Amerigroup Reports Third Quarter 2010 Results; Net Income of $84.3 Million or $1.68 per Diluted Share
VIRGINIA BEACH, Va., Oct. 29, 2010 /PRNewswire-FirstCall/ — Amerigroup Corporation (NYSE: AGP) today announced that net income for the third quarter of 2010 was $84.3 million, or $1.68 per diluted share, versus net income of $22.5 million, or $0.43 per diluted share, for the third quarter of 2009 and compared to $67.2 million, or $1.31 per diluted share, for the second quarter of 2010.
Highlights include:
- Membership increased 29,000 members to approximately 1.9 million at the end of the third quarter, a 1.5% increase compared to the second quarter of 2010 and an 8.7% increase over the third quarter of 2009.
- Third quarter total revenues were $1.5 billion, a 4.0% increase over the second quarter of 2010, and a 14.6% increase over the third quarter of 2009.
- Health benefits expense was 80.5% of premium revenue for the third quarter of 2010.
- Selling, general and administrative expenses were 7.1% of total revenues for the third quarter of 2010.
- Cash flow provided by operations was $92.9 million for the three months ended September 30, 2010.
- Unregulated cash and investments were $251.4 million as of September 30, 2010.
- Medical claims payable, as of September 30, 2010, totaled $521.8 million compared to $525.6 million, as of June 30, 2010.
- Days in claims payable was 40, compared to 41 days in the previous quarter.
- The Company repurchased approximately 1.9 million shares of its common stock during the third quarter for approximately $70.5 million.
“We are pleased with our performance in the quarter. Our membership grew and we generated strong cash flow, allowing us to build our unregulated cash position, even as we were actively repurchasing shares,” said James G. Carlson, Amerigroup’s chairman and chief executive officer. “Most importantly, we improved the services provided to our members and state partners, continuing our progress to improve access to care and enhance clinical quality outcomes. Our value proposition is being delivered day by day, member by member, at this critical time and our states are saving money and getting better results from their safety net programs.”
Premium Revenue
Premium revenue for the third quarter of 2010 increased 14.7% to $1.5 billion compared to $1.3 billion in the third quarter of 2009. Sequentially, premium revenues increased $61.0 million, or 4.3%, compared with the second quarter of 2010. The sequential increase primarily reflects continued membership increases across many of the Company’s markets.
Third quarter premium revenue also benefited from annual rate increases in several markets including New Jersey, Texas, Virginia and New York, the latter of which was retroactive to April 1, 2010 and recognized in the third quarter.
The Company received initial confirmation of its rate increase in Georgia but did not receive a fully executed rate amendment by the end of the quarter. The Company expects to recognize approximately $0.10 earnings per diluted share in the fourth quarter of 2010 for the retroactive portion of the rate increase associated with the third quarter.
Investment Income and Other Revenues
Third quarter investment income and other revenues were $5.0 million versus $5.3 million in the third quarter of 2009, and compared to $8.6 million in the second quarter of 2010. Investment income and other revenues for the second quarter of 2010 included the sale of a trademark for $4.0 million. Excluding the trademark sale, the slight increase in investment income on a sequential basis is due to a higher average investment yield as well as higher investment balances.
Health Benefits
Health benefits expense, as a percent of premium revenue, was 80.5% for the third quarter of 2010 versus 87.5% in the third quarter of 2009, and compared to 82.3% in the second quarter of 2010.
The sequential decrease in the health benefits ratio was primarily due to the impact of rate increases received in the quarter. Medical cost trends also remained at moderate levels during the third quarter of 2010, consistent with Company experience in the second quarter. Third quarter costs remained in line with, or better than, expectations in most markets, with all major categories of service exhibiting lower trends in recent periods.
Favorable reserve development (net of associated accruals for experience rebate in Texas, applicable medical loss ratio floors, and other gain sharing arrangements with state customers) positively impacted the health benefits ratio in the third quarter by approximately 180 basis points compared to 200 basis points reported in the second quarter of 2010.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 7.1% of total revenues for the third quarter of 2010, versus 6.3% in the third quarter of 2009, and compared to 7.5% for the second quarter of 2010. Sequentially, selling, general and administrative expenses remained stable, while the selling, general and administrative expense ratio declined due to total revenue growth in the quarter.
Premium Taxes
Third quarter premium taxes were $40.3 million versus $38.3 million for the third quarter of 2009, and compared to $33.2 million in the second quarter of 2010. The sequential increase in premium taxes was primarily due to the reinstatement of premium tax in Georgia effective July 1, 2010.
Balance Sheet Highlights
Cash and investments at September 30, 2010 totaled $1.6 billion of which $251.4 million was unregulated, compared to $239.5 million of unregulated cash and investments at the end of the second quarter of 2010. During the quarter, the Company repurchased 1.9 million shares of common stock for $70.5 million, pursuant to its ongoing share repurchase program. This unregulated cash outlay was offset by dividends and the timing of disbursements during the quarter.
The debt to total capital ratio decreased to 18.2% as of September 30, 2010 from 18.4% as of June 30, 2010.
Medical claims payable as of September 30, 2010 totaled $521.8 million compared to $525.6 million as of June 30, 2010. Days in claims payable represented 40 days of health benefits expense, compared to 41 days in the previous quarter.
Included on page 9 is a table presenting the components of the change in medical claims payable for the nine months ended September 30, 2010 and the year ended December 31, 2009.
Cash Flow Highlights
Cash flow from operations totaled $202.5 million for the nine months ended September 30, 2010 and $92.9 million for the three months ended September 30, 2010. The key driver of cash flow in the quarter was solid earnings with routine variation in working capital accounts.
Third Quarter Earnings Call
Amerigroup senior management will discuss the Company’s third quarter results on a conference call Friday, October 29, 2010 at 8:00 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 98624159. The replay will be available shortly after the conclusion of the call until Friday, November 5, at 11:59 p.m. EDT. 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, a Fortune 500 Company, coordinates services for individuals in publicly funded health care programs. Serving approximately 1.9 million members in 11 states nationwide, Amerigroup accepts all eligible people regardless of age, sex, race or disability. The Company’s product offerings do not utilize any individual underwriting nor deny coverage due to pre-existing medical conditions. Amerigroup is dedicated to offering real solutions that improve health care access and quality for its members, while proactively working to reduce the overall cost of care to taxpayers. For more information and real story examples of these solutions, please 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, including statements related to moderating medical cost trends and expected rate increases in the state of Georgia. 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: our inability to manage medical costs; our inability to operate new products and markets at expected levels, including, but not limited to, profitability, membership and targeted service standards; local, state and national 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 health care industry, including the impact of recently enacted health care reform legislation; changes in Medicaid and Medicare payment levels and methodologies; increased use of services, increased cost of individual services, epidemics, pandemics, the introduction of new or costly treatments and technology, new mandated benefits, insured population characteristics and seasonal changes in the level of health care use; our ability to maintain and increase membership levels; our ability to enter into new markets or remain in existing markets; changes in market interest rates or any disruptions in the credit markets; our ability to maintain compliance with all minimum capital requirements; liabilities and other claims asserted against us; demographic changes; the competitive environment in which we operate; the availability and terms of capital to fund acquisitions, capital improvements and maintain capitalization levels required by state agencies; our ability to attract and retain qualified personnel; the unfavorable resolution of new or pending litigation; and catastrophes, including acts of terrorism or severe weather.
Investors should also refer to our annual report on Form 10-K for the year ended December 31, 2009 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
September 30,
-------------
2010 2009
---- ----
Revenues:
Premium $1,489,884 $1,298,969
Investment
income and
other 5,020 5,315
----- -----
Total revenues 1,494,904 1,304,284
--------- ---------
Expenses:
Health benefits 1,199,706 1,136,391
Selling,
general and
administrative 106,815 82,238
Premium taxes 40,317 38,336
Depreciation
and
amortization 8,737 8,441
Interest 3,991 3,929
----- -----
Total expenses 1,359,566 1,269,335
--------- ---------
Income before
income taxes 135,338 34,949
Income tax
expense 50,990 12,400
------ ------
Net income $84,348 $22,549
======= =======
Diluted net
income per
share $1.68 $0.43
===== =====
Weighted
average number
of common
shares and
dilutive
potential
common
shares
outstanding 50,197,740 51,920,745
========== ==========
Nine months ended
September 30,
-------------
2010 2009
---- ----
Revenues:
Premium $4,285,530 $3,801,306
Investment
income and
other 18,536 24,179
------ ------
Total revenues 4,304,066 3,825,485
--------- ---------
Expenses:
Health benefits 3,517,723 3,258,907
Selling,
general and
administrative 332,427 288,898
Premium taxes 104,961 101,077
Depreciation
and
amortization 26,352 26,447
Interest 12,000 12,399
------ ------
Total expenses 3,993,463 3,687,728
--------- ---------
Income before
income taxes 310,603 137,757
Income tax
expense 116,860 28,700
------- ------
Net income $193,743 $109,057
======== ========
Diluted net
income per
share $3.81 $2.07
===== =====
Weighted
average number
of common
shares and
dilutive
potential
common
shares
outstanding 50,895,807 52,754,511
========== ==========
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 Nine months ended
September 30, September 30,
------------- -------------
2010 2009 2010 2009
---- ---- ---- ----
Premium
revenue 99.7% 99.6% 99.6% 99.4%
Investment
income and
other 0.3 0.4 0.4 0.6
--- --- --- ---
Total
revenues 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Health
benefits
[1] 80.5% 87.5% 82.1% 85.7%
Selling,
general and
administrative
expenses 7.1% 6.3% 7.7% 7.6%
Income
before
income
taxes 9.1% 2.7% 7.2% 3.6%
Net income 5.6% 1.7% 4.5% 2.9%
[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 members the
Company served in each state as of September 30, 2010 and 2009.
Because the Company receives two premiums for members that are both
in the Medicare Advantage and Medicaid products, these members have
been counted twice in the states where we offer both plans.
September 30,
-------------
2010 2009
---- ----
Texas[1] 557,000 498,000
Georgia 268,000 236,000
Florida 263,000 270,000
Tennessee 204,000 192,000
Maryland 201,000 188,000
New Jersey 138,000 117,000
New York 109,000 112,000
Nevada 76,000 56,000
Ohio 58,000 59,000
Virginia 38,000 30,000
New Mexico 21,000 20,000
Total 1,933,000 1,778,000
========= =========
[1] Membership includes approximately 14,000 members under an ASO
contract in 2010 and 13,000 in 2009.
The following table sets forth the approximate number of members in
each of the Company's products as of September 30, 2010 and 2009.
Because the Company receives two premiums for members that are in
both the Medicare Advantage and Medicaid products, these members
have been counted in each product.
September 30,
-------------
Product 2010 2009
------- ---- ----
TANF (Medicaid) 1,373,000 1,240,000
CHIP 274,000 264,000
ABD (Medicaid)[1] 197,000 202,000
FamilyCare (Medicaid) 70,000 58,000
Medicare Advantage 19,000 14,000
Total 1,933,000 1,778,000
========= =========
[1]Membership includes approximately 14,000 members under an ASO
contract in 2010 and 13,000 in 2009.
AMERIGROUP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
September December
30, 31,
2010 2009
---- ----
Assets
Current assets:
Cash and cash equivalents $490,575 $505,915
Short-term investments 250,474 137,523
Premium receivables 144,044 104,867
Deferred income taxes 27,624 26,361
Prepaid expenses, provider and other
receivables and other 55,884 47,316
------ ------
Total current assets 968,601 821,982
Property, equipment and software, net 95,458 101,002
Goodwill 260,496 249,276
Long-term investments, including
investments on deposit for licensure 823,125 813,976
Other long-term assets 13,401 13,398
------ ------
$2,161,081 $1,999,634
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Claims payable $521,820 $529,036
Unearned revenue 38,299 98,298
Accounts payable 3,119 4,685
Accrued expenses and other 238,160 127,278
------- -------
Total current liabilities 801,398 759,297
Long-term debt 243,088 235,104
Other long-term liabilities 21,837 20,789
------ ------
Total liabilities 1,066,323 1,015,190
--------- ---------
Stockholders' equity:
Common stock, $.01 par value 550 546
Additional paid-in capital, net of
treasury stock 305,702 391,912
Accumulated other comprehensive income 4,131 1,354
Retained earnings 784,375 590,632
------- -------
Total stockholders' equity 1,094,758 984,444
--------- -------
$2,161,081 $1,999,634
========== ==========
AMERIGROUP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
September 30,
-------------
2010 2009
---- ----
(dollars in thousands)
Cash flows from
operating
activities:
Net income $193,743 $109,057
Adjustments to
reconcile net income
to net cash provided
by
operating activities:
Depreciation and
amortization 26,352 26,447
Loss on disposal of
property, equipment
and software 17 289
Deferred tax
(benefit) expense (1,222) 2,481
Compensation expense
related to share-
based payments 14,594 12,034
Convertible debt non-
cash interest
expense 7,984 7,480
Gain on sale of
intangible assets (4,000) -
Gain on sale of
contract rights - (5,810)
Other 6,772 (326)
Changes in assets and
liabilities
(decreasing)
increasing cash
flows
from operations:
Premium receivables (39,177) (863)
Prepaid expenses,
provider and other
receivables and
other
current assets (8,144) (26,534)
Other assets (396) (1,146)
Claims payable (7,216) 14,005
Unearned revenue (59,999) (16,481)
Accounts payable,
accrued expenses and
other current
liabilities 73,732 (10,245)
Other long-term
liabilities (533) (3,793)
Net cash provided by
operating activities 202,507 106,595
------- -------
Cash flows from
investing
activities:
Purchase of
investments, net (115,804) (221,987)
Purchase of
investments on
deposit for
licensure, net (7,586) (9,901)
Purchase of property,
equipment and
software (19,397) (21,680)
Proceeds from sale of
intangible assets 4,000 -
Proceeds from sale of
contract rights - 5,810
Purchase of contract
rights and other
related assets (13,420) -
Net cash used in
investing activities (152,207) (247,758)
-------- --------
Cash flows from
financing
activities:
Repayments of
borrowings under
credit facility - (44,318)
Proceeds and tax
benefits from
exercise of stock
options and change
in bank overdrafts
and other, net 48,495 1,227
Treasury stock
repurchases (114,135) (62,828)
--------
Net cash used in
financing activities (65,640) (105,919)
------- --------
Net decrease in cash
and cash equivalents (15,340) (247,082)
Cash and cash
equivalents at
beginning of period 505,915 763,272
Cash and cash
equivalents at end
of period $490,575 $516,190
======== ========
AMERIGROUP CORPORATION AND SUBSIDIARIES
Components of the Change in Medical Claims Payable
(dollars in thousands)
Nine months ended Twelve months ended
September 30, 2010 December 31, 2009
------------------ -----------------
Medical claims payable,
beginning of period $529,036 $536,107
Health benefits expenses
incurred during period:
Related to current year 3,615,124 4,492,590
Related to prior years (97,401) (85,317)
Total incurred 3,517,723 4,407,273
--------- ---------
Health benefits payments
during period:
Related to current year 3,151,419 4,007,789
Related to prior years 373,520 406,555
Total payments 3,524,939 4,414,344
--------- ---------
Medical claims payable, end of
period $521,820 $529,036
======== ========
Health benefits expenses incurred during both periods were reduced
for amounts related to prior years. The amounts related to prior
years include the impact of amounts previously included in the
liability to establish it at a level sufficient under moderately
adverse conditions that were not needed and the reduction in health
benefits expenses due to revisions to prior estimates.
CONTACTS:
Investors: Julie Loftus
Trudell Media: Tara J. Wall
Senior Vice President,
Investor Relations Senior Vice President, Communications
Amerigroup Corporation Amerigroup Corporation
(757) 321-3597 (757) 518-3671
Jtrudel@amerigroupcorp.com Twall01@amerigroupcorp.com
SOURCE Amerigroup Corporation