Event Brief of Q1 2007 Healthways Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

PARTICIPANTS

. Ben Leedle, Healthways, Inc., President and CEO . Mary Chaput, Healthways, Inc., EVP and CFO . Brooks O'Neil, Dougherty & Co, Analyst

. Ryan Daniels, William Blair, Analyst . Newton Juhng, BB&T Capital Markets, Analyst . Josh Raskin, Lehman Brothers, Analyst . Glenn Garmont, First Albany Capital, Analyst . Doug Simpson, Merrill Lynch, Analyst . Mike Maguire, FTN Midwest, Analyst

OVERVIEW

HWAY reported 1Q07 GAAP diluted EPS of $0.32 and total revenues of approx. $117m. Expects 2Q07 GAAP diluted EPS to be in the range of $0.29-0.30. Expects FY07 total Co. revenue to be in the range of $667-701m. Co. is expecting GAAP diluted EPS for FY07 to be in the range of $1.44-1.61.

FINANCIAL DATA

A. Key Data From Call 1. 1Q07 total revenues = approx. $117m. 2. 1Q07 GAAP diluted EPS = $0.32. 3. FY07 total Co. revenue guidance = $667-701m. 4. FY07 GAAP diluted EPS guidance = $1.44-1.61. 5. 2Q07 GAAP diluted EPS guidance = $0.29-0.30.

PRESENTATION SUMMARY

S1. Business Review (B.L.) 1. Highlights: 1. HWAY had a strong performance for 1Q07 with diluted EPS increasing 78% to $0.32 vs. $0.18 for the prior year on a 29% growth in total revenues.

1. Earnings growth is fully attributable to the core commercial

business, which produced a 76% growth in diluted EPS, which was $0.04 or 10% above the top end of the guidance for 1Q07. 2. This growth follows 68% comparable qtr. growth in the core business earnings for 4Q06 and 38% comparable qtr. growth for 3Q06. 2. Consistent with recent trends, the growth in the core business was primarily driven by the expansion of the business with self-insured employers on behalf of the health plan customers. 1. At the end of 1Q07, the lives under management represented by this portion of Co.'s business had increased 45% to 967,000 lives since the end of 1Q06. 2. Contracts with self-insured employers accounted for all of $7.9m annualized revenues in the backlog at the end of "1Q". 3. Continued strong growth in self-insured lives further validates Co.'s strategic focus on its health plan customers who as aggregators of these lives have enabled it to expand HWAY's penetration of this market opportunity rapidly and efficiently. 4. The addition of ten new health plan customers and 21 new employer customers since the beginning of the FY provides additional evidence that the demand for comprehensive Health and Care Support services is accelerating. 1. HWAY is extremely well-positioned to capture this demand by employers, in fact by all payers, for proven Health and Care Support programs that address the health and spiraling

healthcare costs of their populations. 5. By continuing, most recently through the acquisition of Axia, to strengthen Co.'s ability to provide the broadest spectrum of integrated, personalized, and proven evidence-based interventions that address the health and productivity of every individual employee at any co., HWAY expects to achieve continued substantial profitable growth in this market. 6. In addition to the strong growth in the business with self-insured employers is the high level of interest in the health plan market in its expanded Health and Care Support

capabilities. 1. Including the nine Health Support contracts for health plan, Medicare Advantage populations that Axia signed before the acquisition was completed. 2. HWAY added 14 new, expanded or extended health plan contracts 29 since the end of FY06 and 29 new contracts for outcomes-driven myhealthIQ Health Support program. 7. Co. continues to have a robust pipeline of potential health plan business with both existing customers and new prospects

that also demonstrates that the momentum for Health Support

solutions is strong and growing. 8. Over 80% of the RFPs now seen are focused on the full continuum, preferably through a single source provider. 2. Integration Details: 1. Co. is progressing well in the integration of Axia, a little more than one month after the transaction was completed. 2. The success that the Co. is achieving on that front will assure that it is fully prepared to operationalize all of the new Health Support business that both health plans and employers are awarding to HWAY. 3. To date, Co.'s integration efforts have resulted in the establishment of a combined organizational structure to ensure that it will execute as effectively on the health support side of the business as it do the Care Support side. 4. Has completed sales and marketing assessments of the integrated Health and Care Support services to assure the ability of sales teams to sell not only their historic programs, but also to up sell and cross-sell all of the Co.'s offerings. 5. Co. has actively engaged Axia's customers through proactive visits with senior sales and operational teams. 6. Has also initiated the assessment of internal controls and regulatory compliance requirements. 7. Established Co.'s technology assessment team and has begun back office technology infrastructure integration. 8. Due to the momentum of the integration and the cultural similarities of the organizations, HWAY remains very confident that it will fully realize the potential for long-term profitable growth that the Axia acquisition adds to the existing strong and growing base. 9. Co. believes that the new HWAY will be able to even more quickly realize its goal of providing fully integrated, highly personalized programs and services to entire populations. 3. MHS Pilots: 1. Co. is achieving the operational performance levels as designed.

2. Co.'s analyses show that both the length of time in the program and the frequency with which it interact with the beneficiaries are having the effect that it would expect. 3. HWAY did not achieve separation from the control group and therefore did not recognize the revenues that it had expected for 1Q07. 1. Control group cost trend projections provided to HWAY by CMS and separately performed for the Co. by third-party actuarial entities indicated a 4-7% upward trend expected for the first year of the pilots.

2. Actual control group cost trends for the pilots however are

flat. 3. HWAY brought this situation to the attention of both the MHS program staff and the senior leadership of CMS. 4. CMS is committed to the Medicare Health Support program and Co. has received their assurance that they will analyze the situation further and seek to determine what underlying issues may be at play.

5. Since HWAY cannot control the timing of the effort to resolve this issue, all Co. can add right now is its promise to communicate progress as the CMS review process unfolds. 4. International: 1. Co.'s initiatives continued to gather momentum. 2. Is on track with business development, infrastructure, and operating plan.

3. Continues to see meaningful demand for solutions that address

rising healthcare costs, particularly in Europe.

S2. Financial Review (M.C.) 1. Highlights: 1. Core commercial business delivered another record-breaking qtr. of revenues and earnings results. 2. Of the approx. $117m of total Co. revenues booked in 1Q07, over $116m of that came from core commercial business, $5m better than 4Q06, and 31% higher than 1Q06.

3. Core commercial diluted EPS of $0.44 were $0.04 higher than

the top-end of the guidance and 76% better than 1Q06. 1. Additional costs for core commercial business in 1Q07 vs. 4Q06 included among other things, start-up costs for a number of ASO employer contracts that went live on 01/01/2007. 2. Co. had higher fulfillment costs from welcome packets for the contracts initiated in [4Q06] and from flu shot reminders and normal salary increases, which were effective on 10/01/2006. 4. The recently received report from MHS reflected lower-than-anticipated and lower-than-previously-reported

savings after completion of claims roll out for the first year

of the standalone pilot. 1. Total revenue booked in 1Q07 for both pilots totaled just over $800,000. 2. As …