VIRGINIA BEACH, Va., Feb. 15 /PRNewswire-FirstCall/ -- AMERIGROUP Corporation today announced net income for the fourth quarter of 2005 of $12,920,000, or $0.25 per diluted share, compared with net income of $22,397,000, or $0.43 per diluted share, for the fourth quarter of 2004. The fourth quarter reflects the impact of the moderation of cost trends resulting in an estimated $7,000,000 favorable prior period medical claims development, or $0.08 per diluted share, related to the first nine months of 2005. Fourth quarter results also include a $0.03 per diluted share benefit from a decreased tax rate reflecting a reduction in the blended state income tax rate. Excluding the impact of the favorable prior period medical claims development and reduced tax rate, fourth quarter earnings would have been $0.14 per diluted share.
For the year ended December 31, 2005, net income was $53,651,000, or $1.02 per diluted share, compared with $86,014,000, or $1.66 per diluted share for the year ended December 31, 2004.
Total revenues for the fourth quarter of 2005 increased 26.5 percent to $620,282,000, compared with $490,323,000 for the fourth quarter of 2004. For the year ended December 31, 2005, revenues totaled $2,329,909,000, up 27.8 percent from $1,823,731,000 for the year ended December 31, 2004, reflecting 15.1 percent organic premium revenue growth.
Membership increased approximately 20.6 percent, or 193,000 members, to 1,129,000 at December 31, 2005, as compared with 936,000 members at December 31, 2004, an increase of 30,000 members, or approximately 2.7 percent, from September 30, 2005.
Highlights for the fourth quarter and year: * Won approval to offer Medicare Special Needs Plan (SNP) in Houston; * Entered New York, the largest Medicaid market; * Successful bidder in the largest Medicaid procurement in several years, in Georgia; * Started new health plans in Virginia and Ohio; * 2005 total revenues of $2,329,909,000 reflecting organic premium revenue growth of 15.1 percent; * Sequential organic membership at December 31, 2005, increased by 30,000 members, or approximately 2.7 percent, from September 30, 2005, driven primarily by new markets; * Fourth quarter health benefits ratio of 84.6 percent, or 85.7 percent excluding the impact of the favorable prior period medical claims development, and full-year 2005 health benefits ratio of 84.7 percent; * Selling, general and administrative expenses of 12.1 and 11.1 percent of total revenues for the fourth quarter and full-year 2005, respectively; * Unregulated cash and investments of $157,902,000; and * Cash flow from operations of $113,105,000 for the full-year 2005.
Commenting on the results, Jeffrey L. McWaters, Chairman and CEO of AMERIGROUP Corporation, said, “While we are pleased that we had a number of solid accomplishments in 2005, what is more critical is that we concentrated on the issues that negatively affected our business during the year. Looking ahead, our goal is to build upon our efforts and continue the positive momentum established in the fourth quarter of this year. Namely, during 2005 we began operations in three new states, including New York, the largest Medicaid market, and entered into important new programs that will enable us to continue growing in the years ahead. The opportunities we secured in Georgia’s Medicaid managed care program, the Texas RFP win and Medicare’s new Special Needs Plan initiative in Houston are especially important for us strategically.”
Health Benefits
Health benefits as a percent of premium revenues were 84.6 percent for the fourth quarter of 2005 versus 81.8 percent for the fourth quarter of 2004. Excluding the impact of the favorable prior period medical claims development for the first nine months of 2005, the fourth quarter health benefits ratio would have been 85.7 percent. For the full-year 2005, the health benefits ratio was 84.7 percent compared to 81.0 percent in 2004.
With three more months of paid claims data, our internal actuaries in conjunction with our external actuaries now estimate that the increase in the health benefits cost trend for the third quarter of 2005 was lower than previously estimated. The reduction of the health benefits trend is primarily due to changes in estimates of unit costs and frequency of claims, which had the effect of lowering medical claims expenses in the fourth quarter related to the first nine months of the year by approximately $7,000,000.
We have enhanced our medical claims liability estimation processes in the fourth quarter to reflect:
* The reduction in the rate of claims processing that typically occurs due to a decrease in payment efficiencies associated with the installation of a new medical claims payment system. As discussed previously, our Texas market, which represents 35 percent of our membership, converted to FACETS effective October 1, 2005. * A separate factor for uncertainty to cover the impact of adverse changes in the number and nature of the claims inventory associated with the FACETS conversion. We will maintain this additional factor for claims uncertainty as long as the uncertainty related to the systems conversion remains. Change in Medical Claims Payable
The following table shows the components of the change in medical claims payable for the years ended December 31, 2005 and 2004 (in thousands):
2005 2004 Medical claims payable as of January 1 $241,253 $239,532 Medical claims payable assumed from businesses acquired during the year 27,424 -- Health benefits expenses incurred during the year: Related to current year 1,982,880 1,505,482 Related to prior years (25,684) (36,385) Total incurred 1,957,196 1,469,097 Health benefits payments during the year: Related to current year 1,646,664 1,274,460 Related to prior years 230,530 192,916 Total payments 1,877,194 1,467,376 Medical claims payable as of December 31 $348,679 $241,253
In the current year, we experienced a reduction in the favorable prior year development of $10,701,000 related to 2004 and prior. The current year reduction resulted from continued tightening of claims estimates at December 31, 2004.
Selling, General and Administrative Expenses
The selling, general and administrative expense ratio was 12.1 percent of total revenues for the fourth quarter of 2005 versus 10.3 percent in the fourth quarter of 2004. The increase is primarily due to several components, including an increase in premium taxes in certain states; legal fees; experience rebate expenses in Texas; development costs in Georgia and elsewhere; and actuarial and other consulting services. For the full-year 2005, the selling, general and administrative expense ratio was 11.1 percent versus 10.5 percent in 2004.
Effective Tax Rate
The effective tax rate was 31.7 percent for the fourth quarter of 2005 versus 38.3 percent in the fourth quarter of 2004. For the full-year 2005, the effective tax rate was 38.1 percent versus 39.1 percent in 2004. These decreases are primarily due to a reduction in the blended state income tax rate. The fourth quarter reduction in our annual effective tax rate positively impacted the fourth quarter by $1,549,000, or $0.03 per diluted share.
Balance Sheet and Cash Flow Highlights
Cash and investments at December 31, 2005, totaled $643,763,000, of which $157,902,000 was unregulated. Medical claims liabilities totaled $348,679,000, representing 62 days in claims payable versus 51 days in the previous quarter due primarily to the conversion of our medical claims payment system. A reconciliation of the Company’s change in days in claims payable from the third quarter of 2005 is presented below:
Days in claims payable at September 30, 2005 51 days Increase in level of unpaid claims 8 days Effect of reclassifying provider receivable 3 days Days in claims payable at December 31, 2005 62 days
Cash flow from operations for the year ended December 31, 2005, totaled $113,105,000, compared to $102,060,000 for the year ended December 31, 2004.
2006 Estimates
Commenting on the fourth quarter and 2006 estimates, Jeffrey L. McWaters said, “Our health benefit costs remain at a higher than acceptable level, yet it is early in our operational improvement efforts. We have much work yet to do, but we believe we have laid a strong foundation on which to build in 2006 and beyond.”
AMERIGROUP is issuing its 2006 annual earnings estimates with earnings per diluted share in the range of $0.70 to $0.85, which reflects compensation expense of $0.09 for SFAS 123(R), the new accounting rules for stock compensation, effective January 2006.
Estimates assume an annual health benefit cost trend of 7.0 percent for 2006 (net of changes in member and product mix), based on estimates by external actuaries, which represents a reduction from our 2005 annual health benefit cost trend of 10.0 percent. In addition, achievement of the 2006 annual earnings estimates is dependent upon successful implementation of operational improvements to reduce the gap between the estimated trend of approximately 7.0 percent and expected rate increases of approximately 4.0 percent.
Estimates are predicated on the timing of our expansions into the State of Georgia and the Houston SNP program and the assumption that they operate at underwritten levels. Additionally, these estimates include the following assumptions:
* Organic premium revenue growth in the range of 20.0 to 25.0 percent, which includes weighted-average rate increases of approximately 4.0 percent; * Health benefits of approximately 86.0 percent of premium revenues for the full year; * Selling, general and administrative expenses of approximately 11.0 percent of total revenues which include the necessary expenses to build our infrastructure essential to complete operational improvement efforts and support future growth. Excluding premium taxes, selling, general and administrative expenses are estimated to be less than 9.5 percent; * Compensation expense of $0.09 for SFAS 123(R), spread evenly throughout the year; * Income tax rate of approximately 40.0 percent; and * Fully diluted shares outstanding of approximately 52,600,000.
AMERIGROUP senior management will discuss the Company’s fourth quarter and year ended December 31, 2005, results on a conference call, Thursday, February 16th, at 8:30 a.m. Eastern Time. The conference can be accessed by dialing 800-289-0569 (domestic) or 913-981-5542 (international) and providing passcode 9931048 approximately ten minutes prior to the start time of the call. A recording of the call may be accessed by dialing 888-203-1112 (domestic) or 719-457-0820 (international) and providing passcode 9931048. The replay will be available beginning Thursday, February 16, at 12:00 p.m. Eastern Time until Thursday, February 23, at 11:59 p.m. Eastern Time. The conference call will also be available through the investors page of the Company’s Web site, http://www.amerigroupcorp.com, or through http://www.earnings.com. A 30-day replay of this webcast will be available on these Web sites approximately two hours following the conclusion of the live broadcast.
AMERIGROUP Corporation, headquartered in Virginia Beach, Virginia, improves healthcare access and quality for low-income Americans by developing innovative managed healthcare services for the public sector. Through its wholly owned subsidiaries, AMERIGROUP serves more than 1 million people and operates in Florida, Georgia, Illinois, Maryland, New York, New Jersey, Ohio, Texas, Virginia and the District of Columbia. For more information, visit http://www.amerigroupcorp.com.
This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the Securities and Exchange Commission’s Fair Disclosure Regulation. This release contains certain “forward-looking” statements, including statements related to expected 2006 performance such as membership, revenues, organic premium revenues, rate increases, operating cash flows, health benefits expenses, trend levels, our ability to manage our medical costs generally, seasonality of health benefits expenses, selling, general and administrative expenses, days in claims payable, income tax rates, earnings per share, and net income growth, as well as expectations of our successful implementation of operational improvements and expectations on the effective date and successful integration of any pending acquisition as well as expansions and debt levels, made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company’s actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. These risks and uncertainties include, but are not limited to, national, state and local economic conditions, including their effect on the rate-setting process, timing of payments, as well as the availability and cost of labor, utilities and materials; the effect of government regulations and changes in regulations governing the healthcare industry, including our compliance with such regulations and their effect on our ability to manage our medical costs; changes in Medicaid payment levels, membership eligibility and methodologies and the application of such methodologies by the government; liabilities and other claims asserted against the Company; our ability to attract and retain qualified personnel; our ability to maintain compliance with all minimum capital requirements; the availability and terms of capital to fund acquisitions and capital improvements; the competitive environment in which we operate; our ability to maintain and increase membership levels; and demographic changes.
Investors should also refer to our Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on March 9, 2005, for a discussion of risk factors. Given these risks and uncertainties, we can give no assurances that any forward-looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them. We specifically disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
CONTACTS Investors: Julie Loftus Trudell News Media: Kent Jenkins Jr. Vice President, Investor Relations Vice President, Communications AMERIGROUP Corporation AMERIGROUP Corporation (757) 321-3597 (757) 518-3671 AMERIGROUP CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (dollars in thousands, except for per share data) Three months ended Year ended December 31, December 31, 2005 2004 2005 2004 Revenues: Premium $ 614,196 $ 486,982 $2,311,599 $1,813,391 Investment income and other 6,086 3,341 18,310 10,340 Total revenues 620,282 490,323 2,329,909 1,823,731 Expenses: Health benefits 519,478 398,350 1,957,196 1,469,097 Selling, general and administrative 75,064 50,576 258,446 191,915 Depreciation and amortization 6,688 4,925 26,948 20,750 Interest 132 191 608 731 Total expenses 601,362 454,042 2,243,198 1,682,493 Income before income taxes 18,920 36,281 86,711 141,238 Income tax expense 6,000 13,884 33,060 55,224 Net income $ 12,920 $ 22,397 $ 53,651 $ 86,014 Weighted average number of common shares and dilutive potential common shares outstanding 52,148,265 52,552,486 52,857,682 51,837,579 Diluted net income per share $ 0.25 $ 0.43 $ 1.02 $ 1.66 The following table sets forth selected operating ratios. All ratios, with the exception of the health benefits ratio, are shown as a percentage of total revenues. Three months ended Year ended December 31, December 31, 2005 2004 2005 2004 Premium revenue 99.0% 99.3% 99.2% 99.4% Investment income and other 1.0 0.7 0.8 0.6 Total revenues 100.0% 100.0% 100.0% 100.0% Health benefits(1) 84.6% 81.8% 84.7% 81.0% Selling, general and administrative expenses 12.1% 10.3% 11.1% 10.5% Income before income taxes 3.1% 7.4% 3.7% 7.7% Net income 2.1% 4.6% 2.3% 4.7% (1) The health benefits ratio is shown as a percentage of premium revenue because there is a direct relationship between the premium received and the health benefits provided.
The following table sets forth the approximate number of our members we served in each state as of December 31, 2005 and 2004.
December 31, 2005 2004 Texas 399,000 394,000 Florida 219,000 229,000 Maryland 141,000 130,000 New York 138,000 - New Jersey 109,000 105,000 Illinois 41,000 37,000 District of Columbia 41,000 41,000 Ohio 22,000 - Virginia 19,000 - Total 1,129,000 936,000
The following table sets forth the approximate number of our members in each of our products as of December 31, 2005 and 2004.
December 31, Product 2005 2004 AMERICAID (Medicaid - TANF) 800,000 662,000 AMERIKIDS (SCHIP) 197,000 182,000 AMERIPLUS (Medicaid - SSI) 88,000 79,000 AMERIFAM (FamilyCare) 44,000 13,000 Total 1,129,000 936,000 AMERIGROUP CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS December 31, 2005 2004 (in thousands) Assets Current assets: Cash and cash equivalents $ 272,169 $ 227,130 Short-term investments 130,054 176,364 Premium receivables 76,142 44,081 Deferred income taxes 11,972 11,019 Prepaid expenses, provider receivables and other current assets 37,792 18,737 Total current assets 528,129 477,331 Property, equipment and software, net 61,664 50,298 Goodwill and other intangible assets, net 255,115 140,382 Long-term investments, including investments on deposit for licensure 241,540 246,930 Other long-term assets 7,140 4,909 $ 1,093,588 $ 919,850 Liabilities and Stockholders’ Equity Current liabilities: Claims payable $ 348,679 $ 241,253 Unearned revenue 32,598 34,228 Accounts payable 7,243 4,826 Accrued expenses, capital leases and other current liabilities 46,350 56,842 Total current liabilities 434,870 337,149 Deferred income taxes, capital leases and other long-term liabilities 17,164 13,989 Total liabilities 452,034 351,138 Stockholders’ equity: Common stock, $.01 par value 516 505 Additional paid-in capital 371,744 352,417 Retained earnings 269,294 215,790 Total stockholders’ equity 641,554 568,712 $ 1,093,588 $ 919,850 AMERIGROUP CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2005 2004 (in thousands) Cash flows from operating activities: Net income $ 53,651 $ 86,014 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,948 20,750 (Gain) loss on disposal or abandonment of property, equipment and software (61) 971 Deferred tax (benefit) expense (1,247) 2,878 Amortization of deferred compensation - 57 Tax benefit related to option exercises 8,571 8,009 Changes in assets and liabilities increasing (decreasing) cash flows from operations: Premium receivables (26,234) (5,822) Prepaid expenses, provider receivables and other current assets (15,919) (2,742) Other assets (1,074) (941) Claims payable 80,002 1,721 Unearned revenue (1,723) (20,096) Accounts payable, accrued expenses and other current liabilities (9,049) 9,234 Other long-term liabilities (760) 2,027 Net cash provided by operating activities 113,105 102,060 Cash flows from investing activities: Proceeds from the sale of investments, net 69,845 66,144 Purchase of investments on deposit for licensure, net (10,265) (3,019) Purchase of property, equipment and software (25,819) (25,727) Purchase of contract rights and related assets, net of adjustments - 512 Acquisition, net of cash acquired (107,645) - Net cash (used in) provided by investing activities (73,884) 37,910 Cash flows from financing activities: Payment of capital lease obligations (3,323) (4,473) Payment of debt issuance costs (1,626) - Proceeds from exercise of stock options and change in bank overdrafts, net 10,767 7,603 Net cash provided by financing activities 5,818 3,130 Net increase in cash and cash equivalents 45,039 143,100 Cash and cash equivalents at beginning of year 227,130 84,030 Cash and cash equivalents at end of year $ 272,169 $ 227,130
AMERIGROUP Corporation
CONTACT: Investors: Julie Loftus Trudell, Vice President, InvestorRelations, +1-757-321-3597, or News Media: Kent Jenkins Jr., VicePresident, Communications, +1-757-518-3671, both of AMERIGROUP Corporation
Web site: http://www.amerigroupcorp.com//
