Amerigroup reports net income of $32.8M for fourth quarter 2011

Amerigroup Corporation (NYSE: AGP) today announced that net income for the fourth quarter of 2011 was $32.8 million, or $0.67 per diluted share, versus $48.1 million, or $0.96 per diluted share, for the third quarter of 2011.  

For the year ended December 31, 2011, the Company's net income was $195.6 million, or $3.82 per diluted share, versus net income of $273.4 million, or $5.40 per diluted share, for the full-year 2010.

Highlights include:

• Membership increased 93,000 members year-over-year, or 4.8%, to over 2 million at the end of 2011, and increased 27,000 members from the third quarter of 2011.  
• Health benefits expense was 84.7% of premium revenue for the fourth quarter of 2011.  
• Selling, general and administrative expenses were 8.8% of total revenues for the fourth quarter of 2011.  Costs were elevated in the quarter due to an accrual for a litigation matter, business development costs and a contribution to the Amerigroup Foundation.  These items impacted the selling, general and administrative ratio by 70 basis points.  
• Cash flow used in operations was $35.3 million for the three months ended December 31, 2011, primarily due to the timing of certain premium receipts.  Cash flow provided by operations was $208 million for the year ended December 31, 2011.
• Unregulated cash and investments were $725 million as of December 31, 2011 compared to $298 million as of September 30, 2011.
• In November 2011, the Company issued $400 million in aggregate principal amount of 7.5% senior notes due in 2019.   The Company issued an additional $75 million of senior notes in January 2012.
• Medical claims payable as of December 31, 2011 totaled $573 million compared to $545 million as of September 30, 2011.
• Days in claims payable in the quarter was 38, compared to 37 days in the third quarter of 2011.
• The Company repurchased approximately 391,000 shares of its common stock during the fourth quarter for $18.5 million at an average price of $47.36.    
• In January 2012, the Washington State Health Care Authority announced that Amerigroup was one of five managed care organizations selected to offer healthcare coverage to Medicaid beneficiaries in the state.  Additionally, the Company will participate in the state's Basic Health program.  
• On February 1, 2012, the Company began offering services to Medicaid recipients in Louisiana as a result of a successful bid in the competitive procurement by the Louisiana Department of Health and Hospitals.

"In the fall of 2010, we described 2011 as a year in which we would lay the foundation for significant growth in our business.  In 2011, we delivered on our goal of preparing for growth in 2012 and beyond.  We were selected to enter our 12th state, Louisiana.  We significantly expanded our footprint in Texas and announced our intent to acquire Health Plus in New York," said James G. Carlson, Amerigroup's chairman and chief executive officer.  "We also expanded our product offerings in New York, New Jersey and Ohio.  Most recently, we were selected to enter our 13th state, Washington.  We are pleased with the progress we made in 2011 and look forward to executing on our growth strategy in 2012." 

Premium Revenue

Premium revenue for the fourth quarter of 2011 increased 9.6% to $1.64 billion versus $1.50 billion in the fourth quarter of 2010.  Sequentially, premium revenue increased $41.2 million, or 2.6%.  For the year ended December 31, 2011, premium revenue increased 9.0% to $6.30 billion from $5.78 billion for the year ended December 31, 2010.  

The sequential increase in premium revenue primarily reflects increased membership and expanded covered services in several markets including the mandatory expansion of the aged, blind and disabled population into managed care in New Jersey, the inclusion of pharmacy services in New York and Ohio, and the expansion into additional counties in Texas.  

Investment Income and Other Revenues

Fourth quarter investment income and other revenues were $4.7 million versus $4.3 million in the fourth quarter of 2010, and compared to $4.1 million in the third quarter of 2011.  For the full-year 2011, investment income and other revenues were $17.0 million versus $22.8 million in 2010.  

Health Benefits

Health benefits expense, as a percent of premium revenue, was 84.7% for the fourth quarter of 2011 versus 80.4% in the fourth quarter of 2010, and compared to 83.9% in the third quarter of 2011.  For the full-year 2011, the health benefits ratio was 83.7% compared to 81.6% for the full-year 2010.

The sequential increase in the health benefits ratio was primarily due to normal seasonal increases in medical costs, premium rate reductions in Texas and other routine prior period premium adjustments that, on balance, were lower in the fourth quarter.  Underlying medical cost trends during the fourth quarter of 2011 were moderate and slightly better than the Company's expectations.  

Increased favorable reserve development in the fourth quarter of 2011 positively impacted the sequential change in the health benefits ratio.  Net of associated accruals for experience rebate in Texas, applicable medical loss ratio floors, and other gain sharing arrangements with state customers, the ratio was favorably impacted by 160 basis points in the fourth quarter compared to 20 basis points in the third quarter of 2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were 8.8% of total revenues for the fourth quarter of 2011 versus 8.0% in the fourth quarter of 2010, and compared to 8.2% for the third quarter of 2011.  For the full-year 2011, the selling, general and administrative expense ratio was 8.1% compared with 7.8% for the full-year 2010.  

Selling, general and administrative expenses were elevated in the quarter due to an accrual for a litigation matter, increased spending for business development efforts including new market start-ups and transaction costs associated with the Health Plus acquisition, as well as a contribution to the Amerigroup Foundation.  In total, these items impacted the ratio by 70 basis points.

Premium Taxes

Fourth quarter 2011 premium taxes were $41.5 million versus $38.9 million for the fourth quarter of 2010, and compared to $41.2 million in the third quarter of 2011.  For the full-year 2011, premium taxes were $163.6 million versus $143.9 million for the full-year 2010.  

Balance Sheet Highlights

Cash and investments at December 31, 2011 totaled $2.19 billion of which $725 million was unregulated compared to $298 million of unregulated cash and investments at September 30, 2011.  The sequential increase in unregulated cash and investments was primarily due to the receipt of proceeds from the issuance of $400 million of senior notes in November 2011 as well as dividends received from regulated subsidiaries.

During the quarter, the Company repurchased approximately 391,000 shares of its common stock for $18.5 million at an average price of $47.36.  For the full year, the Company repurchased 3.34 million shares of its common stock for $175.7 million pursuant to its ongoing share repurchase program.

The debt-to-total capital ratio increased to 33.8% as of December 31, 2011 from 16.9% as of September 30, 2011 as a result of the issuance of $400 million of senior notes in November 2011.  Excluding the Company's 2.0% convertible senior notes, which mature in May 2012 and including the additional $75 million of senior notes issued in January 2012, the pro-forma debt-to-total capital ratio would be 27.0%.  Included on page 11 is a reconciliation of the debt-to-total capital ratio.  

Medical claims payable as of December 31, 2011 totaled $573 million compared to $545 million as of September 30, 2011.  Days in claims payable represented 38 days of health benefits expense compared to 37 days in the third quarter of 2011.  The sequential increase was primarily due to the quarter ending on Saturday, lowering the amount of claims disbursed at quarter end.

Included on page 11 is a table presenting the components of the change in medical claims payable for the years ended December 31, 2011 and 2010.  

Cash Flow Highlights

Cash flow from operations totaled $208 million for the year ended December 31, 2011, and cash used in operations was $35.3 million for the three months ended December 31, 2011.  Cash flow in the quarter was negatively impacted by a lower volume of prepaid premium payments resulting in a decline in unearned revenue.

Outlook

The Company is introducing its full-year 2012 outlook parameters.  

• Total revenues are expected to increase approximately 40% on a year-over-year basis.  The key drivers of revenue growth in 2012 include new business in Louisiana and Texas, expansion in existing markets, and the Health Plus acquisition in New York, which is expected to close in the second quarter of 2012.   This estimate does not reflect the impact of the Company's recent win in Washington State as the Company is currently finalizing the contract with the state.
• Health benefits ratio is expected to be in the range of 85.8% – 87.3% of premium revenue for the full year, reflecting lower premium rates received from states in 2011 as well as the impact of higher health benefits ratios on new business.
• Selling, general and administrative expenses are expected to be 7.2% of total revenues plus or minus 20 basis points reflecting the economies of scale from business expansion.
• Fully diluted shares outstanding of approximately 49.5 – 50.5 million.
• For full-year 2012, net income margin is estimated to be approximately 1.5% to 2.5%.  The range reflects approximately 40 basis points of margin compression due to elevated expenses associated with the implementation of new business, business development costs, transaction and integration costs for the Health Plus acquisition and higher interest expense prior to the maturity of the convertible notes in May of 2012.

"We expect that our net income margin will be higher in the second-half of 2012 than in the first-half, given the large volume of new business being implemented in the first quarter and the targeted closing date for the Health Plus acquisition in the second quarter," said James W. Truess, chief financial officer of Amerigroup.  "While our net income margin for the full-year 2012 is projected below our long-term targeted range of 2.5% to 3.5% of revenue, we expect performance in the second-half of the year to approach if not move within the long-term range."

SOURCE Amerigroup Corporation