | |
Depreciation and amortization | | 11,782 | | 11,011 | | 48,047 | | 42,489 | |
Interest expense (Contractual interest of $26,718 and $106,328 for the three months and fiscal year ended December 31, 2003, respectively) | | 29,542 | | 9,625 | | 61,016 | | 37,124 | |
Interest income | | (700 | ) | (2,534 | ) | (2,873 | ) | (6,127 | ) |
Stock compensation expense | | — | | 7,254 | | — | | 23,152 | |
Reorganization benefit, net | | (470,462 | ) | — | | (438,217 | ) | — | |
Goodwill impairment charges | | — | | — | | 28,780 | | — | |
Special charges | | 4,206 | | 734 | | 9,528 | | 5,038 | |
| | (425,632 | ) | 26,090 | | (293,719 | ) | 101,676 | |
Income from continuing operations before income taxes and minority interest | | 493,584 | | 33,510 | | 485,781 | | 131,538 | |
Provision for income taxes | | 9,555 | | 17,608 | | 33,813 | | 46,584 | |
Income from continuing operations before minority interest | | 484,029 | | 15,902 | | 451,968 | | 84,954 | |
Minority interest | | 83 | | (193 | ) | 253 | | 333 | |
Income from continuing operations | | 483,946 | | 16,095 | | 451,715 | | 84,621 | |
Discontinued operations: | | | | | | | | | |
Income (loss) from discontinued operations (2) | | 821 | | 5,290 | | (25,028 | ) | 4,781 | |
Income (loss) on disposal of discontinued operations (3) | | (1,665 | ) | (931 | ) | 4,756 | | (1,030 | ) |
Reorganization benefit, net (4) | | 16,846 | | — | | 20,327 | | — | |
| | 16,002 | | 4,359 | | 55 | | 3,751 | |
Net income | | 499,948 | | 20,454 | | 451,770 | | 88,372 | |
Preferred dividends (Contractual dividends of $1,236 and $4,788 for the three months and fiscal year ended December 31, 2003, respectively) | | — | | — | | 883 | | — | |
Amortization of redeemable preferred stock issuance costs and other | | — | | — | | 172 | | — | |
Preferred stock reorganization items, net | | — | | — | | 2,668 | | — | |
Income available to common stockholders | | 499,948 | | 20,454 | | 448,047 | | 88,372 | |
Other comprehensive loss (5) | | — | | (506 | ) | — | | (506 | ) |
Comprehensive income | | $ | 499,948 | | $ | 19,948 | | $ | 448,047 | | $ | 87,866 | |
| | | | | | | | | |
Weighted average number of common shares outstanding — basic (6) | | 35,319 | | 35,371 | | 35,305 | | 35,367 | |
Weighted average number of common shares outstanding — diluted (6) | | 41,619 | | 36,734 | | 41,605 | | 36,361 | |
| | | | | | | | | |
Income per common share available to common stockholders — basic: | | | | | | | | | |
Income from continuing operations | | $ | 13.70 | | $ | 0.46 | | $ | 12.69 | | $ | 2.39 | |
Income from discontinued operations | | $ | 0.45 | | $ | 0.12 | | $ | — | | $ | 0.11 | |
Net income | | $ | 14.15 | | $ | 0.58 | | $ | 12.69 | | $ | 2.50 | |
| | | | | | | | | |
Income per common share available to common stockholders — diluted: | | | | | | | | | |
Income from continuing operations | | $ | 11.63 | | $ | 0.44 | | $ | 10.86 | | $ | 2.33 | |
Income from discontinued operations | | $ | 0.38 | | $ | 0.12 | | $ | — | | $ | 0.10 | |
Net income | | $ | 12.01 | | $ | 0.56 | | $ | 10.86 | | $ | 2.43 | |
(1) For a more detailed discussion of Magellan’s results for the three months and fiscal year ended December 31, 2004, refer to the Company’s Annual Report on Form 10-K, which will be filed with the SEC on March 3, 2005, and the live broadcast or taped replay of the Company’s earnings conference call on March 3, 2005, which will be available at www.MagellanHealth.com.
(2) Net of income tax benefit of $(1,188) and $(7,897) for the three months ended December 31, 2003 and 2004, respectively, and $(1,336) and $(8,110) for the fiscal years ended December 31, 2003 and 2004, respectively.
(3) Net of income tax provision of $1,669 and $930 for the three months ended December 31, 2003 and 2004, respectively, and $1,347 and $889 for the fiscal years ended December 31, 2003 and 2004, respectively.
(4) Net of income tax benefit of $(791) and $(817) for the three months and fiscal year ended December 31, 2003, respectively.
(5) Net of income tax benefit of $(338) for the three months and fiscal year ended December 31, 2004.
(6) Weighted average number of common shares outstanding for the three months and fiscal year ended December 31, 2003 was calculated using the then outstanding shares of the Predecessor Company’s pre-petition common stock. Weighted average number of common shares outstanding for the three months and fiscal year ended December 31, 2004 was calculated using outstanding shares of the Reorganized Company’s Ordinary Common Stock and Multi-Vote Common Stock.
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | Predecessor Company | | Reorganized Company | |
| | Fiscal Year Ended
December 31, 2003 | | Fiscal Year Ended
December 31, 2004 | |
| | | | | |
Cash Flows From Operating Activities: | | | | | |
Net income | | $ | 451,770 | | $ | 88,372 | |
| | | | | |
Adjustments to reconcile net income to net cash from operating activities: | | | | | |
(Gain) loss on sale of assets | | (4,460 | ) | 141 | |
Depreciation and amortization | | 48,047 | | 42,489 | |
Goodwill impairment charges | | 28,780 | | — | |
Equity in earnings of unconsolidated subsidiaries | | (6,202 | ) | (5,277 | ) |
Non-cash fresh start reorganization gain | | (495,142 | ) | — | |
Other non-cash reorganization expense | | 6,902 | | — | |
Other non-cash interest expense | | 4,662 | | 2,343 | |
Non-cash stock compensation | | — | | 20,276 | |
Cash flows from changes in assets and liabilities: | | | | | |
Accounts receivable, net | | 11,650 | | 25,069 | |
Restricted cash | | (39 | ) | (2,058 | ) |
Net cash flows related to unconsolidated subsidiaries | | (3,881 | ) | 7,322 | |
Income taxes payable and deferred income taxes | | 1,966 | | — | |
Other assets | | (837 | ) | 38,018 | |
Accounts payable and accrued liabilities | | 178,355 | | (72,757 | ) |
Medical claims payable | | (47,403 | ) | 17,497 | |
Other liabilities | | (450 | ) | 23 | |
Minority interest, net of dividends paid | | 352 | | 591 | |
Other | | 4,223 | | 1,389 | |
Total adjustments | | (273,477 | ) | 75,066 | |
Net cash provided by operating activities | | 178,293 | | 163,438 | |
| | | | | |
Cash Flows From Investing Activities: | | | | | |
Capital expenditures. | | (29,773 | ) | (30,703 | ) |
Acquisitions and investments in businesses | | (3,731 | ) | — | |
Purchases of investments. | | — | | (827,564 | ) |
Maturity of investments. | | — | | 506,518 | |
Proceeds from sale of assets, net of transaction costs | | 2,588 | | 2,302 | |
Net cash used in investing activities | | (30,916 | ) | (349,447 | ) |
| | | | | |
Cash Flows From Financing Activities: | | | | | |
Payments on long-term debt and capital lease obligations | | (3,018 | ) | (216,226 | ) |
Proceeds from issuance of long-term debt, net of issuance costs | | 76 | | 92,806 | |
Proceeds from issuance of equity, net of issuance costs | | — | | 147,871 | |
Proceeds from exercise of stock options and warrants and employee stock purchase plan | | 25 | | — | |
Net cash provide by (used in) financing activities | | (2,917 | ) | 24,451 | |
Net increase (decrease) in cash and cash equivalents | | 144,460 | | (161,558 | ) |
Cash and cash equivalents at beginning of period | | 62,488 | | 206,948 | |
Cash and cash equivalents at end of period | | $ | 206,948 | | $ | 45,390 | A |
A Cash and cash equivalents as of December 31, 2004 does not include unrestricted investments which total $309,898 as of such date.
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
| | Predecessor Company | | Reorganized Company | | Predecessor Company | | Reorganized Company | |
| | Three Months Ended | | Three Months Ended | | Fiscal Year Ended | | Fiscal Year Ended | |
| | December 31, 2003 | | December 31, 2004 | | December 31, 2003 | | December 31, 2004 | |
| | (unaudited) | | (unaudited) | | | | | |
Net revenue | | | | | | | | | |
- Health Plan Solutions | | $ | 215,753 | | $ | 220,778 | | $ | 870,540 | | $ | 904,872 | |
- Employer Solutions | | 37,705 | | 33,422 | | 159,034 | | 135,676 | |
- Public Sector Solutions | | 84,337 | | 190,968 | | 481,172 | | 754,854 | |
Total revenue | | 337,795 | | 445,168 | | 1,510,746 | | 1,795,402 | |
| | | | | | | | | |
Cost of care | | | | | | | | | |
- Health Plan Solutions | | 91,192 | | 113,793 | | 464,128 | | 484,047 | |
- Employer Solutions | | 10,362 | | 8,140 | | 44,858 | | 37,168 | |
- Public Sector Solutions | | 71,449 | | 169,866 | | 397,498 | | 669,379 | |
Total cost of care | | 173,003 | | 291,799 | | 906,484 | | 1,190,594 | |
| | | | | | | | | |
Direct service costs and other operating expenses | | | | | | | | | |
- Health Plan Solutions | | 44,526 | | 41,150 | | 180,336 | | 170,131 | |
- Employer Solutions | | 18,858 | | 16,313 | | 79,071 | | 66,294 | |
- Public Sector Solutions | | 1,402 | | 9,338 | | 40,466 | | 40,528 | |
- Corporate & Other | | 35,095 | | 26,684 | | 118,529 | | 99,918 | |
Total direct services costs and other operating expenses | | 99,881 | | 93,485 | | 418,402 | | 376,871 | |
| | | | | | | | | |
Equity in (earnings) loss of unconsolidated subsidiaries | | | | | | | | | |
- Health Plan Solutions | | (1,809 | ) | 284 | | (6,560 | ) | (5,277 | ) |
- Public Sector Solutions | | (1,232 | ) | — | | 358 | | — | |
Total equity in earnings (loss) of unconsolidated subsidiaries | | (3,041 | ) | 284 | | (6,202 | ) | (5,277 | ) |
| | | | | | | | | |
Segment profit (loss) | | | | | | | | | |
- Health Plan Solutions | | 81,844 | | 65,551 | | 232,636 | | 255,971 | |
- Employer Solutions | | 8,485 | | 8,969 | | 35,105 | | 32,214 | |
- Public Sector Solutions | | 12,718 | | 11,764 | | 42,850 | | 44,947 | |
- Corporate & Other | | (35,095 | ) | (26,684 | ) | (118,529 | ) | (99,918 | ) |
Total segment profit (loss) | | $ | 67,952 | | $ | 59,600 | | $ | 192,062 | | $ | 233,214 | |
| | | | | | | | | |
Membership | | | | | | | | | |
- Health Plan Solutions | | | | | | 41,212 | | 41,716 | |
- Employer Solutions | | | | | | 14,696 | | 13,394 | |
- Public Sector Solutions | | | | | | 2,717 | | 2,030 | |
Total membership | | | | | | 58,625 | | 57,140 | |
