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The Company is increasing and narrowing the range of its 2008 annualguidance. The Company expects the full-year 2008 net loss to be in the rangeof $1.16 to $1.11 per diluted share, which includes the impact of thelitigation settlement recorded in the second quarter. Excluding this charge,the Company expects full-year 2008 earnings in the range of $2.58 to $2.63 perdiluted share compared to the previous range of $2.30 to $2.40 per dilutedshare.
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"AMERIGROUP produced better than expected results in our health planoperations in the third quarter due to an array of Company-wide activities,"said James G. Carlson, AMERIGROUP Chairman and Chief Executive Officer. "Weremain acutely focused on the operations of our business at a time when thedelivery of predictable and cost effective services for our state partners andmembers is even more critical. We are seeing improving results in Tennesseealong with a smooth implementation of the new managed long-term care servicesprogram in New Mexico. In addition to our operational progress, we believeour strong balance sheet, careful investment strategy and solid cash flowposition us well for future growth and performance. "
Premium Revenue
Total premium revenues for the third quarter of 2008 increased 9.1% to$1.1 billion compared with $1.0 billion in the third quarter of 2007.Sequentially, premium revenue decreased $5.4 million compared with the secondquarter of 2008 primarily due to a retro-active premium payment in Tennesseeof $47.3 million that elevated second quarter premium revenue. Excluding thispayment, third quarter premium revenues increased 3.9% compared to the secondquarter due to membership growth, rate increases and mix changes.
Investment Income
Third quarter investment income and other revenue was $17.6 millioncompared with $19.1 million in the third quarter of 2007. Sequentially,investment income and other revenue decreased approximately $1 millionprimarily due to a decline in invested assets associated with the litigationsettlement payment.
Health Benefits
Health benefits as a percent of premium revenues were 80.1% for the thirdquarter of 2008 versus 82.9% in the third quarter of 2007 and compared to82.0% for the second quarter of 2008.
The health benefits ratio declined sequentially due to strong performanceduring the quarter, as the majority of health plans exceeded expectations.The health benefits ratio was also impacted by favorable reserve developmentwhich primarily impacted estimates of medical costs related to the first halfof 2008.
Selling, General and Administrative Expenses
The selling, general and administrative expense ratio was 14.4% of totalrevenues for the third quarter of 2008 versus 12.6% in the third quarter of2007 and compared to 13.1% in the second quarter of 2008. Selling, generaland administrative expenses were elevated in the quarter due to increasedaccruals for experience rebate expense in Texas and variable compensationexpense associated with more favorable projected results for the year.
Balance Sheet Highlights
Cash and investments at September 30, 2008 totaled $1.35 billion of which$282.9 million was unregulated and unrestricted. Unregulated and unrestrictedcash increased by $102.8 million compared to June 30, 2008.
Medical claims payable totaled $528.0 million representing 55 days ofhealth benefits expense which compares to 54 days in the previous quarter.
AMERIGROUP repaid approximately $52.2 million of its outstanding term loanduring the quarter and had a remaining balance of $50 million as of September30, 2008.
Cash Flow Highlights
Cash flow used in operations, including the impact of the litigationsettlement, totaled $29.4 million for the nine months ended September 30, 2008compared to cash flow provided by operations of $250.6 million for the sameperiod in the prior year. Excluding the litigation settlement, cash flowprovided by operations was $169.8 million year to date, representing 1.5 timesadjusted net income. A reconciliation of this non-GAAP financial measure toGAAP is included on page 11 of this release.
Share Repurchase
AMERIGROUP repurchased approximately 143,000 shares of its common stockfor $3.6 million during the third quarter of 2008. Year to date, the Companyhas purchased approximately 843,000 shares for $22.9 million.
2008 Outlook
The Company is increasing and narrowing the range of its 2008 annualearnings estimate to $2.58 to $2.63 per diluted share from the previous rangeof $2.30 to $2.40 per diluted share. These estimates exclude the impact ofthe litigation settlement recorded in the second quarter and are thereforenon-GAAP financial measures. A reconciliation of this non-GAAP financialmeasure to GAAP is included on page 11 of this release.
The Company's full-year 2008 estimates are predicated on the assumptionthat products and markets operate at expected levels. Additionally, theseestimates include the following full-year assumptions, among others:
Full-year 2009 Outlook
The Company is introducing its 2009 full-year outlook. AMERIGROUP expectsearnings per diluted share in the range of $2.50 to $2.65 and total revenuesin the range of $4.8 to $4.9 billion.
Full-year guidance includes the impact of the FASB Staff Position (FSP)APB 14-a, Accounting for Convertible Debt Instruments That May Be Settled inCash Upon Conversion (Including Partial Cash Settlement), which is expected todecrease earnings by $0.12 per diluted share in 2009.
"While changes in accounting rules are increasing non-cash interestexpense and investment income is expected to decline due to fixed-incomeyields, we believe our continued effective management of medical costs andefficiency gains on administrative costs will produce favorable earningsresults next year," said James W. Truess, AMERIGROUP Chief Financial Officer.
The Company's 2009 earnings estimates are predicated on the assumptionthat products and markets operate at expected levels. Full-year 2009 guidancedoes not include the potentially accretive impact of the entry into Nevada,which is pending final contract approval.
Third Quarter Earnings Call
AMERIGROUP senior management will discuss the Company's third quarterresults on a conference call Thursday, October 23, 2008 at 8:30 a.m. EasternTime. The conference can be accessed by dialing 866-260-3161 (domestic) or706-679-7245 (international) approximately ten minutes prior to the start timeof the call. A recording of the call may be accessed by dialing 800-642-1687(domestic) or 706-645-9291 (international) and providing passcode 66892972.The replay will be available shortly after the completion of the call untilThursday, October 30, at 11:59 p.m. Eastern Time. The conference call willalso be available through the investors' page of the Company's web site,http://www.amerigroupcorp.com, or through http://www.earnings.com. A 30-dayreplay of this webcast will be available on these web sites approximately twohours following the conclusion of the live broadcast.
About AMERIGROUP Corporation
AMERIGROUP Corporation, headquartered in Virginia Beach, Virginia,improves healthcare access and quality for the financially vulnerable, seniorsand people with disabilities by developing innovative managed health servicesfor the public sector. Through its subsidiaries, AMERIGROUP Corporationserves approximately 1.7 million people in Florida, Georgia, Maryland, NewJersey, New Mexico, New York, Ohio, South Carolina, Tennessee, Texas andVirginia. For more information, visit http://www.amerigroupcorp.com.
Forward-Looking Statements
This release is intended to be disclosure through methods reasonablydesigned to provide broad, non-exclusionary distribution to the public incompliance with the Securities and Exchange Commission's Fair DisclosureRegulation. This release contains certain ''forward-looking'' statementsrelated to expected 2008 and 2009 earnings which are subject to numerousfactors, many of which are outside of our control, including our cashbalances, the levels and amounts of membership, revenues, organic premiumrevenues, rate increases, operating cash flows, health benefits expenses,medical expense trend levels, our ability to manage our medical costsgenerally, seasonality of health benefits expenses, selling, general andadministrative expenses, days in claims payable, income tax rates, interestrates, actions by the Federal Reserve, including changes in the Federal FundsRate, our ability to enter into new markets or remain in our existing markets,earnings per share and net income growth. These statements are made pursuantto the Safe Harbor provisions of the Private Securities Litigation Reform Actof 1995. Forward-looking statements involve known and unknown risks anduncertainties that may cause our actual results in future periods to differmaterially from those projected or contemplated in the forward-lookingstatements. These risks and uncertainties include, but are not limited to,national, state and local economic conditions, including their effect on therate-setting process; timing of payments; the effect of government regulationsand changes in regulations governing the healthcare industry; changes inMedicaid and Medicare payment levels and methodologies; liabilities and otherclaims asserted against us; our ability to attract and retain qualifiedpersonnel; our ability to maintain compliance with all minimum capitalrequirements; the availability and terms of capital to fund acquisitions andcapital improvements; changes in interest rates by the Federal Reserve; thecompetitive environment in which we operate; our ability to maintain andincrease membership levels; demographic changes; increased use of services;increased cost of individual services; epidemics; the introduction of new orcostly treatments and technology; new mandated benefits or other regulatorychanges; insured population characteristics and seasonal changes in the levelof healthcare use; our ability to enter into new markets or remain in ourexisting markets; our inability to operate new products and markets atexpected levels, including, but not limited to, profitability, membership andtargeted service standards; catastrophes, including acts of terrorism orsevere weather; and the unfavorable resolution of pending litigation. Therecan also be no assurance that we will achieve the estimated earnings discussedin this release or that our actual results for 2008 and 2009 will not differmaterially from our current estimates. Our ability to achieve the earningsdescribed is subject to a variety of factors, including those described above,many of which are out of our control.
Investors should also refer to our Form 10-K for the year ended December31, 2007 filed with the Securities and Exchange Commission ("SEC") andsubsequent quarterly reports on Form 10-Q and current reports on Form 8-Kfiled with or furnished to the SEC, for a discussion of certain known riskfactors that could cause our actual results to differ materially from ourcurrent estimates. Given these risks and uncertainties, we can give noassurances that any forward-looking statements will, in fact, transpire and,therefore, caution investors not to place undue reliance on them. Wespecifically disclaim any obligation to update or revise any forward-lookingstatements, whether as a result of new information, future developments orotherwise.
Reconciliation of Non-GAAP Financial Measures
Operating Results Excluding Litigation Settlement Charge for the NineMonths Ended September 30, 2008
The following tables present (i) the Company's Consolidated Operations forthe nine months ended September 30, 2008; (ii) Condensed ConsolidatedCashflows from Operations; and (iii) Forward-Looking Guidance for Full-Year2008, on a GAAP and non-GAAP basis. Management believes that the presentationof certain financial information in this press release, excluding thelitigation settlement charge that was recorded in the nine months endedSeptember 30, 2008, which is non-GAAP financial information, is useful toinvestors and improves the comparability of the Company's ongoing operationalresults between periods. This non-GAAP financial information should beconsidered in addition to, not as a substitute for, financial informationprepared in accordance with GAAP.Highlights: -- Third quarter total revenue of $1.1 billion, an 8.8% increase over the third quarter of 2007. -- Health benefits ratio of 80.1% of premium revenues. -- Selling, general and administrative expense ratio of 14.4% of total revenues. -- Cash flow used in operations totaled $29.4 million for the nine months ended September 30, 2008. Cash flow from operations for the same period, excluding the impact of the litigation settlement, was $169.8 million. -- Days in claims payable was 55 days, compared to 54 days in the previous quarter. -- AMERIGROUP is increasing and narrowing the range of its 2008 annual earnings estimate, excluding the impact of the litigation settlement, to $2.58 to $2.63 per diluted share from the previous range of $2.30 to $2.40 per diluted share. -- Successfully began operations on August 1 in New Mexico's new Coordinated Long-Term Services (CoLTS) program that constitutes one of the Nation's first comprehensive programs to coordinate long-term care for individuals. -- AMERIGROUP is introducing its full-year 2009 annual earnings estimate of $2.50 to $2.65 per diluted share, which includes the $0.12 dilutive impact of the convertible debt accounting change required by FSP APB 14-a.
SOURCE AMERIGROUP Corporation
