Magellan Health Services Reports Third Quarter 2009 Financial Results

Magellan Health Services, Inc. (Nasdaq:MGLN) today reported net income of $31.0 million, or $.88 per diluted common share, and segment profit of $64.5 million for the third quarter of 2009. The Company also increased guidance for the full year to the upper half of its previously disclosed range.

The Company attributed these results to strong revenue performance across all business segments and effective cost-of-care management. It also announced today that it has signed a binding letter of agreement with WellCare Health Plans, Inc. to expand management of behavioral health care for the plan’s entire book of business, resulting in total annualized WellCare revenues in excess of $100 million.

Financial Results

For the quarter ended September 30, 2009, the Company reported net revenue of $667.6 million and net income of $31.0 million, or $.88 per diluted common share. For the prior year quarter, net revenue was $656.5 million and net income was $23.5 million or $.58 per diluted common share. Segment profit (which represents income from continuing operations before stock compensation expense, depreciation and amortization, interest expense, interest income, gain on sale of assets, special charges or benefits, and income taxes) for the current year quarter was $64.5 million, compared with $57.6 million in the prior year quarter. The Company ended the quarter with unrestricted cash and investments of $220.1 million, including the impact of stock repurchases as well as net cash used for the acquisition of First Health Services.

For the nine months ended September 30, 2009, the Company reported net revenue of $1.92 billion and net income of $62.9 million, or $1.77 per diluted common share. For the prior year period, the Company reported net revenue of $1.96 billion and net income of $62.6 million, or $1.55 per diluted common share. Segment profit for the first nine months of 2009 was $150.3 million versus $164.6 million for the prior year period.

See the attached tables detailing the Company’s operating results, including results by segment.

René Lerer, M.D., chairman and chief executive officer, said, “Our financial performance in the third quarter was strong across all of our business segments, reflecting solid progress in maintaining and growing our customer relationships as well as our success in improving cost of care. By providing appropriate oversight and strong clinical care management, we have demonstrated success in achieving quality outcomes for our customers and their members while effectively controlling costs. This safeguarding of the quality and affordability of care is the foundation of our commitment. At the same time that we’re focusing on these fundamentals, we’re looking forward and investing in product development and innovation, expanding the depth and breadth of our service offerings and identifying new ways to deliver value to our customers.”

Karen S. Rohan, president, said that the quarter’s results demonstrated the progress and success of all businesses – behavioral health, radiology (NIA), specialty pharmacy (ICORE), and Medicaid administration (First Health Services).

“Our strategic focus on customer retention and business diversification is yielding results across all of our lines of business,” Rohan said. “This includes contributions from our newest business, First Health Services, which has further diversified and expanded the breadth of our service to Medicaid customers. In addition, we learned recently that our public sector behavioral health contract in Maricopa County has been extended for a fourth full year, through August 31, 2011. We are exceptionally pleased to have received this vote of confidence in our efforts and to have the opportunity to continue strengthening and transforming this system of care.”

WellCare Expansion

The Company also announced today the signing of a binding letter of agreement with WellCare Health Plans to manage behavioral health services for all WellCare markets. This three-year contract expands upon the Company’s current agreement with WellCare in the state of Georgia and will add approximately 900,000 Medicare and Medicaid beneficiaries and incremental annual revenue of $60 million. Pending regulatory approvals in each state, the Company expects all markets to be fully implemented by the end of the first quarter. The parties will enter into separate definitive agreements for each market to be served by the Company and the parties have agreed that implementation of such definitive agreements is contingent upon the approval of the definitive agreement for Florida business by the Medicaid agency in Florida. Total revenues from all regions, including Georgia, are projected to be approximately $100 million.

“As health care payors across the nation consider business solutions available to manage financial risk and provide high quality, affordable care to their customers and members, we have an emerging opportunity to introduce the services we can provide across all lines of business,” Lerer said. “This trend is highlighted by discussions with organizations that historically have in-sourced management of behavioral health benefits for their membership and who are once again considering the value of a focused, strategic, value-added partner.”

Outlook

Jonathan N. Rubin, the Company’s chief financial officer, said that the strong financial results through September 30, 2009 have led the Company to increase guidance for the full year to the upper half of its previously disclosed range. This guidance, including estimates for First Health Services, projects full-year segment profit in the range of $207.5 million to $217.5 million and net income of $85.3 million to $95.5 million. This equates to diluted EPS of $2.41 to $2.70. The Company’s EPS guidance reflects the impact of the repurchase of 431,000 shares through close of business yesterday, but excludes any impact from repurchases that may occur during the remainder of the fourth quarter.

Rubin noted, “Looking ahead to next year, we are in the process of developing business plans and will provide 2010 guidance in December. In the meantime, we currently expect segment profit growth in 2010, which reflects the recognition of a full year’s revenues from First Health Services and newly contracted businesses, offset by projected membership declines within our commercial behavioral health and radiology customer base and continued margin compression as a result of economic pressures faced by health plan and public sector clients in particular.”

Earnings Results Conference Call

Management will host a conference call at 10:30 a.m. Eastern time on Friday, October 30. To participate in the conference call, interested parties should call 1-888-566-8408 and reference the passcode Third Quarter Earnings approximately 15 minutes before the start of the call.

The conference call also will be available via a live Webcast at Magellan's investor relations page at www.MagellanHealth.com.

A taped replay of the conference call will be available for one week following the call. Interested parties should call 800-229-6227 or 402-220-9679 (from outside the U.S.) to listen.

Those who plan to access the call or Webcast are encouraged to read Magellan's Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on February 27, 2009, and subsequent Quarterly Reports on Form 10-Q, for material information regarding Magellan's operational and financial results, including the section entitled “Risk Factors.”

About Magellan: Headquartered in Avon, Conn., Magellan Health Services, Inc. (Nasdaq:MGLN) is a leading specialty health care management organization. Its customers include health plans, corporations and government agencies.

Cautionary Statement: This release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, as amended, that involve a number of risks and uncertainties. All statements, other than statements of historical information provided herein, may be deemed to be forward-looking statements including, without limitation, statements regarding estimates of 2009 segment profit, net income, earnings per share, care trends, estimates of revenue and market implementation timing related to the WellCare letter of agreement, future share repurchases pursuant to the announced $100 million share repurchase, and directional guidance regarding segment profit for 2010. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, the possible election of certain of the Company’s customers to manage the health care services of their members directly; changes in rates paid to and/or by the Company by customers and/or providers; higher utilization of health care services by the Company’s risk members; delays, higher costs or inability to implement new business or other Company initiatives; the impact of changes in the contracting model for Medicaid contracts; termination or non-renewal of customer contracts; the impact of new or amended laws or regulations; governmental inquiries; litigation; competition; operational issues; health care reform; the impact of varying economic and market conditions on the Company’s investment portfolio; the state of the national economy and adverse changes in economic conditions; and general business conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included within the Company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this release. Segment profit information referred to herein may be considered a non-GAAP financial measure. Further information regarding this measure, including the reasons management considers this information useful to investors, is included in the Company’s most recent Annual Report on Form 10-K and subsequent reports on Form 10-Q filed with the SEC.