Amerigroup Reports Second Quarter 2010 Results

VIRGINIA BEACH, Va., July 30, 2010 /PRNewswire-FirstCall/ -- Amerigroup Corporation (NYSE: AGP) today announced that net income for the second quarter of 2010 was $67.2 million, or $1.31 per diluted share, versus net income of $49.6 million, or $0.94 per diluted share, for the second quarter of 2009.  Second quarter of 2009 results were positively impacted by a tax adjustment of $0.43 per diluted share related to litigation settled in 2008.  Excluding the tax adjustment, second quarter of 2009 net income would have been $27.2 million, or $0.51 per diluted share. A reconciliation of this non-GAAP financial measure to GAAP is included on page 9 of this release.  

Highlights include:

• Membership increased 41,000 members, or 2.2%, to approximately 1.9 million at the end of the second quarter compared to the first quarter of 2010, and a 10.5% increase over the second quarter of 2009.  
• Second quarter total revenues were $1.4 billion, a 4.8% increase over the first quarter of 2010, and an 11.3% increase over the second quarter of 2009.  
• Health benefits expense was 82.3% of premium revenues for the second quarter of 2010.  
• Selling, general and administrative expenses were 7.5% of total revenues for the second quarter of 2010.
• Cash provided by operations was $116.4 million for the three months ended June 30, 2010.
• Unregulated cash and investments were $239.5 million as of June 30, 2010.
• Medical claims payable, as of June 30, 2010, totaled $525.6 million compared to $549.2 million, as of March 31, 2010.
• Days in claims payable was 41, compared to 43 days in the previous quarter.
• The Company repurchased approximately 1.05 million shares of its common stock during the second quarter for approximately $36.7 million.
• In May of 2010, the Texas Health and Human Services Commission announced that Amerigroup's Texas health plan was selected through a competitive procurement to expand health care coverage to seniors and people with disabilities in the six county service area surrounding Fort Worth.  Pending final contract negotiations, the Company anticipates beginning operations in early 2011.

"We are pleased with our performance in the second quarter and first-half of the year.  More than any other time in our history, our state partners need the value we offer – expanded access to care, better coordination of services and clinical outcomes, as well as cost containment for their Medicaid-dependant populations," said James G. Carlson, Amerigroup's chairman and chief executive officer.  "In particular, we are excited about our expansion of coverage to seniors and people with disabilities in Fort Worth, Texas, which is expected to begin in early 2011.  The STAR+PLUS program is a national model for how to enable people to live independently, improve the quality of their lives and save taxpayer dollars."

Premium Revenues

Premium revenues for the second quarter of 2010 increased 11.2% to $1.4 billion compared to $1.3 billion in the second quarter of 2009.  Sequentially, premium revenues increased $62.1 million, or 4.5%, compared with the first quarter of 2010.  

The sequential increase in premium revenues primarily reflects the impact of the previously announced New Jersey acquisition and launch of the Tennessee long-term care program, both of which occurred on March 1, 2010.   In addition, revenues benefited from continued membership increases across many of the Company's markets due to the macroeconomic environment driving expanded Medicaid participation.

Investment Income and Other Revenues

Second quarter investment income and other revenues were $8.6 million versus $6.5 million in the second quarter of 2009, and compared to $4.9 million in the first quarter of 2010.  Investment income and other revenue increased on a sequential basis due to the sale of a trademark for $4.0 million.

Health Benefits

Health benefits expenses, as a percent of premium revenues, were 82.3% for the second quarter of 2010 versus 85.9% in the second quarter of 2009, and compared to 83.5% in the first quarter of 2010.  The sequential decrease in the health benefits ratio was primarily due to continued moderate medical trends and normal seasonal declines in medical costs from the first to the second quarter.

Continuing what began most significantly in the fourth quarter of 2009, medical cost trends remained at moderate levels during the 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 second quarter by approximately 200 basis points compared to 250 basis points of favorable reserve development reported in the first quarter of 2010.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were 7.5% of total revenues for the second quarter of 2010, unchanged from the second quarter of 2009, and compared to 8.6% for the first quarter of 2010.  Selling, general and administrative expenses remained stable and at expected levels in the second quarter.  The selling, general and administrative expense ratio was elevated in the first quarter of 2010 due to variable compensation accruals.  

Premium Taxes

Second quarter premium taxes were $33.2 million versus $34.6 million for the second quarter of 2009, and compared to $31.5 million in the first quarter of 2010.   The composite premium tax rate was essentially unchanged from the first to the second quarter of 2010.

Balance Sheet Highlights

Cash and investments at June 30, 2010 totaled $1.5 billion of which $239.5 million was unregulated, compared to $257.4 million of unregulated cash and investments at the end of the first quarter of 2010.  Unregulated cash declined during the quarter primarily due to $36.7 million in share repurchase activity under the Company's ongoing stock repurchase program.  

The debt to total capital ratio decreased to 18.4%, as of June 30, 2010, from 18.8%, as of March 31, 2010.

Medical claims payable as of June 30, 2010 totaled $525.6 million compared to $549.2 million as of March 31, 2010.  Days in claims payable represented 41 days of health benefits expense, compared to 43 days in the previous quarter.  The primary factor that drove the decline in days in claims payable was an increase in claims processing speed.  

Included on page 9 is a table presenting the components of the change in medical claims payable for the six months ended June 30, 2010 and the year ended December 31, 2009.  

Cash Flow Highlights

Cash flow from operations totaled $109.6 million for the six months ended June 30, 2010 and $116.4 million for the three months ended June 30, 2010.  The key drivers of cash flow in the quarter were solid earnings and a net favorable change in working capital accounts.  

Second Quarter Earnings Call

Amerigroup senior management will discuss the Company's second quarter results on a conference call Friday, July 30, 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 84750550.  The replay will be available shortly after the conclusion of the call until Friday, August 6, 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 the timing and expansion of our services in Texas.  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.  

SOURCE Amerigroup Corporation