Magellan Health: Innovating for Profitable Growth Jefferies 2015 Healthcare Conference June 2, 2015
Cautionary Statement The schedules and statements made in this presentation include forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management s current expectations and are subject to known and unknown uncertainties and risks which could cause actual results to differ materially from those reflected, contemplated or implied by such forward-looking statements including, but not limited to, the following: Termination or non-renewal of contracts by customers Renegotiation of rates paid to and/or by the Company by customers and/or providers Higher utilization of health treatment services by members Delays, higher costs or inability to implement the Company s initiatives The impact of new or amended laws or regulations Acts of war, terrorism or other catastrophic events The impact of increased competition on ability to maintain or obtain contracts The impact of increased competition on rates paid to or by the Company The impact of share repurchase programs Governmental inquiries and/or litigation Interest rate changes Economic uncertainties Many of these factors are beyond the control of the Company. Any and all forward-looking statements made in this presentation are qualified in their entirety by the complete discussion of risks set forth under the caption Risk Factors in Magellan s Annual Report on Form 10-K for the year ended December 31, 2014 and on subsequent Forms 10-Q. Magellan undertakes no obligation to update any forward-looking or cautionary statements. 2
Agenda A Case for Change Magellan is the Solution Our Growth Story Sustainable Earnings Growth Key Priorities 3
A Case for Change: Healthcare Today Access to Care Fragmented System Aging population / Rise in Chronics Healthcare Reform Industry Consolidation Delivery System: Value Based Poor Outcomes Technology Proliferation Rising Cost of Care Our current healthcare delivery system is fragmented and growing at an unsustainable rate 4
A Case for Change: Why our expertise matters Serious Mental Illness (SMI) 1 in 17 adults live with SMI = ~$300B Prescription Drugs ~$374B spent on pharmaceuticals annually with ~$124B spent on specialty medicines Long Term Care ~800K Medicaid lives in MLTSS in 16 states = >$123B Spinal Fusion Surgeries >480K spinal fusions are performed each year = >$12B Autism Spectrum Disorder (ASD) 1 in 68 children have ASD = ~$59B It affects more lives and drives more costs than you may realize 5
Magellan is the Solution A leading healthcare company focused on managing the fastest growing, most complex areas of health Improving health and lowering costs through innovation 6
Magellan s Innovative Strategy Advanced Analytics Strong Talent & Agile Technology Clinical Excellence Customized Solutions 7
The Magellan Clinical Difference Strategic Approach Clinical Solutions Smart Population Management Identify Opportunities Care Management Provider Alignment & Transformation Create Solutions Deliver Results Quality & Program Integrity Engagement Technology & Data Insights Integrated Clinical Programs 8
Our Growth Story 13 14 15 16-18+ Long-term (3-5) years CAGR Revenue>20% Segment Profit >15% Adjusted EPS>20% Net Revenue of at least $8 Billion by 2018 9
Growth Story: Key Drivers Commercial Public Sector Pharmacy Specialty Solutions Long-term (3-5 years) Revenue CAGR Modest <10% High 20-30% High 20-30% Moderate >10% Margins Compression Consistent Business mix changes Pricing to trend Normalized segment profit margins Mid-teens Mid-single digits Mid-single digits High-single to low-double digits 10
Growth Initiative: Magellan Complete Care Delivering integrated care solutions to the most vulnerable populations Growth Strategy: Launch in new markets through organic/inorganic means Reinforce care model and network Deepen distribution and sales channels 2013 Launched MCC of FL 2014 Presence in FL and NY 2017 5-7 states $2.5B Rev 11
Growth Initiative: Pharmacy Clinical and cost management solutions for any drug, at any provider site of service, under any benefit $2,500.0 $2,500.0 $2,000.0 $1,600.0 $1,500.0 $1,050.0 $1,000.0 $500.0 $324.0 $446.9 $516.4 $578.0 $712.0 $0.0 (in millions) 2009 2010 2011 2012 2013 2014 2015 Est 2018 Est Revenue Estimated Revenue 12
Sustainable Earnings Growth Magellan Complete Care: Versatility of our model: Managing populations with states OR with health plans Durable Business: Large, long term business Future potential: Model of care portable in other geographies and populations Pharmacy: Customer Diversification: Many customers Specialty Drug Expertise: Fastest growing area of pharmacy spend Behavioral & Specialty Solutions: Expertise: Innovations and advanced analytics to meet emerging needs One Magellan: Leverages Related Businesses Cross Selling Opportunities 13
Financial Highlights 2014 Q1 2015 Initial 2015 Guidance Updated 2015 Guidance** Revenue $3,760M $981.0M $4.25B - $4.49B $4.45B - $4.69B Cost of Care & COGS $2,822M $740.5M $3.2B - $3.4B - Segment Profit $266.9M $64.9M $265M - $285M $272M - $292M Net Income $79.4M $7.3M $51M-$67M $45M-$61M Adjusted Net Income* $110.6M $24.4M $88M - $100M $92M - $104M EPS (per diluted common share) $2.90 $0.28 $1.90 - $2.50 $1.67 - $2.26 Adjusted EPS* (per diluted common share) $4.04 $0.94 $3.28 - $3.73 $3.41 - $3.85 * Adjusted Net Income and Adjusted EPS exclude the following adjustments made for acquisitions completed after 1/1/2013: non-cash stock compensation expense resulting from restricted stock purchases by sellers, amortization of identified acquisition intangibles and changes in the fair value of contingent consideration recorded in relation to acquisitions. **As of 4/30/15; assumes no further share repurchases. 14
Capital Deployment Strategy Internal investments Invested ~$100M in MCC and Pharmacy initiatives from 2012 2014 Deployed ~ $ 695M for 8 acquisitions* from 2006 Q1 2015 *Prior to 4D acquisition in April 2015 Return capital to shareholders Disciplined M&A Returned > $ 1B to investors since August 2008 Strong financial position for growth and shareholder return: $344.4M in unrestricted cash modest debt of $267.9M significant borrowing capacity history of strong cash flow 15
Key Priorities 2015-2016 Magellan Complete Care Growth Management of care and admin costs Expand into new geographies and capabilities Pharmacy Growth Build out Medicare capabilities (Part D) Establish in-house traditional mail order capabilities Increase PBM penetration into Health Plan market Behavioral and Specialty Solutions Growth Retain and grow business Implement innovative solutions Management Administrative expense management Effectively deploying capital to accelerate growth and enhance capabilities 16
Q & A