Document and Entity Information
Document and Entity Information | 6 Months Ended |
Jun. 30, 2018shares | |
Document and Entity Information | |
Entity Registrant Name | MAGELLAN HEALTH INC |
Entity Central Index Key | 19,411 |
Document Type | 10-Q |
Document Period End Date | Jun. 30, 2018 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 24,555,149 |
Document Fiscal Year Focus | 2,018 |
Document Fiscal Period Focus | Q2 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Current Assets: | ||
Cash and cash equivalents ($229,013 and $73,494 restricted at December 31, 2017 and June 30, 2018, respectively) | $ 246,109 | $ 398,732 |
Accounts receivable, net | 839,773 | 660,775 |
Short-term investments ($219,111 and $341,007 restricted at December 31, 2017 and June 30, 2018, respectively) | 412,770 | 310,578 |
Pharmaceutical inventory | 50,333 | 40,945 |
Other current assets ($41,121 and $47,949 restricted at December 31, 2017 and June 30, 2018, respectively) | 119,164 | 72,323 |
Total Current Assets | 1,668,149 | 1,483,353 |
Property and equipment, net | 160,702 | 158,638 |
Long-term investments ($17,287 and $20,478 restricted at December 31, 2017 and June 30, 2018, respectively) | 20,478 | 17,287 |
Deferred income taxes | 1,554 | 813 |
Other long-term assets | 30,909 | 22,567 |
Goodwill | 1,014,321 | 1,006,288 |
Other intangible assets, net | 243,646 | 268,288 |
Total Assets | 3,139,759 | 2,957,234 |
Current Liabilities: | ||
Accounts payable | 76,458 | 74,300 |
Accrued liabilities | 268,258 | 193,635 |
Short-term contingent consideration | 7,062 | 6,892 |
Medical claims payable | 397,550 | 327,625 |
Other medical liabilities | 183,222 | 177,002 |
Current debt and capital lease obligations | 90,546 | 112,849 |
Total Current Liabilities | 1,023,096 | 892,303 |
Long-term debt and capital lease obligations | 734,503 | 740,888 |
Deferred income taxes | 10,928 | 12,298 |
Tax contingencies | 15,058 | 14,226 |
Long-term contingent consideration | 2,058 | 1,925 |
Deferred credits and other long-term liabilities | 35,346 | 19,100 |
Total Liabilities | 1,820,989 | 1,680,740 |
STOCKHOLDERS' EQUITY | ||
Preferred stock, par value $.01 per share Authorized—10,000 shares at December 31, 2017 and June 30, 2018-Issued and outstanding-none | ||
Ordinary common stock, par value $.01 per share Authorized-100,000 shares at December 31, 2017 and June 30, 2018-Issued and outstanding-52,973 and 24,202 shares at December 31, 2017, respectively, and 53,475 and 24,555 shares at June 30, 2018, respectively | 535 | 530 |
Other Stockholders' Equity: | ||
Additional paid-in capital | 1,311,316 | 1,274,811 |
Retained earnings | 1,420,271 | 1,399,495 |
Accumulated other comprehensive loss | (567) | (380) |
Treasury stock, at cost, 28,771 and 28,920 shares at December 31, 2017 and June 30, 2018, respectively | (1,412,785) | (1,397,962) |
Total Stockholders' Equity | 1,318,770 | 1,276,494 |
Total Liabilities and Stockholders' Equity | $ 3,139,759 | $ 2,957,234 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
CONSOLIDATED BALANCE SHEETS | ||
Restricted cash and cash equivalents | $ 73,494 | $ 229,013 |
Short-term restricted investments (in dollars) | 341,007 | 219,111 |
Other current restricted assets (in dollars) | 47,949 | 41,121 |
Long term restricted investments (in dollars) | $ 20,478 | $ 17,287 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, authorized shares | 10,000 | 10,000 |
Preferred stock, issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized shares | 100,000 | 100,000 |
Common stock, issued shares | 53,475 | 52,973 |
Common stock, outstanding shares | 24,555 | 24,202 |
Ordinary common stock in treasury, shares | 28,920 | 28,771 |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Net revenue: | ||||
Net revenue | $ 1,810,923 | $ 1,419,139 | $ 3,616,000 | $ 2,724,762 |
Costs and expenses: | ||||
Cost of care | 935,814 | 583,264 | 1,864,475 | 1,065,318 |
Cost of goods sold | 558,419 | 562,355 | 1,118,084 | 1,104,988 |
Direct service costs and other operating expenses | 259,152 | 231,372 | 528,229 | 452,858 |
Depreciation and amortization | 33,848 | 27,731 | 64,255 | 54,707 |
Interest expense | 8,678 | 4,900 | 17,044 | 9,048 |
Interest and other income | (3,363) | (1,071) | (5,839) | (2,020) |
Total costs and expenses | 1,792,548 | 1,408,551 | 3,586,248 | 2,684,899 |
Income before income taxes | 18,375 | 10,588 | 29,752 | 39,863 |
Provision for income taxes | 4,824 | 5,661 | 4,749 | 17,467 |
Net income | 13,551 | 4,927 | 25,003 | 22,396 |
Less: net loss attributable to non-controlling interest | (573) | (851) | ||
Net income attributable to Magellan | $ 13,551 | $ 5,500 | $ 25,003 | $ 23,247 |
Net income attributable to Magellan per common share: | ||||
Basic (in dollars per share) | $ 0.55 | $ 0.24 | $ 1.02 | $ 1.01 |
Diluted (in dollars per share) | $ 0.53 | $ 0.23 | $ 0.98 | $ 0.97 |
Managed care and other | ||||
Net revenue: | ||||
Net revenue | $ 1,215,340 | $ 821,699 | $ 2,435,103 | $ 1,551,039 |
PBM | ||||
Net revenue: | ||||
Net revenue | $ 595,583 | $ 597,440 | $ 1,180,897 | $ 1,173,723 |
CONSOLIDATED STATEMENTS OF INC5
CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
CONSOLIDATED STATEMENTS OF INCOME | ||||
Stock compensation expense | $ 10,439 | $ 11,371 | $ 18,085 | $ 21,511 |
Changes in fair value of contingent consideration | $ 70 | $ 252 | $ 303 | $ 203 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Net income | $ 13,551 | $ 4,927 | $ 25,003 | $ 22,396 |
Other comprehensive income: | ||||
Unrealized gain (loss) on available-for-sale securities | 132 | 22 | (187) | 1 |
Comprehensive income | 13,683 | 4,949 | 24,816 | 22,397 |
Less: comprehensive loss attributable to non-controlling interest | (573) | (851) | ||
Comprehensive income attributable to Magellan | $ 13,683 | $ 5,522 | $ 24,816 | $ 23,248 |
CONSOLIDATED STATEMENTS OF COM7
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Net of income tax provision (benefit) | $ 42 | $ 14 | $ (59) | $ 2 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Cash flows from operating activities: | ||
Net income | $ 25,003 | $ 22,396 |
Adjustments to reconcile net income to net cash from operating activities: | ||
Depreciation and amortization | 64,255 | 54,707 |
Non-cash interest expense | 614 | 578 |
Non-cash stock compensation expense | 18,085 | 21,511 |
Non-cash income tax benefit | (100) | (1,520) |
Non-cash amortization on investments | 1,171 | 2,094 |
Changes in assets and liabilities, net of effects from acquisitions of businesses: | ||
Accounts receivable, net | (179,350) | (21,859) |
Pharmaceutical inventory | (9,388) | (1,188) |
Other assets | (57,398) | (21,974) |
Accounts payable and accrued liabilities | 50,322 | (59,372) |
Medical claims payable and other medical liabilities | 89,932 | 5,978 |
Contingent consideration | 303 | 203 |
Tax contingencies | 721 | 764 |
Deferred credits and other long-term liabilities | 16,884 | 1,882 |
Other | 69 | (364) |
Net cash provided by operating activities | 21,123 | 3,836 |
Cash flows from investing activities: | ||
Capital expenditures | (37,132) | (26,797) |
Acquisitions and investments in businesses, net of cash acquired | (3,200) | |
Purchase of investments | (334,250) | (238,814) |
Maturity of investments | 227,446 | 233,143 |
Net cash used in investing activities | (143,936) | (35,668) |
Cash flows from financing activities: | ||
Proceeds from issuance of debt | 200,000 | |
Payments to acquire treasury stock | (14,323) | (5,000) |
Proceeds from exercise of stock options | 21,476 | 5,946 |
Payments on debt and capital lease obligations | (33,912) | (190,978) |
Other | (3,051) | (1,311) |
Net cash provided by (used in) financing activities | (29,810) | 8,657 |
Net decrease in cash and cash equivalents | (152,623) | (23,175) |
Cash and cash equivalents at beginning of period | 398,732 | 304,508 |
Cash and cash equivalents at end of period | 246,109 | 281,333 |
Non-cash investing activities: | ||
Property and equipment acquired under capital leases | $ 4,623 | $ 2,418 |
General
General | 6 Months Ended |
Jun. 30, 2018 | |
General | |
General | NOTE A—General Basis of Presentation The accompanying unaudited consolidated financial statements of Magellan Health, Inc., a Delaware corporation (“Magellan”), include Magellan and its subsidiaries (together with Magellan, the “Company”). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the Securities and Exchange Commission’s (the “SEC”) instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year. All significant intercompany accounts and transactions have been eliminated in consolidation. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2017 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2018. Business Overview The Company is a leader within the healthcare management business, and is focused on delivering innovative specialty solutions for the fastest growing, most complex areas of health, including special populations, complete pharmacy benefits, and other specialty carve-out areas of healthcare. The Company develops innovative solutions that combine advanced analytics, agile technology and clinical excellence to drive better decision making, positively impact members’ health outcomes and optimize the cost of care for the customers we serve. The Company provides services to health plans and other managed care organizations (“MCOs”), employers, labor unions, various military and governmental agencies and third party administrators (“TPAs”). Magellan operates three segments: Healthcare, Pharmacy Management and Corporate. Healthcare The Healthcare segment (“Healthcare”) consists of two reporting units – Commercial and Government. The Commercial reporting unit’s customers include health plans, accountable care organizations (“ACOs”), and employers for whom Magellan provides carve-out management services for behavioral health, employee assistance plans (“EAP”), and other areas of specialty healthcare including diagnostic imaging, musculoskeletal management, cardiac, and physical medicine. These management services are applied to a health plan’s or ACO’s entire book of business including commercial, Medicaid and Medicare members or targeted complex populations. The Government reporting unit contracts with local, state and federal governmental agencies to provide services to recipients under Medicaid, Medicare and other government programs. For certain contracts, the management of total medical cost, as well as long term support services, for special populations is delivered through Magellan Complete Care (“MCC”). These special populations include individuals with serious mental illness (“SMI”), dual eligibles, aged, blind and disabled (“ABD”) and other populations with unique and often complex healthcare needs. In addition, the Company’s management services include behavioral health and EAP. Magellan’s coordination and management of these healthcare and long term support services are provided through its comprehensive network of medical and behavioral health professionals, clinics, hospitals, skilled nursing facilities, home care agencies and ancillary service providers. This network of credentialed providers is integrated with clinical and quality improvement programs to improve access to care and enhance the healthcare experience for individuals in need of care, while at the same time making the cost of these services more affordable for our customers. The Company generally does not directly provide or own any provider of treatment services, although it does employ licensed behavioral health counselors to deliver non‑medical counseling under certain government contracts. The Company provides its Healthcare management services primarily through: (i) risk‑based products, where the Company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed per member per month fee, or (ii) administrative services only (“ASO”) products, where the Company provides services such as utilization review, claims administration and/or provider network management, but does not assume full responsibility for the cost of the treatment services, in exchange for an administrative fee and, in some instances, a gain share. Pharmacy Management The Pharmacy Management segment (“Pharmacy Management”) is comprised of products and solutions that provide clinical and financial management of pharmaceuticals paid under both the medical and the pharmacy benefit. Pharmacy Management’s services include: (i) pharmacy benefit management (“PBM”) services, including pharmaceutical dispensing operations; (ii) pharmacy benefit administration (“PBA”) for state Medicaid and other government sponsored programs; (iii) clinical and formulary management programs; (iv) medical pharmacy management programs; and (v) programs for the integrated management of specialty drugs across both the medical and pharmacy benefit that treat complex conditions, regardless of site of service, method of delivery, or benefit reimbursement. These services are available individually, in combination, or in a fully integrated manner. The Company markets its pharmacy management services to health plans, employers, third party administrators, managed care organizations, state governments, Medicare Part D, and other government agencies, exchanges, brokers and consultants. In addition, the Company will continue to upsell its pharmacy products to its existing customers and market its pharmacy solutions to the Healthcare customer base. Pharmacy Management contracts with its customers for services using risk‑based, gain share or ASO arrangements. In addition, Pharmacy Management provides services to the Healthcare segment for its MCC business. Corporate This segment of the Company is comprised primarily of amounts not allocated to the Healthcare and Pharmacy Management segments that are largely associated with costs related to being a publicly traded company. Summary of Significant Accounting Policies Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The FASB also issued various ASUs which subsequently amended ASU 2014-09. These amendments and ASU 2014-09, collectively known as Accounting Standard Codification 606 (“ASC 606”), were adopted on a modified retrospective basis in the quarter ended March 31, 2018. The Company applied the standard to contracts not completed at the date of initial application. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. For contracts that were modified before January 1, 2018 the Company has not retrospectively restated the contracts for those modifications in accordance with the contract modification guidance, instead the Company reflected the aggregate effect of those modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligation. Given the nature of our arrangements, the Company does not believe the use of this practical expedient had a significant impact on the results of our adoption. A majority of our managed care revenue continues to be recognized over the applicable coverage period on a per member basis for covered members. In addition, a majority of the PBM revenue continues to be recognized as the claims are adjudicated or when the drugs are dispensed. The main impacts of ASC 606 to the Company’s business relate to the timing of revenue recognition in relation to upfront fees in certain PBA contracts, as well as performance incentive, performance guarantee and risk share arrangements. Some of the Company’s PBA contracts contain upfront fees, which under ASC 605 were amortized over the life of the contract. Under ASC 606, these upfront fees constitute a material right and are amortized over the anticipated life of the customer. Certain contracts include performance incentive, performance guarantee and risk share arrangements, which under ASC 605 were recorded based on calculations using the current period’s data. Under ASC 606, the revenues are recognized on a probability weighted approach based on anticipated outcomes for the performance period. In addition, under ASC 606 the accounting for material rights in relation to some of the Company’s government contracts will impact the consolidated balance sheets for interim reporting periods. The cumulative effect of changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09 were as follows (in thousands): Balance at December 31, 2017 Adjustments Due to ASC 606 Balance at January 1, 2018 Assets Other current assets $ 72,323 $ (667) $ 71,656 Total Current Assets 1,483,353 (667) 1,482,686 Deferred income taxes 813 1,335 2,148 Other long-term assets 22,567 (1,333) 21,234 Total Assets 2,957,234 (665) 2,956,569 Liabilities and Stockholders' Equity Accrued liabilities 193,635 (2,182) 191,453 Total Current Liabilities 892,303 (2,182) 890,121 Deferred credits and other long-term liabilities 19,100 5,744 24,844 Total Liabilities 1,680,740 3,562 1,684,302 Retained earnings 1,399,495 (4,227) 1,395,268 Total Stockholders' Equity 1,276,494 (4,227) 1,272,267 Total Liabilities and Stockholders' Equity 2,957,234 (665) 2,956,569 The impact of the adoption of ASC 606 on our consolidated balance sheet as of June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Assets Accounts receivable $ 839,773 $ (17,972) $ 821,801 Other current assets 119,164 (445) 118,719 Total Current Assets 1,668,149 (18,417) 1,649,732 Other long-term assets 30,909 9,199 40,108 Total Assets 3,139,759 (9,218) 3,130,541 Liabilities and Stockholders' Equity Accrued liabilities 268,258 (11,127) 257,131 Other medical liabilities 183,222 50 183,272 Total Current Liabilities 1,023,096 (11,077) 1,012,019 Deferred credits and other long-term liabilities 35,346 (6,835) 28,511 Total Liabilities 1,820,989 (17,912) 1,803,077 Retained earnings 1,420,271 8,694 1,428,965 Total Stockholders' Equity 1,318,770 8,694 1,327,464 Total Liabilities and Stockholders' Equity 3,139,759 (9,218) 3,130,541 The impact of the adoption of ASC 606 on our consolidated income statement for the three months ended June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Managed care and other $ 1,215,340 $ (1,203) $ 1,214,137 PBM 595,583 1,749 597,332 Total net revenue 1,810,923 546 1,811,469 Income before income taxes 18,375 546 18,921 Provision for income taxes 4,824 143 4,967 Net income 13,551 403 13,954 Net income attributable to Magellan 13,551 403 13,954 The impact of the adoption of ASC 606 on our consolidated income statement for the six months ended June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Managed care and other $ 2,435,103 $ (3,955) $ 2,431,148 PBM 1,180,897 8,199 1,189,096 Total net revenue 3,616,000 4,244 3,620,244 Income before income taxes 29,752 4,244 33,996 Provision for income taxes 4,749 1,112 5,861 Net income 25,003 3,132 28,135 Net income attributable to Magellan 25,003 3,132 28,135 In February 2016, the FASB issued ASU No. 2016‑02, “Leases” (“ASU 2016‑02”). This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact this ASU, but believes the effect of this ASU will have a material effect on the Company’s consolidated balance sheets. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This ASU amends the accounting on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 31, 2018. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operation, financial position and cash flows. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in this ASU eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial position and cash flows. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, contingent consideration, stock compensation assumptions, tax contingencies and legal liabilities. In addition, the Company makes significant estimates in relation to revenue recognition under ASC 606 which are explained in more detail in “ Revenue Recognition ” below. Actual results could differ from those estimates. Revenue Recognition Virtually all of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue for the three and six months ended June 30, 2018 by major service line, type of customer and timing of revenue recognition (in thousands): Three Months Ended June 30, 2018 Healthcare Pharmacy Management Elimination Total Major Service Lines Commercial Risk-based, non-EAP $ 238,272 $ — $ (114) $ 238,158 EAP risk-based 12,335 — — 12,335 ASO 51,111 8,529 (37) 59,603 Government Risk-based, non-EAP 750,162 — — 750,162 EAP risk-based 78,940 — — 78,940 ASO 24,068 — — 24,068 PBM, including dispensing — 536,131 (47,211) 488,920 Medicare Part D — 106,663 — 106,663 PBA — 33,088 — 33,088 Formulary management — 18,348 — 18,348 Other — 638 — 638 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Type of Customer Government $ 853,170 $ 229,948 $ — $ 1,083,118 Non-government 301,718 473,449 (47,362) 727,805 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Timing of Revenue Recognition Transferred at a point in time $ — $ 642,794 $ (47,211) $ 595,583 Transferred over time 1,154,888 60,603 (151) 1,215,340 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Six Months Ended June 30, 2018 Healthcare Pharmacy Management Elimination Total Major Service Lines Commercial Risk-based, non-EAP $ 472,663 $ — $ (114) $ 472,549 EAP risk-based 24,756 — — 24,756 ASO 103,680 15,829 (182) 119,327 Government Risk-based, non-EAP 1,502,652 — — 1,502,652 EAP risk-based 161,177 — — 161,177 ASO 47,561 — — 47,561 PBM, including dispensing — 1,069,923 (94,095) 975,828 Medicare Part D — 205,069 — 205,069 PBA — 66,634 — 66,634 Formulary management — 38,725 — 38,725 Other — 1,722 — 1,722 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 Type of Customer Government $ 1,711,390 $ 457,997 $ — $ 2,169,387 Non-government 601,099 939,905 (94,391) 1,446,613 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,274,992 $ (94,095) $ 1,180,897 Transferred over time 2,312,489 122,910 (296) 2,435,103 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 Per Member Per Month (“PMPM”) Revenue. Almost all of the Healthcare revenue and a small portion of the Pharmacy Management revenue is paid on a PMPM basis. PMPM revenue is inclusive of revenue from the Company’s risk, EAP and ASO contracts and primarily relates to managed care contracts for services such as the provision of behavioral healthcare, specialty healthcare, pharmacy management, or fully integrated healthcare services. PMPM contracts generally have a term of one year or longer, with the exception of government contracts where the customer can terminate with as little as 30 days’ notice for no significant penalty. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM contracts is entirely variable as it primarily includes per member per month fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for things such as performance incentives, performance guarantees and risk shares. The Company generally estimates the transaction price using an expected value methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue in the month in which members are entitled to service. The remaining transaction price is recognized over the contract period (or portion of the series to which it specifically relates) based upon estimated membership as a measure of progress. Pharmacy Benefit Management Revenue. The Company’s customers for PBM business, including pharmaceutical dispensing operations, are generally comprised of MCOs, employer groups and health plans. PBM relationships generally have an expected term of one year or longer. A master services arrangement (“MSA”) is executed by the Company and the customer, which outlines the terms and conditions of the PBM services to be provided. When a member in the customer’s organization submits a prescription, a claim is created which is presented for approval. The acceptance of each individual claim creates enforceable rights and obligations for each party and represents a separate contract. For each individual claim, the performance obligations are limited to the processing and adjudication of the claim, or dispensing of the products purchased. Generally, the transaction price for PBM services is explicitly listed in each contract and does not represent variable consideration. The Company recognizes PBM revenue, which consists of a negotiated prescription price (ingredient cost plus dispensing fee), co‑payments and any associated administrative fees, when claims are adjudicated or the drugs are shipped. The Company recognizes PBM revenue on a gross basis (i.e. including drug costs and co‑payments) as it is acting as the principal in the arrangement, controls the underlying service, and is contractually obligated to its clients and network pharmacies, which is a primary indicator of gross reporting. In addition, the Company is solely responsible for the claims adjudication process, negotiating the prescription price for the pharmacy, collection of payments from the client for drugs dispensed by the pharmacy, and managing the total prescription drug relationship with the client’s members. If the Company enters into a contract where it is only an administrator, and does not assume any of the risks previously noted, revenue will be recognized on a net basis. For dispensing, at the time of shipment, the earnings process is complete; the obligation of the Company’s customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund. Medicare Part D. The Company is contracted with the Centers for Medicare and Medicaid (“CMS”) as a Prescription Drug Plan (“PDP”) to provide prescription drug benefits to Medicare beneficiaries. The accounting for Medicare Part D revenue is primarily the same as that for PBM, as previously discussed. However, there is certain variable consideration present only in Medicare Part D arrangements. The Company estimates the annual amount of variable consideration using a most likely amount methodology, which is allocated to each reporting period based upon actual utilization as a percentage of estimated utilization for the year. Amounts estimated throughout the year for interim reporting are substantially resolved and fixed as of December 31 st , the end of the plan year. Pharmacy Benefit Administration Revenue. The Company provides Medicaid pharmacy services to states and other government sponsored programs. PBA contracts are generally multi-year arrangements but include language regarding early termination for convenience without material penalty provisions that results in enforceable rights and obligations on a month-to-month basis. In PBA arrangements, the Company is generally paid a fixed fee per month to provide PBA services. In addition, some PBA contracts contain upfront fees that constitute a material right. For contracts without an upfront fee, there is a single performance obligation to stand ready to provide the PBA services required for the contracted period. The Company believes that the customer receives the PBA benefits each day from access to the claims processing activities, and has concluded that a time based measure is appropriate for recognizing PBA revenue. For contracts with an upfront fee, the material right represents an additional performance obligation. Amounts allocated to the material right are initially recorded as a contract liability and recognized as revenue over the anticipated period of benefit of the material right, which generally ranges from 2 to 10 years. Formulary Management Revenue. The Company administers formulary management programs for certain clients through which the Company coordinates the achievement, calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients. Formulary management contracts generally have a term of one year or longer. All formulary management contracts have a single performance obligation that constitutes a series for the provision of rebate services for a drug, with utilization measured and settled on a quarterly basis, for the duration of the arrangement. The Company retains its administrative fee and/or a percentage of rebates that is included in its contract with the client from collecting the rebate from the manufacturer. While the administrative fee and/or the percentage of rebates retained is fixed, there is an unknown quantity of pharmaceutical purchases (utilization) during each quarter, therefore the transaction price itself is variable. The Company uses the expected value methodology to estimate the total rebates earned each quarter based on estimated volumes of pharmaceutical purchases by the Company’s clients during the quarter, as well as historical and/or anticipated retained rebate percentages. The Company does not record as rebate revenue any rebates that are passed through to its clients. In relation to the Company’s PBM business, the Company administers rebate programs through which it receives rebates from pharmaceutical manufacturers that are shared with its customers. The Company recognizes rebates when the Company is entitled to them and when the amounts of the rebates are determinable. The amount recorded for rebates earned by the Company from the pharmaceutical manufacturers is recorded as a reduction of cost of goods sold. Government EAP Risk Based Revenue. The Company has certain contracts with federal customers for the provision of various managed care services, which are classified as government EAP risk based business. These contracts are generally multi-year arrangements. The Company’s federal contracts are reimbursed on either a fixed fee basis or a cost reimbursement basis. The performance obligation on a fixed fee contract is to stand ready to provide the staffing required for the contracted period. For fixed fee contracts, the Company believes the invoiced amount corresponds directly with the value to the customer of the Company’s performance completed to date, therefore the Company is utilizing the “right to invoice” practical expedient, with revenue recognition in the amount for which the Company has the right to invoice. The performance obligation on a cost reimbursement contract is to stand ready to provide the activity or services purchased by the customer, such as the operation of a counseling services group or call center. The performance obligation represents a series for the duration of the arrangement. The reimbursement rate is fixed per the contract, however the level of activity (e.g., number of hours, number of counselors or number of units) is variable. A majority of the Company’s cost reimbursement transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue when the portion of the series for which it relates has been provided (i.e. as the Company provides hours, counselors or units of service). In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the contracts in the Company’s PBM and Part D business, these reporting requirements are not applicable. The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related to unsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. For the Company’s contracts that pertain to these exemptions: (i) the remaining performance obligations primarily relate to the provision of managed healthcare services to the customers’ membership; (ii) the estimated remaining duration of these performance obligations ranges from the remainder of the current calendar year to three years; and (iii) variable consideration for these contracts primarily includes net per member per month fees associated with unspecified membership that fluctuates throughout the contract. Accounts Receivable, Contract Assets and Contract Liabilities Accounts receivable, contract assets and contract liabilities consisted of the following (in thousands, except percentages): January 1, 2018 June 30, 2018 $ Change % Change Accounts receivable $ 679,269 $ 864,674 $ 185,405 Contract assets 8,564 14,339 5,775 Contract liabilities - current 14,299 75,552 61,253 Contract liabilities - long-term 12,303 12,612 309 Accounts receivable, which are included in accounts receivable, other current assets and other long-term assets on the consolidated balance sheets, increased by $185.4 million, mainly due to timing. Contract assets, which are included in other current assets on the consolidated balance sheets, increased by $5.8 million, mainly due to the timing of accrual of certain performance incentives. Contract liabilities – current, which are included in accrued liabilities on the consolidated balance sheets, increased by $61.3 million, mainly due to the timing of receipts related to July 2018 revenues and the timing of material rights generated for some of the Company’s government contracts. Contract liabilities – long-term, which are included in deferred credits and other long-term liabilities on the consolidated balance sheets, increased by $0.3 million, mainly due to receipts for which recognition will be long-term. The Company’s accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. A majority of the Company’s contracts have payment terms in the month of service, or within a few months thereafter. The timing of payments from customers from time to time generate contract assets or contract liabilities, however these amounts are immaterial. Significant Customers Customers exceeding ten percent of the consolidated Company’s net revenues The Company has a contract with the State of Florida to provide integrated healthcare services to Medicaid enrollees in the state of Florida (the “Florida Contract”). The Florida Contract began on February 4, 2014 and extends through December 31, 2018, unless sooner terminated by the parties. The State of Florida has the right to terminate the Florida Contract with cause, as defined, upon 24 hour notice and upon 30 days notice for any reason or no reason at all. The Florida Contract generated net revenues of $300.1 million and $307.9 million for the six months ended June 30, 2017 and 2018, respectively. On July 14, 2017, the State of Florida issued an Invitation to Negotiate for a new contract for its Medicaid managed care program to replace the current contract with the Company and to be effective January 1, 2019. On April 24, 2018 the Company was notified by the Florida Agency for Health Care Administration (“AHCA”) that the Company was not selected to negotiate a new contract to serve as a vendor for its Medicaid managed care program. The Company filed a protest with AHCA. Customers exceeding ten percent of segment net revenues In addition to the Florida Contract, previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the six months ended June 30, 2017 and 2018 (in thousands): Segment Term Date 2017 2018 Healthcare Customer A (1) $ 79,247 $ 356,573 Customer B December 31, 2018 to December 31, 2020 (2) — 330,910 Pharmacy Management Customer C March 31, 2019 184,364 176,650 (1) The Company, along with other participating managed care plans in this state, continues to provide services while a new contract is being finalized . (2) The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above. Concentration of Business The Company also has a significant concentration of business with various counties in the State of Pennsylvania (the “Pennsylvania Counties”) which are part of the Pennsylvania Medicaid program, with members under its contract with CMS and with various agencies and departments of the United States federal government. Net revenues from the Pennsylvania Counties in the aggregate totaled $232.4 million and $275.3 million for the six months ended June 30, 2017 and 2018, respectively. Net revenues from members in relation to its contracts with CMS in aggregate totaled $236.1 million and $205. |
Net Income per Common Share Att
Net Income per Common Share Attributable to Magellan Health, Inc. | 6 Months Ended |
Jun. 30, 2018 | |
Net Income per Common Share Attributable to Magellan Health, Inc. | |
Net Income per Common Share Attributable to Magellan Health, Inc. | NOTE B—Net Income per Common Share Attributable to Magellan Health, Inc. The following table reconciles income attributable to common shareholders (numerator) and shares (denominator) used in the computations of net income per share attributable to common shareholders (in thousands, except per share data) for the three and six months ended June 30: Three Months Ended Six Months Ended June 30, June 30, 2017 2018 2017 2018 Numerator: Net income attributable to Magellan $ 5,500 $ 13,551 $ 23,247 $ 25,003 Denominator: Weighted average number of common shares outstanding—basic 23,108 24,569 23,060 24,460 Common stock equivalents—stock options 399 669 436 738 Common stock equivalents—RSAs 439 33 421 28 Common stock equivalents—RSUs 30 23 56 50 Common stock equivalents—PSUs 61 111 62 232 Common stock equivalents—employee stock purchase plan 1 2 2 2 Weighted average number of common shares outstanding—diluted 24,038 25,407 24,037 25,510 Net income attributable to Magellan per common share—basic $ 0.24 $ 0.55 $ 1.01 $ 1.02 Net income attributable to Magellan per common share—diluted $ 0.23 $ 0.53 $ 0.97 $ 0.98 The weighted average number of common shares outstanding for the three and six months ended June 30, 2017 and 2018 were calculated using outstanding shares of the Company’s common stock. Common stock equivalents included in the calculation of diluted weighted average common shares outstanding for the three and six months ended June 30, 2017 and 2018 represent stock options to purchase shares of the Company’s common stock, RSAs, RSUs, PSUs and stock purchased under the Employee Stock Purchase Plan. The Company had additional potential dilutive securities outstanding representing 0.8 million and 0.7 million options for the three and six months ended June 30, 2017, respectively, and 0.5 million and 0.3 million for the three and six months ended June 30, 2018, respectively, that were not included in the computation of dilutive securities because they were anti-dilutive for the period. Had these shares not been anti-dilutive, all of these shares would not have been included in the net income attributable to common shareholder per common share calculation as the Company uses the treasury stock method of calculating diluted shares. |
Business Segment Information
Business Segment Information | 6 Months Ended |
Jun. 30, 2018 | |
Business Segment Information | |
Business Segment Information | NOTE C—Business Segment Information The accounting policies of the Company’s segments are the same as those described in Note A—“General.” The Company evaluates performance of its segments based on profit or loss from operations before stock compensation expense, depreciation and amortization, interest expense, interest and other income, changes in the fair value of contingent consideration recorded in relation to acquisitions, gain on sale of assets, special charges or benefits, and income taxes (“Segment Profit”). Management uses Segment Profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources, risk assessment and employee compensation, among other matters. Healthcare subcontracts with Pharmacy Management to provide pharmacy benefits management services for certain of Healthcare’s customers. In addition, Pharmacy Management provides pharmacy benefits management for the Company’s employees covered under its medical plan. As such, revenue, cost of goods sold and direct service costs and other related to these arrangements are eliminated. The Company’s segments are defined in Note A—“General.” The following tables summarize, for the periods indicated, operating results by business segment (in thousands): Corporate Pharmacy and Healthcare Management Elimination Consolidated Three Months Ended June 30, 2017 Managed care and other revenue $ 755,270 $ 66,659 $ (230) $ 821,699 PBM revenue — 631,932 (34,492) 597,440 Cost of care (583,264) — — (583,264) Cost of goods sold — (595,446) 33,091 (562,355) Direct service costs and other (145,914) (74,953) (10,505) (231,372) Stock compensation expense (1) 3,106 5,684 2,581 11,371 Changes in fair value of contingent consideration (1) 252 — — 252 Less: non-controlling interest segment loss (2) (568) — (1) (569) Segment profit (loss) $ 30,018 $ 33,876 $ (9,554) $ 54,340 Corporate Pharmacy and Healthcare Management Elimination Consolidated Three Months Ended June 30, 2018 Managed care and other revenue $ 1,154,888 $ 60,603 $ (151) $ 1,215,340 PBM revenue — 642,794 (47,211) 595,583 Cost of care (935,814) — — (935,814) Cost of goods sold — (603,951) 45,532 (558,419) Direct service costs and other (177,990) (70,941) (10,221) (259,152) Stock compensation expense (1) 2,742 1,408 6,289 10,439 Changes in fair value of contingent consideration (1) 70 — — 70 Segment profit (loss) $ 43,896 $ 29,913 $ (5,762) $ 68,047 Corporate Pharmacy and Healthcare Management Elimination Consolidated Six Months Ended June 30, 2017 Managed care and other revenue $ 1,420,646 $ 130,839 $ (446) $ 1,551,039 PBM revenue — 1,238,678 (64,955) 1,173,723 Cost of care (1,065,318) — — (1,065,318) Cost of goods sold — (1,167,283) 62,295 (1,104,988) Direct service costs and other (284,882) (150,806) (17,170) (452,858) Stock compensation expense (1) 5,765 11,414 4,332 21,511 Changes in fair value of contingent consideration (1) 203 — — 203 Less: non-controlling interest segment profit (loss) (2) (845) — (2) (847) Segment profit (loss) $ 77,259 $ 62,842 $ (15,942) $ 124,159 Corporate Pharmacy and Healthcare Management Elimination Consolidated Six Months Ended June 30, 2018 Managed care and other revenue $ 2,312,489 $ 122,910 $ (296) $ 2,435,103 PBM revenue — 1,274,992 (94,095) 1,180,897 Cost of care (1,864,475) — — (1,864,475) Cost of goods sold — (1,208,864) 90,780 (1,118,084) Direct service costs and other (364,236) (146,527) (17,466) (528,229) Stock compensation expense (1) 5,692 2,893 9,500 18,085 Changes in fair value of contingent consideration (1) 303 — — 303 Segment profit (loss) $ 89,773 $ 45,404 $ (11,577) $ 123,600 (1) Stock compensation expense, changes in the fair value of contingent consideration recorded in relation to acquisitions and impairment of intangible assets are included in direct service costs and other operating expenses; however, these amounts are excluded from the computation of Segment Profit. (2) The non‑controlling portion of AlphaCare’s segment loss is excluded from the computation of Segment Profit. The following table reconciles income before income taxes to Segment Profit (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2017 2018 2017 2018 Income before income taxes $ 10,588 $ 18,375 $ 39,863 $ 29,752 Stock compensation expense 11,371 10,439 21,511 18,085 Changes in fair value of contingent consideration 252 70 203 303 Non-controlling interest segment loss 569 — 847 — Depreciation and amortization 27,731 33,848 54,707 64,255 Interest expense 4,900 8,678 9,048 17,044 Interest and other income (1,071) (3,363) (2,020) (5,839) Segment Profit $ 54,340 $ 68,047 $ 124,159 $ 123,600 |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies | |
Commitments and Contingencies | NOTE D—Commitments and Contingencies Legal The Company’s operating activities entail significant risks of liability. From time to time, the Company is subject to various actions and claims arising from the acts or omissions of its employees, network providers or other parties. In the normal course of business, the Company receives reports relating to deaths and other serious incidents involving patients whose care is being managed by the Company. Such incidents occasionally give rise to malpractice, professional negligence and other related actions and claims against the Company or its network providers. Many of these actions and claims received by the Company seek substantial damages and therefore require the Company to incur significant fees and costs related to their defense. The Company is also subject to or party to certain class actions and other litigation and claims relating to its operations or business practices. In the opinion of management, the Company has recorded reserves that are adequate to cover litigation, claims or assessments that have been or may be asserted against the Company, and for which the outcome is probable and reasonably estimable. Management believes that the resolution of such litigation and claims will not have a material adverse effect on the Company’s financial condition or results of operations; however, there can be no assurance in this regard. Regulatory Issues The managed healthcare industry is subject to numerous laws and regulations. The subjects of such laws and regulations cover, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirements, information privacy and security, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Over the past several years, government activity has increased with respect to investigations and/or allegations concerning possible violations of fraud and abuse and false claims statutes and/or regulations by healthcare organizations and insurers. Entities that are found to have violated these laws and regulations may be excluded from participating in government healthcare programs, subjected to fines or penalties or required to repay amounts received from the government for previously billed patient services. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time. In addition, regulators of certain of the Company’s subsidiaries may exercise certain discretionary rights under regulations including increasing their supervision of such entities, requiring additional restricted cash or other security or seizing or otherwise taking control of the assets and operations of such subsidiaries. The Company is subject to certain federal laws and regulations in connection with its contracts with the federal government. These laws and regulations affect how the Company conducts business with its federal agency customers and may impose added costs on its business. The Company’s failure to comply with federal procurement laws and regulations could cause it to lose business, incur additional costs and subject it to a variety of civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, harm to reputation, suspension of payments, fines, and suspension or debarment from doing business with federal government agencies. As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, the Company’s wholly owned subsidiary, AFSC, conducts business with federal agency customers and federal contractors to such agencies. The Company is investigating, with the assistance of outside counsel, matters relating to compliance by AFSC with Small Business Administration ( “SBA”) regulations and other federal laws applicable to government contractors and has reported findings to the SBA and the Defense Health Agency, including facts indicating violations of SBA regulations and other federal laws, such as the Anti-Kickback Act, by former AFSC executives, none of which was disclosed to Magellan prior to its acquisition of AFSC. Contingencies, if any, arising from the results of this investigation and self-reporting could require us to record balance sheet liabilities or accrue expenses, the amount of which we are not able to currently estimate. While the Company believes that it has responded appropriately by self-reporting findings regarding matters that incepted prior to its acquisition of AFSC in order to mitigate the risk of adverse consequences, should the SBA and/or other federal agencies seek to hold the Company or AFSC responsible for the reported conduct, we may be required to pay damages and/or penalties and AFSC could be suspended or debarred from government contracting. AFSC generated approximately 3% and 2% of the Company’s total net revenues for the year ended December 31, 2017 and six months ended June 30, 2018, respectively. Stock Repurchases On October 26, 2015, the Company’s board of directors approved a stock repurchase plan which authorized the Company to purchase up to $200 million of its outstanding common stock through October 26, 2017 (the “2015 Repurchase Program”). On July 26, 2017, the Company’s board of directors approved an extension of the 2015 Repurchase Program through October 26, 2018. On May 24, 2018, the Company’s board of directors approved an increase of $200 million to the current $200 million stock repurchase plan which will now authorize the Company to purchase up to $400 million of its outstanding common stock under the 2015 Repurchase Program. As of June 30, 2018, the remaining capacity under the 2015 Repurchase Program was $238.2 million. The board also extended the program from October 26, 2018 to October 26, 2020. Stock repurchases under the programs may be carried out from time to time in open market transactions (including blocks) or in privately negotiated transactions. The timing of repurchases and the actual amount purchased will depend on a variety of factors including the market price of the Company’s shares, general market and economic conditions, and other corporate considerations. Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow the Company to purchase its shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases are expected to be funded from working capital and anticipated cash from operations. The repurchase authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by the Company’s board of directors at any time. Pursuant to the 2015 Stock Repurchase Program, the Company made purchases as follows (aggregate cost excludes broker commissions and is reflected in millions): Total Number Average of Shares Price Paid Aggregate Period Purchased per Share Cost October 26, 2015 - December 31, 2015 345,044 $ 53.46 $ 18.4 January 1, 2016 - December 31, 2016 1,828,183 58.40 106.8 January 1, 2017 - December 31, 2017 280,140 77.67 21.8 January 1, 2018 - June 30, 2018 163,532 90.62 14.8 2,616,899 $ 161.8 The Company made additional open market purchases of 37,032 shares of the Company’s common stock at an aggregate cost of $3.6 million (excluding broker commissions) during the period from July 1, 2018 through July 20, 2018. |
Acquisitions
Acquisitions | 6 Months Ended |
Jun. 30, 2018 | |
Acquisitions | |
Acquisitions | NOTE E—Acquisitions Acquisition of SWH Holdings, Inc. Pursuant to the July 13, 2017 Agreement and Plan of Merger (the “SWH Agreement”), on October 31, 2017 the Company acquired (the “SWH Acquisition”) all of the outstanding equity interests of SWH Holdings, Inc. (“SWH”). SWH is a healthcare company focused on serving complex, high-risk populations, providing Medicare and Medicaid dual-eligible benefits to members in Massachusetts and New York. As consideration for the SWH Acquisition, the Company paid $400.0 million in cash, inclusive of a $10.0 million payment based on SWH’s Medicare plan in Massachusetts receiving a Centers for Medicare & Medicaid Services 2018 Star Rating of at least 4, subject to adjustments as provided in the SWH Agreement. The Company’s estimated fair values of SWH’s assets acquired and liabilities assumed at the date of acquisition are determined based on certain valuations and analyses that have yet to be finalized, and accordingly, the assets acquired and liabilities assumed are subject to adjustment once the analyses are completed. In addition, the amount recognized for deferred tax liabilities may be impacted by the determination of these items. The Company will make appropriate adjustments to the purchase price allocation prior to the completion of the measurement period as required. During the six months ended June 30, 2018, the Company made measurement period adjustments of $7.9 million to increase the goodwill related to the SWH acquisition. The measurement period adjustments were to increase current liabilities. The Company reports the results of operations of SWH in its Healthcare segment . As of June 30, 2018, the Company established a working capital receivable of $0.2 million that was reflected as a reduction to the transaction price. |
General (Policies)
General (Policies) | 6 Months Ended |
Jun. 30, 2018 | |
General. | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The FASB also issued various ASUs which subsequently amended ASU 2014-09. These amendments and ASU 2014-09, collectively known as Accounting Standard Codification 606 (“ASC 606”), were adopted on a modified retrospective basis in the quarter ended March 31, 2018. The Company applied the standard to contracts not completed at the date of initial application. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. For contracts that were modified before January 1, 2018 the Company has not retrospectively restated the contracts for those modifications in accordance with the contract modification guidance, instead the Company reflected the aggregate effect of those modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligation. Given the nature of our arrangements, the Company does not believe the use of this practical expedient had a significant impact on the results of our adoption. A majority of our managed care revenue continues to be recognized over the applicable coverage period on a per member basis for covered members. In addition, a majority of the PBM revenue continues to be recognized as the claims are adjudicated or when the drugs are dispensed. The main impacts of ASC 606 to the Company’s business relate to the timing of revenue recognition in relation to upfront fees in certain PBA contracts, as well as performance incentive, performance guarantee and risk share arrangements. Some of the Company’s PBA contracts contain upfront fees, which under ASC 605 were amortized over the life of the contract. Under ASC 606, these upfront fees constitute a material right and are amortized over the anticipated life of the customer. Certain contracts include performance incentive, performance guarantee and risk share arrangements, which under ASC 605 were recorded based on calculations using the current period’s data. Under ASC 606, the revenues are recognized on a probability weighted approach based on anticipated outcomes for the performance period. In addition, under ASC 606 the accounting for material rights in relation to some of the Company’s government contracts will impact the consolidated balance sheets for interim reporting periods. The cumulative effect of changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09 were as follows (in thousands): Balance at December 31, 2017 Adjustments Due to ASC 606 Balance at January 1, 2018 Assets Other current assets $ 72,323 $ (667) $ 71,656 Total Current Assets 1,483,353 (667) 1,482,686 Deferred income taxes 813 1,335 2,148 Other long-term assets 22,567 (1,333) 21,234 Total Assets 2,957,234 (665) 2,956,569 Liabilities and Stockholders' Equity Accrued liabilities 193,635 (2,182) 191,453 Total Current Liabilities 892,303 (2,182) 890,121 Deferred credits and other long-term liabilities 19,100 5,744 24,844 Total Liabilities 1,680,740 3,562 1,684,302 Retained earnings 1,399,495 (4,227) 1,395,268 Total Stockholders' Equity 1,276,494 (4,227) 1,272,267 Total Liabilities and Stockholders' Equity 2,957,234 (665) 2,956,569 The impact of the adoption of ASC 606 on our consolidated balance sheet as of June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Assets Accounts receivable $ 839,773 $ (17,972) $ 821,801 Other current assets 119,164 (445) 118,719 Total Current Assets 1,668,149 (18,417) 1,649,732 Other long-term assets 30,909 9,199 40,108 Total Assets 3,139,759 (9,218) 3,130,541 Liabilities and Stockholders' Equity Accrued liabilities 268,258 (11,127) 257,131 Other medical liabilities 183,222 50 183,272 Total Current Liabilities 1,023,096 (11,077) 1,012,019 Deferred credits and other long-term liabilities 35,346 (6,835) 28,511 Total Liabilities 1,820,989 (17,912) 1,803,077 Retained earnings 1,420,271 8,694 1,428,965 Total Stockholders' Equity 1,318,770 8,694 1,327,464 Total Liabilities and Stockholders' Equity 3,139,759 (9,218) 3,130,541 The impact of the adoption of ASC 606 on our consolidated income statement for the three months ended June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Managed care and other $ 1,215,340 $ (1,203) $ 1,214,137 PBM 595,583 1,749 597,332 Total net revenue 1,810,923 546 1,811,469 Income before income taxes 18,375 546 18,921 Provision for income taxes 4,824 143 4,967 Net income 13,551 403 13,954 Net income attributable to Magellan 13,551 403 13,954 The impact of the adoption of ASC 606 on our consolidated income statement for the six months ended June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Managed care and other $ 2,435,103 $ (3,955) $ 2,431,148 PBM 1,180,897 8,199 1,189,096 Total net revenue 3,616,000 4,244 3,620,244 Income before income taxes 29,752 4,244 33,996 Provision for income taxes 4,749 1,112 5,861 Net income 25,003 3,132 28,135 Net income attributable to Magellan 25,003 3,132 28,135 In February 2016, the FASB issued ASU No. 2016‑02, “Leases” (“ASU 2016‑02”). This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact this ASU, but believes the effect of this ASU will have a material effect on the Company’s consolidated balance sheets. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This ASU amends the accounting on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 31, 2018. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operation, financial position and cash flows. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in this ASU eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial position and cash flows. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, contingent consideration, stock compensation assumptions, tax contingencies and legal liabilities. In addition, the Company makes significant estimates in relation to revenue recognition under ASC 606 which are explained in more detail in “ Revenue Recognition ” below. Actual results could differ from those estimates. |
Revenue Recognition | Revenue Recognition Virtually all of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue for the three and six months ended June 30, 2018 by major service line, type of customer and timing of revenue recognition (in thousands): Three Months Ended June 30, 2018 Healthcare Pharmacy Management Elimination Total Major Service Lines Commercial Risk-based, non-EAP $ 238,272 $ — $ (114) $ 238,158 EAP risk-based 12,335 — — 12,335 ASO 51,111 8,529 (37) 59,603 Government Risk-based, non-EAP 750,162 — — 750,162 EAP risk-based 78,940 — — 78,940 ASO 24,068 — — 24,068 PBM, including dispensing — 536,131 (47,211) 488,920 Medicare Part D — 106,663 — 106,663 PBA — 33,088 — 33,088 Formulary management — 18,348 — 18,348 Other — 638 — 638 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Type of Customer Government $ 853,170 $ 229,948 $ — $ 1,083,118 Non-government 301,718 473,449 (47,362) 727,805 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Timing of Revenue Recognition Transferred at a point in time $ — $ 642,794 $ (47,211) $ 595,583 Transferred over time 1,154,888 60,603 (151) 1,215,340 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Six Months Ended June 30, 2018 Healthcare Pharmacy Management Elimination Total Major Service Lines Commercial Risk-based, non-EAP $ 472,663 $ — $ (114) $ 472,549 EAP risk-based 24,756 — — 24,756 ASO 103,680 15,829 (182) 119,327 Government Risk-based, non-EAP 1,502,652 — — 1,502,652 EAP risk-based 161,177 — — 161,177 ASO 47,561 — — 47,561 PBM, including dispensing — 1,069,923 (94,095) 975,828 Medicare Part D — 205,069 — 205,069 PBA — 66,634 — 66,634 Formulary management — 38,725 — 38,725 Other — 1,722 — 1,722 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 Type of Customer Government $ 1,711,390 $ 457,997 $ — $ 2,169,387 Non-government 601,099 939,905 (94,391) 1,446,613 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,274,992 $ (94,095) $ 1,180,897 Transferred over time 2,312,489 122,910 (296) 2,435,103 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 Per Member Per Month (“PMPM”) Revenue. Almost all of the Healthcare revenue and a small portion of the Pharmacy Management revenue is paid on a PMPM basis. PMPM revenue is inclusive of revenue from the Company’s risk, EAP and ASO contracts and primarily relates to managed care contracts for services such as the provision of behavioral healthcare, specialty healthcare, pharmacy management, or fully integrated healthcare services. PMPM contracts generally have a term of one year or longer, with the exception of government contracts where the customer can terminate with as little as 30 days’ notice for no significant penalty. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM contracts is entirely variable as it primarily includes per member per month fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for things such as performance incentives, performance guarantees and risk shares. The Company generally estimates the transaction price using an expected value methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue in the month in which members are entitled to service. The remaining transaction price is recognized over the contract period (or portion of the series to which it specifically relates) based upon estimated membership as a measure of progress. Pharmacy Benefit Management Revenue. The Company’s customers for PBM business, including pharmaceutical dispensing operations, are generally comprised of MCOs, employer groups and health plans. PBM relationships generally have an expected term of one year or longer. A master services arrangement (“MSA”) is executed by the Company and the customer, which outlines the terms and conditions of the PBM services to be provided. When a member in the customer’s organization submits a prescription, a claim is created which is presented for approval. The acceptance of each individual claim creates enforceable rights and obligations for each party and represents a separate contract. For each individual claim, the performance obligations are limited to the processing and adjudication of the claim, or dispensing of the products purchased. Generally, the transaction price for PBM services is explicitly listed in each contract and does not represent variable consideration. The Company recognizes PBM revenue, which consists of a negotiated prescription price (ingredient cost plus dispensing fee), co‑payments and any associated administrative fees, when claims are adjudicated or the drugs are shipped. The Company recognizes PBM revenue on a gross basis (i.e. including drug costs and co‑payments) as it is acting as the principal in the arrangement, controls the underlying service, and is contractually obligated to its clients and network pharmacies, which is a primary indicator of gross reporting. In addition, the Company is solely responsible for the claims adjudication process, negotiating the prescription price for the pharmacy, collection of payments from the client for drugs dispensed by the pharmacy, and managing the total prescription drug relationship with the client’s members. If the Company enters into a contract where it is only an administrator, and does not assume any of the risks previously noted, revenue will be recognized on a net basis. For dispensing, at the time of shipment, the earnings process is complete; the obligation of the Company’s customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund. Medicare Part D. The Company is contracted with the Centers for Medicare and Medicaid (“CMS”) as a Prescription Drug Plan (“PDP”) to provide prescription drug benefits to Medicare beneficiaries. The accounting for Medicare Part D revenue is primarily the same as that for PBM, as previously discussed. However, there is certain variable consideration present only in Medicare Part D arrangements. The Company estimates the annual amount of variable consideration using a most likely amount methodology, which is allocated to each reporting period based upon actual utilization as a percentage of estimated utilization for the year. Amounts estimated throughout the year for interim reporting are substantially resolved and fixed as of December 31 st , the end of the plan year. Pharmacy Benefit Administration Revenue. The Company provides Medicaid pharmacy services to states and other government sponsored programs. PBA contracts are generally multi-year arrangements but include language regarding early termination for convenience without material penalty provisions that results in enforceable rights and obligations on a month-to-month basis. In PBA arrangements, the Company is generally paid a fixed fee per month to provide PBA services. In addition, some PBA contracts contain upfront fees that constitute a material right. For contracts without an upfront fee, there is a single performance obligation to stand ready to provide the PBA services required for the contracted period. The Company believes that the customer receives the PBA benefits each day from access to the claims processing activities, and has concluded that a time based measure is appropriate for recognizing PBA revenue. For contracts with an upfront fee, the material right represents an additional performance obligation. Amounts allocated to the material right are initially recorded as a contract liability and recognized as revenue over the anticipated period of benefit of the material right, which generally ranges from 2 to 10 years. Formulary Management Revenue. The Company administers formulary management programs for certain clients through which the Company coordinates the achievement, calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients. Formulary management contracts generally have a term of one year or longer. All formulary management contracts have a single performance obligation that constitutes a series for the provision of rebate services for a drug, with utilization measured and settled on a quarterly basis, for the duration of the arrangement. The Company retains its administrative fee and/or a percentage of rebates that is included in its contract with the client from collecting the rebate from the manufacturer. While the administrative fee and/or the percentage of rebates retained is fixed, there is an unknown quantity of pharmaceutical purchases (utilization) during each quarter, therefore the transaction price itself is variable. The Company uses the expected value methodology to estimate the total rebates earned each quarter based on estimated volumes of pharmaceutical purchases by the Company’s clients during the quarter, as well as historical and/or anticipated retained rebate percentages. The Company does not record as rebate revenue any rebates that are passed through to its clients. In relation to the Company’s PBM business, the Company administers rebate programs through which it receives rebates from pharmaceutical manufacturers that are shared with its customers. The Company recognizes rebates when the Company is entitled to them and when the amounts of the rebates are determinable. The amount recorded for rebates earned by the Company from the pharmaceutical manufacturers is recorded as a reduction of cost of goods sold. Government EAP Risk Based Revenue. The Company has certain contracts with federal customers for the provision of various managed care services, which are classified as government EAP risk based business. These contracts are generally multi-year arrangements. The Company’s federal contracts are reimbursed on either a fixed fee basis or a cost reimbursement basis. The performance obligation on a fixed fee contract is to stand ready to provide the staffing required for the contracted period. For fixed fee contracts, the Company believes the invoiced amount corresponds directly with the value to the customer of the Company’s performance completed to date, therefore the Company is utilizing the “right to invoice” practical expedient, with revenue recognition in the amount for which the Company has the right to invoice. The performance obligation on a cost reimbursement contract is to stand ready to provide the activity or services purchased by the customer, such as the operation of a counseling services group or call center. The performance obligation represents a series for the duration of the arrangement. The reimbursement rate is fixed per the contract, however the level of activity (e.g., number of hours, number of counselors or number of units) is variable. A majority of the Company’s cost reimbursement transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue when the portion of the series for which it relates has been provided (i.e. as the Company provides hours, counselors or units of service). In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the contracts in the Company’s PBM and Part D business, these reporting requirements are not applicable. The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related to unsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. For the Company’s contracts that pertain to these exemptions: (i) the remaining performance obligations primarily relate to the provision of managed healthcare services to the customers’ membership; (ii) the estimated remaining duration of these performance obligations ranges from the remainder of the current calendar year to three years; and (iii) variable consideration for these contracts primarily includes net per member per month fees associated with unspecified membership that fluctuates throughout the contract. Accounts Receivable, Contract Assets and Contract Liabilities Accounts receivable, contract assets and contract liabilities consisted of the following (in thousands, except percentages): January 1, 2018 June 30, 2018 $ Change % Change Accounts receivable $ 679,269 $ 864,674 $ 185,405 Contract assets 8,564 14,339 5,775 Contract liabilities - current 14,299 75,552 61,253 Contract liabilities - long-term 12,303 12,612 309 Accounts receivable, which are included in accounts receivable, other current assets and other long-term assets on the consolidated balance sheets, increased by $185.4 million, mainly due to timing. Contract assets, which are included in other current assets on the consolidated balance sheets, increased by $5.8 million, mainly due to the timing of accrual of certain performance incentives. Contract liabilities – current, which are included in accrued liabilities on the consolidated balance sheets, increased by $61.3 million, mainly due to the timing of receipts related to July 2018 revenues and the timing of material rights generated for some of the Company’s government contracts. Contract liabilities – long-term, which are included in deferred credits and other long-term liabilities on the consolidated balance sheets, increased by $0.3 million, mainly due to receipts for which recognition will be long-term. The Company’s accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. A majority of the Company’s contracts have payment terms in the month of service, or within a few months thereafter. The timing of payments from customers from time to time generate contract assets or contract liabilities, however these amounts are immaterial. Significant Customers Customers exceeding ten percent of the consolidated Company’s net revenues The Company has a contract with the State of Florida to provide integrated healthcare services to Medicaid enrollees in the state of Florida (the “Florida Contract”). The Florida Contract began on February 4, 2014 and extends through December 31, 2018, unless sooner terminated by the parties. The State of Florida has the right to terminate the Florida Contract with cause, as defined, upon 24 hour notice and upon 30 days notice for any reason or no reason at all. The Florida Contract generated net revenues of $300.1 million and $307.9 million for the six months ended June 30, 2017 and 2018, respectively. On July 14, 2017, the State of Florida issued an Invitation to Negotiate for a new contract for its Medicaid managed care program to replace the current contract with the Company and to be effective January 1, 2019. On April 24, 2018 the Company was notified by the Florida Agency for Health Care Administration (“AHCA”) that the Company was not selected to negotiate a new contract to serve as a vendor for its Medicaid managed care program. The Company filed a protest with AHCA. Customers exceeding ten percent of segment net revenues In addition to the Florida Contract, previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the six months ended June 30, 2017 and 2018 (in thousands): Segment Term Date 2017 2018 Healthcare Customer A (1) $ 79,247 $ 356,573 Customer B December 31, 2018 to December 31, 2020 (2) — 330,910 Pharmacy Management Customer C March 31, 2019 184,364 176,650 (1) The Company, along with other participating managed care plans in this state, continues to provide services while a new contract is being finalized . (2) The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above. Concentration of Business The Company also has a significant concentration of business with various counties in the State of Pennsylvania (the “Pennsylvania Counties”) which are part of the Pennsylvania Medicaid program, with members under its contract with CMS and with various agencies and departments of the United States federal government. Net revenues from the Pennsylvania Counties in the aggregate totaled $232.4 million and $275.3 million for the six months ended June 30, 2017 and 2018, respectively. Net revenues from members in relation to its contracts with CMS in aggregate totaled $236.1 million and $205.1 million for the six months ended June 30, 2017 and 2018, respectively. As of December 31, 2017 and June 30, 2018, the Company had $131.5 million and $119.8 million, respectively, in net receivables associated with Medicare Part D from CMS and other parties related to this business. Net revenues from contracts with various agencies and departments of the United States federal government in aggregate totaled $177.5 million and $165.8 million for the six months ended June 30, 2017 and 2018, respectively. The Company’s contracts with customers typically have stated terms of one to three years, and in certain cases contain renewal provisions (at the customer’s option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company’s contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 30 and 180 days) or upon the occurrence of other specified events. In addition, the Company’s contracts with federal, state and local governmental agencies generally are conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made. |
Fair Value Measurements | Fair Value Measurements The Company has certain assets and liabilities that are required to be measured at fair value on a recurring basis. These assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3—Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including the Company’s data. In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s assets and liabilities that are required to be measured at fair value as of December 31, 2017 and June 30, 2018 (in thousands): December 31, 2017 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (1) $ — $ 284,064 $ — $ 284,064 Investments: U.S. Government and agency securities 28,231 — — 28,231 Obligations of government-sponsored enterprises (2) — 22,088 — 22,088 Corporate debt securities — 269,788 — 269,788 Taxable municipal bonds — 5,000 — 5,000 Certificates of deposit — 2,758 — 2,758 Total assets held at fair value $ 28,231 $ 583,698 $ — $ 611,929 Liabilities Contingent consideration $ — $ — $ 8,817 $ 8,817 Total liabilities held at fair value $ — $ — $ 8,817 $ 8,817 June 30, 2018 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (3) $ — $ 215,843 $ — $ 215,843 Investments: U.S. Government and agency securities 52,716 — — 52,716 Obligations of government-sponsored enterprises (2) — 13,026 — 13,026 Corporate debt securities — 345,394 — 345,394 Certificates of deposit — 22,112 — 22,112 Total assets held at fair value $ 52,716 $ 596,375 $ — $ 649,091 Liabilities Contingent consideration $ — $ — $ 9,120 $ 9,120 Total liabilities held at fair value $ — $ — $ 9,120 $ 9,120 (1) Excludes $114.7 million of cash held in bank accounts by the Company. (2) Includes investments in notes issued by the Federal Home Loan Bank, Federal Farm Credit Banks and Federal National Mortgage Association. (3) Excludes $30.3 million of cash held in bank accounts by the Company. For the six months ended June 30, 2018, the Company has not transferred any assets between fair value measurement levels. The carrying values of financial instruments, including accounts receivable, accounts payable and revolving loan borrowings, approximate their fair values due to their short-term maturities. The fair value of the Notes (as defined below) of $389.2 million as of June 30, 2018 was determined based on quoted market prices and would be classified within Level 1 of the fair value hierarchy. The estimated fair value of the Company’s term loan of $336.9 million as of June 30, 2018 was based on current interest rates for similar types of borrowings and is in Level 2 of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future. All of the Company’s investments are classified as “available-for-sale” and are carried at fair value. As of the balance sheet date, the fair value of contingent consideration is determined based on probabilities of payment, projected payment dates, discount rates, projected operating income, member engagement and new contract execution. The Company used a probability weighted discounted cash flow method to arrive at the fair value of the contingent consideration. As the fair value measurement for the contingent consideration is based on inputs not observed in the market, these measurements are classified as Level 3 measurements as defined by fair value measurement guidance. The unobservable inputs used in the fair value measurement include the discount rate, probabilities of payment and projected payment dates. As of December 31, 2017 and June 30, 2018, the Company estimated undiscounted future contingent payments of $9.9 million and $9.8 million, respectively. As of June 30, 2018, the aggregate amounts and projected dates of future potential contingent consideration payments were $7.2 million in 2018 and $2.6 million in 2020. As of December 31, 2017, the fair value of the short-term and long-term contingent consideration was $6.9 million and $1.9 million, respectively, and is included in short-term contingent consideration and long-term contingent consideration, respectively, in the consolidated balance sheets. As of June 30, 2018, the fair value of the short-term and long-term contingent consideration was $7.1 million and $2.0 million, respectively, and is included in short-term contingent consideration and long-term contingent consideration, respectively, in the consolidated balance sheets. The change in the fair value of the contingent consideration was $0.3 million and $0.2 million for the three and six months ended June 30, 2017, respectively, and $0.1 million and $0.3 million for the three and six months ended June 30, 2018, respectively, which were recorded as direct service costs and other operating expenses in the consolidated statements of income. The increases during 2018 were mainly a result of changes in present value. The following table summarizes the Company’s liability for contingent consideration for the six months ended June 30, 2018 (in thousands): June 30, 2018 Balance as of beginning of period $ 8,817 Changes in fair value 303 Payments — Balance as of end of period $ 9,120 |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash equivalents are short-term, highly liquid interest-bearing investments with maturity dates of three months or less when purchased, consisting primarily of money market instruments. At June 30, 2018, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries of $115.8 million are included in cash and cash equivalents. |
Investments | Investments If a debt security is in an unrealized loss position and the Company has the intent to sell the debt security, or it is more likely than not that the Company will have to sell the debt security before recovery of its amortized cost basis, the decline in value is deemed to be other‑than‑temporary and is recorded to other‑than‑temporary impairment losses recognized in income in the consolidated statements of income. For impaired debt securities that the Company does not intend to sell or it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other‑than‑temporary impairment is recognized in other‑than‑temporary impairment losses recognized in income in the consolidated statements of income and the non‑credit component of the other‑than‑temporary impairment is recognized in other comprehensive income. As of December 31, 2017 and June 30, 2018, there were no material unrealized losses that the Company determined to be other‑than‑temporary. No realized gains or losses were recorded for the six months ended June 30, 2017 or 2018. The following is a summary of short‑term and long‑term investments at December 31, 2017 and June 30, 2018 (in thousands): December 31, 2017 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ 28,313 $ — $ (82) $ 28,231 Obligations of government-sponsored enterprises (1) 22,139 — (51) 22,088 Corporate debt securities 270,154 1 (367) 269,788 Taxable municipal bonds 5,000 — — 5,000 Certificates of deposit 2,758 — — 2,758 Total investments at December 31, 2017 $ 328,364 $ 1 $ (500) $ 327,865 June 30, 2018 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ 52,838 $ — $ (122) $ 52,716 Obligations of government-sponsored enterprises (1) 13,079 — (53) 13,026 Corporate debt securities 345,965 5 (576) 345,394 Certificates of deposit 22,112 — — 22,112 Total investments at June 30, 2018 $ 433,994 $ 5 $ (751) $ 433,248 (1) Includes investments in notes issued by the Federal Home Loan Bank, Federal National Mortgage Association and Federal Farm Credit Banks. The maturity dates of the Company’s investments as of June 30, 2018 are summarized below (in thousands): Amortized Estimated Cost Fair Value 2018 $ 205,329 $ 205,104 2019 228,665 228,144 Total investments at June 30, 2018 $ 433,994 $ 433,248 |
Income Taxes | Income Taxes The Company’s effective income tax rates were 43.8 percent and 16.0 percent for the six months ended June 30, 2017 and 2018, respectively. These rates differ from the federal statutory income tax rate primarily due to state income taxes, permanent differences between book and tax income, and changes to recorded tax contingencies and valuation allowances. The Company also accrues interest and penalties related to uncertain tax positions in its provision for income taxes. The effective income tax rate for the six months ended June 30, 2018 is lower than the effective rate for the six months ended June 30, 2017 primarily due to the reduction of the U.S. corporate income tax rate from 35 percent to 21 percent and more significant tax deductions in 2018 in excess of recognized stock compensation expense. The 2018 decreases attributable to the statutory rate reduction and stock compensation expense outweighed the rate increase related to the non-deductible health insurer fee that was reinstated in 2018 . The Company files a consolidated federal income tax return with its eighty-percent or more controlled subsidiaries. The Company previously filed separate consolidated federal income tax returns for AlphaCare of New York, Inc. (“AlphaCare”) and its parent, AlphaCare Holdings, Inc. (“AlphaCare Holdings”). During 2017, AlphaCare and AlphaCare Holdings became members of the Magellan federal consolidated group. The Company and its subsidiaries also file income tax returns in various state and local jurisdictions. With few exceptions, the Company is no longer subject to federal, state or local income tax assessments for years ended prior to 2014. During 2018, the Internal Revenue Service (“IRS”) began examinations of the following federal consolidated income tax returns: (i) the Company for the year ended December 31, 2015, (ii) SWH Holdings, Inc. for the year ended December 31, 2016, and (iii) AlphaCare Holdings for the year ended December 31, 2016. Although the IRS has made no tax assessments on any of these returns, the examinations could lead to proposed adjustments to the reported tax liabilities. Under the terms of the SWH Holdings, Inc. Agreement and Plan of Merger, the previous owners of SWH Holdings, Inc. provided the Company with an indemnification with respect to any such pre-acquisition period tax liabilities. The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in 2017 and included a number of changes impacting the Company, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent that was effective January 1, 2018. The legislation also provided for the acceleration of depreciation on certain assets placed in service after September 27, 2017, as well as prospective changes which began in 2018, including additional limitations on the deduction of executive compensation. Staff Accounting Bulletin No. 118 allows registrants to include reasonable estimates as provisional amounts and provides a measurement period by which the accounting must be completed. The measurement period ends when a registrant has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740 but under no circumstances is the measurement period to extend beyond one year from the enactment date (i.e. December 22, 2018). The Company did not identify any items for which a reasonable estimate of the income tax effects of the Tax Act could not be determined as of December 31, 2017. The Company included the provisional tax impacts related to the remeasurement of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017. No changes were made to those provisional balances in the current year. The Company will continue to analyze the Tax Act and additional technical and interpretive guidance on the Tax Act from the government and will complete its accounting no later than December 22, 2018. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. Additionally, any changes to the tax basis for temporary differences between the estimates in these statements and the 2017 federal return when filed by the Company will result in a corresponding adjustment to the remeasurement of deferred taxes as of the enactment date of the Tax Act. Any such adjustments will be recorded to tax expense in the quarter of 2018 when the analysis is complete. |
Net Operating Loss Carryforwards | Net Operating Loss Carryforwards The Company has $38.8 million of federal net operating loss carryforwards (“NOLs”) available to reduce consolidated taxable income in 2018 and subsequent years. These NOLs (including $37.6 million incurred by AlphaCare prior to its membership in the Magellan consolidated group) will expire in 2018 through 2036 if not used and are subject to examination and adjustment by the IRS. In addition, the Company’s utilization of these NOLs is subject to limitations under the Internal Revenue Code as to the timing and use. At this time, the Company does not believe these limitations will restrict the Company’s ability to use any federal NOLs before they expire. The Company and its subsidiaries also have $93.7 million of NOLs available to reduce state and local taxable income at certain subsidiaries in 2018 and subsequent years. These NOLs will expire in 2018 through 2037 if not used and are subject to examination and adjustment by the respective tax authorities. In addition, the Company’s utilization of certain of these NOLs is subject to limitations as to the timing and use. At this time, other than those considered in determining the valuation allowances discussed below, the Company does not believe these limitations will restrict the Company’s ability to use any of these state and local NOLs before they expire. Deferred tax assets as of December 31, 2017 and June 30, 2018 are shown net of valuation allowances of $2.4 million. These valuation allowances mostly relate to uncertainties regarding the eventual realization of certain state NOLs. Reversals of valuation allowances are recorded in the period they occur, typically as reductions to income tax expense. Determination of the amount of deferred tax assets considered realizable requires significant judgment and estimation regarding the forecasts of future taxable income which are consistent with the plans and estimates the Company uses to manage the underlying businesses. Although consideration is also given to potential tax planning strategies which might be available to improve the realization of deferred tax assets, none were identified which were both prudent and reasonable. The Company believes taxable income expected to be generated in the future will be sufficient to support realization of the Company’s deferred tax assets, as reduced by valuation allowances. This determination is based upon earnings history and future earnings expectations. |
Health Care Reform | Health Care Reform The Patient Protection and the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), imposes a mandatory annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The Company has obtained rate adjustments from customers which the Company expects will cover the direct costs of these fees and the impact from non‑deductibility of such fees for federal and state income tax purposes. To the extent the Company has such a customer that does not renew, there may be some impact due to taxes paid where the timing and amount of recoupment of these additional costs is uncertain. In the event the Company is unable to obtain rate adjustments to cover the financial impact of the annual fee, the fee may have a material impact on the Company. The Consolidated Appropriations Act of 2016 imposed a one-year moratorium on the Patient Protection and Affordable Care Act health insurer fee (“HIF”), suspending its application for 2017. The HIF fee went back into effect for 2018, however, on January 23, 2018 the United States Congress passed the Continuing Resolution which imposed another one-year moratorium on the HIF fee, suspending its application for 2019. For 2018 the HIF fee is expected to be $29.9 million which is included in accrued liabilities in the consolidated balance sheets. |
Stock Compensation | Sto ck Compensation At December 31, 2017 and June 30, 2018, the Company had equity‑based employee incentive plans, which are described more fully in Note 6 in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2017, which was filed with the SEC on March 1, 2018. The Company recorded stock compensation expense of $11.4 million and $21.5 million for the three and six months ended June 30, 2017, respectively, and $10.4 million and $18.1 million for the three and six months ended June 30, 2018, respectively. Stock compensation expense recognized in the consolidated statements of income for the three and six months ended June 30, 2017 and 2018 has been reduced for forfeitures, estimated at between zero and four percent for all periods. The weighted average grant date fair value of all stock options granted during the six months ended June 30, 2018 was $25.67 as estimated using the Black‑Scholes‑Merton option pricing model, which also assumed an expected volatility of 28.21 percent based on the historical volatility of the Company’s stock price. For the six months ended June 30, 2017 and 2018, the benefit of tax deductions in excess of recognized stock compensation expense (net of deficiencies) was $1.0 million and $4.9 million, respectively, which were reported as a reduction to income tax expense. Summarized information related to the Company’s stock options for the six months ended June 30, 2018 is as follows: 2018 Weighted Average Exercise Options Price Outstanding, beginning of period 2,458,237 $ 61.50 Granted 425,456 99.02 Forfeited (44,651) 74.78 Exercised (379,589) 56.58 Outstanding, end of period 2,459,453 $ 68.51 Vested and expected to vest at end of period 2,440,741 $ 68.38 Exercisable, end of period 1,483,866 $ 59.99 All of the Company’s options granted during the six months ended June 30, 2018 vest ratably on each anniversary date over the three years subsequent to grant and have a ten year life. Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the six months ended June 30, 2018 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 31,102 $ 68.00 Awarded 11,795 89.05 Vested (31,102) 68.00 Forfeited — — Outstanding, ending of period 11,795 89.05 Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the six months ended June 30, 2018 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 163,289 $ 66.46 Awarded 109,348 99.45 Vested (82,207) 65.54 Forfeited (13,082) 80.95 Outstanding, ending of period 177,348 86.16 The vesting period for RSAs ranges from 12 months to 24 months. In general, RSUs vest ratably on each anniversary over the three years subsequent to grant. Summarized information related to the Company’s nonvested restricted performance stock units (“PSUs”) for the six months ended June 30, 2018 is as follows: 2018 Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 202,315 $ Awarded 80,502 Vested (33,592) Forfeited (1,865) Outstanding, end of period 247,360 The weighted average estimated fair value of the PSUs granted in the six months ended June 30, 2018 was $141.61, which was derived from a Monte Carlo simulation. Significant assumptions utilized in estimating the value of the awards granted include an expected dividend yield of 0%, a risk free rate of 2.37%, and expected volatility of 20% to 82% (average of 35%). The PSUs granted in the six months ended June 30, 2018, will entitle the grantee to receive a number of shares of the Company’s common stock determined over a three-year performance period ending on December 31, 2020 and vesting on March 5, 2021, the settlement date, provided the grantee remains in the service of the Company on the settlement date. The Company expenses the cost of these awards ratably over the requisite service period. The number of shares for which the PSUs will be settled is calculated as a percentage of the award target and will depend on the Company’s total shareholder return (as defined below), expressed as a percentile ranking of the Company’s total shareholder return as compared to the Company’s peer group (as defined below). The number of shares for which the PSUs will be settled varies from zero to 200 percent of the shares specified in the grant. Total shareholder return is determined by dividing the average share value of the Company’s common stock over the 30 trading days preceding January 1, 2021 by the average share value of the Company’s common stock over the 30 trading days beginning on January 1, 2018, with a deemed reinvestment of any dividends declared during the performance period. The Company’s peer group includes 49 companies which comprise the S&P Health Care Services Industry Index, which was selected by the compensation committee of the Company’s board of directors and includes a range of healthcare companies operating in several business segments. |
Long Term Debt and Capital Lease Obligations | Long Term Debt and Capital Lease Obligations Senior Notes On September 22, 2017, the Company completed the public offering of $400.0 million aggregate principal amount of its 4.400% Senior Notes due 2024 (the “Notes”). The Notes are governed by an indenture, dated as of September 22, 2017 (the “Base Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee, as supplemented by a first supplemental indenture, dated as of September 22, 2017 (the “First Supplemental Indenture” together, with the Base Indenture, the “Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee. The Notes were issued at a discount and had a carrying value of $399.3 million as of December 31, 2017 and June 30, 2018. The Notes bear interest payable semiannually in cash in arrears on March 22 and September 22 of each year, commencing on March 22, 2018, which rate is subject to an interest rate adjustment upon the occurrence of certain credit rating events. The Notes mature on September 22, 2024. The Indenture provides that the Notes are redeemable at the Company’s option, in whole or in part, at any time on or after July 22, 2024, at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date. The Indenture also contains certain covenants which restrict the Company’s ability to, among other things, create liens on its and its subsidiaries’ assets; engage in sale and lease-back transactions; and engage in a consolidation, merger or sale of assets. Credit Agreement On September 22, 2017, the Company entered into a credit agreement with various lenders that provides for a $400.0 million senior unsecured revolving credit facility and a $350.0 million senior unsecured term loan facility to the Company, as the borrower (the “2017 Credit Agreement”). The 2017 Credit Agreement is scheduled to mature on September 22, 2022. Under the 2017 Credit Agreement, the annual interest rate on the loan borrowing is equal to (i) in the case of base rate loans, the sum of an initial borrowing margin of 0.500 percent plus the higher of the prime rate, one-half of one percent in excess of the overnight “federal funds” rate, or the Eurodollar rate for one month plus 1.000 percent, or (ii) in the case of Eurodollar rate loans, the sum of an initial borrowing margin of 1.500 percent plus the Eurodollar rate for the selected interest period. The borrowing margin is subject to adjustment based on the Company’s debt rating as provided by certain rating agencies. The Company has the option to borrow in base rate loans or Eurodollar rate loans at its discretion. The commitment commission on the revolving credit facility under the 2017 Credit Agreement is 0.200 percent of the unused revolving credit commitment, which rate shall be subject to adjustment based on the Company’s debt rating as provided by certain rating agencies. For the six months ended June 30, 2018, the weighted average interest rate was approximately 3.392 percent. As of June 30, 2018, the contractual maturities of the term loan under the 2017 Credit Agreement were as follows: 2018—$8.8 million; 2019—$17.5 million; 2020—$17.5 million; 2021—$17.5 million; and 2022—$275.6 million. Due to the timing of working capital needs, the Company will periodically borrow from the revolving loan under the 2017 Credit Agreement. At December 31, 2017 and June 30, 2018, the Company had revolving loan borrowings of $92.5 million and $70.0 million, respectively. The Company had $17.6 million of letters of credit outstanding at June 30, 2018 under the 2017 Credit Agreement. At June 30, 2018, the Company had a borrowing capacity of $312.4 million under the 2017 Credit Agreement. Included in long-term debt and capital lease obligations are deferred loan and bond issuance costs as of December 31, 2017 and June 30, 2018 of $6.6 million and $6.0 million, respectively. Letter of Credit Agreement On August 22, 2017, the Company entered into a Continuing Agreement for Standby Letters of Credit with The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), as issuer (the “L/C Agreement”), under which BTMU, at its sole discretion, may provide stand-by letter of credit to the Company. The Company had letters of credit outstanding under the L/C Agreement as of December 31, 2017 and June 30, 2018 of $26.5 million and $48.5 million, respectively. Capital Lease Obligations There were $22.9 million and $24.9 million of capital lease obligations at December 31, 2017 and June 30, 2018, respectively. The Company’s capital lease obligations represent amounts due under leases for certain properties, computer software (acquired prior to the prospective adoption of ASU 2015-05 on January 1, 2016) and equipment. |
General (Tables)
General (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
General | |
Summary of impacts of adoption of ASC 606 | The cumulative effect of changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09 were as follows (in thousands): Balance at December 31, 2017 Adjustments Due to ASC 606 Balance at January 1, 2018 Assets Other current assets $ 72,323 $ (667) $ 71,656 Total Current Assets 1,483,353 (667) 1,482,686 Deferred income taxes 813 1,335 2,148 Other long-term assets 22,567 (1,333) 21,234 Total Assets 2,957,234 (665) 2,956,569 Liabilities and Stockholders' Equity Accrued liabilities 193,635 (2,182) 191,453 Total Current Liabilities 892,303 (2,182) 890,121 Deferred credits and other long-term liabilities 19,100 5,744 24,844 Total Liabilities 1,680,740 3,562 1,684,302 Retained earnings 1,399,495 (4,227) 1,395,268 Total Stockholders' Equity 1,276,494 (4,227) 1,272,267 Total Liabilities and Stockholders' Equity 2,957,234 (665) 2,956,569 The impact of the adoption of ASC 606 on our consolidated balance sheet as of June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Assets Accounts receivable $ 839,773 $ (17,972) $ 821,801 Other current assets 119,164 (445) 118,719 Total Current Assets 1,668,149 (18,417) 1,649,732 Other long-term assets 30,909 9,199 40,108 Total Assets 3,139,759 (9,218) 3,130,541 Liabilities and Stockholders' Equity Accrued liabilities 268,258 (11,127) 257,131 Other medical liabilities 183,222 50 183,272 Total Current Liabilities 1,023,096 (11,077) 1,012,019 Deferred credits and other long-term liabilities 35,346 (6,835) 28,511 Total Liabilities 1,820,989 (17,912) 1,803,077 Retained earnings 1,420,271 8,694 1,428,965 Total Stockholders' Equity 1,318,770 8,694 1,327,464 Total Liabilities and Stockholders' Equity 3,139,759 (9,218) 3,130,541 The impact of the adoption of ASC 606 on our consolidated income statement for the three months ended June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Managed care and other $ 1,215,340 $ (1,203) $ 1,214,137 PBM 595,583 1,749 597,332 Total net revenue 1,810,923 546 1,811,469 Income before income taxes 18,375 546 18,921 Provision for income taxes 4,824 143 4,967 Net income 13,551 403 13,954 Net income attributable to Magellan 13,551 403 13,954 The impact of the adoption of ASC 606 on our consolidated income statement for the six months ended June 30, 2018 was as follows (in thousands): As Reported Adjustments Balance Without ASC 606 Adoption Managed care and other $ 2,435,103 $ (3,955) $ 2,431,148 PBM 1,180,897 8,199 1,189,096 Total net revenue 3,616,000 4,244 3,620,244 Income before income taxes 29,752 4,244 33,996 Provision for income taxes 4,749 1,112 5,861 Net income 25,003 3,132 28,135 Net income attributable to Magellan 25,003 3,132 28,135 |
Schedule of disaggregation of revenue by major service line, type of customer and timing of revenue recognition | The following tables disaggregate our revenue for the three and six months ended June 30, 2018 by major service line, type of customer and timing of revenue recognition (in thousands): Three Months Ended June 30, 2018 Healthcare Pharmacy Management Elimination Total Major Service Lines Commercial Risk-based, non-EAP $ 238,272 $ — $ (114) $ 238,158 EAP risk-based 12,335 — — 12,335 ASO 51,111 8,529 (37) 59,603 Government Risk-based, non-EAP 750,162 — — 750,162 EAP risk-based 78,940 — — 78,940 ASO 24,068 — — 24,068 PBM, including dispensing — 536,131 (47,211) 488,920 Medicare Part D — 106,663 — 106,663 PBA — 33,088 — 33,088 Formulary management — 18,348 — 18,348 Other — 638 — 638 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Type of Customer Government $ 853,170 $ 229,948 $ — $ 1,083,118 Non-government 301,718 473,449 (47,362) 727,805 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Timing of Revenue Recognition Transferred at a point in time $ — $ 642,794 $ (47,211) $ 595,583 Transferred over time 1,154,888 60,603 (151) 1,215,340 Total net revenue $ 1,154,888 $ 703,397 $ (47,362) $ 1,810,923 Six Months Ended June 30, 2018 Healthcare Pharmacy Management Elimination Total Major Service Lines Commercial Risk-based, non-EAP $ 472,663 $ — $ (114) $ 472,549 EAP risk-based 24,756 — — 24,756 ASO 103,680 15,829 (182) 119,327 Government Risk-based, non-EAP 1,502,652 — — 1,502,652 EAP risk-based 161,177 — — 161,177 ASO 47,561 — — 47,561 PBM, including dispensing — 1,069,923 (94,095) 975,828 Medicare Part D — 205,069 — 205,069 PBA — 66,634 — 66,634 Formulary management — 38,725 — 38,725 Other — 1,722 — 1,722 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 Type of Customer Government $ 1,711,390 $ 457,997 $ — $ 2,169,387 Non-government 601,099 939,905 (94,391) 1,446,613 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,274,992 $ (94,095) $ 1,180,897 Transferred over time 2,312,489 122,910 (296) 2,435,103 Total net revenue $ 2,312,489 $ 1,397,902 $ (94,391) $ 3,616,000 |
Schedule of accounts receivable, contract assets and contract liabilities | January 1, 2018 June 30, 2018 $ Change % Change Accounts receivable $ 679,269 $ 864,674 $ 185,405 Contract assets 8,564 14,339 5,775 Contract liabilities - current 14,299 75,552 61,253 Contract liabilities - long-term 12,303 12,612 309 |
Schedule of customers generating in excess of ten percent of net revenues for respective segment | Segment Term Date 2017 2018 Healthcare Customer A (1) $ 79,247 $ 356,573 Customer B December 31, 2018 to December 31, 2020 (2) — 330,910 Pharmacy Management Customer C March 31, 2019 184,364 176,650 (1) The Company, along with other participating managed care plans in this state, continues to provide services while a new contract is being finalized . The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above. |
Schedule of fair value of financial assets and liabilities | In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s assets and liabilities that are required to be measured at fair value as of December 31, 2017 and June 30, 2018 (in thousands): December 31, 2017 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (1) $ — $ 284,064 $ — $ 284,064 Investments: U.S. Government and agency securities 28,231 — — 28,231 Obligations of government-sponsored enterprises (2) — 22,088 — 22,088 Corporate debt securities — 269,788 — 269,788 Taxable municipal bonds — 5,000 — 5,000 Certificates of deposit — 2,758 — 2,758 Total assets held at fair value $ 28,231 $ 583,698 $ — $ 611,929 Liabilities Contingent consideration $ — $ — $ 8,817 $ 8,817 Total liabilities held at fair value $ — $ — $ 8,817 $ 8,817 June 30, 2018 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (3) $ — $ 215,843 $ — $ 215,843 Investments: U.S. Government and agency securities 52,716 — — 52,716 Obligations of government-sponsored enterprises (2) — 13,026 — 13,026 Corporate debt securities — 345,394 — 345,394 Certificates of deposit — 22,112 — 22,112 Total assets held at fair value $ 52,716 $ 596,375 $ — $ 649,091 Liabilities Contingent consideration $ — $ — $ 9,120 $ 9,120 Total liabilities held at fair value $ — $ — $ 9,120 $ 9,120 (1) Excludes $114.7 million of cash held in bank accounts by the Company. (2) Includes investments in notes issued by the Federal Home Loan Bank, Federal Farm Credit Banks and Federal National Mortgage Association. (3) Excludes $30.3 million of cash held in bank accounts by the Company. |
Summary of the Company's liability for contingent consideration | The following table summarizes the Company’s liability for contingent consideration for the six months ended June 30, 2018 (in thousands): June 30, 2018 Balance as of beginning of period $ 8,817 Changes in fair value 303 Payments — Balance as of end of period $ 9,120 |
Summary of short-term and long-term investments | The following is a summary of short‑term and long‑term investments at December 31, 2017 and June 30, 2018 (in thousands): December 31, 2017 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ 28,313 $ — $ (82) $ 28,231 Obligations of government-sponsored enterprises (1) 22,139 — (51) 22,088 Corporate debt securities 270,154 1 (367) 269,788 Taxable municipal bonds 5,000 — — 5,000 Certificates of deposit 2,758 — — 2,758 Total investments at December 31, 2017 $ 328,364 $ 1 $ (500) $ 327,865 June 30, 2018 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ 52,838 $ — $ (122) $ 52,716 Obligations of government-sponsored enterprises (1) 13,079 — (53) 13,026 Corporate debt securities 345,965 5 (576) 345,394 Certificates of deposit 22,112 — — 22,112 Total investments at June 30, 2018 $ 433,994 $ 5 $ (751) $ 433,248 (1) Includes investments in notes issued by the Federal Home Loan Bank, Federal National Mortgage Association and Federal Farm Credit Banks. |
Summary of maturity dates of investments | The maturity dates of the Company’s investments as of June 30, 2018 are summarized below (in thousands): Amortized Estimated Cost Fair Value 2018 $ 205,329 $ 205,104 2019 228,665 228,144 Total investments at June 30, 2018 $ 433,994 $ 433,248 |
Schedule of stock option activity | Summarized information related to the Company’s stock options for the six months ended June 30, 2018 is as follows: 2018 Weighted Average Exercise Options Price Outstanding, beginning of period 2,458,237 $ 61.50 Granted 425,456 99.02 Forfeited (44,651) 74.78 Exercised (379,589) 56.58 Outstanding, end of period 2,459,453 $ 68.51 Vested and expected to vest at end of period 2,440,741 $ 68.38 Exercisable, end of period 1,483,866 $ 59.99 |
Schedule of nonvested restricted stock award activity | Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the six months ended June 30, 2018 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 31,102 $ 68.00 Awarded 11,795 89.05 Vested (31,102) 68.00 Forfeited — — Outstanding, ending of period 11,795 89.05 |
Schedule of nonvested restricted stock units | Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the six months ended June 30, 2018 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 163,289 $ 66.46 Awarded 109,348 99.45 Vested (82,207) 65.54 Forfeited (13,082) 80.95 Outstanding, ending of period 177,348 86.16 |
Schedule of nonvested restricted performance stock units | Summarized information related to the Company’s nonvested restricted performance stock units (“PSUs”) for the six months ended June 30, 2018 is as follows: 2018 Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 202,315 $ Awarded 80,502 Vested (33,592) Forfeited (1,865) Outstanding, end of period 247,360 |
Net Income per Common Share A16
Net Income per Common Share Attributable to Magellan Health, Inc. (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Net Income per Common Share Attributable to Magellan Health, Inc. | |
Schedule of computation of basic and diluted earnings per share | The following table reconciles income attributable to common shareholders (numerator) and shares (denominator) used in the computations of net income per share attributable to common shareholders (in thousands, except per share data) for the three and six months ended June 30: Three Months Ended Six Months Ended June 30, June 30, 2017 2018 2017 2018 Numerator: Net income attributable to Magellan $ 5,500 $ 13,551 $ 23,247 $ 25,003 Denominator: Weighted average number of common shares outstanding—basic 23,108 24,569 23,060 24,460 Common stock equivalents—stock options 399 669 436 738 Common stock equivalents—RSAs 439 33 421 28 Common stock equivalents—RSUs 30 23 56 50 Common stock equivalents—PSUs 61 111 62 232 Common stock equivalents—employee stock purchase plan 1 2 2 2 Weighted average number of common shares outstanding—diluted 24,038 25,407 24,037 25,510 Net income attributable to Magellan per common share—basic $ 0.24 $ 0.55 $ 1.01 $ 1.02 Net income attributable to Magellan per common share—diluted $ 0.23 $ 0.53 $ 0.97 $ 0.98 |
Business Segment Information (T
Business Segment Information (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Business Segment Information | |
Schedule of operating results by business segment | The following tables summarize, for the periods indicated, operating results by business segment (in thousands): Corporate Pharmacy and Healthcare Management Elimination Consolidated Three Months Ended June 30, 2017 Managed care and other revenue $ 755,270 $ 66,659 $ (230) $ 821,699 PBM revenue — 631,932 (34,492) 597,440 Cost of care (583,264) — — (583,264) Cost of goods sold — (595,446) 33,091 (562,355) Direct service costs and other (145,914) (74,953) (10,505) (231,372) Stock compensation expense (1) 3,106 5,684 2,581 11,371 Changes in fair value of contingent consideration (1) 252 — — 252 Less: non-controlling interest segment loss (2) (568) — (1) (569) Segment profit (loss) $ 30,018 $ 33,876 $ (9,554) $ 54,340 Corporate Pharmacy and Healthcare Management Elimination Consolidated Three Months Ended June 30, 2018 Managed care and other revenue $ 1,154,888 $ 60,603 $ (151) $ 1,215,340 PBM revenue — 642,794 (47,211) 595,583 Cost of care (935,814) — — (935,814) Cost of goods sold — (603,951) 45,532 (558,419) Direct service costs and other (177,990) (70,941) (10,221) (259,152) Stock compensation expense (1) 2,742 1,408 6,289 10,439 Changes in fair value of contingent consideration (1) 70 — — 70 Segment profit (loss) $ 43,896 $ 29,913 $ (5,762) $ 68,047 Corporate Pharmacy and Healthcare Management Elimination Consolidated Six Months Ended June 30, 2017 Managed care and other revenue $ 1,420,646 $ 130,839 $ (446) $ 1,551,039 PBM revenue — 1,238,678 (64,955) 1,173,723 Cost of care (1,065,318) — — (1,065,318) Cost of goods sold — (1,167,283) 62,295 (1,104,988) Direct service costs and other (284,882) (150,806) (17,170) (452,858) Stock compensation expense (1) 5,765 11,414 4,332 21,511 Changes in fair value of contingent consideration (1) 203 — — 203 Less: non-controlling interest segment profit (loss) (2) (845) — (2) (847) Segment profit (loss) $ 77,259 $ 62,842 $ (15,942) $ 124,159 Corporate Pharmacy and Healthcare Management Elimination Consolidated Six Months Ended June 30, 2018 Managed care and other revenue $ 2,312,489 $ 122,910 $ (296) $ 2,435,103 PBM revenue — 1,274,992 (94,095) 1,180,897 Cost of care (1,864,475) — — (1,864,475) Cost of goods sold — (1,208,864) 90,780 (1,118,084) Direct service costs and other (364,236) (146,527) (17,466) (528,229) Stock compensation expense (1) 5,692 2,893 9,500 18,085 Changes in fair value of contingent consideration (1) 303 — — 303 Segment profit (loss) $ 89,773 $ 45,404 $ (11,577) $ 123,600 (1) Stock compensation expense, changes in the fair value of contingent consideration recorded in relation to acquisitions and impairment of intangible assets are included in direct service costs and other operating expenses; however, these amounts are excluded from the computation of Segment Profit. (2) The non‑controlling portion of AlphaCare’s segment loss is excluded from the computation of Segment Profit. |
Schedule of reconciliation of Segment Profit to income before income taxes | The following table reconciles income before income taxes to Segment Profit (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2017 2018 2017 2018 Income before income taxes $ 10,588 $ 18,375 $ 39,863 $ 29,752 Stock compensation expense 11,371 10,439 21,511 18,085 Changes in fair value of contingent consideration 252 70 203 303 Non-controlling interest segment loss 569 — 847 — Depreciation and amortization 27,731 33,848 54,707 64,255 Interest expense 4,900 8,678 9,048 17,044 Interest and other income (1,071) (3,363) (2,020) (5,839) Segment Profit $ 54,340 $ 68,047 $ 124,159 $ 123,600 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
October 2015 Share Repurchase Program | |
Schedule of stock repurchases made | Pursuant to the 2015 Stock Repurchase Program, the Company made purchases as follows (aggregate cost excludes broker commissions and is reflected in millions): Total Number Average of Shares Price Paid Aggregate Period Purchased per Share Cost October 26, 2015 - December 31, 2015 345,044 $ 53.46 $ 18.4 January 1, 2016 - December 31, 2016 1,828,183 58.40 106.8 January 1, 2017 - December 31, 2017 280,140 77.67 21.8 January 1, 2018 - June 30, 2018 163,532 90.62 14.8 2,616,899 $ 161.8 |
General _ Business Overview (De
General – Business Overview (Details) | 6 Months Ended |
Jun. 30, 2018segment | |
Operating results by business segment | |
Number of segments | 3 |
Healthcare | |
Operating results by business segment | |
Number of reporting units | 2 |
General _ Cumulative Effect of
General – Cumulative Effect of Changes for Adoption of ASU 2014-09 (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 |
Assets | |||
Other current assets | $ 119,164 | $ 71,656 | $ 72,323 |
Total Current Assets | 1,668,149 | 1,482,686 | 1,483,353 |
Deferred income taxes | 1,554 | 2,148 | 813 |
Other long-term assets | 30,909 | 21,234 | 22,567 |
Total Assets | 3,139,759 | 2,956,569 | 2,957,234 |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Accrued liabilities | 268,258 | 191,453 | 193,635 |
Total Current Liabilities | 1,023,096 | 890,121 | 892,303 |
Deferred credits and other long-term liabilities | 35,346 | 24,844 | 19,100 |
Total Liabilities | 1,820,989 | 1,684,302 | 1,680,740 |
Retained earnings | 1,420,271 | 1,395,268 | 1,399,495 |
Total Stockholders' Equity | 1,318,770 | 1,272,267 | 1,276,494 |
Total Liabilities and Stockholders' Equity | 3,139,759 | 2,956,569 | $ 2,957,234 |
Adjustments | ASU 2014-09 | |||
Assets | |||
Other current assets | (445) | (667) | |
Total Current Assets | (18,417) | (667) | |
Deferred income taxes | 1,335 | ||
Other long-term assets | 9,199 | (1,333) | |
Total Assets | (9,218) | (665) | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Accrued liabilities | (11,127) | (2,182) | |
Total Current Liabilities | (11,077) | (2,182) | |
Deferred credits and other long-term liabilities | (6,835) | 5,744 | |
Total Liabilities | (17,912) | 3,562 | |
Retained earnings | 8,694 | (4,227) | |
Total Stockholders' Equity | 8,694 | (4,227) | |
Total Liabilities and Stockholders' Equity | $ (9,218) | $ (665) |
General _ Impact of Adoption of
General – Impact of Adoption of ASC 606 on Consolidated Balance Sheet (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 |
Assets | |||
Accounts receivable | $ 839,773 | $ 660,775 | |
Other current assets | 119,164 | $ 71,656 | 72,323 |
Total Current Assets | 1,668,149 | 1,482,686 | 1,483,353 |
Other long-term assets | 30,909 | 21,234 | 22,567 |
Total Assets | 3,139,759 | 2,956,569 | 2,957,234 |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Accrued liabilities | 268,258 | 191,453 | 193,635 |
Other medical liabilities | 183,222 | 177,002 | |
Total Current Liabilities | 1,023,096 | 890,121 | 892,303 |
Deferred credits and other long-term liabilities | 35,346 | 24,844 | 19,100 |
Total Liabilities | 1,820,989 | 1,684,302 | 1,680,740 |
Retained earnings | 1,420,271 | 1,395,268 | 1,399,495 |
Total Stockholders' Equity | 1,318,770 | 1,272,267 | 1,276,494 |
Total Liabilities and Stockholders' Equity | 3,139,759 | 2,956,569 | $ 2,957,234 |
ASU 2014-09 | Adjustments | |||
Assets | |||
Accounts receivable | (17,972) | ||
Other current assets | (445) | (667) | |
Total Current Assets | (18,417) | (667) | |
Other long-term assets | 9,199 | (1,333) | |
Total Assets | (9,218) | (665) | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Accrued liabilities | (11,127) | (2,182) | |
Other medical liabilities | 50 | ||
Total Current Liabilities | (11,077) | (2,182) | |
Deferred credits and other long-term liabilities | (6,835) | 5,744 | |
Total Liabilities | (17,912) | 3,562 | |
Retained earnings | 8,694 | (4,227) | |
Total Stockholders' Equity | 8,694 | (4,227) | |
Total Liabilities and Stockholders' Equity | (9,218) | $ (665) | |
ASU 2014-09 | Balance Without ASC 606 Adoption | |||
Assets | |||
Accounts receivable | 821,801 | ||
Other current assets | 118,719 | ||
Total Current Assets | 1,649,732 | ||
Other long-term assets | 40,108 | ||
Total Assets | 3,130,541 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Accrued liabilities | 257,131 | ||
Other medical liabilities | 183,272 | ||
Total Current Liabilities | 1,012,019 | ||
Deferred credits and other long-term liabilities | 28,511 | ||
Total Liabilities | 1,803,077 | ||
Retained earnings | 1,428,965 | ||
Total Stockholders' Equity | 1,327,464 | ||
Total Liabilities and Stockholders' Equity | $ 3,130,541 |
General _ Impact of Adoption 22
General – Impact of Adoption of ASC 606 on Consolidated Income Statement (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Operating results by business segment | ||||
Net revenue | $ 1,810,923 | $ 1,419,139 | $ 3,616,000 | $ 2,724,762 |
Income before income taxes | 18,375 | 10,588 | 29,752 | 39,863 |
Provision for income taxes | 4,824 | 5,661 | 4,749 | 17,467 |
Net income | 13,551 | 4,927 | 25,003 | 22,396 |
Net income attributable to Magellan | 13,551 | 5,500 | 25,003 | 23,247 |
Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | 1,215,340 | 821,699 | 2,435,103 | 1,551,039 |
PBM | ||||
Operating results by business segment | ||||
Net revenue | 595,583 | $ 597,440 | 1,180,897 | $ 1,173,723 |
ASU 2014-09 | Adjustments | ||||
Operating results by business segment | ||||
Net revenue | 546 | 4,244 | ||
Income before income taxes | 546 | 4,244 | ||
Provision for income taxes | 143 | 1,112 | ||
Net income | 403 | 3,132 | ||
Net income attributable to Magellan | 403 | 3,132 | ||
ASU 2014-09 | Adjustments | Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | (1,203) | (3,955) | ||
ASU 2014-09 | Adjustments | PBM | ||||
Operating results by business segment | ||||
Net revenue | 1,749 | 8,199 | ||
ASU 2014-09 | Balance Without ASC 606 Adoption | ||||
Operating results by business segment | ||||
Net revenue | 1,811,469 | 3,620,244 | ||
Income before income taxes | 18,921 | 33,996 | ||
Provision for income taxes | 4,967 | 5,861 | ||
Net income | 13,954 | 28,135 | ||
Net income attributable to Magellan | 13,954 | 28,135 | ||
ASU 2014-09 | Balance Without ASC 606 Adoption | Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | 1,214,137 | 2,431,148 | ||
ASU 2014-09 | Balance Without ASC 606 Adoption | PBM | ||||
Operating results by business segment | ||||
Net revenue | $ 597,332 | $ 1,189,096 |
General _ Revenue Recognition (
General – Revenue Recognition (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended |
Jun. 30, 2018 | Jun. 30, 2018 | |
Operating results by business segment | ||
Net revenue | $ 1,810,923 | $ 3,616,000 |
Transferred at a point in time | ||
Operating results by business segment | ||
Net revenue | 595,583 | 1,180,897 |
Transferred over time | ||
Operating results by business segment | ||
Net revenue | 1,215,340 | 2,435,103 |
PBM, including dispensing | ||
Operating results by business segment | ||
Net revenue | 488,920 | 975,828 |
Medicare Part D | ||
Operating results by business segment | ||
Net revenue | 106,663 | 205,069 |
PBA | ||
Operating results by business segment | ||
Net revenue | 33,088 | 66,634 |
Formulary management | ||
Operating results by business segment | ||
Net revenue | 18,348 | 38,725 |
Other service lines | ||
Operating results by business segment | ||
Net revenue | 638 | 1,722 |
Commercial | Risk-based, non-EAP | ||
Operating results by business segment | ||
Net revenue | 238,158 | 472,549 |
Commercial | EAP risk-based | ||
Operating results by business segment | ||
Net revenue | 12,335 | 24,756 |
Commercial | ASO | ||
Operating results by business segment | ||
Net revenue | 59,603 | 119,327 |
Government | ||
Operating results by business segment | ||
Net revenue | 1,083,118 | 2,169,387 |
Government | Risk-based, non-EAP | ||
Operating results by business segment | ||
Net revenue | 750,162 | 1,502,652 |
Government | EAP risk-based | ||
Operating results by business segment | ||
Net revenue | 78,940 | 161,177 |
Government | ASO | ||
Operating results by business segment | ||
Net revenue | 24,068 | 47,561 |
Non-government | ||
Operating results by business segment | ||
Net revenue | 727,805 | 1,446,613 |
Healthcare | ||
Operating results by business segment | ||
Net revenue | 1,154,888 | 2,312,489 |
Healthcare | Transferred over time | ||
Operating results by business segment | ||
Net revenue | 1,154,888 | 2,312,489 |
Healthcare | Commercial | Risk-based, non-EAP | ||
Operating results by business segment | ||
Net revenue | 238,272 | 472,663 |
Healthcare | Commercial | EAP risk-based | ||
Operating results by business segment | ||
Net revenue | 12,335 | 24,756 |
Healthcare | Commercial | ASO | ||
Operating results by business segment | ||
Net revenue | 51,111 | 103,680 |
Healthcare | Government | ||
Operating results by business segment | ||
Net revenue | 853,170 | 1,711,390 |
Healthcare | Government | Risk-based, non-EAP | ||
Operating results by business segment | ||
Net revenue | 750,162 | 1,502,652 |
Healthcare | Government | EAP risk-based | ||
Operating results by business segment | ||
Net revenue | 78,940 | 161,177 |
Healthcare | Government | ASO | ||
Operating results by business segment | ||
Net revenue | 24,068 | 47,561 |
Healthcare | Non-government | ||
Operating results by business segment | ||
Net revenue | 301,718 | 601,099 |
Pharmacy Management | ||
Operating results by business segment | ||
Net revenue | 703,397 | 1,397,902 |
Pharmacy Management | Transferred at a point in time | ||
Operating results by business segment | ||
Net revenue | 642,794 | 1,274,992 |
Pharmacy Management | Transferred over time | ||
Operating results by business segment | ||
Net revenue | 60,603 | 122,910 |
Pharmacy Management | PBM, including dispensing | ||
Operating results by business segment | ||
Net revenue | 536,131 | 1,069,923 |
Pharmacy Management | Medicare Part D | ||
Operating results by business segment | ||
Net revenue | 106,663 | 205,069 |
Pharmacy Management | PBA | ||
Operating results by business segment | ||
Net revenue | 33,088 | 66,634 |
Pharmacy Management | Formulary management | ||
Operating results by business segment | ||
Net revenue | 18,348 | 38,725 |
Pharmacy Management | Other service lines | ||
Operating results by business segment | ||
Net revenue | 638 | 1,722 |
Pharmacy Management | Commercial | ASO | ||
Operating results by business segment | ||
Net revenue | 8,529 | 15,829 |
Pharmacy Management | Government | ||
Operating results by business segment | ||
Net revenue | 229,948 | 457,997 |
Pharmacy Management | Non-government | ||
Operating results by business segment | ||
Net revenue | 473,449 | 939,905 |
Elimination | ||
Operating results by business segment | ||
Net revenue | (47,362) | (94,391) |
Elimination | Transferred at a point in time | ||
Operating results by business segment | ||
Net revenue | (47,211) | (94,095) |
Elimination | Transferred over time | ||
Operating results by business segment | ||
Net revenue | (151) | (296) |
Elimination | PBM, including dispensing | ||
Operating results by business segment | ||
Net revenue | (47,211) | (94,095) |
Elimination | Commercial | Risk-based, non-EAP | ||
Operating results by business segment | ||
Net revenue | (114) | (114) |
Elimination | Commercial | ASO | ||
Operating results by business segment | ||
Net revenue | (37) | (182) |
Elimination | Non-government | ||
Operating results by business segment | ||
Net revenue | $ (47,362) | $ (94,391) |
General - Per Member Per Month
General - Per Member Per Month Revenue (Details) - Minimum | 6 Months Ended |
Jun. 30, 2018 | |
Operating results by business segment | |
Term of PMPM contract | 1 year |
Required notice to terminate PMPM contract | 30 days |
General - Pharmacy Benefit Mana
General - Pharmacy Benefit Management Revenue (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Minimum | |
Operating results by business segment | |
Expected term of PBM relationship | 1 year |
General - Pharmacy Benefit Admi
General - Pharmacy Benefit Administration Revenue (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Minimum | |
Operating results by business segment | |
Anticipated period of benefit of the material right | 2 years |
Maximum | |
Operating results by business segment | |
Anticipated period of benefit of the material right | 10 years |
General - Formulary Management
General - Formulary Management Revenue (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Minimum | |
Operating results by business segment | |
Term of formulary management contract | 1 year |
General - Accounts Receivable,
General - Accounts Receivable, Contract Assets and Contract Liabilities (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2018 | Jan. 01, 2018 | |
General | |||
Accounts receivable | $ 864,674 | $ 864,674 | $ 679,269 |
Change in accounts receivable (in dollars) | $ 185,405 | ||
Change in accounts receivable (as a percent) | 27.30% | ||
Contract assets | 14,339 | $ 14,339 | 8,564 |
Change in contract assets (in dollars) | $ 5,775 | ||
Change in contract assets (as a percent) | 67.40% | ||
Contract liabilities - current | 75,552 | $ 75,552 | 14,299 |
Change in contract liabilities - current (in dollars) | $ 61,253 | ||
Change in contract liabilities - current (as a percent) | 428.40% | ||
Contract liabilities - long-term | 12,612 | $ 12,612 | $ 12,303 |
Change in contract liabilities - long-term (in dollars) | $ 309 | ||
Change in contract liabilities - long-term (as a percent) | 2.50% | ||
Revenue recognized previously included in current contract liabilities | 59,200 | $ 70,500 | |
Estimated revenue to be recognized in 2018 | 70,900 | 70,900 | |
Estimated revenue to be recognized in 2019 | 6,100 | 6,100 | |
Estimated revenue to be recognized in 2020 | 2,600 | 2,600 | |
Estimated revenue to be recognized in 2021 and beyond | $ 8,600 | $ 8,600 |
General - Customers Exceeding T
General - Customers Exceeding Ten Percent of Consolidated Net Revenues (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018USD ($) | Jun. 30, 2017USD ($) | Jun. 30, 2018USD ($)contract | Jun. 30, 2017USD ($) | |
Operating results by business segment | ||||
Revenues | $ 1,810,923 | $ 1,419,139 | $ 3,616,000 | $ 2,724,762 |
Florida Contract | ||||
Operating results by business segment | ||||
Termination notice | 1 day | |||
Termination notice period without cause | 30 days | |||
Revenues | $ 307,900 | 300,100 | ||
Healthcare | Customer A | ||||
Operating results by business segment | ||||
Revenues | 356,573 | 79,247 | ||
Healthcare | Customer B | ||||
Operating results by business segment | ||||
Revenues | $ 330,910 | |||
Healthcare | Customer B | Minimum | ||||
Operating results by business segment | ||||
Number of contracts | contract | 1 | |||
Pharmacy Management | Customer C | ||||
Operating results by business segment | ||||
Revenues | $ 176,650 | $ 184,364 |
General - Concentration of Busi
General - Concentration of Business (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Operating results by business segment | |||||
Revenues | $ 1,810,923 | $ 1,419,139 | $ 3,616,000 | $ 2,724,762 | |
Accounts receivable, net | 839,773 | $ 839,773 | $ 660,775 | ||
Minimum | |||||
Operating results by business segment | |||||
Term of contracts with customers | 1 year | ||||
Term of renewal contracts | 1 year | ||||
Notice period for termination of contract | 30 days | ||||
Maximum | |||||
Operating results by business segment | |||||
Term of contracts with customers | 3 years | ||||
Term of renewal contracts | 2 years | ||||
Notice period for termination of contract | 180 days | ||||
Pennsylvania Counties | |||||
Operating results by business segment | |||||
Revenues | $ 275,300 | 232,400 | |||
CMS | |||||
Operating results by business segment | |||||
Revenues | 205,100 | 236,100 | |||
Accounts receivable, net | $ 119,800 | 119,800 | $ 131,500 | ||
United States federal government | |||||
Operating results by business segment | |||||
Revenues | $ 165,800 | $ 177,500 |
General - Fair Value Measuremen
General - Fair Value Measurements (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Assets | ||
Investments | $ 433,248 | $ 327,865 |
Cash held in bank accounts | 30,300 | 114,700 |
Liabilities | ||
Contingent consideration | 9,120 | 8,817 |
U.S. Government and agency securities | ||
Assets | ||
Investments | 52,716 | 28,231 |
Obligations of government-sponsored enterprises | ||
Assets | ||
Investments | 13,026 | 22,088 |
Corporate debt securities | ||
Assets | ||
Investments | 345,394 | 269,788 |
Taxable municipal bonds | ||
Assets | ||
Investments | 5,000 | |
Certificates of deposit | ||
Assets | ||
Investments | 22,112 | 2,758 |
Level 1 | 4.400% Senior Notes due 2024 | ||
Liabilities | ||
Fair value of debt | 389,200 | |
Level 2 | Term Loan | ||
Liabilities | ||
Fair value of debt | 336,900 | |
Fair value measured on recurring basis | ||
Assets | ||
Total assets held at fair value | 649,091 | 611,929 |
Liabilities | ||
Contingent consideration | 9,120 | 8,817 |
Total liabilities held at fair value | 9,120 | 8,817 |
Fair value measured on recurring basis | Other than cash held in bank accounts by Company | ||
Assets | ||
Cash and cash equivalents | 215,843 | 284,064 |
Fair value measured on recurring basis | U.S. Government and agency securities | ||
Assets | ||
Investments | 52,716 | 28,231 |
Fair value measured on recurring basis | Obligations of government-sponsored enterprises | ||
Assets | ||
Investments | 13,026 | 22,088 |
Fair value measured on recurring basis | Corporate debt securities | ||
Assets | ||
Investments | 345,394 | 269,788 |
Fair value measured on recurring basis | Taxable municipal bonds | ||
Assets | ||
Investments | 5,000 | |
Fair value measured on recurring basis | Certificates of deposit | ||
Assets | ||
Investments | 22,112 | 2,758 |
Fair value measured on recurring basis | Level 1 | ||
Assets | ||
Total assets held at fair value | 52,716 | 28,231 |
Fair value measured on recurring basis | Level 1 | U.S. Government and agency securities | ||
Assets | ||
Investments | 52,716 | 28,231 |
Fair value measured on recurring basis | Level 2 | ||
Assets | ||
Total assets held at fair value | 596,375 | 583,698 |
Fair value measured on recurring basis | Level 2 | Other than cash held in bank accounts by Company | ||
Assets | ||
Cash and cash equivalents | 215,843 | 284,064 |
Fair value measured on recurring basis | Level 2 | Obligations of government-sponsored enterprises | ||
Assets | ||
Investments | 13,026 | 22,088 |
Fair value measured on recurring basis | Level 2 | Corporate debt securities | ||
Assets | ||
Investments | 345,394 | 269,788 |
Fair value measured on recurring basis | Level 2 | Taxable municipal bonds | ||
Assets | ||
Investments | 5,000 | |
Fair value measured on recurring basis | Level 2 | Certificates of deposit | ||
Assets | ||
Investments | 22,112 | 2,758 |
Fair value measured on recurring basis | Level 3 | ||
Liabilities | ||
Contingent consideration | 9,120 | 8,817 |
Total liabilities held at fair value | $ 9,120 | $ 8,817 |
General - Contingent Considerat
General - Contingent Consideration (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2020 | Dec. 31, 2018 | Dec. 31, 2017 | |
Fair value measurement of contingent consideration | |||||||
Estimated undiscounted future contingent payments | $ 9,800 | $ 9,800 | $ 9,900 | ||||
Fair value of short-term contingent consideration | 7,062 | 7,062 | 6,892 | ||||
Fair value of long-term contingent consideration | 2,058 | 2,058 | $ 1,925 | ||||
Liability for contingent consideration | |||||||
Balance as of beginning of period | 8,817 | ||||||
Changes in fair value | 70 | $ 252 | 303 | $ 203 | |||
Balance as of end of period | $ 9,120 | $ 9,120 | |||||
Forecast | |||||||
Fair value measurement of contingent consideration | |||||||
Estimated undiscounted future contingent payments | $ 2,600 | $ 7,200 |
General - Cash And Cash Equival
General - Cash And Cash Equivalents (Details) $ in Millions | Jun. 30, 2018USD ($) |
Cash and Cash Equivalents | |
Excess capital and undistributed earnings for regulated subsidiaries included in cash and cash equivalents | $ 115.8 |
General - Investments (Details)
General - Investments (Details) - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Short-term and long-term investments | |||
Other-than-temporary unrealized losses | $ 0 | $ 0 | |
Realized gains or losses | 0 | $ 0 | |
Amortized Cost | 433,994 | 328,364 | |
Gross Unrealized Gains | 5 | 1 | |
Gross Unrealized Losses | (751) | (500) | |
Estimated Fair Value | 433,248 | 327,865 | |
U.S. Government and agency securities | |||
Short-term and long-term investments | |||
Amortized Cost | 52,838 | 28,313 | |
Gross Unrealized Losses | (122) | (82) | |
Estimated Fair Value | 52,716 | 28,231 | |
Obligations of government-sponsored enterprises | |||
Short-term and long-term investments | |||
Amortized Cost | 13,079 | 22,139 | |
Gross Unrealized Losses | (53) | (51) | |
Estimated Fair Value | 13,026 | 22,088 | |
Corporate debt securities | |||
Short-term and long-term investments | |||
Amortized Cost | 345,965 | 270,154 | |
Gross Unrealized Gains | 5 | 1 | |
Gross Unrealized Losses | (576) | (367) | |
Estimated Fair Value | 345,394 | 269,788 | |
Taxable municipal bonds | |||
Short-term and long-term investments | |||
Amortized Cost | 5,000 | ||
Estimated Fair Value | 5,000 | ||
Certificates of deposit | |||
Short-term and long-term investments | |||
Amortized Cost | 22,112 | 2,758 | |
Estimated Fair Value | $ 22,112 | $ 2,758 |
General - Investments by Maturi
General - Investments by Maturity Date (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Amortized Cost | ||
Investments amortized cost maturity dates 2018 | $ 205,329 | |
Investments amortized cost maturity dates 2019 | 228,665 | |
Amortized Cost | 433,994 | $ 328,364 |
Estimated Fair Value | ||
Investments fair value maturity dates 2018 | 205,104 | |
Investments fair value maturity dates 2019 | 228,144 | |
Estimated Fair Value | $ 433,248 | $ 327,865 |
General - Income Taxes (Details
General - Income Taxes (Details) - USD ($) $ in Millions | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Income Taxes | |||
Effective income tax rates (as a percent) | 16.00% | 43.80% | |
Statutory federal income tax rate (as a percent) | 21.00% | 35.00% | |
Deferred Tax Assets, Valuation Allowance | $ 2.4 | $ 2.4 | |
Federal | |||
Income Taxes | |||
Operating Loss Carryforwards | 38.8 | ||
State | |||
Income Taxes | |||
Operating Loss Carryforwards | 93.7 | ||
AlphaCare | Federal | |||
Income Taxes | |||
Operating Loss Carryforwards | $ 37.6 |
General - Health Care Reform (D
General - Health Care Reform (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2018USD ($) | |
General | |
HIF fees | $ 29.9 |
General - Stock Compensation (D
General - Stock Compensation (Details) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018USD ($)$ / sharesshares | Jun. 30, 2017USD ($) | Jun. 30, 2018USD ($)company$ / sharesshares | Jun. 30, 2017USD ($) | |
Stock options, Non vested restricted stock awards and nonvested restricted stock units | ||||
Stock compensation expense | $ | $ 10,439 | $ 11,371 | $ 18,085 | $ 21,511 |
Benefits of tax deductions in excess of recognized stock compensation expense | $ | $ 4,900 | $ 1,000 | ||
Minimum | ||||
Stock options, Non vested restricted stock awards and nonvested restricted stock units | ||||
Estimated forfeitures (as a percent) | 0.00% | 0.00% | 0.00% | 0.00% |
Maximum | ||||
Stock options, Non vested restricted stock awards and nonvested restricted stock units | ||||
Estimated forfeitures (as a percent) | 4.00% | 4.00% | 4.00% | 4.00% |
Stock options | ||||
Stock options, Non vested restricted stock awards and nonvested restricted stock units | ||||
Grants in period, weighted average grant date fair value (in dollars per share) | $ 25.67 | |||
Expected volatility (as a percent) | 28.21% | |||
Stock option activity | ||||
Outstanding, beginning of period (in shares) | shares | 2,458,237 | |||
Granted (in shares) | shares | 425,456 | |||
Forfeited (in shares) | shares | (44,651) | |||
Exercised (in shares) | shares | (379,589) | |||
Outstanding, end of period (in shares) | shares | 2,459,453 | 2,459,453 | ||
Vested and expected to vest end of period (in shares) | shares | 2,440,741 | 2,440,741 | ||
Exercisable, end of period (in shares) | shares | 1,483,866 | 1,483,866 | ||
Weighted average exercise price of stock options | ||||
Outstanding, beginning of period (in dollars per share) | $ 61.50 | |||
Granted (in dollars per share) | 99.02 | |||
Forfeited (in dollars per share) | 74.78 | |||
Exercised (in dollars per share) | 56.58 | |||
Outstanding, end of period (in dollars per share) | $ 68.51 | 68.51 | ||
Vested and expected to vest end of period (in dollars per share) | 68.38 | 68.38 | ||
Exercisable, end of period (in dollars per share) | $ 59.99 | $ 59.99 | ||
Assumptions used for estimating value of awards granted | ||||
Vesting period | 3 years | |||
Life of options (Expiration period) | 10 years | |||
Restricted stock awards | ||||
Nonvested restricted stock awards and units | ||||
Outstanding, beginning of period (in shares) | shares | 31,102 | |||
Awarded (in shares) | shares | 11,795 | |||
Vested (in shares) | shares | (31,102) | |||
Outstanding, end of period (in shares) | shares | 11,795 | 11,795 | ||
Weighted average exercise price of nonvested restricted stock award and units | ||||
Outstanding, beginning of period (in dollars per share) | $ 68 | |||
Awarded (in dollars per share) | 89.05 | |||
Vested (in dollars per share) | 68 | |||
Outstanding, end of period (in dollars per share) | $ 89.05 | $ 89.05 | ||
Restricted stock awards | Minimum | ||||
Assumptions used for estimating value of awards granted | ||||
Vesting period | 12 months | |||
Restricted stock awards | Maximum | ||||
Assumptions used for estimating value of awards granted | ||||
Vesting period | 24 months | |||
Restricted Stock Units (RSUs) | ||||
Nonvested restricted stock awards and units | ||||
Outstanding, beginning of period (in shares) | shares | 163,289 | |||
Awarded (in shares) | shares | 109,348 | |||
Vested (in shares) | shares | (82,207) | |||
Forfeited (in shares) | shares | (13,082) | |||
Outstanding, end of period (in shares) | shares | 177,348 | 177,348 | ||
Weighted average exercise price of nonvested restricted stock award and units | ||||
Outstanding, beginning of period (in dollars per share) | $ 66.46 | |||
Awarded (in dollars per share) | 99.45 | |||
Vested (in dollars per share) | 65.54 | |||
Forfeited (in dollars per share) | 80.95 | |||
Outstanding, end of period (in dollars per share) | $ 86.16 | $ 86.16 | ||
Assumptions used for estimating value of awards granted | ||||
Vesting period | 3 years | |||
Performance Based Restricted Stock Units (“PSUs”) | ||||
Nonvested restricted stock awards and units | ||||
Outstanding, beginning of period (in shares) | shares | 202,315 | |||
Awarded (in shares) | shares | 80,502 | |||
Vested (in shares) | shares | (33,592) | |||
Forfeited (in shares) | shares | (1,865) | |||
Outstanding, end of period (in shares) | shares | 247,360 | 247,360 | ||
Weighted average exercise price of nonvested restricted stock award and units | ||||
Outstanding, beginning of period (in dollars per share) | $ 84.63 | |||
Awarded (in dollars per share) | 141.61 | |||
Vested (in dollars per share) | 85 | |||
Forfeited (in dollars per share) | 97.25 | |||
Outstanding, end of period (in dollars per share) | $ 103.03 | $ 103.03 | ||
Assumptions used for estimating value of awards granted | ||||
Vesting period | 3 years | |||
Expected dividend yield (as a percent) | 0.00% | |||
Risk-free interest rate (as a percent) | 2.37% | |||
Expected volatility, minimum (as a percent) | 20.00% | |||
Expected volatility, maximum (as a percent) | 82.00% | |||
Expected volatility, average (as a percent) | 35.00% | |||
Number of trading days considered for average share value | 30 days | |||
Number of companies in peer group | company | 49 | |||
Performance Based Restricted Stock Units (“PSUs”) | Minimum | ||||
Assumptions used for estimating value of awards granted | ||||
Percentage of shares to be settled | 0.00% | |||
Performance Based Restricted Stock Units (“PSUs”) | Maximum | ||||
Assumptions used for estimating value of awards granted | ||||
Percentage of shares to be settled | 200.00% |
General - Long Term Debt and Ca
General - Long Term Debt and Capital Lease Obligation (Details) - USD ($) $ in Thousands | Sep. 22, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 |
Long-term Debt and Capital Lease Obligations | ||||
Proceeds from issuance of debt | $ 200,000 | |||
Debt disclosures | ||||
Capital lease obligations | $ 24,900 | $ 22,900 | ||
Deferred loan issuance cost | 6,000 | 6,600 | ||
4.400% Senior Notes due 2024 | ||||
Long-term Debt and Capital Lease Obligations | ||||
Aggregate principal amount of Senior Notes | $ 400,000 | 399,300 | 399,300 | |
Stated interest rate (as a percent) | 4.40% | |||
Redemption price as a percentage of the principal amount being redeemed | 100.00% | |||
2017 Credit Agreement | ||||
Debt disclosures | ||||
Letters of credit outstanding | 17,600 | |||
Revolving borrowings outstanding | 70,000 | 92,500 | ||
Available borrowing capacity | $ 312,400 | |||
2017 Credit Agreement | Revolving Loan borrowings | ||||
Long-term Debt and Capital Lease Obligations | ||||
Maximum borrowing capacity | $ 400,000 | |||
Commitment commission (as a percent) | 0.20% | |||
2017 Credit Agreement | Term Loan | ||||
Long-term Debt and Capital Lease Obligations | ||||
Maximum borrowing capacity | $ 350,000 | |||
Weighted average interest rate (as a percent) | 3.392% | |||
Long-term Debt, Fiscal Year Maturity | ||||
2,018 | $ 8,800 | |||
2,019 | 17,500 | |||
2,020 | 17,500 | |||
2,021 | 17,500 | |||
2,022 | 275,600 | |||
2017 Credit Agreement | Prime rate | ||||
Long-term Debt and Capital Lease Obligations | ||||
Basis spread on variable rate (as a percent) | 0.50% | |||
2017 Credit Agreement | Overnight Federal Funds rate | ||||
Long-term Debt and Capital Lease Obligations | ||||
Basis spread on variable rate (as a percent) | 0.50% | |||
2017 Credit Agreement | Eurodollar rate for one month | ||||
Long-term Debt and Capital Lease Obligations | ||||
Basis spread on variable rate (as a percent) | 1.00% | |||
2017 Credit Agreement | Eurodollar rate for selected interest period | ||||
Long-term Debt and Capital Lease Obligations | ||||
Basis spread on variable rate (as a percent) | 1.50% | |||
Standby Letters of Credit with The Bank Of Tokyo-Mitsubishi UFJ, Ltd. | ||||
Debt disclosures | ||||
Letters of credit outstanding | $ 48,500 | $ 26,500 |
Net Income per Common Share A40
Net Income per Common Share Attributable to Magellan Health, Inc (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Numerator: | ||||
Net income attributable to Magellan | $ 13,551 | $ 5,500 | $ 25,003 | $ 23,247 |
Denominator: | ||||
Weighted average number of common shares outstanding-basic (in shares) | 24,569 | 23,108 | 24,460 | 23,060 |
Common stock equivalents-stock options (in shares) | 669 | 399 | 738 | 436 |
Common stock equivalents-RSAs (in shares) | 33 | 439 | 28 | 421 |
Common stock equivalents-RSUs (in shares) | 23 | 30 | 50 | 56 |
Common stock equivalents- PSUs( in shares) | 111 | 61 | 232 | 62 |
Common stock equivalents-employee stock purchase plan (in shares) | 2 | 1 | 2 | 2 |
Weighted average number of common shares outstanding-diluted (in shares) | 25,407 | 24,038 | 25,510 | 24,037 |
Net income per common share-basic (in dollars per share) | $ 0.55 | $ 0.24 | $ 1.02 | $ 1.01 |
Net income per common share-diluted (in dollars per share) | $ 0.53 | $ 0.23 | $ 0.98 | $ 0.97 |
Potential dilutive securities excluded from computation of dilutive securities (in shares) | 500 | 800 | 300 | 700 |
Business Segment Information -
Business Segment Information - Operating Results by Segment (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Operating results by business segment | ||||
Net revenue | $ 1,810,923 | $ 1,419,139 | $ 3,616,000 | $ 2,724,762 |
Cost of care | (935,814) | (583,264) | (1,864,475) | (1,065,318) |
Cost of goods sold | (558,419) | (562,355) | (1,118,084) | (1,104,988) |
Direct service costs and other | (259,152) | (231,372) | (528,229) | (452,858) |
Stock compensation expense | 10,439 | 11,371 | 18,085 | 21,511 |
Changes in fair value of contingent consideration | 70 | 252 | 303 | 203 |
Less: non-controlling interest segment profit (loss) | (569) | (847) | ||
Segment profit (loss) | 68,047 | 54,340 | 123,600 | 124,159 |
Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | 1,215,340 | 821,699 | 2,435,103 | 1,551,039 |
PBM | ||||
Operating results by business segment | ||||
Net revenue | 595,583 | 597,440 | 1,180,897 | 1,173,723 |
Operating segments | Healthcare | ||||
Operating results by business segment | ||||
Cost of care | (935,814) | (583,264) | (1,864,475) | (1,065,318) |
Direct service costs and other | (177,990) | (145,914) | (364,236) | (284,882) |
Stock compensation expense | 2,742 | 3,106 | 5,692 | 5,765 |
Changes in fair value of contingent consideration | 70 | 252 | 303 | 203 |
Less: non-controlling interest segment profit (loss) | (568) | (845) | ||
Segment profit (loss) | 43,896 | 30,018 | 89,773 | 77,259 |
Operating segments | Healthcare | Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | 1,154,888 | 755,270 | 2,312,489 | 1,420,646 |
Operating segments | Pharmacy Management | ||||
Operating results by business segment | ||||
Cost of goods sold | (603,951) | (595,446) | (1,208,864) | (1,167,283) |
Direct service costs and other | (70,941) | (74,953) | (146,527) | (150,806) |
Stock compensation expense | 1,408 | 5,684 | 2,893 | 11,414 |
Segment profit (loss) | 29,913 | 33,876 | 45,404 | 62,842 |
Operating segments | Pharmacy Management | Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | 60,603 | 66,659 | 122,910 | 130,839 |
Operating segments | Pharmacy Management | PBM | ||||
Operating results by business segment | ||||
Net revenue | 642,794 | 631,932 | 1,274,992 | 1,238,678 |
Corporate and Elimination | ||||
Operating results by business segment | ||||
Cost of goods sold | 45,532 | 33,091 | 90,780 | 62,295 |
Direct service costs and other | (10,221) | (10,505) | (17,466) | (17,170) |
Stock compensation expense | 6,289 | 2,581 | 9,500 | 4,332 |
Less: non-controlling interest segment profit (loss) | (1) | (2) | ||
Segment profit (loss) | (5,762) | (9,554) | (11,577) | (15,942) |
Corporate and Elimination | Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | (151) | (230) | (296) | (446) |
Corporate and Elimination | PBM | ||||
Operating results by business segment | ||||
Net revenue | $ (47,211) | $ (34,492) | $ (94,095) | $ (64,955) |
Business Segment Information 42
Business Segment Information - Reconciliation of Segment Profit to Income Before Taxes (Detail) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Reconciliation of segment profit to income before income taxes | ||||
Income before income taxes | $ 18,375 | $ 10,588 | $ 29,752 | $ 39,863 |
Stock compensation expense | 10,439 | 11,371 | 18,085 | 21,511 |
Changes in fair value of contingent consideration | 70 | 252 | 303 | 203 |
Non-controlling interest segment (profit) loss | 569 | 847 | ||
Depreciation and amortization | 33,848 | 27,731 | 64,255 | 54,707 |
Interest expense | 8,678 | 4,900 | 17,044 | 9,048 |
Interest and other income | (3,363) | (1,071) | (5,839) | (2,020) |
Segment Profit | $ 68,047 | $ 54,340 | $ 123,600 | $ 124,159 |
Commitments and Contingencies43
Commitments and Contingencies (Details) - USD ($) $ / shares in Units, $ in Millions | May 24, 2018 | Jul. 20, 2018 | Dec. 31, 2015 | Jun. 30, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Jun. 30, 2018 | Oct. 26, 2015 |
Stock Repurchases | ||||||||
Percentage of total net revenues generated by AFSC | 2.00% | 3.00% | ||||||
October 2015 Share Repurchase Program | ||||||||
Stock Repurchases | ||||||||
Amount authorized under stock repurchase plan | $ 400 | $ 200 | ||||||
Increase in amount authorized under stock repurchase plan | $ 200 | |||||||
Share repurchases made in open market (in shares) | 37,032 | 345,044 | 163,532 | 280,140 | 1,828,183 | 2,616,899 | ||
Average Price Paid per Share (in dollars per share) | $ 53.46 | $ 90.62 | $ 77.67 | $ 58.40 | ||||
Aggregate Cost | $ 3.6 | $ 18.4 | $ 14.8 | $ 21.8 | $ 106.8 | $ 161.8 | ||
Remaining authorized repurchase amount | $ 238.2 | $ 238.2 |
Acquisitions (Details)
Acquisitions (Details) - SWH Acquisition - USD ($) $ in Millions | Oct. 31, 2017 | Jun. 30, 2018 |
Acquisitions | ||
Amount of consideration paid in cash | $ 400 | |
Incentive payment for Medicare & Medicaid Services Star Rating | $ 10 | |
Increase (decrease) in goodwill due to measurement period adjustment | $ 7.9 | |
Working capital receivable | $ 0.2 |