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Magellan Health Inc (MGLN) Q3 2018 Earnings Conference Call Transcript


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Magellan Health Inc (NASDAQ: MGLN)
Q3 2018 Earnings Conference Call
Nov. 07, 2018 , 6:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome, and thank you for standing by for the third quarter 2018 earnings call. (Operator Instructions)

Now I will turn the meeting over to Mr. Joe Bogdan. Thank you, sir. You may begin.

Joe Bogdan -- Senior Vice President of Corporate Finance

Good morning, and thank you for joining Magellan Health's Third Quarter 2018 Earnings Call. With me today are Magellan's Chairman and CEO, Barry Smith; and our CFO, Jon Rubin.

The press release announcing our third quarter earnings was distributed this morning. A replay of this call will be available shortly after the conclusion of the call through December 7. The numbers to access the replay are in the earnings release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, Wednesday, November 7, 2018, and have not been updated subsequent to the initial earnings call.

During our call, we'll make forward-looking statements, including statements related to our growth prospects and our 2018 outlook. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the risk factors discussed in our press release this morning and documents we filed with or furnished to the SEC.

In addition, please note that Magellan uses certain non-GAAP financial measures when describing our financial results. Specifically, we refer to segment profit, adjusted net income and adjusted EPS, which are defined in our SEC filings and in today's press release. Segment profit is equal to net revenues less the sum of cost of care, cost of goods sold, direct service costs and other operating expenses and includes income from unconsolidated subsidiaries, but excludes segment profit from non-controlling interests held by other parties, stock compensation expense, special charges or benefits as well as changes in fair value of contingent consideration recorded in relation to acquisitions. Adjusted net income and adjusted EPS reflect certain adjustments made for acquisitions completed after January 1, 2013, to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, amortization of identified acquisition intangibles, as well as impairment of identified acquisition intangibles.

Please refer to the tables included with this morning's press release, which is available on our website for a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures.

I will now turn the call over to our Chairman and CEO, Barry Smith. Barry?

Barry M. Smith -- Chairman & CEO

Thank you, Joe. Good morning, and thank you all for joining us today.

On our call this morning, I'll discuss the following topics. First, I'm going to comment on the financial results for the quarter and our reduction to 2018 guidance. Second, I'll make some observations about our growth, success in winning new business and integrating acquisitions. I'll also discuss challenges that we faced along the way. Third, I'll provide an update of some of the operational highlights from the third quarter. Finally, I will share our current focus -- areas of focus of each business before transitioning to Jon's detailed financial update.

For the third quarter of 2018, we reported net revenue of $1.9 billion, net income of $27.1 million and EPS of $1.09 per share. Our adjusted net income was $36.2 million, or $1.45 per share. And we achieved segment profit of $88.3 million. The quarterly results included approximately $22 million in out of period favorability. We are lowering our 2018 earnings guidance due to the following factors: Medical cost pressures and unexpected rate adjustments in healthcare; the late timing of network rate improvement actions in pharmacy; and actions we are taking to improve the efficiency of our operating models in both business segments, which will result in severance and other costs this year. Jon will provide additional details on both the quarterly financial results and the 2018's earnings (ph) guidance later in the call. Jon will also provide some initial commentary on our outlook for 2019.

In light of our recent performance and lowering of guidance, it is a timely opportunity for us to pause and consider where we are today in comparison to our expectations along with our near term priorities and vision for the future. Over the past five years, we have executed against a strategy based upon our two growth platforms: Magellan Healthcare and Magellan Rx Management. During that time, we launched Magellan Complete Care, or MCC, which today represents over 50% of our Healthcare revenue. In addition, we've grown our Pharmacy business from a small specialty drug management company and Medicaid administrator in 2013 to a full-service PBM. As a result of our efforts, we have more than doubled the size of the Company. Magellan accomplished this rapid growth through a combination of organic execution and acquisitions, which transformed our Company from a legacy manager of behavioral health to manager of complex populations, specialty healthcare and pharmacy. Our significant growth has demonstrated our ability to win business in both healthcare and pharmacy. We are disappointed that our recent financial performance did not meet our expectations. In retrospect, we undertook a number of significant initiatives in a very short time frame.

In Healthcare, integrating the acquisition of Senior Whole Health, while launching in several new MCC markets, extended our resources to their limits. We have grown from these experiences. We've gained more discipline, banked additional operating knowledge and added key resources with specific expertise, which will help us better prepare and manage future growth. Most importantly, we have a solid plan to improve performance going forward. While we acknowledge our execution shortfalls, we believe that Medicaid managed care is a good business and will be an engine for Magellan's top and bottom line growth, as we look -- work to unlock the earnings power of our MCC portfolio.

In the pharmacy market, the PBM landstake -- landscape is evolving. As we highlighted last quarter, we are seeing more aggressive pricing in the market, including in the specialty carve-out space. At the same time, we are seeing more demand than ever for the differentiated services that we provide. We believe that the pending medical mergers will create a long term opportunity for Magellan Rx to emerge as the largest independent PBM for managed care organizations and employers. We will continue to respond to the competitive environment in a very disciplined manner, while educating the market about our unique clinical and specialty drug management capabilities and the value of our independence as a PBM.

Now let me provide you with an update on some specific developments within our businesses during the third quarter, beginning with our Healthcare segment. In Virginia, we began phasing in the management of the TANF population under the Medallion 4.0 program in August. All operational aspects of the implementations have gone smoothly. As of October, we are managing approximately 20,000 TANF members, which we expect to grow to approximately 30,000 by the end of the year, when the remaining regions are fully phased in. On January 1, 2019, we will assume management responsibility for the Medicaid expansion population. Readiness plans are on track and we've received capitation rates for this population, which include a risk corridor to protect plans from the still unknown morbidity levels of the new population. We received 2019 draft capitation rates and risk adjustment for our CCC Plus program. While rates for 2019 were in line with our expectations, risk adjustment will apply retroactively to 2018 and will likely have an unfavorable impact on our 2018 revenue. We have incorporated this into our updated guidance. Along with other health plans, we continue to work with the state to ensure the adequacy of future rates.

Overall, our business in this market continues to grow, as does our experience. We have some issues to resolve, but we have specific plans to address them and have made initial progress. In Arizona, we completed implementation-readiness activities during the quarter and launched our Medicaid managed care plan on October 1 for eligible members in Maricopa, Pinal and Gila counties. While there was not an initial membership block assigned to Magellan, the state will auto assign new members to smaller plans until they reach 80,000 lives. Our current membership is approximately 1,700 lives and we expect 3,000 to 4,000 by the end of the year. As we noted previously, we are not expecting a material financial contribution from the Arizona plan in 2018 or 2019.

Now let me update you on Florida. As you may recall, we went through a renewal RFP with the state. Although initially unsuccessful, we filed a protest with the state. Florida's Agency for Health Care Administration, or AHCA, recognized the merits of the protest and notified us of their intent to award Magellan a Medicaid contract to continue servicing members with Serious Mental Illness in Regions 4, 5 and 7 alongside another managed care plan. This new contract begins in the first quarter of 2019 and runs through September 30, 2023. While we are disappointed that we were -- we'll not be able to continue to service all of our existing Florida members going forward, we appreciate the continued opportunity to collaborate with the state to improve healthcare outcomes through our innovative, cost-effective and proven integrated model.

In our behavioral health carve-out business, I am happy to report that Magellan has been awarded a contract with Louisiana's Coordinated System of Care for the next three years with two one-year renewals. Similar to the current ASO contract, we will continue to provide wraparound and family support services to members, but now on a risk basis. This program helps to ensure that young people at risk of out of home placement with significant behavioral health challenges are able to receive the supports and services they need. Since March of 2012, Magellan has served over 10,000 Louisiana youth in the program, and over 70% of the participants have exhibited improved behavioral health outcomes.

Now let me provide you with some of the quarterly operational highlights for Magellan Rx. In our Part D business, we elected, through the 2019 bidding process, to reduce our footprint and focus on renewing only our four largest regions, representing approximately 60% of our total PDP enrollment. Our bid rates were below the benchmark rates in all four regions that we bid. And as a result, we will retain our auto assigned low-income members for 2019. As we mentioned in the past, our participation in the PDP business is primarily a capability play for managed care PBM business, and the experience and capabilities that we've developed to date in Part D differentiate us from many of the other next year PBMs in the marketplace. Magellan's core commercial PBM pipeline remains strong. We're expecting healthy new business growth for 2019 in both our managed care and employer books. We have also continued to see traction as we move upmarket with larger employers.

On the specialty pharmacy carve-out business, we continue to focus on responding to the competitive environment by reshaping the way we sell our products and services. Specifically, we are proactively engaging with our customers to enhance our product offerings, expand our services, and deliver incremental savings, while extending contract terms. While we have not experienced any material new terminations -- termination notification since our second quarter earning call, I remind you that the notifications we experienced earlier this year will have an incremental earnings impact in 2019. We've also launched a broad initiative to improve the cost of goods sold within our Pharmacy business. This includes recontracting our pharmacy network rates, improving terms for our specialty formulary management, and reducing our drug acquisition costs for our distribution business.

We acknowledge this has been a challenging year for Magellan. Within Healthcare, we continue to focus on managing the cost of care, while improving quality. In Pharmacy, we are focused on continued growth in our core PBM business, retaining specialty carve-out customers and improving the -- our cost of goods sold. From an infrastructure and administrative perspective, we need to become more efficient across the Company to enhance our competitive position. We have already begun to consolidate platforms, deploy technology and review current structures and processes for improved operational efficiencies. We'll be sharing more details on these initiatives on our guidance call in December.

Before turning the call over to Jon, I'd like to emphasize that while our strategy has not changed and we've achieved strong top line growth, we are working to ensure we achieve earnings commensurate with this growth. We continue to focus on delivering innovative solutions for the fastest growing, most complex healthcare areas. In the short term, we expect the environment to remain challenging, but we see significant long term opportunity in both our Healthcare and Pharmacy businesses. We acknowledge that our financial results have been below our expectations. We are focused on partnering with our customers to increase the quality of healthcare for our members, while effectively managing both the cost of care and administrative expenses.

Now I'll turn the time over to our Chief Financial Officer, Jon Rubin. Jon?

Jonathan N. Rubin -- Chief Financial Officer

Thanks, Barry, and good morning, everyone.

Prior to commenting on the financials, I'd like to note that we're revising the Healthcare operating results table in our 10-Q to provide detailed metrics on our MCC business, given its growth and significance to our strategy. For comparative purposes, we've provided a quarterly historical reclassification of this information from first quarter 2017 through third quarter 2018 as an additional exhibit within this morning's earnings release.

Now with respect to the financials, on this morning's call, I'll review the third quarter results, discuss our revised outlook for the full year, and provide some initial commentary on our 2019 business plan. For the quarter, revenue was approximately $1.9 billion, which represents an increase of 31% over the same period in 2017. This increase was mainly driven by net business growth and the annualization of revenue from prior year acquisitions. Net income was $27.1 million and EPS was $1.09. This compares to net income and EPS of $32.5 million and $1.32, respectively, for the third quarter of 2017. Adjusted net income was $36.2 million and adjusted EPS was $1.45. This compares to adjusted net income of $40.4 million and adjusted EPS of $1.64 for the prior year quarter. Segment profit was $88.3 million for the third quarter compared to $87.7 million in the prior year quarter.

For Healthcare business, segment profit for the third quarter of 2018 was $61.7 million, which represents an increase of 7% compared to the third quarter of 2017. Healthcare results for the quarter include net favorable out of period adjustments of approximately $22 million, largely driven by favorable client settlements. Other material drivers of the quarterly change in segment profit included the incremental operating losses in Virginia and the impact of the October 2017 rate reduction in Florida, partially offset by the incremental earnings contribution from the Senior Whole Health acquisition that closed on October 31, 2017.

Now turning to Pharmacy management. We reported segment profit of $33.6 million for the quarter ended September 30, 2018, which was a decrease of 13% from the third quarter of 2017. This year-over-year decrease was primarily driven by a decline in earnings in our specialty carve-out business, resulting from lost formulary management contracts, which we discussed on our second quarter earnings call.

Regarding other financial results, corporate costs inclusive of eliminations, but excluding stock compensation expense, totaled $7 million compared to $8.5 million in the third quarter of 2017. This change was due to costs in the prior year quarter related to the Senior Whole Health acquisition. Total direct service and operating expenses excluding stock compensation expense and changes in fair value of contingent consideration were 13.8% of revenue in the current quarter compared to 15.4% in the prior year quarter. This decrease was primarily due to the acquisition of Senior Whole Health, net growth, lower discretionary benefit expenses, and a change in business mix. Stock compensation expense for the current quarter was $9.3 million, a decrease of $1 million from the prior year quarter. The reduction was largely attributable to restricted stock issued on part of the CDMI acquisition that vested in 2017.

The effective income tax rate for the nine months ended September 30, 2018 was 26.3% versus 34.4% in the prior year. The change in tax rates was largely due to the reduction in base rate, as a result of the 2017 Tax Act, partially offset by the impact of the non-deductible Health Insurer Fee reinstituted in 2018. We anticipate a full year effective income tax rate of approximately 30%.

Our cash flow from operations for the nine months ended September 30, 2018 was $34 million. This compares to cash flow from operations of $112.7 million for the prior year period. This year-over-year change is primarily related to the timing of receivable collections from states in our MCC business.

As of September 30, 2018, the Company's unrestricted cash and investments totaled $232.2 million compared to $261.2 million at December 31, 2017. Approximately $134.2 million of the unrestricted cash and investments at September 30, 2018, is related to excess capital and undistributed earnings held at regulated entities. Restricted cash and investments at September 30, 2018 decreased to $380.8 million from $465.4 million at December 31, 2017. This decrease was primarily due to accounts receivable increases as well as improved capital efficiency achieved through substituting a letter of credit for statutory surplus in one of our MCC markets.

Year-to-date through October 31, 2018, we repurchased approximately 680,000 shares for $53.2 million. We have approximately $200 million remaining in our share repurchase authorization program, which runs through October 22, 2020.

Now, as Barry mentioned, we're updating our guidance to reflect the following items. First, utilization pressure in our Healthcare business, and we're actively working on executing action plans to mitigate this pressure. Second, in MCC of Virginia, the unfavorable update to our expected risk scores for 2018. Third, modestly lower margins in our Pharmacy business as a result of delayed timing of network rate improvement actions. And finally, as a result of our operating efficiency initiatives, we're including an initial estimate of severance and other costs that we expect to recognize in 2018.

As a result of the above, we're revising our 2018 full year earnings guidance ranges to the following. Net income of $68 million to $88 million; EPS in the range of $2.71 to $3.51; segment profit of $290 million to $310 million; adjusted net income of $107 million to $123 million; and adjusted EPS in the range of $4.26 to $4.90.

In addition, we're in the process of finalizing our business plan for 2019 and we'll provide detailed guidance in early December. In advance of the 2019 guidance call, I'll now provide some high-level commentary. To start, our 2018 guidance range for segment profit needs to be adjusted by three factors to arrive at a run rate. First, our year-to-date results include approximately $26 million of net favorable out of period adjustments. Second, our full-year 2018 segment profit guidance includes the benefit of approximately $6 million related to the provision for non-deductibility of the Health Insurer Fee, which will be suspended in 2019. And finally, our updated 2018 segment profit guidance includes $10 million to $20 million of expected severance and other related costs.

After adjusting for these three items, our 2018 normalized segment profit run rate would be in the range of $270 million to $290 million. We currently expect that 2019 segment profit will be roughly consistent with this normalized range for 2018. Key drivers of the segment profit increases in 2019 are anticipated to be cost of care initiatives for MCC Virginia and other healthcare contracts, the annualization of new business sold during calendar year 2018, the impact of new business effective in 2019 and same-store growth within existing contracts. We expect these increases will be essentially offset in 2019 by the following headwinds. The reduction in our MCC footprint in Florida, which will result in the contract providing an immaterial contribution to earnings in 2019; the impact of lost contracts; and the impact of the lower level of discretionary benefits in 2018, which we expect to normalize in 2019.

In summary, while we're not pleased with our results this year, I'm confident that our growth strategy is sound. After transforming our business and achieving strong top line growth over the past few years, we have significant earnings power in our current portfolio, as we work to increase our margins to industry-competitive levels. We're continuing to further develop our multi-year earnings improvement plan to achieve this, and we'll provide more details on this plan and the execution timeline on our call in early December, when we provide 2019 guidance.

With that, I'll now turn the call back over to the operator, and we'll be happy to take your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we will go to our first response from David Styblo with Jefferies. Your line is open.

David Styblo -- Jefferies -- Analyst

Hi. Good morning. Thanks for taking the question. Maybe I just want to start out with the commentary about the severance cuts that you guys are making. Can you help us understand what parts of the business those are coming from, what duties or roles those are related to? Just trying to get my arms around the cuts that you might be making. And does that create some risk or jeopardize your ability to manage costs at a time when they probably need some extra attention and focus on the initiatives across both sides of the business there?

Barry M. Smith -- Chairman & CEO

Well, David, there are -- thanks for the good question, David, and for joining us today. There are several initiatives we've got under way. We have some business, for example, in the State of Florida today, where we have roughly 40% of the covered lives we had from this year and the prior years. So some of the severance is related to contracts that have terminated that we're transitioning. The other thing that we're looking at very closely are both spans and layers within the Company, meaning that we have -- we want to be -- make sure that we're designing our processes to be far more efficient, and so over the next little while, we'll be looking at the opportunities to create a more efficient organization. So we'll get back to you with more detailed information on our update for the guidance call for 2019 on December 7.

David Styblo -- Jefferies -- Analyst

Okay. Obviously, this -- you guys talked about this being a challenging year, and some of these things, sometimes you win, (inaudible) contracts or the new contracts in Virginia have had some start-up issues. I guess we don't hear some peers talking about some of the same issues in Virginia, maybe it's because they are so much larger and it gets covered up a little bit more. But I'm just curious to hear your perspective on what's maybe happening in Virginia, specifically. Do you guys think that that, as a whole, can get to a profitable margin, say, in the next two to three years like most contract peers? Is there something structurally different about that award? And then, I know you don't want to get too far into 2019 guidance, but what -- do you expect that business to be losing money again in 2019?

Barry M. Smith -- Chairman & CEO

We'll split the question in two parts. Let me kind of give you kind of the overhead -- overall response there. Virginia is a little bit different for Magellan. In that, we were the only new entrant in the state, both for the ABD population at the first of the year for the CCC as well as for the Medicaid expansion. So for us, we are building the infrastructure, building the management processes within the state, managing cost of care and building those processes and systems. So for us, it's new work, work that we're learning from and work that we're implementing. So it's a bit different than most of the established MCOs. The second thing I would say is that this implementation process of three different implementations roughly in 15 to 18 months is very unusual. It's a good new story we believe, because the state likes the work that we've done, we have great credibility with the state, and they've awarded us incremental business. So that's a good new story. But when you implement three times in a row in phased-in implementations, it does create a lot of overhead within the operation and a lot of challenge to both manage cost of care, as well as making sure that we hit the targets the state of set -- has set in terms of the dates of implementation and the processes. So we feel good about what we've done there. We have a great reputation in the state, and above all else, we're going to make sure that we maintain those proper relationships and service levels for the members that we serve. So that's all worked out really well, but again we're very different than the other providers in the state, because, again, we've done three new implementations that were new to the state. Jon?

Jonathan N. Rubin -- Chief Financial Officer

Yeah. Thanks. And couple of other things I'd just mention, David, one being that, on top of that, again, given what Barry said about us being new to the market, we also are, in a sense, having the rates settle as well through the risk adjustment process. So this year, based on the preliminary risk scores that we've received, we think we will see some incremental pressure which is built into the guidance this year. So we had talked about coming into this quarter in a couple of different phases, we were -- we had start-up losses in Virginia order of magnitude in the $35 million range. The risk scores put an additional $10 million of pressure on top of that this year. That is short term, and that we've received 2019 draft rates, and actually those are more in line when you take into account both the base rates and the risk scores to what we expected. So we expect the pressure on that side to be short term. As we think about 2019, again, we're not in the point where we're going to give guidance, but to at least directionally answer your question, we think we still could see some losses in Virginia. Again as Barry said, we have a whole new population coming on with the expansion population, but do think that -- and do expect an -- as we think about our business plan for next year, significant improvement. Long term though, we see every opportunity for this contract to be running at normal Medicaid margins. If you think to the earnings power over time, and I would look at that as probably a two-year period, it's pretty significant. So we're still very bullish long term on the contract. Operationally, things have gone well. The relationship with the state is very strong. And we're in a -- in the mode now of executing on a number of initiatives to get there over the multi-year period.

Barry M. Smith -- Chairman & CEO

And let me just add on to Jon's comment, and we'll use Virginia as an example. But with MCC, we've actually invested more resources both for MCC enterprise across the board, as well as locally to make sure that we're on top of appropriate medical cost management. We want (ph) to do the right thing by our members. We've just recently hired a new MCC CMO, for example; very experienced Medicaid medical loss ratio management. And we've hired a new analytics lead for MCC. So we've been investing pretty heavily within MCC to manage the very issue that you've brought up.

David Styblo -- Jefferies -- Analyst

Okay. Thanks. My last one is, you commented earlier about extended resources, just as you guys were implementing new contracts and so forth. I guess, as you go forward right now, is there -- does there need to be a shift in strategy in terms of growth? In other words, do you guys maybe need to put the brakes on growth and work on just improving the challenges that you guys had before you? Or do you think you can still pursue other growth opportunities, particularly some of the larger RFPs that are coming out in the market and across Medicaid in the next six to 12 months?

Barry M. Smith -- Chairman & CEO

We absolutely do believe that we need to digest what we've already consumed and be very thoughtful about what we bring on to the chassis. We think there are great opportunities coming out, but we've actually already started to moderate our view and been highly selective of those RFPs that we respond to. There are opportunities though in the future that we continue to develop. So I wouldn't say that we're going to stop drilling, we certainly won't, but we will be very, very selective in terms of the RFPs, the state, the programs that we do pursue.

Jonathan N. Rubin -- Chief Financial Officer

The other thing, just to add quickly to that, David, is that, in addition to what Barry said, we'll look selectively at new markets to expand into, maybe it's one a year that we'll be focused on versus trying to do more than that. There is significant growth opportunity within our existing markets. And part of what we need to do, when you think about Florida, Arizona and even our other MCC markets, is not just to make sure we're stabilizing and operating at high levels, but also looking at expansion opportunities and getting to scale in each of those markets. So part of the strategy that Barry was describing is really wanting to solidify and grow in our existing markets while we're selectively looking at other markets, but definitely on a more measured pace.

David Styblo -- Jefferies -- Analyst

Understood. Thanks. I'll step back for others.

Barry M. Smith -- Chairman & CEO

Great. Thanks, Dave.

Operator

Thank you. Our final question we have in queue is Michael Baker with Raymond James. Your line is open.

Michael Baker -- Raymond James & Associates, Inc. -- Analyst

Yeah, I was looking on the Pharmacy side to get some color on the delays in the network rates, what's kind of driving that? And then secondarily, it sounds like some competitors are also adjusting their model, so maybe you can give us a sense for what the future you see might look like on the Pharmacy side.

Barry M. Smith -- Chairman & CEO

Yeah. Thanks for the good question, Michael. We look at really three areas of opportunity within Pharmacy. One is clearly the pharmacy network. We've already made some strides and locked in some savings for 2018 -- later 2018 going into 2019. We still are continuing to negotiate, as we've built massive volume, as we add new employer business to our book of business, and we've had and will have significant growth in that space as well. So it's an ongoing process. So I wouldn't say that we've been delayed. It's actually we're having more and more success as we grow mass and scale. So again, we're working on those things, we're working with the national providers, and those -- that dialog is ongoing. And we hope to have those things included in the relatively near future. We also focused on formulary management. These are the high-cost specialty drugs, of course. We have some real opportunities to impact even more some of these large target drug classes that represent large cost for our customers. And so we continue to expand our focus on opportunities within the formulary management business. And then also with the drug acquisition cost, we're looking for opportunities to reduce the drug costs for mail order, both specialty and non-specialty. So these are three areas that we are working simultaneously. And I would say that the pharmacy network piece of it, particularly, we do have a few larger network opportunities that we hope to close in the near future.

Jonathan N. Rubin -- Chief Financial Officer

Yeah, and just one quick detailed point on that. Mike, in terms of some of the comments in the script around the timing of these actions, there were some specific actions that Barry had referenced that, from a timing standpoint, we had expected to be implemented for third quarter that has slipped a little bit to later in the year. So it's very temporary, it has impact on both third quarter and the guidance for the full year. But long term, we expect to achieve the same benefits that are actually well on our way to getting there.

Michael Baker -- Raymond James & Associates, Inc. -- Analyst

And then, finally, just wondering if you could give us the sense of the size of the specialty carve-out business within Pharmacy, given the fact that it seems like that's the one that's pressured the most versus other segments which have growth opportunities to it?

Jonathan N. Rubin -- Chief Financial Officer

Yeah. So in the specialty pharmacy carve-out business, if you looked at actuals (ph) for 2017, we were running roughly in the $90 million range. If you look at the results through three quarters, and again, all the information will be in the Q, we'd expect that. And this is -- these are revenue numbers to be run rating at around the mid-70s this year. And given some of the terminations we've had, we expect it to be a little bit lower in 2019. But one thing I would underscore is, although there's a lot of opportunities in PBM, there are still opportunities in the specialty carve-out space as well. Again, we've gone through some temporary challenges as a result of some of the short term aggressive pricing we've seen in this segment. But we still continue to see opportunities, have them in the pipeline and actually are still selling business. So I wouldn't look at that as just a legacy business, but one that we will continue to pursue.

Michael Baker -- Raymond James & Associates, Inc. -- Analyst

Thanks a lot.

Jonathan N. Rubin -- Chief Financial Officer

You bet.

Barry M. Smith -- Chairman & CEO

Great. Thanks, Michael.

Operator

Thank you. We have no further questions.

Barry M. Smith -- Chairman & CEO

Well, we appreciate you joining us today on our earnings call, and we'll be back to you on December 7 with our guidance for 2019. Thank you for joining us.

Operator

We thank you all for your participation in today's conference. That will conclude the call. You may now disconnect. Thank you.

Duration: 40 minutes

Call participants:

Joe Bogdan -- Senior Vice President of Corporate Finance

Barry M. Smith -- Chairman & CEO

Jonathan N. Rubin -- Chief Financial Officer

David Styblo -- Jefferies -- Analyst

Michael Baker -- Raymond James & Associates, Inc. -- Analyst

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