Amerigroup Corporation (NYSE: AGP) today announced that net income for the first quarter of 2010 was $42.2 million, or $0.82 per diluted share, versus $40.2 million, or $0.79 per diluted share, for the fourth quarter of 2009.
Highlights include:
- Membership increased by 75,000 members, or 4.2%, to approximately 1.9 million at the end of the quarter versus the fourth quarter of 2009.
- First quarter total revenue was $1.4 billion, a 0.7% increase, compared to the fourth quarter of 2009.
- Health benefits expense was 83.5% of premium revenues for the first quarter of 2010.
- Selling, general and administrative (SG&A) expenses were 8.6% of total revenues.
- Cash used in operations was $6.8 million for the three months ended March 31, 2010.
- Unregulated cash and investments were $257.4 million as of March 31, 2010, compared to $232.0 million as of December 31, 2009.
- Medical claims payable as of March 31, 2010 totaled $549.2 million, compared to $529.0 million as of December 31, 2009.
- Days in claims payable was 43, compared to 42 days in the previous quarter.
- The Company repurchased approximately 251,000 shares of its common stock during the first quarter for approximately $7.0 million under the Company's ongoing stock repurchase program.
- On March 1, 2010, the Company began offering Long-Term Care (LTC) services to approximately 4,100 existing Middle Tennessee members through the State's TennCare CHOICES LTC program.
- On March 1, 2010, the Company's New Jersey health plan completed the previously announced acquisition of certain assets of University Health Plans. The Company served 158,000 members in New Jersey at the end of the quarter.
- In April 2010, Fortune Magazine announced that Amerigroup Corporation had been ranked 404 on the 2010 Fortune 500 list.
"We are pleased to be off to a solid start this year, but know we have a lot of work ahead because our state clients need us to deliver now more than ever," said James G. Carlson, Amerigroup's chairman and chief executive officer. "These remain difficult times − for businesses, for our state clients, and most importantly, for the millions of Americans who depend upon the safety-net programs in which we participate as a trusted administrator. We look forward to expanding our services for our state customers and the vulnerable populations for which we share responsibility and accountability."
Premium Revenues
Premium revenues for the first quarter of 2010 increased 12.3% to $1.4 billion, compared to $1.2 billion in the first quarter of 2009. Sequentially, premium revenues increased $9.1 million, or 0.7%, compared with the fourth quarter of 2009.
First quarter revenue was supported by continued membership increases across most of the Company's markets due to the macroeconomic environment driving expanded state Medicaid rolls.
The sequential increase in premium revenues also reflects the impact of the launch of the Tennessee LTC program and the completed acquisition in New Jersey, both of which occurred on March 1, 2010. Sequential revenue growth was constrained somewhat by discontinuing coverage for the aged, blind and disabled population in the Southwest region of Ohio, as well as the State's election to remove pharmacy coverage from the benefit package in the first quarter of 2010. Also, the Company discontinued coverage for the Temporary Assistance for Needy Families (TANF) program in Florida's Lee and Broward counties during the fourth quarter of 2009.
In addition, as previously reported, fourth quarter 2009 premium revenues included the impact of $15.1 million of retroactive premium revenue related to the third quarter of 2009.
Investment Income and Other Revenues
First quarter investment income and other revenues were $4.9 million versus $12.3 million in the first quarter of 2009 and compared to $4.9 million in the fourth quarter of 2009. First quarter of 2009 included a gain of $5.8 million due to the sale of the Company's South Carolina health plan assets.
Health Benefits
Health benefits expense, as a percent of premium revenues, was 83.5% for the first quarter of 2010 versus 83.7% in the first quarter of 2009, and compared to 84.6% in the fourth quarter of 2009.
While expected seasonality and trend would normally drive a more substantial increase in the health benefits ratio in the first quarter, a lighter than normal winter flu season, lower utilization of health services due to severe winter weather in some markets, as well as continued moderation of trends, favorably impacted the ratio.
Favorable reserve development, net of associated experience rebate accruals in Texas, positively impacted the health benefits ratio in the first quarter by approximately 250 basis points – primarily due to revisions to prior estimates for the fourth quarter of 2009. After the H1N1 outbreak elevated medical costs in September and October, there was marked moderation in medical costs in the remaining months of the year.
"During the fourth quarter of 2009, we saw initial indications that medical cost trends were moderating," said James W. Truess, Amerigroup's chief financial officer. "Claims payment activity in the first quarter of 2010 provided further confirmation of this assessment. While the relative size of our claims payable liability declined during 2009 due to increased processing efficiency, we are pleased that our previously established reserves continue to develop favorably."
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 8.6% of total revenues for the first quarter of 2010, versus 9.0% in the first quarter of 2009, and compared to 7.7% for the fourth quarter of 2009.
While core selling, general and administrative expenses remained stable and at expected levels, the SG&A ratio increased sequentially due to variable compensation accruals in the current quarter that are correlated with earnings performance.
Premium Taxes
First quarter premium taxes were $31.5 million versus $28.1 million for the first quarter of 2009, and compared to $33.2 million in the fourth quarter of 2009.
Net Income
Net income for the first quarter of 2010 was $42.2 million, or $0.82 per diluted share, versus $40.2 million, or $0.79 per diluted share, for the fourth quarter of 2009.
Balance Sheet Highlights
Cash and investments at March 31, 2010 totaled $1.4 billion, of which $257.4 million was unregulated, compared to $232.0 million of unregulated cash and investments in the fourth quarter of 2009.
During the quarter, the Company repurchased approximately 251,000 shares of its common stock for approximately $7.0 million under the Company's ongoing stock repurchase program.
The debt to total capital ratio decreased to 18.8% as of March 31, 2010, from 19.3%, as of December 31, 2009.
Medical claims payable as of March 31, 2010 totaled $549.2 million compared to $529.0 million, as of December 31, 2009. Days in claims payable represented 43 days of health benefits expense, which is in-line with the expected range of 40 to 50 days, compared to 42 days in the previous quarter. The sequential increase in days was primarily due to the timing of the normal weekly claims disbursement cycle.
Included on page 10 is a table presenting the components of the change in medical claims payable for the three-month period ended March 31, 2010 and the twelve months ended December 31, 2009.
Cash Flow Highlights
Cash used in operations totaled $6.8 million for the three months ended March 31, 2010, compared to cash flow provided by operations of $36.1 million in the first quarter of 2009. The key driver of the change between the two periods relates to the timing of premium payments, which impacted both unearned revenue and premium receivables.
Outlook
At this time, the Company will continue its recent practice of not issuing annual earnings guidance. Following a couple of years in which a dynamic business and external operating environment required frequent changes to its guidance, the Company believes it would be prudent to operate for a period of time without guidance. Therefore, the Company does not intend to issue 2010 annual guidance. It will evaluate the practice of issuing annual guidance and will communicate the plan for 2011 later in the year.