Magellan Health, Inc. (MGLN)

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Magellan Health Services Inc. (MGLN)

Q3 2008 Conference Call

October 31, 2008 9:00 am ET


Renie Shapiro - Senior Vice President of Corporate Finance

René Lerer - President and Chief Executive Officer

Jonathan N. Rubin - Chief Financial Officer

Mark Demilio - Chief Financial Officer


Greg Nersessian - Credit Suisse

Daryn Miller - Goldman Sachs

Carl McDonald - Oppenheimer

Josh Raskin - Lehman Brothers

Scott Fidel - Deutsche Bank Securities

Michael Baker - Raymond James

Kevin Campbell



Hello and welcome to the Magellan Health Services Third Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions]. Today’s conference is being recorded. If there are any objections, you may disconnect at this time.

I now like to introduce your host Renie Shapiro, Senior Vice President of Corporate Finance.

Renie Shapiro - Senior Vice President of Corporate Finance

Good morning and welcome to Magellan’s third quarter 2008 earnings conference call. This is Rene Shapiro, Senior Vice President of Corporate Finance for Magellan Health Services. Here with me today are Magellan’s President and CEO, René Lerer and our Chief Financial Officer, Jon Rubin. They will discuss the financial and operational results of our third quarter ended September 30, 2008. Also joining us is our CFO, a mayor dust Mark Demilio.

Certain of the statements that will made during this conference call are forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown uncertainties and risks which could cause actual results to differ materially from those discussed.

These forward-looking statements 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, 2007 which was filed with the SEC on February 29, 2008, and in the Form 10-Q which will be filed with the SEC later today.

In addition, please note that in this call we refer to segment profits. Segment profits is disclosed and defined in our quarterly report on Form 10-Q and on our annual report on Form 10-K and is equal to net revenues plus cost of care and cost of goods sold, direct service cost and other operating expenses excluding stock compensation expense.

Included in the tables for our press release issued this morning and in our Form 10-Q to be filed later today is the reconciliation from segment profit to the line item income from continuing operations before incomes income taxes and minority interest. We encourage you to review such reconciliations for an understanding of how segment profit compares to that GAAP measure. Our Form 10-Q for the quarter ended September 30 can be found later today on our web site, under the heading Investor Info.

I will now turn the call over to our President and CEO, René Lerer.

René Lerer - President and Chief Executive Officer

Good morning, everyone and thank you for joining us today. Before we go into this quarter’s results, I would like to introduce and welcome our new CFO, Jon Rubin.

Jon has been with us for just under two months now and during that time has been through a world wind orientation and is now fully engaged in his new role. I am truly delighted to have met with Jon.

Let me begin with some brief comments on the third quarter results and then Jon will provide more details on the quarter and our full year outlook, as well as provide directional commentary on 2009. In my closing remarks I will provide a strategic outlook for our business including any update on key priorities and opportunities for growth, as well as comments on the economy and regulatory environment.

I am very pleased to report that this was another excellent quarter for Magellan. As you saw in the press release issued this morning, we have produced $57.6 million of segment profit in the third quarter ending September 30, 2008, and $164.6 million of segment profit for the year-to-date period September 30, 2008. These results were driven by strong performance from our growth segments. Radiology benefits management, specialty pharma and public sector and by slightly lower earnings in the two prior quarters in our commercial behavioral business.

As we continue to achieve strong earnings growth from the acquisitions we made two years ago, we have benefited from the strength of our diversified profit streams, as earnings from radiology and specialty pharma now approach 21% of our total segment profit before corporate expenses.

NIA results reflected continued strong cost of care and administrative cost managing. Well, we are disappointed that we have not yet closed any new business. We continue to be quite bullish on our prospects. I will describe the NIA pipeline later on.

ICORE continue also to produce strong results and maintain consistent growth in the rebate consulting and distribution lines of business. As we discussed last quarter, the focus in our core distribution business is to supplement and support growth in the rebate business. Our continued success with ICORE rebate results is driven by not only our ability to add additional therapeutic classes to existing customers, but also our ability to move market share, as well as successful ongoing negotiation with pharma manufacturers on rebate contracts.

The public sector experience sustained favorable cost trends. We are please with the results in this very important sector and I will address Maricopa commentary later in my remarks.

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