Magellan Health Services Inc. reported better earnings and stronger revenue for the first three months of the year compared with the same period last year, but the company lowered its outlook because it lost a multi-billion-dollar Medicaid contract in Arizona.
Magellan reported net income for the quarter of $28.1 million, or $1.01 per share, up from $20.8 million, or 75 cents per share, during the same period last year.
Revenue was up 6.3 percent to $821.8 million for the quarter, compared with $773.2 million during same period last year.
Barclays analysts Joshua R. Raskin and Jack Meehan said, "…the quarter was particularly strong, with upside seen in almost all segments driven by favorable development and better cost trends. … Historically, the company has a strong track record, and tends to be somewhat conservative with its guidance. In fact, Magellan is the only company in our coverage universe that has been able to show actual results above initial guidance in each of the last 7 years."
Revenue in Magellan's commercial managed-care segment improved to $187.8 million from $180.5 million. Revenue from public-sector managed care was up to $406.6 million from $388.9 million. Radiology benefits management was up to $90.3 million from $76.8 million for the quarter, and the pharmacy business segment was down to $58.2 million from $60.9 million.
The company suffered a setback earlier this year when it lost a state-awarded contract in Arizona worth $3 billion to $5 billion to manage a behavioral health system in the Phoenix region. The three-year contract is worth $1 billion each year with two optional one-year extensions, funded through Medicaid as well as other federal and state money. At stake is the contract to manage a behavioral health system that includes mental health, substance-abuse services and crisis services for 720,000 adults and children in Maricopa County, which includes Phoenix and surrounding towns.
"During the quarter, we were disappointed about the award of the Maricopa County, Arizona contract to another vendor for the period beginning October 1, 2013," Magellan CEO Barry M. Smith said in a prepared statement. "In response, we filed a formal protest regarding the state's decision as well as a lawsuit against one of the sponsors of the winning vendor. Our initial protest was denied, and we intend to file an appeal. As we pursue those avenues, we continue to serve the people of Arizona with the highest standards of service. It's important to put this one contract in perspective and assess it in light of our future growth opportunities."
Magellan has decreased its outlook for the year. The company now anticipates net revenue of $3.3 billion to $3.5 billion and net income between $90 million and $108 million. The company had expected net revenue of $3.56 billion to $3.74 billion and net income of $91 million to $109 million.
"The decrease in our guidance is driven primarily by the assumption that our contract in Maricopa County does not extend beyond September 30, 2013, partially offset by the impact of favorable prior year care development and cost trends," Magellan's chief financial officer Jonathan N. Rubin said in a prepared statement.
Magellan employs 82 people in Connecticut and 5,472 people companywide.
The company's stock closed at $51.16, up 67 cents, on Tuesday.