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Original Source: FD (FAIR DISCLOSURE) WIRE
. Steven Schulman, Magellan Health Services Inc., Chairman, CEO . Melissa Rose, Magellan Health Services Inc., Senior Vice President Financial Planning and Investor Relations . Mark Demilio, Magellan Health Services, CFO . Rene Lerer, Magellan Health Services Inc., President, CFO . Josh Raskin, Lehman Brothers, Analyst . Michael Glynn, Credit Suisse, Analyst . Melissa Jaffe, Merrill Lynch, Analyst
. Michael Yuan, Banc of America Securities, Analyst
MGLN reported 3Q07 revenues of $558.1m, net income of $25.1m and diluted EPS was $0.63.
A. Key Data From Call 1. 3Q07 revenues = $558.1m. 2. 3Q07 net income = $25.1m. 3. 3Q07 diluted EPS = $0.63. 4. Unrestricted cash and investments as of 09/30/07 = $300.3m. 5. Total long-term debt as of 09/30/07= $21.5m.
S1. 3Q07 Business Review (S.S.) 1. 3Q07 Highlights: 1. Produced $57.4m in segment profits in 3Q07 ended 09/30/07. 2. Based on strong qtr., raising guidance to $215-225m of segment profit for 2007 from $180-200m. 3. Two primary items driving the stronger than projected 3Q07 results includes: 1. $6m of favorable prior period care development, primarily in HealthPlan segment. 1. $4.9m related to 2007. 2. $1.1m related to prior year. 2. 3Q07 financial results were more favorable than originally estimated due to higher than projected membership and lower than projected startup cost related to new Maricopa County Medicaid Contract. 3. Focused on ICORE, even its continued lag vs. expectations. 2. Maricopa County Contract:
1. Went live on Sept. 1. 2. With annualized revenue of approx. $580m, this contract is larger than originally projected and it is the largest behavioral of care contract carried out in the US for Medicaid. 3. Size and complexity provided a significant operation of challenge for Co.'s team, given a shorter implementation
timeline. 4. Only 59 business days, Co.'s team was challenged with building out of service center, prepared to take on 23 clinics in an urgent care center. 1. Co.'s success is the testament to national scale, strong operational infrastructure, and expertise in implementing and managing large and complex specialty managed care contracts. 5. Startup expense came in lower than originally projected. 6. Operating results were better than expected, due to higher than projected membership and earlier than anticipated impact from mgt. of the contract. 7. Projected that initial month of the contract will be less profitable and the contract would be at a mature state due to expectation that Co. would not be at optimal efficiency of managing care. 1. Not yet achieved run rate efficiency. 2. Has performed better than originally projected during the startup period. 3. This better than previously anticipated operational performance, during startup days, is projected to continue in 4Q07. 4. It's combined with lower implementation costs that are contributing to increased guidance for year. 8. Contract award was originally protested by two other bidders. 3. Other Developments: 1. State of Tennessee recently announcement that was releasing RFPs for integrated medical behavioral bids for the east and west region in mid to late Nov. 1. State has not announced the award days for start days of the contract. 2. Entered into an agreement to partner with HealthPlan to bid on the regions. 1. Has had partnership conversations with several firms and that Co. has chosen current partner based on their strong managed care and Medicaid capabilities. 2. Confidence in their committing to bidding on both regions in RFP. 2. Revenues from current TennCare contract equaled approx. $275m, which includes approx. $19m that Co. continues to manage for certain populations in the Middle region, even though the rest of that has moved over to the other vendors. 1. Remaining $256m represents revenue from the east and west region. 1. Approx. $20m of this revenue pertains to certain children categories in the east and the west regions, similar to those that have continued to be carved out in the middle region at this time. 2. It is unclear if these categories will continue to be served by Co. or if they will roll into the new contracts in the east and west regions. 4. Radiology Business: 1. While the implementation of the Maricopa behavioral contract has been a major event this summer, it's certainly has not been the only major implementation underway. 1. CIGNA implementation began in June with seven of 15 markets beginning June 1. 1. Eighth market beginning in July. 2. Ninth market has been implemented in Sept. 3. Expects four of the remaining markets to be implement by early 2008. 4. Remaining two primarily ASO markets being implemented sometime in 2008. 2. Empire radiology contract successfully converted to risk contract on July 1. 2. Service for Empire and CIGNA contracts have gone very well since the implementations. 3. Financially this qtr. care was negatively impacted by the building of IBNR reserves. 1. While it's still too early to be complete the certain of the financial performance of the contracts, based on claims and authorization data, early indications are that the overall risk radiology business is performing on track and within the range expected. 2. Given that carving out risk for these contracts, taking some extra time to fully reconcile and analyze these initial months of claims. 1. Process is working well. 2. Developing a solid foundation for future analysis. 4. With the implementations for these two large contracts successfully underway, Co. is increasing marketing efforts and are actively pursuing new radiology mgt. business for …