KCBD, NewsChannel 11 Lubbock |AMERIGROUP Reports Q3 Net Income of $22.5 Million or $0.43 per Diluted Share
Member Center:
VIRGINIA BEACH, Va., Oct. 30, 2009 /PRNewswire-FirstCall/ -- AMERIGROUP Corporation (NYSE: AGP) today announced that net income for the third quarter of 2009 was $22.5 million, or $0.43 per diluted share, versus $37.9 million, or $0.71 per diluted share, for the third quarter of 2008. Third quarter earnings are in line with the preliminary earnings range that the Company issued on October 26, 2009, and reflect elevated medical costs associated with the onset of what appears to be a severe flu season due to the H1N1 virus.
Highlights include:
"At our investor day in September, we discussed how outpatient services continued to be the primary factor driving our higher than expected costs in the third quarter, and said that we expected this trend to continue at least through the end of 2009," said James G. Carlson, AMERIGROUP Chairman and Chief Executive Officer. "More recently, we are seeing a significant spike in flu-related activity which is most prevalent in our southern states. The onset of what appears to be a severe flu season due to the H1N1 virus is the single most important driver of the increase in medical costs over the last 30 days."
Carlson continued, "We believe the H1N1 flu, like the recession, will eventually fade. Over the longer term, we believe that there are a number of reasons to feel good about our future, including the sizable expansion plans in healthcare reform and the ability to improve the delivery of long-term care services. We believe that AMERIGROUP is very well-positioned to capitalize on these opportunities."
Premium Revenues
Premium revenues for the third quarter of 2009 increased 20.2% to $1.3 billion compared to $1.1 billion in the third quarter of 2008. Sequentially, premium revenues increased $14.1 million, or 1.1%, compared with the second quarter of 2009. The sequential increase primarily reflects membership gains in the TANF population across most markets partially offset by increased accruals for the experience rebate in Texas.
In October, the Company received final confirmation of its rate increase in Georgia, which is retroactive to July 1, 2009. The retroactive value of approximately $3.0 million was not booked in the third quarter of 2009. The Company expects to recognize the retroactive portion of the rate increase associated with the third quarter in the fourth quarter of 2009.
Investment Income and Other Revenues
Third quarter investment income and other revenues were $5.3 million versus $17.6 million in the third quarter of 2008 and compared to $6.5 million in the second quarter of 2009. Investment income declined slightly on a sequential basis due to a decrease in yields.
Health Benefits
Health benefits expenses, as a percent of premium revenues, were 87.5% for the third quarter of 2009 versus 82.0% in the third quarter of 2008, and compared to 85.9% in the second quarter of 2009.
The third quarter health benefits ratio is elevated due to ongoing increases in outpatient medical costs. As the Company discussed at its September 2009 investor day, outpatient costs began increasing at higher trend rates relative to historical experience in the first quarter. As expected, the higher trends appear to have continued into the third quarter. Some of the primary drivers include increases in emergency room services, ambulatory surgery and physician services. In contrast, inpatient hospital costs have remained stable and within the Company's expected range.
In addition to higher general trends in outpatient costs, the Company believes that the health benefits ratio was elevated further in the third quarter due to a significant spike in flu-related activity that primarily impacted the Company's Medicaid and CHIP members. As health officials have noted, the H1N1 virus is particularly virulent among children, pregnant women and other high-risk population groups, and this demographic represents approximately 87% of the Company's 1.8 million members.
Based on a combination of indicators, such as prescription information, claims paid for services delivered in September, and various public health statistics, the Company believes that the impact from the H1N1 flu accelerated in a pronounced fashion during September. While the precise quantification of the flu impact in the third quarter remains highly estimated at this point due to the normal lag time in claim payments, information available to the Company indicates flu is a significant contributor to the upward movement in the health benefits ratio.
Additionally, the Company did not record revenue during the third quarter for the annual rate increase in Georgia, as noted in the Premium Revenues section above. This contributed to a higher health benefits ratio than otherwise would have been the case.
The Company experienced favorable reserve development across most markets in the third quarter. However, the impact to the health benefits ratio from the favorable reserve development was neutralized by increased accruals for the Texas experience rebate associated with prior periods, as noted in the Premium Revenues section above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 6.3% of total revenues for the third quarter of 2009, versus 10.2% in the third quarter of 2008, and compared to 7.5% for the second quarter of 2009. The selling, general and administrative expense ratio decreased sequentially, due to a reduction in variable compensation accruals as a result of lower operating results.
Premium Taxes
Third quarter premium taxes were $38.3 million versus $23.9 million for the third quarter of 2008, and compared to $34.6 million in the second quarter of 2009. The sequential increase in premium taxes was primarily due to an increase in the premium tax rate in Tennessee, effective July 1, 2009.
Balance Sheet and Cash Flow Highlights
Cash and investments at September 30, 2009 totaled $1.4 billion of which $277.2 million was unregulated.
During the quarter, the Company repurchased approximately 1.4 million shares of its common stock for $34.3 million under the Company's ongoing stock repurchase program. In addition, the Company repaid the remaining $18.0 million of outstanding debt under its Credit Agreement. The debt to total capital ratio decreased to 19.8%, as of September 30, 2009, from 20.8%, as of June 30, 2009.
Medical claims payable as of September 30, 2009 totaled $550.1 million compared to $563.0 million as of June 30, 2009. Days in claims payable represented 45 days of health benefits expense, which is within the expected range of 45 to 55 days, compared to 46 days in the previous quarter. Claims processing speed increased slightly during the quarter, further reducing claims inventory levels. This change was commensurate with the one day decline in days in claims payable.
Included on page 10 is a table presenting the components of the change in medical claims payable for the nine months ended September 30, 2009 and the year ended December 31, 2008.
Cash Flow Highlights
Cash flow provided by operations totaled $106.6 million for the nine months ended September 30, 2009 and $72.6 million for the three months ended September 30, 2009.
Outlook
The Company withdrew its annual earnings guidance for the current year on October 26, 2009 due to the wide range of medical cost outcomes that may occur in the fourth quarter.
Third Quarter Earnings Call
AMERIGROUP senior management will discuss the Company's third quarter results on a conference call Friday, October 30, 2009 at 7:30 a.m. Eastern Time (ET). 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 34392568. The replay will be available shortly after the conclusion of the call until Friday, November 6, 2009 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 and its subsidiaries help those in publicly funded healthcare programs by ensuring that these individuals enter an organized system of care and a true medical home. Serving approximately 1.8 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 healthcare 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 related to medical costs, our future and our position to capitalize on certain opportunities, which are subject to numerous factors, many of which are outside of our control, including the severity of the flu season and the impact of the H1N1 virus, medical expense trend levels, our ability to manage our medical costs generally, seasonality of health benefits expenses, the levels and amounts of membership, revenues, organic premium revenues, rate increases, operating cash flows, health benefits expenses, selling, general and administrative expenses, days in claims payable, income tax rates, cash balances, earnings per share, net income growth, healthcare reform, interest rates, and our ability to improve the delivery of long-term care services. 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, pandemics; 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 acts of terrorism or severe weather; and the unfavorable resolution of new or pending litigation.
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 STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2009 2008[1] 2009 2008[1]
---- ------- ---- -------
Revenues:
Premium $1,298,969 $1,080,367 $3,801,306 $3,228,727
Investment income
and other 5,315 17,624 24,179 58,696
----- ------ ------ ------
Total revenues 1,304,284 1,097,991 3,825,485 3,287,423
--------- --------- --------- ---------
Expenses:
Health benefits 1,136,391 885,774 3,258,907 2,672,166
Selling, general and
administrative 82,238 112,222 288,898 332,104
Premium taxes 38,336 23,906 101,077 68,051
Litigation
settlement - - - 234,205
Depreciation and
amortization 8,441 8,811 26,447 26,459
Interest 3,929 5,082 12,399 16,107
----- ----- ------ ------
Total expenses 1,269,335 1,035,795 3,687,728 3,349,092
--------- --------- --------- ---------
Income (loss)
before income
taxes 34,949 62,196 137,757 (61,669)
Income tax expense 12,400 24,270 28,700 30,800
------ ------ ------ ------
Net income (loss) $22,549 $37,926 $109,057 $(92,469)
======= ======= ======== ========
Diluted net income
(loss) per share $0.43 $0.71 $2.07 $(1.75)
===== ===== ===== ======
Weighted average
number of common
shares and dilutive
potential common
shares outstanding 51,920,745 53,494,690 52,754,511 52,914,156[2]
========== ========== ========== ============
[1] 2008 results reflect the previously disclosed reclassification of
premium taxes and experience rebate. Additionally, results include
the impact from the adoption of a new accounting pronouncement related
to convertible debt instruments which increased interest expense in
each of the periods presented.
[2] Weighted shares in the nine months ended September 30, 2008 exclude
potentially dilutive common stock equivalents due to the net loss in
that period in accordance with generally accepted accounting
principles.
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 Nine months
ended ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Premium revenue 99.6% 98.4% 99.4% 98.2%
Investment income and other 0.4 1.6 0.6 1.8
--- --- --- ---
Total revenues 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Health benefits [1] 87.5% 82.0% 85.7% 82.8%
Selling, general and administrative
expenses 6.3% 10.2% 7.6% 10.1%
Income (loss) before income taxes 2.7% 5.7% 3.6% (1.9)%
Net income (loss) 1.7% 3.5% 2.9% (2.8)%
[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, 2009 and 2008. Because
the Company receives two premiums for members that are in both the
Medicare Advantage and Medicaid products, these members have been counted
twice in the states where the Company offers both plans.
September 30,
-------------
2009 2008
---- ----
Texas[1] 498,000 462,000
Florida 270,000 228,000
Georgia 236,000 201,000
Tennessee[2] 192,000 352,000
Maryland 188,000 161,000
New Jersey 117,000 103,000
New York 112,000 111,000
Ohio 59,000 56,000
Nevada 56,000 -
Virginia 30,000 24,000
New Mexico 20,000 7,000
South Carolina[3] - 9,000
--- -----
Total 1,778,000 1,714,000
========= =========
[1] Membership includes approximately 13,000 under an ASO contract in
2009.
[2] Membership includes approximately 165,000 under an ASO contract in
2008 terminated on October 31, 2008.
[3] AMERIGROUP exited the State of South Carolina on March 1, 2009.
The following table sets forth the approximate number of members in each
of the Company's products as of September 30, 2009 and 2008. 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 2009 2008
------- ---- ----
TANF (Medicaid)[1][3] 1,245,000 1,205,000
CHIP[3] 259,000 241,000
ABD (Medicaid)[2] 202,000 218,000
FamilyCare (Medicaid) 58,000 41,000
Medicare Advantage 14,000 9,000
------ -----
Total 1,778,000 1,714,000
========= =========
[1] Membership includes approximately 124,000 members under an ASO
contract in 2008 terminated on October 31, 2008.
[2] Membership includes approximately 13,000 ASO members in 2009 and
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)
September 30, December 31,
2009 2008
---- ----
Assets
Current assets:
Cash and cash equivalents $516,190 $763,272
Short-term investments 121,723 97,466
Premium receivables 87,458 86,595
Deferred income taxes 23,290 25,347
Prepaid expenses,
provider and other
receivables and other 70,376 42,281
------ ------
Total current assets 819,037 1,014,961
Property, equipment and
software, net 101,133 103,747
Goodwill and other intangible
assets, net 249,878 250,205
Long-term investments, including
investments on deposit for
licensure 789,905 571,663
Other long-term assets 14,100 15,091
------ ------
$1,974,053 $1,955,667
========== ==========
Liabilities and
Stockholders' Equity
Current liabilities:
Claims payable $550,112 $536,107
Unearned revenue 66,107 82,588
Accounts payable 3,115 6,810
Accrued expenses and other 162,338 170,811
Current portion of long-
term debt - 506
--- ---
Total current liabilities 781,672 796,822
Long-term debt 232,610 268,956
Other long-term liabilities 17,889 17,230
------ ------
Total liabilities 1,032,171 1,083,008
--------- ---------
Stockholders' equity:
Common stock, $.01 par value 543 539
Additional paid-in
capital, net of
treasury stock 388,702 434,789
Accumulated other comprehensive
income (loss) 2,227 (4,022)
Retained earnings 550,410 441,353
------- -------
Total stockholders' equity 941,882 872,659
------- -------
$1,974,053 $1,955,667
========== ==========
AMERIGROUP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
September 30,
-------------
2009 2008
---- ----
(dollars in thousands)
Cash flows from operating
activities:
Net income (loss) $109,057 $(92,469)
Adjustments to reconcile net
income (loss) to net cash
provided by
(used in) operating
activities:
Depreciation and
amortization 26,447 26,459
Loss on disposal of property,
equipment and software 289 442
Deferred tax expense
(benefit) 2,481 (2,364)
Compensation expense related
to share-based payments 12,034 7,702
Convertible debt non-cash
interest expense 7,480 7,008
Other (326) 8,808
Gain on sale of contract
rights (5,810) -
Changes in assets and
liabilities (decreasing)
increasing cash flows
from operations:
Premium receivables (863) 10,480
Prepaid expenses, provider
and other receivables and
other current assets (26,534) 27,781
Other assets (1,146) (942)
Claims payable 14,005 (13,131)
Unearned revenue (16,481) (14,394)
Accounts payable, accrued
expenses and other current
liabilities (10,245) 5,342
Other long-term liabilities (3,793) (98)
------ ---
Net cash
provided by
(used in)
operating
activities 106,595 (29,376)
------- -------
Cash flows from investing
activities:
Release of restricted
investments held as
collateral - 351,318
(Purchase of) proceeds
from sale of
investments, net (221,987) 2,332
Purchase of investments on
deposit for licensure, net (9,901) (4,557)
Purchase of property,
equipment and software (21,680) (27,547)
Proceeds from sale of
contract rights 5,810 -
----- ---
Net cash
(used in)
provided by
investing
activities (247,758) 321,546
-------- -------
Cash flows from financing
activities:
Repayments of
borrowings under
credit facility (44,318) (79,025)
Payment of capital lease
obligations - (357)
Proceeds and tax benefits
from exercise of stock
options and change
in bank overdrafts and
other, net 1,227 7,344
Treasury stock repurchases (62,828) (22,890)
------- -------
Net cash used
in financing
activities (105,919) (94,928)
-------- -------
Net (decrease) increase
in cash and cash
equivalents (247,082) 197,242
Cash and cash equivalents at
beginning of period 763,272 487,614
------- -------
Cash and cash equivalents
at end of period $516,190 $684,856
======== ========
AMERIGROUP CORPORATION AND SUBSIDIARIES
Components of the Change in Medical Claims Payable
(dollars in thousands)
Nine months Twelve months
ended ended
September December
30, 2009 31, 2008
---------- ---------
Medical claims payable, beginning
of period $536,107 $541,173
Health benefits expenses incurred
during period:
Related to current year 3,348,701 3,679,107
Related to prior years (89,794) (60,846)
------- -------
Total incurred 3,258,907 3,618,261
--------- ---------
Health benefits payments during
period:
Related to current year 2,847,217 3,197,732
Related to prior years 397,685 425,595
------- -------
Total payments 3,244,902 3,623,327
--------- ---------
Medical claims payable, end of period $550,112 $536,107
======== ========
Health benefits expenses incurred during both periods were reduced for
mounts 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 expense due to
revisions to prior estimates. The amount related to the prior year for
the period ended September 30, 2009 also included the one-time impact of
establishing estimates for pharmacy rebates which began in the first
quarter of 2009.
CONTACTS:
Investors: Julie Loftus Trudell Media: Tara Wall
Senior Vice President, Investor Relations Senior Vice President,
Communications
AMERIGROUP Corporation AMERIGROUP Corporation
(757) 321-3597 (757) 518-3671
SOURCE AMERIGROUP Corporation
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