Amerigroup Reports Third Quarter 2011 Results
Net Income of $48.1 Million or $0.96 per Diluted Share
VIRGINIA BEACH, Va., Oct. 28, 2011 /PRNewswire-FirstCall/ -- Amerigroup Corporation (NYSE: AGP) today announced that net income for the third quarter of 2011 was $48.1 million, or $0.96 per diluted share, versus net income of $84.3 million, or $1.68 per diluted share, for the third quarter of 2010 and compared to $44.3 million, or $0.83 per diluted share, for the second quarter of 2011. The third quarter 2011 was positively impacted by approximately $20.4 million of retroactive premium revenue, or $0.25 earnings per diluted share.
Highlights include:
- Membership increased 15,000 members, or 0.8%, to approximately 2.0 million at the end of the third quarter of 2011 compared to the second quarter of 2011.
- Health benefits expense was 83.9% of premium revenue for the third quarter of 2011.
- Selling, general and administrative expenses were 8.2% of total revenues for the third quarter of 2011.
- Cash flow provided by operations was $129 million and $243 million for the three and nine months ended September 30, 2011, respectively.
- Unregulated cash and investments were $298 million as of September 30, 2011 compared to $255 million as of June 30, 2011.
- Medical claims payable as of September 30, 2011 totaled $545 million compared to $520 million as of June 30, 2011.
- Days in claims payable was 37, consistent with the second quarter of 2011.
- The Company repurchased approximately 1.7 million shares of its common stock during the third quarter, at an aggregate cost of $77.2 million, pursuant to its ongoing share repurchase program.
- On August 1, 2011, the Texas Health and Human Services Commission announced that Amerigroup won its bid to expand its business in Texas through a state-wide competitive bidding process. As previously announced, the Company's preliminary estimate for this award represents over $1 billion in incremental annualized revenue for the first full year of operations. Pending final contract negotiations, the Company anticipates beginning operations for the new business in early 2012.
- On October 25, 2011, the Company announced that it has signed an agreement to purchase substantially all of the operating assets and contract rights of Health Plus, one of the largest Medicaid managed care companies in New York. Health Plus currently serves approximately 320,000 members in New York State's Medicaid, Family Health Plus and Child Health Plus programs, as well as the federal Medicare Advantage program and expects to generate approximately $1 billion of revenue in 2011. The transaction is subject to regulatory approvals and other closing conditions and is expected to close in the first half of 2012. The acquisition is expected to be slightly dilutive to Amerigroup's earnings per share in 2012 due to integration and one-time transaction-related costs, but accretive to earnings beginning in 2013.
"We are pleased with our performance in the quarter where we expanded our membership, delivered solid earnings and produced strong cash flow," said James G. Carlson, Amerigroup's chairman and chief executive officer. "We are on track to accomplish what we set out to do this year, including preparing for significant growth in 2012 and beyond. We won the opportunity to expand our business in Texas, and plans are moving along well for our expansion into a new state, Louisiana. And now we have taken the step to significantly enhance our profile in one of the largest Medicaid markets in the country, New York."
Premium Revenue
Premium revenue for the third quarter of 2011 increased 7.4% to $1.60 billion versus $1.49 billion in the third quarter of 2010. Sequentially, premium revenue increased $77.1 million, or 5.1%.
A significant portion of the sequential premium revenue increase was due to increased membership and expanded covered services in New Jersey, including the carve-in of pharmacy services for the aged, blind and disabled population, as well as the transition of additional aged, blind and disabled populations into managed care.
The third quarter premium revenue was also positively impacted by approximately $20.4 million of retroactive premium revenue, or $0.25 earnings per diluted share, in the State of Georgia and the State of New York as further described below:
- In Georgia, the Company recognized $14.0 million of retroactive premium revenue, or $0.17 earnings per diluted share, related to increased premium rates back to 2006 in recognition of revised member counts used by the State in premium rate calculations. During 2011, Georgia conducted a special review of their membership records and recouped premium for duplicately enrolled members above and beyond normal monthly processing.
- In addition, third quarter premium revenue includes approximately $3.5 million, or $0.04 earnings per diluted share, retroactive to September 1, 2010, related to an increase in newborn supplemental rates to match an eligibility change implemented by Georgia at that time.
- The Company also received final confirmation of its rate increase in New York, which was retroactive to April 1, 2011. The Company recognized approximately $2.9 million of premium revenue, or $0.04 earnings per diluted share, associated with the retroactive portion of the New York rate increase applicable to the second quarter.
Investment Income and Other Revenues
Third quarter investment income and other revenues were $4.1 million versus $5.0 million in the third quarter of 2010, and compared to $4.0 million in the second quarter of 2011.
Health Benefits
Health benefits expense, as a percent of premium revenue, was 83.9% for the third quarter of 2011 versus 80.5% in the third quarter of 2010, and compared to 84.1% in the second quarter of 2011.
The health benefits ratio was favorably impacted by 110 basis points due to the retroactive premium revenue in the quarter described in the premium revenue section above.
The Company recognized approximately $8.7 million of favorable prior period reserve development in the quarter. The net impact on the health benefits ratio and earnings per diluted share was significantly lower because the favorable development drove increases in associated accruals for experience rebate in Texas and premium rebates from medical loss ratio floors in Maryland. The net positive impact on the third quarter health benefits ratio from favorable development was 20 basis points compared to 50 basis points in the second quarter of 2011.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 8.2% of total revenues for the third quarter of 2011 versus 7.1% in the third quarter of 2010, and compared to 8.0% for the second quarter of 2011. Selling, general and administrative expenses for the quarter were in line with expectations. For the nine months ending September 30, 2011, the selling, general and administrative expenses ratio was 7.9%.
Premium Taxes
Third quarter premium taxes were $41.2 million versus $40.3 million for the third quarter of 2010, and compared to $40.4 million in the second quarter of 2011.
Balance Sheet Highlights
Cash and investments at September 30, 2011 totaled $1.85 billion of which $298 million was unregulated compared to $255 million of unregulated cash and investments at June 30, 2011. During the quarter, the Company repurchased approximately 1.7 million shares of its common stock at an aggregate cost of $77.2 million, pursuant to its ongoing share repurchase program.
The debt-to-total capital ratio increased to 16.9% as of September 30, 2011 from 16.6% as of June 30, 2011.
Medical claims payable as of September 30, 2011 totaled $545 million compared to $520 million as of June 30, 2011. Days in claims payable represented 37 days of health benefits expense consistent with the second quarter of 2011.
Included on page 10 is a table presenting the components of the change in medical claims payable for the nine months ended September 30, 2011 and 2010.
Cash Flow Highlights
Cash flow from operations totaled $243 million for the nine months ended September 30, 2011, and $129 million for the three months ended September 30, 2011. The key drivers of cash flow in the quarter were solid earnings, an increase in medical claims payable liability and lower tax payments along with other favorable changes in working capital accounts.
Outlook
The Company is reiterating its parameters associated with the full-year 2011 which can be found on page 10 of this release.
"We are maintaining our health benefits ratio range of 83.9% to 84.9%," said James W. Truess, chief financial officer of Amerigroup. "In light of the favorable impact on the third quarter ratio from the retroactive premium, we now believe the probability of our full-year 2011 health benefits expense ratio finishing at the upper-end of our range is low."
Third Quarter Earnings Call
Amerigroup senior management will discuss the Company's third quarter results on a conference call Friday, October 28, 2011 at 8:00 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 855-859-2056 (domestic) or 404-537-3406 (international) and providing passcode 13816138. The replay will be available shortly after the conclusion of the call until Thursday, November 3, at 11:59 p.m. ET. 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 healthcare programs. Serving approximately 2.0 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. Click here for more information about Amerigroup Corporation.
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 those with respect to our Texas and New York operations, Health Plus' expected 2011 revenue and our 2011 and 2012 outlook, that 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 healthcare industry, including the impact of recently enacted healthcare 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 healthcare 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, 2010 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 | Nine months ended | ||||||||
September 30, | September 30, | ||||||||
2011 | 2010 | 2011 | 2010 | ||||||
Revenues: | |||||||||
Premium | $1,600,502 | $1,489,884 | $4,659,730 | $4,285,530 | |||||
Investment income and other | 4,149 | 5,020 | 12,270 | 18,536 | |||||
Total revenues | 1,604,651 | 1,494,904 | 4,672,000 | 4,304,066 | |||||
Expenses: | |||||||||
Health benefits | 1,342,648 | 1,199,706 | 3,881,370 | 3,517,723 | |||||
Selling, general and administrative | 130,785 | 106,815 | 369,533 | 332,427 | |||||
Premium taxes | 41,188 | 40,317 | 122,075 | 104,961 | |||||
Depreciation and amortization | 9,322 | 8,737 | 27,744 | 26,352 | |||||
Interest | 4,194 | 3,991 | 12,543 | 12,000 | |||||
Total expenses | 1,528,137 | 1,359,566 | 4,413,265 | 3,993,463 | |||||
Income before income taxes | 76,514 | 135,338 | 258,735 | 310,603 | |||||
Income tax expense | 28,440 | 50,990 | 95,890 | 116,860 | |||||
Net income | $48,074 | $84,348 | $162,845 | $193,743 | |||||
Diluted net income per share | $0.96 | $1.68 | $3.14 | $3.81 | |||||
Weighted average number of common shares and dilutive | 50,253,757 | 50,197,740 | 51,850,978 | 50,895,807 | |||||
The following table sets forth selected operating ratios. All ratios, with the exception of the health benefits ratio, are shown as a | |
Three months ended | Nine months ended | ||||||||
September 30, | September 30, | ||||||||
2011 | 2010 | 2011 | 2010 | ||||||
Premium revenue | 99.7% | 99.7% | 99.7% | 99.6% | |||||
Investment income and other | 0.3 | 0.3 | 0.3 | 0.4 | |||||
Total revenues | 100.0% | 100.0% | 100.0% | 100.0% | |||||
Health benefits [1] | 83.9% | 80.5% | 83.3% | 82.1% | |||||
Selling, general and administrative expenses | 8.2% | 7.1% | 7.9% | 7.7% | |||||
Income before income taxes | 4.8% | 9.1% | 5.5% | 7.2% | |||||
Net income | 3.0% | 5.6% | 3.5% | 4.5% | |||||
[1] The health benefits ratio is shown as a percentage of premium revenue because there is a direct relationship between | |
The following table sets forth the approximate number of members the Company served in each state as | |
September 30, | |||||||
2011 | 2010 | ||||||
Texas | 611,000 | 557,000 | [1] | ||||
Georgia | 263,000 | 268,000 | |||||
Florida | 254,000 | 263,000 | |||||
Tennessee | 207,000 | 204,000 | |||||
Maryland | 207,000 | 201,000 | |||||
New Jersey | 140,000 | 138,000 | |||||
New York | 110,000 | 109,000 | |||||
Nevada | 85,000 | 76,000 | |||||
Ohio | 58,000 | 58,000 | |||||
Virginia | 40,000 | 38,000 | |||||
New Mexico | 22,000 | 21,000 | |||||
Total | 1,997,000 | 1,933,000 | |||||
[1] Membership includes approximately 14,000 members under an administrative services only (ASO) contract in 2010. | |||||||
The following table sets forth the approximate number of members in each of the Company's products as of | |
September 30, | ||||||||
Product | 2011 | 2010 | ||||||
TANF (Medicaid) | 1,405,000 | 1,373,000 | ||||||
CHIP | 263,000 | 274,000 | ||||||
Aged, Blind and Disabled and Long-Term Care (Medicaid) | 231,000 | 197,000 | [1] | |||||
FamilyCare (Medicaid) | 75,000 | 70,000 | ||||||
Medicare Advantage | 23,000 | 19,000 | ||||||
Total | 1,997,000 | 1,933,000 | ||||||
[1]Membership includes approximately 14,000 members under an ASO contract in 2010. | ||||||||
AMERIGROUP CORPORATION AND SUBSIDIARIES | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
(dollars in thousands, except per share data) | ||||
(unaudited) | ||||
September 30, | December 31, | |||
2011 | 2010 | |||
Assets | ||||
Current assets: | ||||
Cash and cash equivalents | $638,481 | $763,946 | ||
Short-term investments | 178,344 | 230,007 | ||
Premium receivables | 133,136 | 83,203 | ||
Deferred income taxes | 29,402 | 28,063 | ||
Prepaid expenses, provider and other receivables and other | 74,263 | 53,482 | ||
Total current assets | 1,053,626 | 1,158,701 | ||
Long-term investments, including investments on deposit for licensure | 1,031,304 | 754,004 | ||
Property, equipment and software, net | 101,724 | 96,967 | ||
Goodwill | 260,496 | 260,496 | ||
Other long-term assets | 12,299 | 13,220 | ||
$2,459,449 | $2,283,388 | |||
Liabilities and Stockholders' Equity | ||||
Current liabilities: | ||||
Claims payable | $544,526 | $510,675 | ||
Unearned revenue | 111,375 | 103,067 | ||
Contractual refunds payable | 90,813 | 44,563 | ||
Accounts payable, accrued expenses and other | 187,858 | 192,536 | ||
Current portion of long-term convertible debt | 254,155 | - | ||
Total current liabilities | 1,188,727 | 850,841 | ||
Long-term convertible debt | - | 245,750 | ||
Other long-term liabilities | 24,563 | 21,160 | ||
Total liabilities | 1,213,290 | 1,117,751 | ||
Stockholders’ equity: | ||||
Common stock, $.01 par value | 568 | 554 | ||
Additional paid-in capital, net of treasury stock | 212,834 | 300,453 | ||
Accumulated other comprehensive income | 5,909 | 627 | ||
Retained earnings | 1,026,848 | 864,003 | ||
Total stockholders’ equity | 1,246,159 | 1,165,637 | ||
$2,459,449 | $2,283,388 | |||
AMERIGROUP CORPORATION AND SUBSIDIARIES | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
(dollars in thousands) | ||||
(unaudited) | ||||
Nine months ended | ||||
September 30, | ||||
2011 | 2010 | |||
Cash flows from operating activities: | ||||
Net income | $162,845 | $193,743 | ||
Adjustments to reconcile net income to net cash provided by | ||||
operating activities: | ||||
Depreciation and amortization | 27,744 | 26,352 | ||
Loss on disposal of property, equipment and software | 410 | 17 | ||
Deferred tax expense (benefit) | 29 | (1,222) | ||
Compensation expense related to share-based payments | 16,743 | 14,594 | ||
Convertible debt non-cash interest | 8,523 | 7,984 | ||
Gain on sale of intangible assets | - | (4,000) | ||
Other | 11,165 | 6,772 | ||
Changes in assets and liabilities (decreasing) increasing cash | ||||
flows from operations: | ||||
Premium receivables | (49,933) | (39,177) | ||
Prepaid expenses, provider and other receivables and other | ||||
current assets | (15,456) | (8,144) | ||
Other assets | (1,413) | (396) | ||
Claims payable | 33,851 | (7,216) | ||
Accounts payable, accrued expenses, contractual refund payable | ||||
and other current liabilities | 41,721 | 73,732 | ||
Unearned revenue | 8,308 | (59,999) | ||
Other long-term liabilities | (1,205) | (533) | ||
Net cash provided by operating activities | 243,332 | 202,507 | ||
Cash flows from investing activities: | ||||
Purchase of investments, net | (217,826) | (115,804) | ||
Purchase of property, equipment and software | (31,545) | (19,397) | ||
Purchase of investments on deposit for licensure, net | (10,509) | (7,586) | ||
Proceeds from sale of intangible assets | - | 4,000 | ||
Purchase of contract rights and other related assets | - | (13,420) | ||
Net cash used in investing activities | (259,880) | (152,207) | ||
Cash flows from financing activities: | ||||
Repayment of convertible notes principal | (120) | - | ||
Change in bank overdrafts | (11,291) | 33,870 | ||
Proceeds and tax benefits from exercise of stock options | ||||
and other, net | 59,711 | 14,625 | ||
Repurchase of common stock shares | (157,217) | (114,135) | ||
Net cash used in financing activities | (108,917) | (65,640) | ||
Net decrease in cash and cash equivalents | (125,465) | (15,340) | ||
Cash and cash equivalents at beginning of period | 763,946 | 505,915 | ||
Cash and cash equivalents at end of period | $638,481 | $490,575 | ||
AMERIGROUP CORPORATION AND SUBSIDIARIES | ||||
Components of the Change in Medical Claims Payable | ||||
(dollars in thousands) | ||||
Nine months ended | ||||
September 30, | ||||
2011 | 2010 | |||
Medical claims payable, beginning of period | $510,675 | $529,036 | ||
Health benefits expenses incurred during period: | ||||
Related to current year | 3,965,890 | 3,615,124 | ||
Related to prior years | (84,520) | (97,401) | ||
Total incurred | 3,881,370 | 3,517,723 | ||
Health benefits payments during period: | ||||
Related to current year | 3,461,910 | 3,151,419 | ||
Related to prior years | 385,609 | 373,520 | ||
Total payments | 3,847,519 | 3,524,939 | ||
Medical claims payable, end of period | $544,526 | $521,820 | ||
Health benefits expenses incurred during both periods were reduced for amounts related to prior years. | |
2011 Outlook | ||
Current Parameters | ||
As of October 28, 2011 | ||
Total revenues percentage growth | upper single digits | |
Health benefits ratio | 83.9% - 84.9% | |
Selling, general & administrative ratio | 7.9% plus or minus 20 bps | |
Net income margin | 2.5% – 3.5% | |
Diluted shares outstanding | 50 – 51 million | |
CONTACTS:
Investors: Julie Loftus Trudell
Amerigroup Corporation
Senior Vice President, Investor Relations
(757) 321-3597
[email protected]
SOURCE Amerigroup Corporation
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