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Healthways Reports 34% Growth in Earnings to $0.39 per Diluted Share for the Third Quarter of Fiscal 2008

NASHVILLE, Tenn.-(Business Wire)-June 18, 2008 - Ben R. Leedle, Jr., president and chief executive officer of Healthways, Inc. (NASDAQ: HWAY), today announced financial results for the third quarter of fiscal 2008, ended May 31, 2008. Total revenues for the quarter were $191.4 million, a 14% increase from $167.9 million for the third quarter of fiscal 2007. Net income rose 30% to $14.0 million from $10.8 million. Net income per diluted share increased 34% to $0.39 for the third quarter of fiscal 2008 from $0.29 for the third quarter of fiscal 2007. -0- *T COMPARISON OF COMPONENTS OF NET INCOME PER DILUTED SHARE See pages 7 and 8 for a reconciliation of GAAP and non-GAAP results Three Months Nine Months Ended Ended ———————- ———————- May 31, May 31, May 31, May 31, 2008 2007 2008 2007 ——— ——— ——— ——— Domestic $ 0.41 $ 0.31 $ 1.10 $ 0.97 International (0.02) (0.02) (0.09) (0.06) ——— ——— ——— ——— Earnings per diluted share, GAAP basis $ 0.39 $ 0.29 $1.01 $ 0.91 ====== ====== ====== ====== *T

"We are pleased with our earnings growth for the third quarter of fiscal 2008, which included expenses of $0.07 per diluted share related to moving to our new headquarters during the quarter," Mr. Leedle said. "Our fiscal 2008 financial guidance is based on demonstrated market demand for our services, reflected in the addition of 1.8 million billed lives since the third quarter of fiscal 2007. During the latest quarter, we entered into 29 new, expanded and extended contracts to provide a wide range of Health and Care Support(SM) solutions. We also continue to see an increasing number of Requests for Proposal for comprehensive, integrated and sole-source solutions. We believe Healthways remains uniquely positioned to meet this demand through proven approaches and models that address the needs of every person in a given population, regardless of age or health status, with the overall goal of sustainably improving health outcomes, reducing healthcare costs and enhancing productivity.

"Reflecting continuing employer demand for our solutions, we ended the quarter with contracts to provide services to over 1,000 self-insured employers, a 20% increase from the third quarter of fiscal 2007 and a 6% sequential increase from the second quarter of fiscal 2008. This growth in our employer business accounted for a substantial portion of our backlog of annualized revenues, which totaled approximately $14 million at the quarter's end.

"During the third quarter, we repurchased 2.5 million shares of our common stock for $89.7 million under the share repurchase plan authorized in fiscal 2007. We also funded capital expenditures of $24.9 million. Healthways completed the quarter with cash and cash equivalents of $17.8 million, a ratio of debt to trailing-12-months EBITDA of 2.4 and debt to total capitalization of 52%." -0- *T COMPARISON OF EBITDA AND RECONCILIATION TO NET INCOME See pages 7 and 8 for a reconciliation of GAAP and non-GAAP results (In millions) Three Months Nine Months Ended Ended ———————- ———————- May 31, May 31, May 31, May 31, 2008 2007 2008 2007 ——— ——— ——— ——— EBITDA $ 42.0 $ 33.3 $ 113.5 $ 95.0 Interest expense 5.2 6.0 15.6 12.5 Income tax expense 9.8 6.4 26.3 21.6 Depreciation and amortization 13.0 10.1 34.0 27.2 ——— ——— ——— ——— Net income $ 14.0 $ 10.8 $ 37.6 $ 33.7 ====== ====== ====== ====== *T

Mr. Leedle concluded, "Our solid third-quarter financial performance met our expectations and positions us well for the remainder of fiscal 2008. In addition, we continued to progress during the quarter on our three central growth initiatives of increasing our domestic commercial business, expanding our addressable markets worldwide and enhancing our value proposition. The significant long-term potential of each of these initiatives reflects ongoing industry demand. We expect our success in fulfilling this potential will continue to be predicated on both our ability to deliver leading solutions to meet this demand and the outcomes we produce. We are, therefore, committed to remaining at the forefront of industry innovation to expand our extensive and documented history of achieving meaningful outcomes for our customers, which we expect will continue to be one of our key market differentiators."

Financial Guidance

Revenue

Healthways today affirms its guidance for fiscal 2008 revenues in a range of $720 million to $740 million, an increase of 17% to 20% from fiscal 2007. This guidance includes revenue of $5.2 million recognized in the third quarter related to the Medicare Health Support Pilot. As expected, it also includes international revenues related to the Company's contract in Germany with Deutsche Angestellten Krankenkasse (DAK) in a range of $8 million to $10 million. Healthways does not expect its second international contract, with Fleury, S.A. in Brazil, to have a material impact on fiscal 2008 results. -0- *T COMPARISON OF COMPONENTS OF REVENUES FOR FISCAL 2008 (GUIDANCE) AND FISCAL 2007 (Dollars in millions) Fiscal 2008 % (Guidance) Fiscal 2007 Change ———————————————- ——————— ———— Domestic $712.0 - 730.0 $615.6 16 - 19% International 8.0 - 10.0 - ——————- ——————— Total Company $720.0 - 740.0 $615.6 17 - 20% *T

Earnings

The Company today also affirmed its guidance for fiscal 2008 earnings per diluted share in the range of $1.50 to $1.55, an increase of 23% to 27% from fiscal 2007. -0- *T COMPARISON OF FISCAL 2008 EPS GUIDANCE TO FISCAL 2007 RESULTS AND COMPONENTS OF FOURTH-QUARTER FISCAL 2008 GUIDANCE See pages 7 and 8 for a reconciliation of GAAP and non-GAAP results Twelve Months Three Months ——————————————- Ending Ending Aug. 31, 2008 Ended % Aug. 31, 2008 (Guidance) Aug. 31, 2007 Change (Guidance) ——————— ——————- ———— ——————— Domestic $ 1.61 - 1.64 $ 1.34 20 - 22% $ 0.51 - 0.54 International (0.11)-(0.09) (0.12) (0.02) - 0.00 ——————- —————— ——————- Earnings per diluted share, GAAP basis $ 1.50 - 1.55 $ 1.22 23 - 27% $ 0.49 - 0.54 *T

Conference Call

Healthways will hold a conference call to discuss this release today at 5:00 p.m. Eastern time. Investors will have the opportunity to listen to the conference call live over the Internet by going to www.healthways.com and clicking Investor Relations, or by going to www.earnings.com, at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a telephonic replay will be available for one week at 719-457-0820, code 9329154, and the replay will also be available on the Company's web site for the next 12 months.

Safe Harbor Provisions

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. Those forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief or expectations of the Company, including, without limitation, all statements regarding the Company's future earnings and results of operations. In order for the Company to utilize the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, investors are hereby cautioned that the following important factors, among others, may affect these forward-looking statements. Consequently, actual operations and results may differ materially from those expressed in these forward-looking statements. The important factors include but are not limited to: the effect of any new or proposed legislation, regulations and interpretations relating to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, including the potential expansion to Phase II for Medicare Health Support Programs; the Company's ability to accurately forecast performance and the timing of revenue recognition under the terms of its contracts with customers and/or its Cooperative Agreement with the Centers for Medicare and Medicaid Services (CMS) ahead of data collection and reconciliation in order to provide forward-looking guidance; the Company's ability to effect the financial, clinical, and satisfaction outcomes under its Cooperative Agreement with CMS and reach mutual agreement with CMS with respect to results necessary to achieve success under Phase I of Medicare Health Support; the Company's ability to anticipate the rate of market acceptance of Health and Care Support solutions and the individual market dynamics in potential international markets; the ability of the Company to accurately forecast the costs necessary to implement the Company's strategy of establishing a presence in these markets; the Company's ability to sign and implement new contracts for Health and Care Support solutions; the Company's ability to effect cost savings and clinical outcomes improvements under Health and Care Support contracts and reach mutual agreement with customers with respect to cost savings, or to effect such savings and improvements within the time frames contemplated by the Company; the ability of the Company to recognize estimated annualized revenue in backlog in the manner and within the timeframe the Company expects; the ability of the Company and/or its customers to enroll participants in the Company's Health and Care Support programs in a manner and within the timeframe anticipated by the Company; the ability of the Company's customers and/or CMS to provide timely and accurate data that is essential to the operation and measurement of the Company's performance under the terms of its contracts; the Company's ability to favorably resolve contract billing and interpretation issues with its customers and the Company's ability to service its debt and make principal and interest payments as those payments become due; the Company's ability to integrate the operations and technology platforms of Axia and other acquired businesses or technologies into the Company's business; the Company's ability to renew and/or maintain contracts with its customers under existing terms or restructure these contracts on terms that would not have a material negative impact on the Company's results of operations; the ability of the Company's customers to maintain the number of covered lives enrolled in the plans during the terms of the agreements; unusual and unforeseen patterns of healthcare utilization by individuals with diabetes, cardiac, respiratory and/or other diseases or conditions for which the Company provides services; the impact of litigation involving the Company and/or its subsidiaries; and other risks detailed in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2007 and other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any such forward-looking statements.

About Healthways

Healthways is the leading provider of specialized, comprehensive Health and Care Support(SM) solutions to help millions of people maintain or improve their health and, as a result, reduce overall healthcare costs. Healthways' solutions are designed to help healthy individuals stay healthy, mitigate and slow the progression of disease associated with family or lifestyle risk factors and promote the best possible health for those already affected by disease. Our proven, evidence-based programs provide highly specific and personalized interventions for each individual in a population, irrespective of age or health status, and are delivered to consumers by phone, mail, internet and face-to-face interactions, both domestically and internationally. Healthways also provides a national, fully accredited complementary and alternative Health Provider Network, offering convenient access to individuals who seek health services outside of, and in conjunction with, the traditional healthcare system. For more information, please visit www.healthways.com. -0- *T HEALTHWAYS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended May 31, May 31, ————————- ————————- 2008 2007 2008 2007 ————————- ————————- Revenues $191,439 $167,900 $546,225 $445,236 Cost of services (exclusive of depreciation and amortization of $9,290, $7,330, $24,575, and $20,423, respectively, included below) 129,014 115,697 378,557 302,266 Selling, general & administrative expenses 20,474 18,931 54,168 47,990 Depreciation and amortization 12,990 10,139 34,053 27,225 ———— ———— ———— ———— Operating income 28,961 23,133 79,447 67,755 Interest expense 5,237 5,988 15,572 12,534 ———— ———— ———— ———— Income before income taxes 23,724 17,145 63,875 55,221 Income tax expense 9,750 6,353 26,264 21,571 ———- ———- ———- ———- Net income $ 13,974 $ 10,792 $ 37,611 $ 33,650 ======== ======== ======== ======== Earnings per share: Basic $ 0.40 $ 0.31 $ 1.06 $ 0.96 ======== ======== ======== ======== Diluted $ 0.39 $ 0.29 $ 1.01 $ 0.91 ======== ======== ======== ======== Weighted average common shares and equivalents: Basic 34,593 35,133 35,444 34,907 Diluted 35,971 37,070 37,196 36,855 *T

Certain reclassifications have been made in prior periods to conform to current classifications. -0- *T Healthways, Inc. Statistical Information (In thousands) (Unaudited) May 31, May 31, 2008 2007 —————— ——————- Operating Statistics Domestic commercial available lives 189,400 187,400 Domestic commercial billed lives 28,900 27,100 Annualized revenue in backlog $ 13,774 $ 22,871 *T -0- *T Healthways, Inc. Reconciliations of Non-GAAP Measures to GAAP Measures (Unaudited) Reconciliation of Domestic Diluted Earnings Per Share (EPS) to Diluted EPS, GAAP Basis Three Nine Three Nine Months Months Months Months Ended Ended Ended Ended May 31, May 31, May 31, May 31, 2008 2008 2007 2007 ———- ———- ———- ———- Domestic EPS (1) $ 0.41 $ 1.10 $ 0.31 $ 0.97 EPS (loss) attributable to international initiatives (2) (0.02) (0.09) (0.02) (0.06) ———— ———- ———- ———- EPS, GAAP basis $ 0.39 $ 1.01 $ 0.29 $ 0.91 ======== ======= ======= ======= *T -0- *T Twelve Months Ended August 31, (Continued) 2007 —————- Domestic EPS (1) $ 1.34 EPS (loss) attributable to international initiatives (2) (0.12) —————- EPS, GAAP basis $ 1.22 =========== *T

(1) Domestic EPS is a non-GAAP financial measure. The Company excludes EPS (loss) attributable to international initiatives from this measure and relies on domestic EPS because of its comparability to the Company's historical operating results and EPS guidance. The Company believes it is useful to investors to provide disclosures of its operating results and guidance on the same basis as that used by management. You should not consider domestic EPS in isolation or as a substitute for EPS determined in accordance with accounting principles generally accepted in the United States.

(2) EPS (loss) attributable to international initiatives includes costs to implement the Company's strategy of establishing a presence and securing contracts in international markets as well as revenues and costs attributable to operating international contracts. -0- *T Reconciliation of Domestic Diluted EPS Guidance to Diluted EPS Guidance, GAAP Basis Three Months Twelve Months Ending Ending August 31, 2008 August 31, 2008 ——————— ———————- Domestic EPS guidance (3) $ 0.51 - 0.54 $ 1.61 - 1.64 EPS (loss) guidance attributable to international initiatives (4) (0.02) - 0.00 (0.11) - (0.09) ——————— ———————- EPS guidance, GAAP basis $ 0.49 - 0.54 $ 1.50 - 1.55 ============== =============== *T

(3) Domestic EPS guidance is a non-GAAP financial measure. The Company excludes EPS (loss) guidance attributable to international operations from this measure and relies on domestic EPS guidance because of its comparability to the Company's historical operating results. The Company believes it is useful to investors to provide disclosures of its operating results and guidance on the same basis as that used by management. You should not consider domestic EPS guidance in isolation or as a substitute for EPS guidance determined in accordance with accounting principles generally accepted in the United States.

(4) EPS (loss) guidance attributable to international initiatives includes costs to implement the Company's strategy of establishing a presence and securing contracts in international markets as well as revenues and costs attributable to operating international contracts. -0- *T Reconciliation of Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) to Net Income (in millions) Three Nine Three Nine Months Months Months Months Ended Ended Ended Ended May 31, May 31, May 31, May 31, 2008 2008 2007 2007 ———- ———- ———- ———- EBITDA (5) $42.0 $113.5 $33.3 $95.0 Interest expense 5.2 15.6 6.0 12.5 Income tax expense 9.8 26.3 6.4 21.6 Depreciation and amortization 13.0 34.0 10.1 27.2 ———— ———- ———- ———- Net income $14.0 $ 37.6 $10.8 $33.7 ======== ======= ======= ======= *T -0- *T Twelve Months Ended (Continued) May 31, 2008 ———————- EBITDA (5) $ 149.0 Interest expense 21.2 Income tax expense 34.8 Depreciation and amortization 43.9 ———————- Net income $ 49.1 =============== *T

(5) EBITDA is a non-GAAP financial measure. The Company excludes interest, taxes, depreciation and amortization from this measure and provides EBITDA to enhance investors' understanding of the Company's operating performance and its capacity to fund capital expenditures and working capital requirements. The Company believes it is useful to investors to provide disclosures of its operating results on the same basis as that used by management. You should not consider EBITDA in isolation or as a substitute for net income determined in accordance with accounting principles generally accepted in the United States. -0- *T HEALTHWAYS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and per share data) August May 31, 31, 2008 2007 ——————- —————— Assets Current assets: Cash and cash equivalents $ 17,836 $ 47,655 Accounts receivable, net 121,412 80,201 Prepaid expenses 9,115 10,370 Other current assets 4,813 4,319 Income taxes receivable — 1,741 Deferred tax asset 7,554 7,145 —————- ————— Total current assets 160,730 151,431 Property and equipment Leasehold improvements 34,422 19,268 Computer equipment and related software 127,909 87,843 Furniture and office equipment 28,036 20,435 Capital projects in process 14,266 12,336 —————- ————— 204,633 139,882 Less accumulated depreciation (94,952) (81,160) —————- ————— Net property and equipment 109,681 58,722 Long-term deferred tax asset 8,045 — Other assets 17,995 15,609 Customer contracts, net 36,333 41,777 Other intangible assets, net 73,635 77,722 Goodwill, net 484,178 483,584 —————- ————— Total assets $ 890,597 $ 828,845 =========== ========== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 13,942 $ 13,630 Accrued salaries and benefits 27,616 18,960 Accrued liabilities 23,499 22,146 Deferred revenue 8,032 7,918 Contract billings in excess of earned revenue 74,873 72,829 Income taxes payable 17,692 — Current portion of long-term debt 3,446 2,213 Current portion of long-term liabilities 3,901 2,943 —————- ————— Total current liabilities 173,001 140,639 Long-term debt 350,905 297,059 Long-term deferred tax liability — 14,009 Other long-term liabilities 33,973 14,388 Stockholders' equity Preferred stock $.001 par value, 5,000,000 shares authorized, none outstanding — — Common stock $.001 par value, 75,000,000 shares authorized, 33,571,928 and 35,606,482 shares outstanding 34 35 Additional paid-in capital 202,884 188,126 Retained earnings 130,568 174,641 Accumulated other comprehensive loss (768) (52) —————- ————— Total stockholders' equity 332,718 362,750 —————- ————— Total liabilities and stockholders' equity $ 890,597 $ 828,845 =========== ========== *T -0- *T HEALTHWAYS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended May 31, —————————— 2008 2007 ———— ————- Cash flows from operating activities: Net income $ 37,611 $ 33,650 Adjustments to reconcile net income to net cash provided by operating activities, net of business acquisitions: Depreciation and amortization 34,053 27,225 Amortization of deferred loan costs 874 697 Share-based employee compensation expense 12,201 12,546 Excess tax benefits from share-based payment arrangements (9,367) (7,257) Increase in accounts receivable, net (41,230) (7,641) (Decrease) increase in other current assets 4,266 (4,841) Decrease in accounts payable (1,869) (212) Increase (decrease) in accrued salaries and benefits 8,656 (18,007) Increase in other current liabilities 24,568 37,690 Deferred income taxes (11,068) (8,157) Other 13,902 4,071 (Increase) decrease in other assets (1,356) 1,732 Payments on other long-term liabilities (1,972) (1,247) ———— ————- Net cash flows provided by operating activities 69,269 70,249 ———— ————- Cash flows from investing activities: Acquisition of property and equipment (70,682) (19,864) Acquisitions, net of cash acquired (358) (466,979) Purchase of investment — (9,047) Other, net (2,439) (13) ———— ————- Net cash flows used in investing activities (73,479) (495,903) ———— ————- Cash flows from financing activities: Proceeds from issuance of long-term debt 85,420 350,000 Deferred loan costs — (4,357) Proceeds from sale of unregistered common stock — 5,000 Repurchases of common stock (94,340) — Excess tax benefits from share-based payment arrangements 9,367 7,257 Payments of long-term debt (32,208) (30,641) Exercise of stock options 6,152 5,224 ———— ————- Net cash flows (used in) provided by financing activities (25,609) 332,483 ———— ————- Net decrease in cash and cash equivalents (29,819) (93,171) Cash and cash equivalents, beginning of period 47,655 154,792 ———— ————- Cash and cash equivalents, end of period $ 17,836 $ 61,621 ======== ========= *T

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