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AMERIGROUP Reports Q1 Net Income of $36.9 Million or $0.69 per Diluted Share

May 1, 2009

Full-Year 2009 Guidance Range Increased to $2.70 – $2.85 per Diluted Share

VIRGINIA BEACH, Va., May 1, 2009 /PRNewswire-FirstCall/ — AMERIGROUP Corporation (NYSE: AGP) today announced that its net income for the first quarter of 2009 increased 9.7% to $36.9 million, or $0.69 per diluted share, versus net income of $33.6 million, or $0.62 per diluted share, for the first quarter of 2008.

First Quarter Highlights include:

  • Membership increased 4.9% to approximately 1.7 million at the end of the quarter versus the fourth quarter of 2008.
  • Total revenues were $1.2 billion; a 6.9% increase over the fourth quarter of 2008.
  • Health benefits ratio was 83.7% of premium revenues.
  • Selling, general and administrative expense ratio was 9.0% of total revenues.
  • Cash flow from operations was $36.1 million for the three months ended March 31, 2009.
  • Unregulated cash and investments of $279.7 million as of March 31, 2009.
  • Medical claims payable as of March 31, 2009 totaled $570.4 million compared to $536.1 million as of December 31, 2008.
  • The Company increased its 2009 annual guidance to $2.70 – $2.85 per diluted share, from the previous range of $2.50 – $2.65.
  • On February 1, 2009, the Company began serving approximately 49,000 Medicaid and Children’s Health Insurance Program (CHIP) members in Nevada.
  • On March 1, 2009, the Company closed the sale of the assets of its South Carolina health plan.
  • On April 1, 2009, the Company began the final phase of New Mexico’s Coordinated Long-Term Services (CoLTS) program rollout.
  • The Company repurchased approximately 258,000 shares of its common stock during the first quarter for approximately $6.4 million.

“AMERIGROUP performed well in the first quarter and we again demonstrated our ability to manage our business in a difficult economic environment. The economy continues to affect AMERIGROUP in several ways. We have seen an increase in the number of people enrolled in Medicaid, but at the same time our State government customers face significant budget shortfalls which have resulted in a difficult premium rate environment,” said James G. Carlson, AMERIGROUP Chairman and Chief Executive Officer. “We will be working closely with our State customers to address all of these issues throughout 2009.”

Premium Revenues

Premium revenues for the first quarter of 2009 increased 15.9% to $1.2 billion compared to $1.1 billion in the first quarter of 2008. Sequentially, premium revenues increased $79.8 million, or 7.0%, compared with the fourth quarter of 2008. The sequential increase primarily reflects the continued roll-out in New Mexico, entry into Nevada, and membership increases due to the economic environment.

Investment Income and Other Revenues

First quarter investment income and other revenues were $12.3 million versus $22.6 million in the first quarter of 2008 and compared to $12.7 million in the fourth quarter of 2008. Investment income in the quarter declined sequentially, due to the reinvestment of maturing fixed income securities at lower current market rates. Other revenue included the gain from the sale of the Company’s South Carolina health plan assets which closed March 1, 2009. The gain was largely in-line with the Company’s expectations in previously provided earnings guidance.

Health Benefits

Health benefits as a percent of premium revenues were 83.7% for the first quarter of 2009 versus 83.3% in the first quarter of 2008, and compared to 83.2% in the fourth quarter of 2008. While expected seasonality and trend would normally drive a more substantial increase in the health benefits ratio in the first quarter, favorable reserve development and a change in pharmacy rebate accounting favorably impacted the ratio.

Similar to recent quarters, the health benefits ratio was lower due to favorable reserve development. Excluding the reserve development, underlying health benefits expense for the quarter was largely consistent with the Company’s expectations with certain markets showing particularly good results.

In the first quarter of 2009, the Company established an estimate for pharmacy rebates which the Company expects to receive, associated with pharmaceuticals that have been dispensed to members. Previously, the Company recognized pharmacy rebates when payment was received. The receipt of rebate payments generally lags the quarter in which the pharmaceuticals were actually dispensed. With the more recent availability of stable historical information, the Company now believes that a reliable basis for estimation of the rebates exists. This change resulted in a one-time benefit to health benefits expense of $8.0 million pre-tax, or $0.09 per diluted share.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were 9.0% of total revenues for the first quarter of 2009, versus 10.0% in the first quarter of 2008, and unchanged from the fourth quarter of 2008. Selling, general and administrative expenses increased sequentially as anticipated due to new market expansions and normal seasonality in employee benefits. Further, variable compensation accruals were elevated due to strong performance in the quarter.

2009 Income Statement Adjustments and Reclassifications

In 2009, the Company made certain reclassifications to its income statement presentation. Beginning in the first quarter of 2009 and for prior comparative periods, the Texas experience rebate has been removed from selling, general and administrative expenses and is included as a reduction to premium revenue, as this amount is effectively a premium rebate to the State. In addition, premium tax has been removed from selling, general and administrative expenses and is now reported on a separate line. The Company believes this new presentation will be more useful to the users of the consolidated financial statements as the remaining selling, general and administrative expenses are more reflective of core operating expenses.

For comparability purposes the Company is providing the 2008 quarterly and full-year results and related ratios under this reclassification on page 10 of this release. These statements also reflect the impact of the adoption of FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which requires retrospective application.

Premium Taxes

First quarter premium taxes were $28.1 million versus $22.0 million for the first quarter of 2008, and compared to $25.7 million in the fourth quarter of 2008. The sequential increase in premium taxes is primarily due to growth in premium revenue.

Balance Sheet and Cash Flow Highlights

Cash and investments at March 31, 2009 totaled $1.5 billion of which $279.7 million was unregulated cash and investments. Unregulated cash declined sequentially due to the funding of statutory capital in Nevada, corporate tax and variable compensation payments as well as the repurchase of common stock under the Company’s ongoing stock repurchase program.

Medical claims payable as of March 31, 2009 totaled $570.4 million compared to $536.1 million as of December 31, 2008. Days in claims payable represented 50 days of health benefits expense, which is in-line with the expected range of 45 to 55 days, and compares to 52 days in the previous quarter.

Cash flow provided by operations totaled $36.1 million for the three months ended March 31, 2009, which was approximately 1.0 times quarterly net income, compared to cash used in operations of $6.6 million in the first quarter of 2008.

2009 Outlook

AMERIGROUP increased its 2009 annual earnings guidance range to $2.70 to $2.85 per diluted share from the previous range of $2.50 – $2.65.

“Given our strong results in the first quarter, we are raising our earnings guidance for the year,” said James W. Truess, AMERIGROUP Chief Financial Officer. “Our earnings expectations for the remaining three quarters of the year continue to be largely in-line with our previous expectations. Although we now expect higher membership, we remain cautious on the premium rate environment.”

AMERIGROUP’s 2009 earnings guidance is predicated on the following assumptions among others:

                                                     2009 Guidance
                                                    ---------------
    Total revenues                                $5.0 - $5.1 billion
    Investment income and other (1)         Approximately $33 million
    Health benefits ratio                               84.1% - 84.5%
    Selling, general & administrative ratio               8.1% - 8.5%
    Fully diluted shares outstanding        Approximately 54 million

    (1) Investment income and other includes the gain on the sale of South
        Carolina health plan assets recorded in the first quarter of 2009.

First Quarter Earnings Call

AMERIGROUP senior management will discuss the Company’s first quarter results on a conference call Friday, May 1, 2009 at 8:30 a.m. Eastern Daylight Time (EDT). The conference can be accessed by dialing 866-260-3161 (domestic) or 706-679-7245 (international) approximately ten minutes prior to the start time of the call. A recording of the call may be accessed by dialing 800-642-1687 (domestic) or 706-645-9291 (international) and providing passcode 92351330. The replay will be available shortly after the conclusion of the call until Friday, May 8, at 11:59 p.m. Eastern Time. The conference call will also be available through the investors’ page of the Company’s web site, www.amerigroupcorp.com, or through www.earnings.com. A 30-day replay of this webcast will be available on these web sites beginning approximately two hours following the conclusion of the live broadcast earnings conference call.

About AMERIGROUP Corporation

AMERIGROUP Corporation, headquartered in Virginia Beach, Virginia, improves healthcare access and quality for the financially vulnerable, seniors and people with disabilities by developing innovative managed health services for the public sector. Through its subsidiaries, AMERIGROUP Corporation serves approximately 1.7 million people in Florida, Georgia, Maryland, Nevada, New Jersey, New Mexico, New York, Ohio, Tennessee, Texas and Virginia. For more information, visit www.amerigroupcorp.com.

Forward-Looking Statements

This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the Securities and Exchange Commission’s Fair Disclosure Regulation. This release contains certain ”forward-looking” statements related to expected 2009 earnings which are subject to numerous factors, many of which are outside of our control, including our cash balances, the levels and amounts of membership, revenues, organic premium revenues, rate increases, operating cash flows, health benefits expenses, medical expense trend levels, our ability to manage our medical costs generally, seasonality of health benefits expenses, selling, general and administrative expenses, days in claims payable, income tax rates, earnings per share and net income growth. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. These risks and uncertainties include, but are not limited to, national, state and local economic conditions, including their effect on the rate-setting process and timing of payments; the effect of government regulations and changes in regulations governing the healthcare industry; changes in Medicaid and Medicare payment levels and methodologies; liabilities and other claims asserted against us; our ability to attract and retain qualified personnel; our ability to maintain compliance with all minimum capital requirements; the availability and terms of capital to fund acquisitions and capital improvements; the competitive environment in which we operate; our ability to maintain and increase membership levels; demographic changes; increased use of services, increased cost of individual services, epidemics, the introduction of new or costly treatments and technology, new mandated benefits, insured population characteristics and seasonal changes in the level of healthcare use; our ability to enter into new markets or remain in existing markets, our inability to operate new products and markets at expected levels, including, but not limited to, profitability, membership and targeted service standards; changes in market interest rates or any disruptions in the credit markets; catastrophes, including epidemics, pandemics, acts of terrorism or severe weather; and the unfavorable resolution of new or pending litigation. There can also be no assurance that we will achieve the estimated earnings discussed in this release or that our actual results for 2009 will not differ materially from our current estimates. Our ability to achieve the earnings described is subject to a variety of factors, including those described above, many of which are out of our control.

Investors should also refer to our annual report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission (“SEC”) and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC, for a discussion of certain known risk factors that could cause our actual results to differ materially from our current estimates. Given these risks and uncertainties, we can give no assurances that any forward-looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them. We specifically disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

                  AMERIGROUP CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED INCOME STATEMENTS
               (dollars in thousands, except per share data)
                                (unaudited)

                                                   Three months ended
                                                       March 31,
                                                       ---------
                                                      2009       2008
                                                      ----       ----

    Revenues:
        Premium                                  $1,217,447 $1,050,004
        Investment income and other                  12,347     22,609
                                                     ------     ------
            Total revenues                        1,229,794  1,072,613
                                                  ---------  ---------
    Expenses:
        Health benefits                           1,019,303    874,921
        Selling, general and administrative         110,375    106,742
        Premium taxes                                28,118     22,026
        Depreciation and amortization                 8,326      8,777
        Interest                                      4,238      5,790
                                                      -----      -----
            Total expenses                        1,170,360  1,018,256
                                                  ---------  ---------
            Income before income taxes               59,434     54,357
    Income tax expense                               22,525     20,720
                                                     ------     ------
            Net income                              $36,909    $33,637
                                                    =======    =======

        Diluted net income per share                  $0.69      $0.62
                                                      =====      =====

        Weighted average number of common
          shares and dilutive potential common
          shares outstanding                     53,424,802 54,403,315
                                                 ========== ==========

    The following table sets forth selected operating ratios. All ratios,
    with the exception of the health benefits ratio, are shown as a
    percentage of total revenues.

                                              Three months ended
                                                   March 31,
                                                   ---------
                                                  2009   2008
                                                  ----   ----
    Premium revenue                               99.0%  97.9%
    Investment income and other                    1.0    2.1
                                                   ---    ---
    Total revenues                               100.0% 100.0%
                                                 =====  =====
    Health benefits (1)                           83.7%  83.3%
    Selling, general and administrative expenses   9.0%  10.0%
    Income before income taxes                     4.8%   5.1%
    Net income                                     3.0%   3.1%

    (1) The health benefits ratio is shown as a percentage of premium revenue
        because there is a direct relationship between the premium received
        and the health benefits provided.

    The following table sets forth the approximate number of our members we
    served in each state as of March 31, 2009 and 2008.  Because we receive
    two premiums for members that are in both the Medicare Advantage and
    Medicaid products, these members have been counted twice in the states
    where we offer both plans.

                                      March 31,
                                      ---------
                                    2009      2008
                                    ----      ----
        Texas                     453,000   441,000
        Florida                   253,000   210,000
        Georgia                   213,000   198,000
        Tennessee(1)              189,000   355,000
        Maryland                  179,000   154,000
        New York                  111,000   112,000
        New Jersey                109,000    99,000
        Ohio                       60,000    56,000
        Nevada                     49,000         -
        Virginia                   26,000    24,000
        New Mexico                 15,000         -
        District of Columbia            -    38,000
        South Carolina                  -     1,000
                                      ---     -----
              Total             1,657,000 1,688,000
                                ========= =========

    (1) Membership includes approximately 168,000 under an ASO contract in
        2008 terminated on October 31, 2008.

    The following table sets forth the approximate number of our members in
    each of our products as of March 31, 2009 and 2008.  Because we receive
    two premiums for members that are in both the Medicare Advantage and
    Medicaid products, these members have been counted in each product.

                                            March 31,
                                            ---------
        Product                           2009      2008
        -------                           ----      ----
        TANF (Medicaid)(1)(3)         1,147,000 1,203,000
        CHIP(3)                        258,000   230,000
        ABD (Medicaid)(2)               187,000   205,000
        FamilyCare (Medicaid)            53,000    43,000
        Medicare Advantage               12,000     7,000
                                         ------     -----
            Total                     1,657,000 1,688,000
                                      ========= =========

    (1) Membership includes approximately 127,000 members under an ASO
        contract in 2008 terminated on October 31, 2008.
    (2) Membership includes approximately 41,000 members under an ASO contract
        in 2008 terminated on October 31, 2008.
    (3) 2008 reflects a reclassification from CHIP to TANF to coincide with
        State classifications.

                      AMERIGROUP CORPORATION AND SUBSIDIARIES
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                   (dollars in thousands, except per share data)
                                    (unaudited)
                                                       March 31,  December 31,
                                                           2009          2008
                                                           ----          ----
                                      Assets
    Current assets:
        Cash and cash equivalents                      $774,254      $763,272
        Short-term investments                           53,727        97,466
        Premium receivables                              84,466        86,595
        Deferred income taxes                            23,594        25,347
        Prepaid expenses, provider and other
         receivables and other                           66,663        42,281
                                                      ---------     ---------
          Total current assets                        1,002,704     1,014,961

    Property, equipment and software, net               102,302       103,747
    Goodwill and other intangible assets, net           250,076       250,205
    Long-term investments, including investments on
     deposit for licensure                              630,951       571,663
    Other long-term assets                               14,225        15,091
                                                         ------        ------
                                                     $2,000,258    $1,955,667
                                                     ==========    ==========

                     Liabilities and Stockholders' Equity
    Current liabilities:
        Claims payable                                 $570,435      $536,107
        Unearned revenue                                 65,488        82,588
        Accounts payable                                  3,545         6,810
        Accrued expenses and other                      165,417       170,811
        Current portion of long-term debt                   506           506
                                                        -------       -------
          Total current liabilities                     805,391       796,822

    Long-term debt                                      271,323       268,956
    Other long-term liabilities                          16,067        17,230
                                                         ------        ------
          Total liabilities                           1,092,781     1,083,008
                                                      ---------     ---------

    Stockholders' equity:
        Common stock, $.01 par value                        541           539
        Additional paid-in capital, net of treasury
         stock                                          432,853       434,789
        Accumulated other comprehensive loss             (4,179)       (4,022)
        Retained earnings                               478,262       441,353
                                                        -------       -------
          Total stockholders' equity                    907,477       872,659
                                                        -------       -------
                                                     $2,000,258    $1,955,667
                                                     ==========    ==========

                     AMERIGROUP CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                                         Three months ended
                                                              March 31,
                                                              ---------
                                                             2009      2008
                                                             ----      ----
                                                           (in thousands)
    Cash flows from operating activities:
        Net income                                        $36,909   $33,637
        Adjustments to reconcile net income to net
         cash provided by (used in) operating activities:
            Depreciation and amortization                   8,326     8,777
            Loss on disposal of property, equipment and
             software                                          21       166
            Deferred tax expense                            4,894     1,158
            Compensation expense related to share-based
             payments                                       2,924     2,272
            Long-term convertible debt interest             2,494     2,336
            Other                                             242         -
            Gain on sale of contract rights                (5,810)        -
            Changes in assets and liabilities increasing
             (decreasing) cash flows from operations:
              Premium receivables                           2,129    (3,304)
              Prepaid expenses, provider and other
               receivables and other current assets       (22,830)   28,245
              Other assets                                    522    (2,402)
              Claims payable                               34,328   (34,326)
              Unearned revenue                            (17,100)  (16,992)
              Accounts payable, accrued expenses and
               other current liabilities                   (6,739)  (26,477)
              Other long-term liabilities                  (4,204)      307
                                                           ------       ---
                 Net cash provided by (used in)
                  operating activities                     36,106    (6,603)
                                                           ------    ------

    Cash flows from investing activities:
        (Purchase) proceeds from sale of investments, net  (2,534)  109,702
        Purchase of investments on deposit for
         licensure, net                                   (13,604)   (7,252)
        Purchase of property, equipment and software       (6,339)   (7,536)
        Proceeds from sale of contract rights               5,810         -
                                                            -----       ---
                 Net cash (used in) provided by
                  investing activities                    (16,667)   94,914
                                                          -------    ------

    Cash flows from financing activities:
        Repayments of borrowings under credit facility       (127)  (26,527)
        Payment of capital lease obligations                    -      (146)
        Proceeds and tax benefits from exercise of
         stock options and change in bank overdrafts
         and other, net                                    (1,955)    2,806
        Treasury stock repurchases                         (6,375)   (3,589)
                                                           ------    ------
                 Net cash used in financing activities     (8,457)  (27,456)
                                                           ------   -------
    Net increase in cash and cash equivalents              10,982    60,855
    Cash and cash equivalents at beginning of period      763,272   487,614
                                                          -------   -------
    Cash and cash equivalents at end of period           $774,254  $548,469
                                                         ========  ========

                     AMERIGROUP CORPORATION AND SUBSIDIARIES
                   2008 FULL-YEAR AND QUARTERLY SCHEDULES (1)
                                                           2008
                                               ----------------------------
                                                               Adjusted and
                                               As Reported     Reclassified
      Revenues:
        Premium                                 $4,444,623       $4,366,359
        Investment income and other                 71,383           71,383
                                                    ------           ------
          Total revenues                         4,516,006        4,437,742
      Expenses:
        Health benefits                          3,618,261        3,618,261
        Selling, general and administrative        607,897          435,876
        Premium taxes                                    -           93,757
        Litigation settlement                      234,205          234,205
        Depreciation and amortization               37,385           37,385
        Interest                                    11,170           20,514
                                                    ------           ------
          Total expenses                         4,508,918        4,439,998
                                                 ---------        ---------
          Income (loss) before income taxes          7,088           (2,256)
      Income tax expense                            57,750           54,350
                                                    ------           ------
          Net loss                                $(50,662)        $(56,606)
                                                  ========         ========

      Diluted net loss per share                    $(0.96)          $(1.07)
                                                    ======           ======
      Diluted net income per share less impact
       of litigation settlement                      $2.77            $2.66
                                                     =====            =====

      Health benefits expense ratio(2)                81.4%            82.9%
      Selling, general and administrative
       expense ratio                                  13.5%             9.8%

                                              2008
                      ------------------------------------------------------

                      Q1 Adjusted   Q2 Adjusted   Q3 Adjusted   Q4 Adjusted
                          and           and           and           and
                      Reclassified  Reclassified  Reclassified  Reclassified
    Revenues:
      Premium           $1,050,004    $1,098,356    $1,080,367    $1,137,632
      Investment income
       and other            22,609        18,463        17,624        12,687
                            ------        ------        ------        ------
        Total revenues   1,072,613     1,116,819     1,097,991     1,150,319
    Expenses:
      Health benefits      874,921       911,471       885,774       946,095
      Selling, general
       and administrative  106,742       113,140       112,222       103,772
      Premium taxes         22,026        22,119        23,906        25,706
      Litigation
       settlement                -       234,205             -             -
      Depreciation and
       amortization          8,777         8,871         8,811        10,926
      Interest               5,790         5,235         5,082         4,407
                             -----         -----         -----         -----
        Total expenses   1,018,256     1,295,041     1,035,795     1,090,906
                         ---------     ---------     ---------     ---------
        Income (loss)
         before income
         taxes              54,357      (178,222)       62,196        59,413
    Income tax expense
     (benefit)              20,720       (14,190)       24,270        23,550
                            ------       -------        ------        ------
        Net income (loss)  $33,637     $(164,032)      $37,926       $35,863
                           =======     =========       =======       =======

    Diluted net income
     (loss) per share        $0.62        $(3.10)        $0.71         $0.67
                             =====        ======         =====         =====
    Diluted net income per
     share less impact of
     litigation settlement   $0.62         $0.65         $0.71         $0.68
                             =====         =====         =====         =====

    Health benefits
     expense ratio(2)         83.3%         83.0%         82.0%         83.2%
    Selling, general and
     administrative
     expense ratio            10.0%         10.1%         10.2%          9.0%

    (1) 2008 results reflect the reclassification of premium taxes and
        experience rebate.  Additionally, results include the impact from the
        adoption of FASB Staff Position (FSP) APB 14-1,  Accounting for
        Convertible Debt Instruments That May Be Settled in Cash Upon
        Conversion (Including Partial Cash Settlement), which increased
        interest expense in each of the periods presented.  For an explanation
        of the 2008 Income Statement adjustments and reclassifications, see
        page 3 of this release.

    (2) The health benefits ratio is shown as a percentage of premium revenue
        because there is a direct relationship between the premium received
        and the health benefits provided.

SOURCE AMERIGROUP Corporation


Source: newswire



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