MGLN

Magellan Health, Inc. (MGLN)

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Magellan Health Services Inc (MGLN)

Q3 2009 Earnings Call

October 30, 2009; 11:00 am ET

Executives

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

Jonathan N. Rubin - Chief Financial Officer

Karen S. Rohan President, Magellan Health Services

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

Analysts

Carl McDonald - Oppenheimer & Co.

Joshua Raskin - Barclays Capital

Gregory Nersessian - Credit Suisse

Michael Baker - Raymond James & Associates

Daryn Miller - Goldman Sachs

Presentation

Operator

Welcome and thank you for standing by, at this time all participants have been placed on a listen-only mode until the question and answer session. (Operator Instructions).

I would like to introduce Renie Shapiro, Senior Vice President of Corporate Finance. You may begin.

Renie Shapiro

Good morning, and welcome to Magellan’s third quarter 2009 earnings conference call. This is Renie Shapiro, Senior Vice President of Corporate Finance for Magellan Health Serivces. Here with me today are Magellan’s Chairman and CEO, René Lerer, our new President Karen Rohan, and our Chief Financial Officer Jon Rubin. They will discuss the financial and operational results of our third quarter ended September 30, 2009.

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. 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 set forth under the caption Risk Factors in Magellan’s annual report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on February 27, 2009, and in the form 10-Q which will be filed with the SEC later today.

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

Segment profit information referred to in this call may be considered a non-GAAP financial measure. Included in the tables issued with this morning’s press release and on our Form 10-Q to be filed later today is the reconciliation from segment profit to the line item income from continuing operations before income taxes. We encourage you to review such reconciliation for an understanding of how segment profit compares to that GAAP measure. Our Form 10-Q for the quarter ended September 30, 2009 can be found later today on our website www.magellanhealth.com under for investors.

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

René Lerer

Thank you Renie and good morning everyone and thanks for joining us today. Before we start and discuss this quarter’s results, let me again introduce and welcome to Magellan, our new President Karen Rohan who joined us this on August 1. Each of the five strategic business units now reports directly to Karen, and she’s fully engaged in her role. She’s brought great energy, enthusiasm and additional strategic vision and discipline to these areas and I am delighted to have her as part of the Magellan team.

For todays discussion, I will offer some brief comments on the third quarter results, provide an update on the progress of our share repurchase program, and review highlights for each of our business segments. Following my remarks, Jon will provide more details of the quarter and our full year outlook as well as some brief commentary on 2010.

After Jons done, I will discuss briefly our strategic focus and priorities and make some observations on the current state of healthcare reform as an impact for Magellan and other developments in the Medicaid environment.

I am very pleased to report you a strong results for the third quarter 2009 that reflect good performance across all of our biggest business segments, and were now forecasting 2009 results to be in the upper half of our guidance range. For the quarter ended September 30, 2009 we produced net income of $31 million, diluted earnings per share of $0.88 and segment profit of $64.5 million.

For the nine months year-to-date period, we produced net income of $62.9 million, diluted EPS of $1.77 and segment profit of $150.3 million. We ended the quarter with $220.1 million of unrestricted cash and investments, which is after the purchase of First Health Services. Jon will provide more details on our financials later in the call.

During our last earnings calls we announced that the Board of Directors on July 28th had authorized a share repurchase program of up to $100 million over a two-year period. To the close of business yesterday, we repurchased approximately 431,000 shares under this current program at an average share price of $30.43, for a total cost of $13.1 million.

The program remains in place and the pace of further repurchases will take into account share price opportunities, projected capital needs, M&A prospects, and the status of the current markets in our 2010 cash flow outlook. Ill turn in a moment to the highlights for each of our segments. But first want to comment on care trends in our behavioral health business. Previously, we discussed the increased cost pressures we have been seeing in certain accounts in our behavioral health book of business.

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