Amerigroup Corporation (NYSE: AGP) today announced that net income for the fourth quarter of 2009 was $40.2 million, or $0.79 per diluted share, versus $35.9 million, or $0.67 per diluted share, for the fourth quarter of 2008. For the year ended December 31, 2009, the Company's net income was $149.3 million, or $2.85 per diluted share.
Highlights include:
- Membership was approximately 1.8 million as of December 31, 2009, representing a 13.2% increase over the fourth quarter of 2008 and a 0.6% increase compared to the third quarter of 2009.
- Fourth quarter total revenue was $1.4 billion; an 18.5% increase over the fourth quarter of 2008 and a 4.5% increase compared to the third quarter of 2009.
- Health benefits expense was 84.6% of premium revenues for the fourth quarter of 2009.
- Selling, general and administrative expenses were 7.7% of total revenues.
- Cash flow provided by operations was $147.0 million for the full year ended December 31, 2009 and $40.4 million in the fourth quarter of 2009.
- Unregulated cash and investments were $232.0 million as of December 31, 2009.
- Medical claims payable as of December 31, 2009 totaled $529.0 million compared to $550.1 million, as of September 30, 2009.
- Days in claims payable was 42, compared to 45 days in the previous quarter.
- The Company repurchased approximately 295,000 shares of its common stock during the fourth quarter for $6.9 million. For the full year, the Company repurchased approximately 2.7 million shares of its common stock for $69.8 million.
"We are very pleased with our strong finish to the year. Though 2009 included many challenges, we were able to respond effectively," said James G. Carlson, Amerigroup's Chairman and Chief Executive Officer. "While total membership exceeded expectations during the year, primarily due to swelling Medicaid eligibility in most states, premium rates were suppressed due to unprecedented state budget deficits. Additionally, medical cost trends were elevated in comparison to historical standards, mostly due to higher outpatient costs and the emergence of a significant, off-season influenza strain (H1N1)."
"Our outpatient costs are beginning to show signs of moderation and the impact of the H1N1 virus declined during the fourth quarter," he continued. "Considering the range of outcomes that were possible in the fourth quarter of 2009, we are encouraged with the way our performance improved."
Premium Revenues
Premium revenues for the fourth quarter of 2009 increased 19.3% to $1.4 billion compared to $1.1 billion in the fourth quarter of 2008. Sequentially, premium revenues increased $58.7 million, or 4.5%, compared with the third quarter of 2009. The sequential increase primarily reflects the impact of rate increases in Tennessee and Georgia as well as membership gains in the Temporary Aid for Needy Family (TANF) product in most markets.
In December, the Company received final confirmation of its rate increase in Tennessee, which was retroactive to July 1, 2009 and will be effective through June 30, 2011. The Company recognized approximately $12.6 million of revenue in the fourth quarter due to the retroactive nature of the Tennessee rate increase. In a similar fashion, the Company recorded approximately $2.5 million of revenue in the fourth quarter of 2009 for the Georgia rate increase due to its retroactive impact back to July 1, 2009.
For the year ended December 31, 2009, premium revenues increased 18.2% to $5.2 billion from $4.4 billion for the year ended December 31, 2008.
Investment Income and Other Revenues
Fourth quarter investment income and other revenues were $4.9 million versus $12.7 million in the fourth quarter of 2008 and compared to $5.3 million in the third quarter of 2009. Investment income decreased on a sequential basis due to a slight decrease in yield.
For the full year, investment income and other revenues were $29.1 million versus $71.4 million in 2008. The decrease was the result of lower rates of return on fixed income securities due to market interest rates and the Company's conclusion of the Administrative Services Only (ASO) contract in West Tennessee in October of 2008. Investment income and other revenues for the year-ended 2008 included approximately $19.3 million of ASO revenue related to the West Tennessee contract.
Health Benefits
Health benefits expense, as a percent of premium revenues, was 84.6% for the fourth quarter of 2009 versus 83.2% in the fourth quarter of 2008, and compared to 87.5% in the third quarter of 2009. For the full-year 2009, the health benefits ratio was 85.4% compared to 82.9% for the full-year 2008.
The sequential improvement in the health benefits ratio was primarily due to favorable reserve development and premium rate increases.
The favorable reserve development, net of associated experience rebate accruals in Texas, impacted the health benefits ratio by approximately 190 bps. Based on further paid claims activity during the quarter, the Company was able to revise its medical cost estimates for earlier quarters in 2009. The downward revisions were most significant in the second quarter and the early part of the third quarter. Estimates for trend still remain high compared to historical standards, but results demonstrate some moderation relative to previous estimates.
Additionally, the Company recorded increased revenue during the fourth quarter for the annual rate increases in Tennessee and Georgia, as noted in the Premium Revenues section above, which also favorably impacted the health benefits ratio.
"During a period of elevated medical costs, we are pleased that our previously established reserve estimates have proven to be solid," said James W. Truess, Amerigroup's Chief Financial Officer. "Looking back over the year, trends were high relative to historical standards in the first couple of quarters, largely driven by outpatient costs. We identified these changes in a timely manner and initiated a set of actions to combat the increases. More recently, after the H1N1 peak in October, we are seeing some initial indications of trend moderation in the fourth quarter."
The impact from H1N1 in the fourth quarter 2009 was elevated in comparison with the third quarter of 2009, but the overall impact was less than previously expected. The Company began to see signs of abatement during the fourth quarter as the impact from the H1N1 flu peaked in October and moderated significantly by December. The Company currently estimates that H1N1 raised the health benefits ratio by approximately 90 bps in the quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 7.7% of total revenues for the fourth quarter of 2009, versus 9.0% in the fourth quarter of 2008, and compared to 6.3% for the third quarter of 2009. The selling, general and administrative expense ratio increased sequentially, due to the reversal of variable compensation accruals in the third quarter of 2009 which lowered the ratio in that quarter.
For the full-year 2009, the selling, general and administrative expense ratio was 7.6% compared with 9.8% for the full-year 2008.
Premium Taxes
Fourth quarter premium taxes were $33.2 million versus $25.7 million for the fourth quarter of 2008, and compared to $38.3 million in the third quarter of 2009. The sequential decrease in premium taxes was primarily due to the elimination of premium tax in Georgia, effective October 1, 2009.
For the full-year 2009, premium taxes were $134.3 million versus $93.8 million for the full-year 2008.
Net Income
Net income for the fourth quarter of 2009 was $40.2 million, or $0.79 per diluted share, versus $35.9 million, or $0.67 per diluted share, for the fourth quarter of 2008.
For the year ended December 31, 2009, the Company's net income was $149.3 million, or $2.85 per diluted share. Excluding the positive impact of a tax adjustment of $22.4 million, or $0.43 per diluted share, recorded in the second quarter of 2009, net income would have been $126.8 million, or $2.42 per diluted share. For the full-year 2008, the Company's net loss was $56.6 million, or $1.07 per diluted share, including the impact of a one-time litigation charge of $234.2 million, or $199.6 million net of the related tax benefit. Excluding the impact of this charge, full-year 2008 net income would have been $143.0 million, or $2.66 per diluted share. A reconciliation of these non-GAAP financial measures to GAAP is included on page 12 of this release.
Balance Sheet and Cash Flow Highlights
Cash and investments at December 31, 2009 totaled $1.5 billion of which $232.0 million was unregulated compared to $277.2 million in the third quarter of 2009. The sequential decline is due to increased funding of the Company's health plan subsidiaries of approximately $40 million for rising statutory net worth requirements. During the quarter, the Company also repurchased approximately 295,000 shares of its common stock for $6.9 million under the Company's ongoing stock repurchase program. For the full year, the Company repurchased approximately 2.7 million shares of its common stock for $69.8 million.
The debt to total capital ratio decreased to 19.3% as of December 31, 2009, from 19.8%, as of September 30, 2009.
Medical claims payable as of December 31, 2009 totaled $529.0 million compared to $550.1 million as of September 30, 2009. Days in claims payable represented 42 days of health benefits expense compared to 45 days in the previous quarter. The sequential decline in days was primarily due to a normal weekly claims disbursement cycle occurring on the last day of the fourth quarter. This resulted in complete distribution of the final claims payment cycle in the fourth quarter compared to partial distribution in the third quarter.
In light of increasing claims processing speed that has been achieved during 2009, the Company is revising its expected range for days in claims payable to 40 to 50 days.
Included on page 11 is a table presenting the components of the change in medical claims payable for the twelve month periods ended December 31, 2009 and December 31, 2008.
Cash Flow Highlights
Cash flow from operations totaled $147.0 million for the twelve months ended December 31, 2009 and $40.4 million for the fourth quarter versus $72.6 million in the third quarter of 2009. The sequential decline in cash flow from operations for the quarter was primarily due to an experience rebate payment to the State of Texas.
Outlook
In October of 2009, the Company withdrew its earnings per share guidance for 2009 due to the wide range of medical cost outcomes that were possible in the fourth quarter as well as uncertainty regarding premium rate actions. The Company has elected not to resume the practice of issuing guidance at this time pending further clarity on medical cost trends and additional insight on state premium rate actions.
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