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Executives

Mark Thierer – President and CEO

Jeff Park – EVP and CFO

Analysts

David MacDonald – SunTrust Robinson Humphrey

Brooks O’Neil – Dougherty & Company

Glenn Garmont – ThinkEquity LLC

Blair Abernethy – Thomas Weisel

Charles Rhyee – Oppenheimer & Company

Michael Baker – Raymond James & Associates, Inc

Paul Steep – Scotia Capital

Constantine Davides – JMP Securities

Michael Minchak – JP Morgan

Steven Valiquette – UBS

Dushan Batrovic – Dundee Securities

John Kreger – William Blair

Tony Perkins – First Analysis

Dave [ph] – Leerink Swann

SXC Health Solutions Corp. (SXCI) Q4 2009 Earnings Call March 4, 2010 8:30 AM ET

Operator

Good morning. My name is Nathan, and I will be your conference operator today. And at this time, I would like to welcome everyone to the SXC Health Solutions Corporation fourth quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Listeners are reminded that portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the company's risks and uncertainties related to these forward-looking statements, please refer to SXC's annual 10-K report.

Thank you. Mr. Mark Thierer, President and Chief Executive Officer, you may now begin your call.

Mark Thierer

Thank you and good morning everyone. Thank you for joining us on today’s call. This morning, we issued our 2009 fourth quarter and year-end finance results by press release and a copy of those results is available on our Website sxc.com. With me today is Jeff Park, our Executive Vice President & CFO.

I will summarize the key events of the year and then Jeff will provide a guidance and review of our financial results for 2010. I will then close with a few comments and a Q&A. 2009 was a truly a watershed year for us here at SXC. Our record fourth quarter results built on the strong momentum of the three previous quarters to allow us to close 2009 in excellent shape and very well positioned for 2010.

Broadly, the business of healthcare and certainly the PBM marketplace is under significant pressure to control costs and provide transparency. As the PBM market has evolved, one fact has become very clear and that is a one-size-fits-all approach is no longer attractive to clients. This represents a significant change in our industry in the PBM market, and we believe that SXC is uniquely positioned to capitalize on this sea change.

We have assembled all the essential components here to be successful, and I think our 2009 results are a great reflection of that effort. So, our scorecard to measure success is really quite simple. Number one, win new business and grow this business organically. Number two, retaining all of our existing business. Number three, cross-sell and pull through new services within our existing client base, and finally, drive cost containment and responsible expense management throughout our company.

Well, we had a very successful selling year in 2009 as you know, winning new business with the Ohio Bureau of Workers' Compensation, the UFCW & Employers Benefit Trust, the Commonwealth of Virginia, Presbyterian Health Plan, Spectral Solutions, Prime Therapeutics and PharMerica Corporation, the list goes on. There are a multitude of smaller wins. This list of new clients is a great example of our ability to win new business within both our HCIT and PBM businesses as well as across a diverse set of markets, including employer, union group, workers’ compensation, government agencies or health plans. We had significant new wins in each of these markets in which we compete.

The common threat among each of these wins has been our ability to deliver flexible and customized plans, coupled with our domain expertise in pharmacy and our high level of customer service. Flexibility and our ability to customize our solutions sets us apart from our completion and truly differentiates SXC from those who offer a one-size-fits-all program. And it is this flexibility and control that has allowed us to start 2010 with a very significant win announced this morning a five-year contract with HealthSpring.

HealthSpring as you know is one of the largest Medicare advantage and Medicare Part D health plans in the United States, offering healthcare coverage across six states to nearly 500,000 Medicare beneficiaries. HealthSpring is a strategic addition to our PBM business based upon a sheer size and scope. In fact, this win is the largest in our company’s history. It validates our ability to scale our offerings to meet the needs of some of the largest and most innovative healthcare organizations in the country. Our domain expertise and experience with Medicare Part D combined with the flexibility of our programs were the critical components that led to HealthSpring’s decision to select SXC.

While the bulk of the agreement starts in January of 2011, both mail order and specialty pharmacy services will build this year through beginning in the second quarter of 2010. Jeff will outline the 2010 financial impact of this activity in more detail in a moment. Well, signing new business like this always starts with a highly satisfied existing client base that generates good positive references.

Our client retention rate for 2009 was exceptional, finishing the year at approximately 98%. And as you know, we successfully negotiated renewal of the State of Hawaii through mid-2011. Not only were we able to retain Hawaii, but we were able to successfully expand our services to include mandatory mail order and exclusive specialty pharmacy services. The contract enables the state to save over $10 million annually, with their members saving an incremental $4 million through the use of mandatory mail order.

Also on the renewal front, we started 2010 in great fashion with the renewal of BMC or Boston Medical Center. We won a five-year contract renewal by meeting BMC’s needs for a flexible service offering within a competitive pricing structure. BMC manages more than 250,000 members with an annual drug spend of approximately $150 million. Our full-service customized program met their goals and improved outcomes and cost management. It’s very important to note that both BMC and our HealthSpring contracts have five-year terms, this is something we have worked very hard to put in place.

With the renewal of BMC and Hawaii behind us, we are in an enviable position to move into 2010 with no material renewal risks. Another high point for SXC in 2009 was cross-selling and pull-through of new services to our existing clients. The successful conversion of Presbyterian Health Plan from an HCIT client to full-service PBM is a great example of expanding the scope of existing client relationships.

Beyond Presbyterian, we successfully converted six additional HCIT clients to our broader PBM offering. We continue to have a very good pipeline of opportunities in this area and now have a dedicated conversion effort in place that we are aggressively managing. Two areas that we view as having great growth potential in 2010 and beyond are mail order and specialty. A portion of the growth we will see in 2010 will come as a result of the April start date for mail and specialty with HealthSpring. But beyond HealthSpring, we will continue to focus on signing new contracts and pull-through new sales both in mail order and specialty. For 4Q 2009, we increased our mail order penetration to 11%, up from about 8% in 2009.

We also recently signed up large brand name consumer goods client for a mandatory mail order program, which will provide a very nice boost to our mail order volumes. In September of this year, we received a strong endorsement from the investment community, when we completed a secondary common stock offering. This offering was oversubscribed and added approximately $200 million in cash to our balance sheet, bringing our total cash on hand today to over $300 million. Our cash balance places us in a strong position to move forward with acquisition plans as they develop. We are actively working on a number of targets and continue to be vigilant and disciplined in terms of evaluation and fit.

As I have mentioned previously, the types of companies that attract our attention for acquisition are small-to-medium sized PBMs that provide regional or customer-specific focus to our EBITDA positive and have high percentage of recurring revenue. Before turning the call over to Jeff, I would just like to close by reiterating that we believe SXC is very well positioned to capitalize on the change underway in the PBM industry. The combination of our HCIT business coupled with our full-service PBM offerings allow us to pursue aggressively a diversified mix of clients. Today, these clients are searching for a PBM provider that can offer flexible and customized programs that provide them with transparency and aggressive cost savings. SXC has what the market is asking for and our message is resonating out there very well.

With that, I will turn the call over to Jeff to review our financials.

Jeff Park

Thanks Mark and welcome everyone. From a financial perspective, the four big themes in Q4 were, one, HCIT to PBM conversions; secondly, increased mail penetration; third, record EBITDA performance; and fourth, strong cash flow generations. Our momentum from the first half of 2009 continued through Q4. In fact, the second half of the year showed a 35% revenue increase over the first half of 2009, while adjusted EBITDA grew 37% over that same period. This reflects our strong organic growth capabilities and shows the operating leverage in our business. A key driver of growth in the second half of the year was the conversion of several HCIT customers to a broader PBM service platform. The revenue for these customers have a lower contribution margin than the existing accounts, but we are excited about the ability to drive deeper relationships with these important customers and it truly puts an exclamation point on the successful acquisition of NMHC in 2008.

We converted a half of dozen of these clients in 2009 and we believe we have another six to ten or so potential candidates for conversion in the future. Adjusted prescription claim volume to the informedRx division was 11.1 million in Q4, up from 9.9 million in Q3 2009. Our mail penetration increased to 11% in the quarter from 9.5% in Q3 2009 and 8% in Q4 2008. Although we met our objective of low single-digit run rate by the year-end, we believe increased mail and specialty utilization from our customer base remains a key focus and opportunity in 2010, creating savings for our clients and margin opportunities for SXC as we move closer to towards the national average for mail penetration, which is approximately 22%.

Our generic dispense rates remained industry leading at 72%. We will continue to seek opportunities for increased generic prescription drug usage to help reduce overall prescription drug cost to our clients and their members. In the HCIT segment, Q4, 2009 revenue increased by 15% compared to Q4 2008. Transaction processing volume was 94.6 million in Q4 2009 compared to 92 million in Q3 2009. When including the PBM paid claims process in 2009, SXC processed over 414 million transactions in the year.

Year-over-year 2009 gross profit increased 41%. Gross profit for Q4 2009 increased 10% from Q3 2009, but was down slightly on a percentage of revenue basis. The decrease was due to the lower margin percentage from our conversion, yet we are pleased with our ability to drive increased traction with our client base. We continue to see sales momentum for our transparent PBM services, which is revenue, gross profit and EBITDA accretive but maybe dilutive to gross profit percentages.

Gross profit for adjusted claim for the PBM business was $3.47 in Q4 2009 compared to $3.35 in Q4 2008. Strong gross profit performance year-over-year was due primarily to purchasing leverage gains through our pharmacy networks and manufactured rebate initiatives as well as improved pricing on generics and the addition of new clients.

Q4 2009 adjusted EBITDA was $30 million compared to $24 million in Q3 2009 and $14.7 million in Q4 2008. On a year-over-year basis, this equates to an adjusted EBITDA growth rate of more than 100%. Q4 2009 EBITDA benefited by approximately $3 million in the quarter due to the unusually high professional services revenue in the HCIT segment along with certain recoveries for bad debts and other reserves due to improved collections and reduced employee benefits in our SG&A for the quarter.

Our adjusted EBITDA performance in the fourth quarter and for the 2009 year reflects our success in the following areas. First, revenue and cost synergies generated from the successful acquisition and integration of NMHC, second, new business starts and high client retention, third, conversion of several HCIT customers to the PBM service platform, fourth, growth in higher specialty operations and increased mail penetration, fifth, high generic utilization rates and finally successful cost containment through network and rebate performance.

Our ability to generate strong cash from operations remain a key feature in our business model. In Q4, 2009, we generated net cash from operations of $37 million compared to $21 million in Q4 2008. For 2009, we generated $86 million in cash from operations, which more than doubled our $42 million in 2008. In Q4 2009, we repaid all of our outstanding debt in the amount of $46 million. The early repayment of debt resulted in one-time charges totaling $1.5 million or approximately $0.03 per share net of taxes related to the write-off of deferred financing costs and other debt extinguishing costs. As a result, based on our strong cash flow from operations, debt-free status and the proceeds from the $200 million financing completed in late Q3 2009, our balance sheet is solid.

At the end of December 31st, 2009, we had over $300 million in cash on the balance sheet compared to $68 million at December 31st, 2008. Before I move on to the discussion around our 2010 guidance, I would like to briefly add some color to the contract win we announced this morning with HealthSpring. As Mark mentioned, this is a significant contract for SXC, and one that reflects our ability to deliver custom solutions in a market that increasingly demands it as well as our ability to scale our offerings to meet the needs of some of the largest benefit providers in the country.

As noted in the release, this contract was a great validation of SXC’s flexible service model and highlights the power of an aligned interest PBM model. HealthSpring will have full transparency into the cost of the prescription at every stage of the fulfillment process. A large contract to this nature resulted in high revenue levels, but lower than our traditional margins, as we have previously explained health plan business traditionally in the PBM space, can generate 1% to 2% gross profit, despite the business has higher revenues but lower margins than our traditional employer business.

As many of you know, health plans are very receptive our business model, allowing them the flexibility of service delivery that is customized to meet their specific needs as well as the full support of our network, clinical, mail and specialty operations. Beyond providing an increase to revenue in gross profit, the addition of close to $1 billion of drug spend will provide a boost to our leverage with the supply chain, thus providing an indirect benefit to our margins.

As healthcare organizations continue to demand more information and visibility into their cost base, we believe that our ability to deploy this type of model into the market will help keep our sales pipeline active and win rate high.

In 2010, we are excited to be included as the provider for HealthSpring’s mail and specialty business. Margins derived from this mail and specialty offering in 2010 will help offset some upfront implementation costs that will be incurred during the last half of 2010 to prepare for the January 1st, 2011 launch of the full suite of PBM services and this has been reflected in our 2010 guidance.

Now, for a full-year 2010 guidance. Our revenue forecast is $1.9 billion to $2 billion for fiscal year 2010. The midpoint of the range implies growth of 35% and the range represents an increase on the run rate from Q4 2009. We expect our revenue growth in 2010 to come from new contracts, additional HCIT to PBM conversions and increased mail and specialty utilization. The consolidated gross profit target range for the full-year 2010 is $195 million to $205 million. The midpoint of the range implies growth of 7.5% and represents a slight decrease from the Q4 2009 run rate. When thinking on the guidance, first you need to factor some of the one-time margin benefits in Q4 2009. Additionally, as we drive conversions and new transparent business, you will see lower margin percentages than our historic levels.

Our 2010 guidance reflects our repricings and renewals as well as the implementation costs related to the HealthSpring’s win. Finally, as we enter a new plan year, some of our clients plan designs, require members to use up any deductibles before they get funded benefits. This has the effect of tempering some revenue and gross margin at the beginning of the year as compared to how we would close the year. Our 2010 full-year target range adjusted EBITDA is $108 million to $112 million. The factors mentioned in the gross profit discussion as well as the $3 million in Q4 benefits are relevant here in terms of the Q4 2009 adjusted EBITDA total on a run rate basis.

In 2010, our full-year target range for our fully diluted GAAP EPS is $1.79 to $1.87. Q4 2009 GAAP EPS was $0.49 per share. However adjusted down for the $3 million in one-time benefits or $0.06 a share and then adjusted up for the $1.5 million or $0.03 per share expense related to the repayment of our debt resulting in a normalized EPS number for Q4 of approximately $0.46 a share or $1.84 on a run rate basis.

The midpoint of our net income using the EPS guidance would imply a 30% year-over-year growth. 2009’s effective tax rate was 32.3%. We expect 2010’s effective rates to be approximately 34%, and our fully diluted share count to be approximately 31.3 million shares.

With respect to our non-GAAP adjusted EPS guidance on a diluted basis for 2010, we are estimating the range to be $1.92 to $2.00. In keeping with our history, we believe these targets are realistic yet conservative and only reflects organic growth. We see upsides due to these numbers potentially coming from new business, other conversions in the year, our ability to increase the mail and specialty utilization, and our ability to capitalize on purchasing efficiencies and other cost containment efforts.

We look forward to providing you more visibility into these items as the year progresses and we are better able to deploy the purchasing power of the HealthSpring win. And Q4, 2009 really was a great finish to an outstanding year for SXC and we believe that our outlook for the future growth remains very promising.

With that, I will turn it back to Mark for closing comments. Thank you again for your time and your continued support.

Mark Thierer

Okay. Thank you Jeff. 2009 certainly was a great year for us here at SXC. We have carried this momentum into 2010 as demonstrated by the BMC renewal and today’s HealthSpring announcement. In order to stay ahead of the change underway in the healthcare sector, we must continue to pursue growth aggressively. A one-size-fits-all approach in our business is now a product of yesterday. We are using our technology and our domain expertise to deliver customized solutions to clients that will have a positive impact on their costs and at the same time improving service to their members.

So, our focus for 2010 is first on winning new business; second, retain our existing clients; third, drive our pull-through strategies including mail order specialty and HCIT to PBM conversions and at the same time maintaining an aggressive and prudent management of our cost structure. Today, we have the scale, skill and capital to deliver on each of these priorities in 2010. We will continue to push our sales engine as we look for innovative and cost savings strategies that we will deliver to both new and existing customers.

2010 is setting up to be another very strong year for SXC. Thank you for your participation in today’s call for your ongoing support of our business, and that concludes our prepared remarks for today. So, at this point, I would like to open up the call to any questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of David MacDonald from. Your line is now open.

David MacDonald – SunTrust Robinson Humphrey

Good morning guys. Just a couple of questions. First on HealthSpring, I believe they were Zynchros customer, can you talk about, a, if that’s accurate, and b, you know, what role that played if any in the win, and what other opportunities could you possibly leverage out of this Zynchros?

Mark Thierer

Dave, this is Mark and good morning. That’s absolutely right. HealthSpring was a Zynchros customer and it was a big help for us in the process. As you will remember, our thesis, when we acquired Zynchros, was they had roughly 45 health plans that they were the Medicare Part D formulary management tool for and a handful of commercial plans as well. And HealthSpring represents our first pull-through strategy where we have leveraged that relationship. But candidly, we have been after HealthSpring for a good long time and know their business pretty well and they will of course be using Zynchros going forward.

David MacDonald – SunTrust Robinson Humphrey

Okay. And then Mark, can you just provide a little bit more detail just in terms of the pipeline what’s sitting out there, you know, I don’t know how much detail you can give, but you know, what 2010 look like in terms of, you know, the selling season and new business?

Mark Thierer

You bet Dave. I am actually looking at our full pipeline review as we speak, and by business segment, whether it’s employers, health plans, PPAs, Taft-Hartley, I am looking at the fee for service pipeline. We have the most robust pipeline the company has ever looked at, and this is separate and apart from the announcement on HealthSpring. And so, today, we have got the sales team, you know, fully engaged, we are fully staffed. I really like our new marketing message that we are in the market with, and you know, all this summer, I have been telling you we have never been more optimistic about the pipeline than we are today.

David MacDonald – SunTrust Robinson Humphrey

Okay. And then, Jeff, you know, you mentioned the purchasing power that HealthSpring brings on, if I remember correctly, I think your distribution, your wholesaler agreement is up for renewal this year. Is that accurate and how much leverage do you think you can get out of that renewal process?

Jeff Park

Yes, Dave. With respect to our purchasing at mail and specialty, our wholesaler currently is AmerisourceBergen, and yes, we are renewing and reviewing that just like all their aspects of our business. The acquisition of HealthSpring will certainly help us with our purchasing power in mail and specialty, but the largest support requirement that are going to come from this larger volume are going to be in the retail network.

David MacDonald – SunTrust Robinson Humphrey

Okay. And then, you know, Mark, I will get the cash and the balance sheet acquisition question out of the way early. The only question I really want to ask is, you know, the level of sense activity internally that, you know, we are now about to start a selling season, you have got a very big pipeline. Should we think about, you know, acquisition timing being more towards the end of selling season, if there’s something that you guys do or just the level of sensitivity around, you know, doing something that could kind of monkey up the selling season?

Mark Thierer

Yes, Dave, it’s a good question, and really we have sort of two separate and discrete sets of activities. One, we are growing this business organically and we have talked about that, and then separate and apart, we do have an acquisition strategy that we are, you know, very aggressive. We have been pretty clear on our targets and the kinds of things we are looking for. So, you know, obviously if we find the right assets, we are going to move on that asset and if we can buy it right with a clear plan to make it accretive quickly. So, I am not going to really comment on the timing, but I will just say that those are two separate and distinct set of activities that we manage around here.

David MacDonald – SunTrust Robinson Humphrey

Okay. And then just a housekeeping question, how much stock-based comp is factored into that adjustment EBITDA numbers, it’s still going to be kind of that $4 million to $5 million range?

Jeff Park

Yes, that’s actually in the press release, Dave, and it’s $5 million [ph], yes.

David MacDonald – SunTrust Robinson Humphrey

Okay, thanks very much.

Jeff Park

You are welcome.

Operator

Your next question comes from the line of Brooks O’Neil from Dougherty & Company. Your line is now open.

Brooks O’Neil – Dougherty & Company

Good morning guys. Congratulations on a successful year and we are looking forward to seeing the impact of HealthSpring.

Mark Thierer

Thanks Brooks.

Brooks O’Neil – Dougherty & Company

I am curious, obviously in the fourth quarter, the PBM gross margin was quite a bit lower than it was in the third quarter. And I know you have talked about a lot of things in your prepared remarks, but if you could just help us to understand exactly what’s going on there, and would you say that, that 9.27% is a realistic sort of bogey for 2010 or do you expect further pressure there?

Mark Thierer

Yes, well, if you look at the guidance range we have provided, we have got a pretty clear number for the consolidated gross margin at around 10% for the combined entity, but just on the Q4 comments, you know, Q4 as I mentioned in the prepared remarks, Brooks, it was helped by a strong professional services in the quarter. We had completed some fixed bid projects and had revenue for which we already incurred the costs. And also when thinking about, you know, Q1 and as we start into 2010, as we experienced last year, it was some of these plan designs in the new 2010 plan year, it really requires members to use up their deductibles before they get any funded benefits, and they can have an impact on revenue gross margins as we start the year. But the gross margin guidance really reflects the full implementation as we get ready for HealthSpring as well as repricing and renewals activities that we went through last year.

Brooks O’Neil – Dougherty & Company

And obviously it looks to me like the revenue impact of HealthSpring in 2011 assuming they maintain their membership basis, it’s going to be in the range of $1 billion annually. I am assuming it’s going to be a fraction of that amount in 2010, because of just the mail and specialty, can you just help us to understand what the impact will be in 2010?

Mark Thierer

Sure. With respect to – your thinking about it right, Brooks. With respect to 2010, we will be adding some support for HealthSpring specialty and mail offering. We believe that the contribution that’s going to come from mail and specialty in 2010 will help defer and offset some of the implementation costs, and it has been reflected in the guidance.

Brooks O’Neil – Dougherty & Company

Great. And then just curious, if you are seeing anything different from competition out there on either side of your business or any side of your business, just maybe run through quickly the segments and any changes you are seeing?

Mark Thierer

Yes, Brooks, this is Mark. The five segments that we compete in, we like a lot, because we have got a pretty commanding position in each, and as you know, we have been purposely staying out of the big three’s backyard. That has been our mantra and is serving us pretty well. I will tell you that the HealthSpring win, you know, everybody looked at this thing.

Brooks O’Neil – Dougherty & Company

Sure.

Mark Thierer

And it’s a great opportunity for us to really step up and begin to move into the big league, that’s the way I am looking at it, but in terms of the current dynamics in our five segments, we really like our position in the fee for service Medicaid space. I think our opportunities in that area are second-half loaded. We are today sold out in bids for employers and health plans. I mean, the total bogey that we are looking at in the pipeline is the largest number and this is, you know, post HealthSpring, it’s still the largest number that we have looked at in the history of the company. So, you know, I don’t see any different behaviors in the middle market, in the employer or health plan space. And we are putting some pretty nice wins on the board in the Taft-Hartley space, the labor union space. So, you know, things are looking pretty good to us.

Brooks O’Neil – Dougherty & Company

That’s great, and I don’t mean to be a jerk in trying to pin you down, but when you say the largest pipeline in history, are we talking another $1 billion of opportunity, $2 billion, $5 billion, what – help us to understand.

Mark Thierer

Yes, Brooks, you are not a jerk. And the number is obviously an awful lot larger than the HealthSpring that we just announced, and you know, without commenting on a specific number, we have talked about it in the past, it’s a lot of opportunity for us. It’s dozens and dozens of health plan and employer opportunities that we chasing.

Brooks O’Neil – Dougherty & Company

And you made personnel change at the top of your sales organization just a few months ago, how is that going?

Mark Thierer

That is going well. We have a new leader that is heading up the selling effort, played a major role in helping us close out the HealthSpring deal and candidly, we have got a, inside the business, just a total refocusing around the selling processing customer satisfaction and we have rebuilt our measurement and reward system. We have wrapped the 1,000 people or so in our company’s heads around the importance of retention and driving new sales growth. And as we focus on this flexibility and customization value proposition, I actually think that we stand apart from anybody in the industry. That’s a new theme from a client perspective, and we are pounding in the open market.

Brooks O’Neil – Dougherty & Company

Thanks great. Thank you very much.

Operator

Your next question comes from the line of Glenn Garmont from ThinkEquity. Your line is now open.

Glenn Garmont – ThinkEquity LLC

Yes, thanks and good morning. Just a real quick follow-up on HealthSpring and the mail opportunity there, I guess Jeff, and I apologize if you provided this in your commentary, but you know, are they sort of, you are thinking about their current mail utilization, are they sort of above your current average or below, and what’s the sort of consolidated mail penetration that you are thinking about in terms of, you know, what’s embedded in your 2010 guidance? Thanks.

Jeff Park

Yes, no problem. Well, MAPD plans and PDP plans generally have low mail penetration rates. That’s sort of the nature of those types of businesses, but from a specialty perspective, it’s definitely a more sizeable opportunity for us Glenn. You know, that $1 billion in drug spend, they can have anywhere between 10% or so of that in specialty spend. So, we are certainly focused on being able to get a good piece of that as we start into 2010 and more of that as we build through 2011.

Glenn Garmont – ThinkEquity LLC

Okay, thanks. And then, I guess Jeff, your consolidated, you know, sort of your 11% mail penetration rate, I mean, should we think about that increasing, you know, what order of magnitude, 100 basis points, 200 basis points?

Jeff Park

Yes, so not taking my comment around HealthSpring and not really considering what that will do to the overall transaction volume and what it will mean from a percentage perspective, we do expect to continue to build our mail penetration from its current status in our existing book of business. We hit sort of our stated objective of low-double digits. We would actually like to be able to get it into the or close to the mid-teens as we start to move through. Obviously with the addition of $1 billion of drug spend in 2011, it will have a pretty significant impact on the percentages, but from a growth perspective, it’s a primary focus for our account management and our support.

Mark Thierer

Glenn, this is Mark. Just to add to Jeff’s comments, so we just reviewed our top 40 customers with a pull-through strategy for mail order and specialty in clinical products. We are touching on these on a biweekly basis. This is a drill inside the company that we are very focused on. So, you know, obviously our goal is to drive up those numbers.

Glenn Garmont – ThinkEquity LLC

Okay, I appreciate the comments. Thank you.

Mark Thierer

Thanks Glenn.

Operator

Your next question comes from the line of Blair Abernethy from Thomas Weisel. Your line is now open.

Blair Abernethy – Thomas Weisel

Thanks, nice quarter guys.

Mark Thierer

Thanks Blair.

Blair Abernethy – Thomas Weisel

Two things. First on HealthSpring, Jeff, I want you to just walk through again your commentary on your prepared remarks around the margins here and clarify for us, you are saying you guys like you said, 1% to 2% , below the 1% to 2% rate, can you just give us that again in terms of what your expectation on gross margin contribution and operating margin contribution on the HealthSpring?

Mark Thierer

Sure, Blair, I will try to help you understand this a little bit better. You can appreciate, first of all just with respect to any particular account, we don’t want to be too specific as to what, you know, the margin contributions and profit contributions would be on any particular account, but generally speaking, in my prepared remarks, I talked about health plan businesses in the PBM space can generate between 1% and 2% gross profit, which is a different percentage than really what the more traditional employer business would be. For us, a health plan the size of HealthSpring is certainly going to be a key contributor for us and with a five-year deal, we expect the contribution to grow as we build our support for that company. I don’t know if that helps you, but that’s basically the prepared remarks I had.

Blair Abernethy – Thomas Weisel

Okay, that’s good. Second question really is around customer conversions. You said you had six to 10 potential ones in your pipeline, can you give us an order of magnitude to how many customers you would consider were converted in ’09, and then, you know, of that six to 10, is that what you are looking after 2010 or is that what you think you can ultimately do?

Mark Thierer

Yes, we have – we converted roughly seven accounts in 2009 from HCIT to PBM. And we have on our target list between six to 10 in sort of the mid-to-near term. We are hopeful we will be able to drive conversions of those through 2010, but that’s the short window of what we are looking at. As we continue to expand, Blair, you know, we are going to continue to drive more conversions through the rest of our book of business, but those are the ones we have on our sites today.

Blair Abernethy – Thomas Weisel

Okay, and on the healthcare IT business, do you have a sense or an order of magnitude of how much the converted business was a drag on the HCIT in ’09?

Mark Thierer

Well, if you look at the HCIT business overall, you know, we are pretty pleased with our growth. We went from 91 million to 102 million from ’08 to ’09. You know the place where you would see that drag would be in our transaction processing principally, but that also grew almost $9 million in the year. So, you know, that’s one of the real benefits of growing business. We are able to expand our HCIT business with new accounts, and we are able to pull some of these customers from the HCIT unit over to the PBM unit and really be able to generate better relationships and expanded profit opportunities for us.

Blair Abernethy – Thomas Weisel

Okay. And last question, your tax rate was a little bit lower this quarter.

Mark Thierer

Yes.

Blair Abernethy – Thomas Weisel

What’s your expectation in 2010.

Mark Thierer

34%.

Blair Abernethy – Thomas Weisel

Okay, thanks.

Mark Thierer

You are welcome.

Operator

Your next question comes from the line of Charles Rhyee from Oppenheimer. Your line is now open.

Charles Rhyee – Oppenheimer & Company

Yes, thanks. You know, just couple of quick follow-ups there, Jeff. On the 2010 revenue contribution from health side, I think you mentioned that you are hoping that the revenues, particularly especially help offset the implementation costs, can you give us a sense on, you know, how much of the implementation costs might be and is it that we are going to see the March quarter ahead of the April one, starting more in the fourth quarter of January next year, anything around that will be helpful?

Jeff Park

Yes, so for HealthSpring, we mentioned that the implementation – we are beginning our implementation work now. So, we have got teams deployed in a number of different areas. We are obviously going to be ramping up our specialty, particularly with respect to our outreach to doctors and additional staff to support the volumes. Other areas would be obviously on implementation services and on-site account management and support. From an IT perspective, we have got interface work, report integrations, and increasing some of the support in the call volume – in our call center to support some of the new calls that are going to be expected to be coming in. So, that really outlines kind of the areas from an implementation expense perspective. Is that helpful for you, Charles?

Charles Rhyee – Oppenheimer & Company

Yes, that is. And then, you know, kind of coming back to the customer conversion question, you know, beyond the opportunities that you see there, maybe it would be helpful, can you give us a sense of what mix of clients – HCIT client, you know, sort of a prime target for conversion versus one that isn’t?

Mark Thierer

Yes, Charles, this is Mark. And this is I think a really unique discriminator for SXC. So, you know, we have talked about having 70 payer clients that utilize the claim engine to run their pharmacy operations, some from our PBMs and some from our health plans. Anybody in the middle market who is utilizing the technology platform is currently performing at a cost of goods level in line with the middle market. What SXC has done is we have stepped into what I think are very market competitive as in competitive along the lines of the big guys, cost of goods buying leverage. And at the end of the day, what’s driving these HCIT to PBM conversions is cost savings for those customers. So, we have talked about Presbyterian last year converting from HCIT to full-service PBM, and their leader of that business talked about a drug cost savings of $3 million in six months post conversion. So, that’s a heart of it. I mean, this is a cost containment play and that’s the primary motivation. Secondarily, you know, those folks have staffs that manage pharmacy in their operations, and so to the extent that SXC steps up and begins to take over some of that responsibility obviously they have got service costs and FTE reductions that they can contemplate. So, there’s lots of good guys for our clients to pick up as they look at those proposals.

Charles Rhyee – Oppenheimer & Company

I mean, just on the flipside, (inaudible) may be not a prime target, just someone that’s like a health plan that has an embedded PBM or something like that, you know, is there any – will that be a limiting factor?

Mark Thierer

Charles, it’s really kind of a classic outsourcing decision. In some cases, people believe that despite the fact that you may be able to generate more savings for them, what they do is core to their ongoing operations. So, it varies a little bit for each of the customers, you can imagine a mid-sized PBM who believes they need to retain network support or rebate operations irrespective of the savings. So, that’s really the pieces that would make someone not want to make a conversion.

Charles Rhyee – Oppenheimer & Company

Okay, great. Thanks for the comments guys.

Mark Thierer

You bet.

Operator

Your next question comes from the line of Michael Baker from Raymond James. Your line is now open.

Michael Baker – Raymond James & Associates, Inc

Thanks a lot. I know in the past on the M&A side, you guys have kind of focused in or talked about the opportunities within your existing customer and given the challenges of you know health plans last year, it sounds like a number of internal PBM operations might be out there in the marketplace. I was just wondering if you could kind of comment in general on the relative attractiveness of that type of opportunity versus one within your one of your existing customers?

Mark Thierer

Yes, Michael, this is Mark, and I will comment. So, you know, we have laid out a pretty disciplined acquisition map that we are adhering to and specifically kind of in rank order. We are most interested in PBMs that currently utilize the SXC platform, the execution risks and the synergies that can fall off at that kind of an acquisition are very significant in near term. The next sort of tier of interesting opportunities are other PBMs that operate in the market that may not be on our platform. I would say that to your question in terms of health plans that are evaluating, you know, carving out or actually spinning out their PBM operation to release shareholder value, I mean, we are looking at everyone of them, but at the heart of it, it’s a 500,000 to 1.5 million life health plan, and some of them are contemplating it. We have set up very well for those in terms of a potential takeout. But for an asset size deal, there will be no middle market players taking out an asset like that. And we are not looking. So, for the largest health plans that are contemplating a spinout, we have taken a pass, but there are a number of ongoing discussions today in what I characterize as the middle to growing regional health plan that we are very interested in. And then, finally, we are looking at properties that I would say are adjunct to or adjacent to our space, and those include, you know, disease state management, obviously specialty, data and analytics and some other opportunities as well. Does that answer your question?

Michael Baker – Raymond James & Associates, Inc

Yes, very helpful. Thank you.

Operator

Your next question comes from the line of Paul Steep from Scotia Capital. Your line is now open.

Paul Steep – Scotia Capital

Hi guys. Two quick ones, first one on the pipeline and sort of the guidance, Jeff or Mark, you know, what’s implied for brand new business that hasn’t been won or hasn’t been booked this year in that number?

Jeff Park

None.

Paul Steep – Scotia Capital

That’s what I wanted to confirm. Second one was just on the capacity here, you guys have done a great job. You went through a lot of bolts here, what’s the actual capability to undertake a whole bunch of new things this year in the light of HealthSpring, i.e., can you actually execute on an M&A, and how much new business can you sort of ramp in, because obviously this is a big effort internally, how should we think about that in terms of your bandwidth as a team to get all of this done?

Mark Thierer

Well, that I think is the most exciting thing about what we have in front of us. You know, today the infrastructure is set. We are missing, you know, no parts in terms of executing on our plan. So, bringing up HealthSpring is bringing up a large plan. You know, they have a handful of PDP offerings that they go to market with, a handful of MAPD offerings and we are going to just implement this like any other client. And so, yes, it’s larger, but the work effort to bring it up, you know, we know how to do it and we have done it many times. So, you know, the company now is well positioned from a leverage standpoint. You won’t see us having to crank the FTE engine by a big number. We can leverage the model now to execute on what’s in front of us, and in terms of you know, can we take on more, we are obviously chasing a lot new sales opportunities and simultaneously looking at acquisition opportunities. So, you know, the way to gauge that best is to just line up the leadership team and see if you have got a group of people who can execute, and I have said this before. I mean, I would stack our leadership team up against anybody in the business.

Paul Steep – Scotia Capital

Yes, that helpful. It was just more of short term, near term that people didn’t get ahead themselves on it. That’s great.

Mark Thierer

Yes, I understand.

Paul Steep – Scotia Capital

Thanks.

Mark Thierer

Thanks Paul.

Operator

Your next question comes from the line of Constantine Davides from JMP Securities. Your line is now open.

Constantine Davides – JMP Securities

Thanks. Hi guys. Just wondering on the midyear 2010 selling season, is that pretty much complete or could we see some additional health plan decisions here in the next month or two?

Mark Thierer

Yes, Constantine. No, I think it's not complete at all. There are more decisions that are going to be made for sure.

Constantine Davides – JMP Securities

Okay. And then just on the Medicaid front similarly, I think it’s been a while since we have seen something there, and just wondering if you can talk a little bit about that opportunity?

Mark Thierer

Yes, we continue to look this space a lot. You know, Kentucky didn’t move, California made a decision and we were really not focused there. The opportunities for fee for service Medicaid are second-half loaded and actually 2011 is setting up to be a pretty dynamic year. So, it’s an interesting market since there is only 50 states, it’s kind of ebbs and flows. And obviously for us, that’s one of the balancing effects of our full portfolio, and so, you know, don’t look for anything in the near term. It’s a second half in 2011 set opportunities.

Constantine Davides – JMP Securities

Okay, great. Jeff, one follow-up on the seven conversions you talked about last year, can you quantify the aggregate topline impact of that on an annualized basis, you know what that meant to your PBM book? And is that fairly representative of sort of the six to ten that you have alluded to as near-term opportunities?

Jeff Park

Yes, one of the largest ones we did was Presbyterian. So, of the seven, Presbyterian was around 150 million in topline. You know, we have got a – the others were slightly smaller, and some smaller still, but I am not sure if that helps you to sort of think about what seven opportunities looked like, but you know, it’s a good size.

Constantine Davides – JMP Securities

Okay, all right. Thank you.

Jeff Park

Okay, welcome.

Operator

Your next question comes from the line of Michael Minchak from JP Morgan. Your line is now open.

Michael Minchak – JP Morgan

Thank you, good morning. Just a couple of questions. First, just looking at some additional color on acquisition opportunities, prior to the equity offering last year, you talked about looking for targets in the $10 million to $25 million of trailing EBITDA range. Following the offering, I just wanted to get a sense of how large of a deal you will be willing to do outside of health plans and PBMs, do you see other attractive PBM targets out there with EBITDA in the $50 million to $100 million range? Would you be willing to lever up and do the right deal and if so what sort of net EBITDA level would you be comfortable with?

Mark Thierer

Yes, great. Thanks Michael. Well, if you look at the trading multiples on what most of the PBM acquisition components have gone for, it really does range between 9 and 13 times trailing EBITDA. There has been a number of deals in the space and they all kind of seem to be trade in around the same spot. So, thinking of that with the $300 million or so of cash, you have got a reasonable idea the size of EBITDA, $30 million or so that we would be able to acquire. With respect to our ability to leverage our balance sheet effectively, we have done debt on our acquisitions in the past, generally relatively low multiples for debt leverage, but not afraid to use debt effectively. First and foremost would be the use of the cash on the balance sheet. It’s the most accretive way to deploy for an acquisition, but I would say we are pretty responsible with respect to our debt use.

Michael Minchak – JP Morgan

Okay. And then just secondly, I ask since you called it out, but you made the comment in the press release that the 2010 guidance includes the impact of known successful renewals. Is renewal pricing coming in line with your expectations or you are finding that Jeff’s provided greater than expected discounting in order to retain the business? And then a quick follow-up on that, you commented on the 2010 renewals being complete, but do you have any significant customers that are up for January 2011 renewals?

Mark Thierer

Yes, Michael, this is Mark. And so, from a contract and an approach standpoint, what we are doing here with our account management is we are looking to put in place long-term deals, and so both BMC and HealthSpring were five-year deals. You know, we won’t get it done every time, but we are setting out to lock down our largest clients for a very long time and building that with both performance incentives that are embedded as well as performance guarantees to continue to do good work for these clients. And so, as we do that, you know, five-year deals do have compression on the front end and that’s very real. I wouldn’t say though that the renewal process is markedly different than in years gone by in terms of you know margin compression that’s required. This is really about relationships and a client’s comfort around our ability to continue to meet their needs. And so, you know, we are managing that process aggressively looking for longer-term deals. We will see some compression on some of those in the near term, but you know, it takes a lot of renewal risk off the table which is the name of the game in this business.

Michael Minchak – JP Morgan

Okay, understood. And then finally, just one quick follow-up for Jeff, you talked about the $3 million benefit to adjusted EBITDA in the fourth quarter, can you size the various components to that?

Jeff Park

Yes, sure. Well, you can see the professional services. It’s running around $1.5 million higher than it had historically. And then, that would leave the rest of it in the SG&A line.

Michael Minchak – JP Morgan

Great, I appreciate your comments.

Jeff Park

Okay.

Operator

Your next question comes from the line of Steven Valiquette from UBS. Your line is now open.

Steven Valiquette – UBS

Hi, thanks. Three questions on the HealthSpring, I think some of this might have been sort of partially covered but not fully covered, but just trying to get a sense first if you broke out first of all the revenues in 2010, is this some kind of out in ’10, some kind of out in ‘11, just trying to get a sense for that. Two, if there was no HealthSpring at all, what would the EPS guidance range be without specific numbers – the dilution or the potential dilutive effect of the deal, if it is accretive, just trying to get a sense for, you know, the magnitude? And then finally, you talked about the startup costs, implementation costs around HealthSpring, you know, sort of impacting 2010 gross margin, and you also cited one of the things you are doing, but those kind of things that are kind of more in the SG&A line instead of COGS, I am just trying to get a better feel for what would specifically be in COGS and impacting gross margins, that part of the startup and implementation costs? Thanks.

Jeff Park

Yes, sure. So, with respect to size and scope, with respect to the 2010 revenue impact, specialty as I mentioned earlier represents around 10% of their spend. So, our ability to hopefully get 10% or 20% of that in 2010 would be, I would say a successful start. With respect to what the implementation expenses would be, it will be a combination of gross margin impact as well as SG&A. You know, from a cost of goods perspective, certainly doesn’t have any impact on the drug values, but it would have an impact on the implementation as well as the buildup of account management and call center staffs. So, that’s how some of the split will be in gross margin and some of that will be in SG&A. I am not sure if that’s helpful or not for you, Steven?

Steven Valiquette – UBS

Yes, it’s been helpful. Again, the time seems to be just the potential – any sort of quantification of the EPS impact of this, no HealthSpring at all, I mean, what the guidance have been materially higher or the same range of where you are providing if it wasn’t there. Just to get some sense for that.

Jeff Park

It would be higher.

Steven Valiquette – UBS

Okay, but you are not quantifying how much?

Mark Thierer

No, Steven, this is Mark. We are not, but I do want to say, because you are asking good questions about the HealthSpring contract. We have embedded performance incentives inside this contract that align their interests with ours, and so obviously none of that is in the guidance either, and at the end of the day, that’s what clients are paying us to do, which is continue to save the money in their drug spend and performance. So, you know, they bought our full product line. This is going to become a world-class showcase for us. They are going to be using integral to help them make decisions inside their business, and at the end of day, it’s a pretty transformative deal and we didn’t do it, you know, for the 2010 financial effect.

Steven Valiquette – UBS

All right. Yes, it sounds like it’s bigger for 2011 and beyond I guess is the punch line?

Mark Thierer

It’s a lot bigger for 2011.

Steven Valiquette – UBS

Okay, all right. Thanks.

Mark Thierer

You are welcome.

Operator

Your next question comes from the line of Dushan Batrovic from Dundee Securities. Your line is now open

Dushan Batrovic – Dundee Securities

Hi, thanks very much. So, firstly also on HealthSpring, thinking about it as a – Mark, you described it as entering the big leagues. To what extent do we extrapolate that to say that, that there is almost a change in business model here that you really are making a shift to start targeting some of these larger opportunities, and maybe as a way of quantifying that, can you say anything about the average deal size that you are going after right now in the pipeline?

Mark Thierer

Yes, Dushan. I will address that. It’s a good question. So, we have laid out a business plan in our company for 2010, 2011 and 2012, and it includes both an organic path as well as an acquisition path. In terms of the segments that we are targeting, they remain the same. But overtime you will see us begin to move upstream in terms of overall size. HealthSpring is a great example of kind of a first small step toward ratcheting up the size targets that we begin to look at, and we really feel good about, you know, getting this win. Now, in terms of average deal size, I would say that in our employer book of business, we are looking at 5,000 to 15,000 as high as 20,000 life plans, they are coming in at, you know, $10 million to $15 million, sometimes $20 million of drug spend. For our regional health plans, the average size of those is ranging anywhere from say 50 million to 100 million on the low end to 250 million to 500 million on the higher end, and obviously in HealthSpring’s case, this was $1 billion of opportunity and that is obviously a conservative number. And so, you know, that’s a little more color in terms of targeting. It’s not a strategy change, but we are, you will see us begin to kind of walk up the ladder here.

Jeff Park

Dushan, we do have some large accounts that we have supported. HealthSpring is obviously a big one, but with our work in the state of Tennessee, it’s the same, you really scope or size as this. Kroger is another large 350,000 life accounts, so that’s 500,000 lives, it’s certainly a big account. But we do have some large customers.

Dushan Batrovic – Dundee Securities

Okay, great. Thanks for that. And the next one, just if you could remind me again, the gross margin dollar impact of an HCIT to PBM conversion, can you provide anything on that at all?

Jeff Park

Well, it does vary, and we obviously are focused with our clients on trying to and show them what the savings dollars would be versus talking to them or talking to you about what our profit contributions would be for the accounts, but if you look at, you know, a traditional HCIT model, you can see the transaction volumes and what our average rate per transaction would be, you know, it averages in around 16% to 17% [ph] and clients really depending on the type of service they have are all over the map on that. So, you know, taking on average a 16% per transaction account and moving them into a PBM services business, you know, the contribution and the savings of the clients are certainly much different.

Dushan Batrovic – Dundee Securities

Thanks very much.

Jeff Park

Okay.

Operator

Your next question comes from the line of John Kreger from William Blair. Your line is now open.

John Kreger – William Blair

Hi, thanks guys. Hi, Jeff, a couple of questions about your 2010 guidance, I don’t think you talked about cash flow expectations. Will there be any required ramp in CapEx to service HealthSpring?

Jeff Park

No, good question, John. You know, we have been fortunate our cash flow has been very close to our EBITDA for the last four or five years. So, we would expect that pattern to continue as we head into 2010 and honestly 2011, and there won’t be any additional CapEx requirements because of this HealthSpring’s announcement.

John Kreger – William Blair

Great. And then a similar question, it sounds like you are already starting the activities to get ready for HealthSpring, should we assume those implementation costs are evenly spread or more loaded into Q4?

Jeff Park

No, they will definitely be before Q4. We are starting some work today, and as Mark outlined, you know, we have a very solid infrastructure of people and support that we leverage. We will be ramping up costs as we get closer to it, but we would expect some of those costs to be deferred and paid for with some of the new specialty business we expect to be bringing on.

John Kreger – William Blair

Okay. And then lastly on HealthSpring, the claim, should we assume that, that’s a 15 million plus in claims addition when it’s fully ramped?

Jeff Park

Yes, it’s probably closer to 20 million claims.

John Kreger – William Blair

Around 20, okay, great. And then finally, a totally different subject, Mark, if you kind of look back on the renewals and new business wins over the last six months or so, any observations that you can pass along about changing priorities of your clients or changes in benefit design?

Mark Thierer

Yes, John. It’s a good question. I would say that the primary discussion is about the money. This is never been more pronounced in terms of being a cost-containment play, which is why we like where we are positioned. And once you talk about or you can figure it correctly, do you have the flexibility that you need, is there a customized solution you are looking for, it always move directly, the plan design and exactly how will money flow through the pharmacy benefit. So, things like aggressive prior-offs and step therapies are on the table, mandatory mail order which you have heard us talk about and a couple of large clients, your performance formularies and obviously with a huge push in three tier, we are seeing reference-based pricing be implemented by some very large clients, which is an aggressive benefit play. And we are seeing some 90-day at retail out there, which the Wal-Mart effect is real and we are seeing it in benefit design. So, you know, our whole job here is to become a PBM architect for our clients and really work hard to meet their cost containment and you know service quality goals, and you know, the team we have put together and the clinical area and our account management area is doing a great job. And so, I guess the overall comment is, you know, the cost containment dialogs has been ratcheted up.

John Kreger – William Blair

Great, very helpful. Thank you.

Operator

Your next question comes from the line of Tony Perkins from First Analysis. Your line is now open.

Tony Perkins – First Analysis

Good morning guys. Just a quick question, how has the Ohio Workers' Comp contract been progressing and do you expect to continue to focus on the workers’ comp segment? I know it seems to be a segment for which SXC is well positioned, I just want to get some more insight into that.

Mark Thierer

Yes, Tony, thanks for asking, and I want to actually publicly congratulate our IT and account management team. We got accolades from the Ohio Bureau of Workers’ Comp, the leader of that operation was very complimentary of SXC. The technology changes and customization required to meet workers’ comp are not trivial and you can’t just parachute in to become effective in this market. And so, our people did a phenomenal job both from a technology standpoint and then separately from an implementation standpoint. On a very short timeframe, we actually beat the originally committed dates to come live with this, which is the United States’ largest standalone workers’ comp opportunity. So, it’s a little bit of a long answer but we like to stay for lot, we think we are uniquely positioned. The gross margin in this space is a lot more attractive than other PBM segments and so we continue to focus on workers’ comp and want to leverage our footprint there.

Tony Perkins – First Analysis

Great, thanks.

Operator

Your last question comes from the line of George Hill from Leerink Swann. Your line is now open.

Dave – Leerink Swann

Hi, this is actually Dave [ph] in for George. Can you just talk about with the HealthSpring win, what exactly it was about SXC’s capabilities that allowed you to win it, you know, (inaudible) I assume with the big three. It’s my understanding like Medicare reporting can be very complicated and difficult, did that have something to do with it, or was it the transparency, can you –?

Mark Thierer

Yes, Dave, this is Mark, and I appreciate that question, because I think it’s at the center of what the company here is all about for the next several years. HealthSpring required a partner that was going to be flexible and customize the service offering around their needs, and candidly, we have been talking with them now for three years with some of our smartest people. At the end of the day, we know their business very well. Medicare Part D is what this company is all about and there are large MAPD and PDP plan. Today, we serve 17 MADP and PDPs in our company and I would stack our Part D skills up against anybody in the business, and importantly we don’t offer our own Part D service. So, we are not competing with HealthSpring in the open market. At the end of the day, they picked us because of how much we knew relative to Part D, our compliance services, our ability to do the PDE reconciliations and all this required to be successful in Medicare Part D and we met their needs in a flexible way. You know, obviously cost savings is important, but they run a very high quality operation and they just viewed SXC after an extensive and competitive process as the best fit for their needs going forward. So, you know, obviously we feel great about that win.

Dave – Leerink Swann

And if I am not mistaken, it was serviced by one of the Big Three, is that correct, one in a way?

Mark Thierer

Well, the Big Three were in there all along the way. It was actually serviced by middle-market technology player.

Dave – Leerink Swann

Great, thank you.

Mark Thierer

Well, I think that wraps up the Q&A. I want to thank everybody for their time on today’s call and we look forward to updating you in the coming months. Have a great day.

Operator

This concludes today’s conference call. You may now disconnect.

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Source: SXC Health Solutions Corp. Q4 2009 Earnings Call Transcript
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