Amerigroup Corporation (NYSE: AGP) today announced that net income for the third quarter of 2010 was $84.3 million, or $1.68 per diluted share, versus net income of $22.5 million, or $0.43 per diluted share, for the third quarter of 2009 and compared to $67.2 million, or $1.31 per diluted share, for the second quarter of 2010.
"We are pleased with our performance in the quarter. Our membership grew and we generated strong cash flow, allowing us to build our unregulated cash position, even as we were actively repurchasing shares," said James G. Carlson, Amerigroup's chairman and chief executive officer. "Most importantly, we improved the services provided to our members and state partners, continuing our progress to improve access to care and enhance clinical quality outcomes. Our value proposition is being delivered day by day, member by member, at this critical time and our states are saving money and getting better results from their safety net programs."
Premium Revenue
Premium revenue for the third quarter of 2010 increased 14.7% to $1.5 billion compared to $1.3 billion in the third quarter of 2009. Sequentially, premium revenues increased $61.0 million, or 4.3%, compared with the second quarter of 2010. The sequential increase primarily reflects continued membership increases across many of the Company's markets.
Third quarter premium revenue also benefited from annual rate increases in several markets including New Jersey, Texas, Virginia and New York, the latter of which was retroactive to April 1, 2010 and recognized in the third quarter.
The Company received initial confirmation of its rate increase in Georgia but did not receive a fully executed rate amendment by the end of the quarter. The Company expects to recognize approximately $0.10 earnings per diluted share in the fourth quarter of 2010 for the retroactive portion of the rate increase associated with the third quarter.
Investment Income and Other Revenues
Third quarter investment income and other revenues were $5.0 million versus $5.3 million in the third quarter of 2009, and compared to $8.6 million in the second quarter of 2010. Investment income and other revenues for the second quarter of 2010 included the sale of a trademark for $4.0 million. Excluding the trademark sale, the slight increase in investment income on a sequential basis is due to a higher average investment yield as well as higher investment balances.
Health Benefits
Health benefits expense, as a percent of premium revenue, was 80.5% for the third quarter of 2010 versus 87.5% in the third quarter of 2009, and compared to 82.3% in the second quarter of 2010.
The sequential decrease in the health benefits ratio was primarily due to the impact of rate increases received in the quarter. Medical cost trends also remained at moderate levels during the third quarter of 2010, consistent with Company experience in the second quarter. Third 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 third quarter by approximately 180 basis points compared to 200 basis points reported in the second quarter of 2010.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 7.1% of total revenues for the third quarter of 2010, versus 6.3% in the third quarter of 2009, and compared to 7.5% for the second quarter of 2010. Sequentially, selling, general and administrative expenses remained stable, while the selling, general and administrative expense ratio declined due to total revenue growth in the quarter.
Premium Taxes
Third quarter premium taxes were $40.3 million versus $38.3 million for the third quarter of 2009, and compared to $33.2 million in the second quarter of 2010. The sequential increase in premium taxes was primarily due to the reinstatement of premium tax in Georgia effective July 1, 2010.
Balance Sheet Highlights
Cash and investments at September 30, 2010 totaled $1.6 billion of which $251.4 million was unregulated, compared to $239.5 million of unregulated cash and investments at the end of the second quarter of 2010. During the quarter, the Company repurchased 1.9 million shares of common stock for $70.5 million, pursuant to its ongoing share repurchase program. This unregulated cash outlay was offset by dividends and the timing of disbursements during the quarter.
The debt to total capital ratio decreased to 18.2% as of September 30, 2010 from 18.4% as of June 30, 2010.
Medical claims payable as of September 30, 2010 totaled $521.8 million compared to $525.6 million as of June 30, 2010. Days in claims payable represented 40 days of health benefits expense, compared to 41 days in the previous quarter.
Included on page 9 is a table presenting the components of the change in medical claims payable for the nine months ended September 30, 2010 and the year ended December 31, 2009.
Cash Flow Highlights
Cash flow from operations totaled $202.5 million for the nine months ended September 30, 2010 and $92.9 million for the three months ended September 30, 2010. The key driver of cash flow in the quarter was solid earnings with routine variation in working capital accounts.
SOURCE Amerigroup Corporation