MGLN

Magellan Health, Inc. (MGLN)

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Magellan Health Services, Inc (MGLN)

F4Q08 and Full Year 2008 Earnings Call

February 27, 2009 10:00 am ET

Executives

Renie Shapiro - Senior Vice President of Corporate Finance and Investor Relations

René Lerer, M.D.- President, Chief Executive Officer, Chairman

Jonathan N. Rubin - Chief Financial Officer

Analysts

Carl McDonald - Oppenheimer & Co.

Gregory Nersessian - Credit Suisse

Ray [Win] - Barclays Capital

Michael Baker - Raymond James & Associates

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Magellan Health Services Inc. Fourth Quarter and Full Year 2008 Earnings Results Conference Call. (Operator Instructions) Now I would like to turn the call over to your host today Senior Vice President of Corporate Finance and Investor Relations Miss Renie Shapiro.

Renie Shapiro

Good morning and thank you for joining us today. Here with me today are Magellan’s Chairman and CEO René Lerer, and our Chief Financial Officer Jon Rubin. They will discuss the financial and operational results of our fourth quarter and year ended December 32, 2008.

Before we proceed with this call let me read our disclosure statement.

Certain of the statements that will be 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, but a complete discussion of risks is set forth under the caption Risk Factors in Magellan’s annual report on Form 10-K for the year ended December 31, 2008 which will be filed with the SEC later today.

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

Segment profit information referred to in this call may be considered a noon-GAAP financial measure. Included in the tables issued with this morning’s press release is the reconciliation from segment profit to the line item income from continuing operations before income taxes and minority interest. We encourage you to review such reconciliation for an understanding of how segment profit compares to that GAAP measure. For additional information regarding this measure, including the reasons management considers this information to be useful to investors, please see Magellan’s annual report on Form 10-K for the year ended December 31, 2008 which will be filed with the SEC later today and which will be posted on our website later today.

I will now turn the call over to our Chairman and CEO, René Lerer, M.D

René Lerer, M.D

Thank you Renie and good morning everyone and thank you for joining us.

Let me begin with some comments on the full year and fourth quarter results, then we’ll turn it over to John to review the details of the year and quarter, as well as provide some commentary on 2009. In my closing remarks I will comment on key issues for the company including our outlook for growth, legislative initiatives, recent changes to our Board of Directors and a discussion of our strategic focus and priorities.

Let me start by saying that we are very pleased with our results for 2008. Our segments have performed well with particular strength in public sector behavioral, specialty pharma, and radiology benefits management. As you saw in the press release issued this morning, for the full year ended December 31, 2008 we produced net income of $86.2 million, EPS of $2.16, and segment profit of $219.6 million.

For the fourth quarter we produced net income of $23.6 million, EPS of $0.61, and a segment profit of $55.0 million.

We ended the year with a solid balance sheet, no debt, and $321.1 million of unrestricted cash and investments.

In addition to our strong operating results, we have made good progress on the share repurchase program we announced last January. Through February 25, 2009 we repurchased approximately 4.3 million shares for a total of $151.6 million completing approximately 76% of the approved $200 million program authorized by the Board.

Before John discusses the details of our financial results, let me first provide a brief review of each of our businesses and some of the key issues in each.

In the behavioral health line, let me discuss results in both commercial and public sector, progress on key account renewals, and developments in Maricopa County.

First, results of our commercial segment are down year-over-year due primarily to terminated contracts as well as higher cost of care and a portion of a larger risk contract as we’ve discussed on prior calls. John will provide more details on this later in the call. We are committed to implementing plans to improve results on this account going forward.

On the public sector side, earnings have grown significantly year-over-year. This reflects strong results across the entire segment and it includes the impact of a full year of the Maricopa contract. We have worked diligently on improving our service results in Maricopa and we continue to work with our customer and the community to affect the transformation and visions to the system of care there. I will talk about Maricopa a little more later.

Regarding behavioral health renewals, we disclosed at the end of the year that one customer, which generated net revenues of $217 million for the year, extended its contract for an additional two years through December 31, 2012. We are engaged in renewal discussions with another customer, which generated net revenues of $90.8 million for the year and has a contract that runes through June 30, 2009. Although the contract has yet to be signed, we are optimistic about its outcome.

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