Amerigroup reports net income of $48.1 million for third quarter 2011

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."  

SOURCE Amerigroup Corporation