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AMERIGROUP Reports Q4 Net Income of $31.1 Million or $0.57 Per Diluted Share; Full-Year Net Income of $116.5 Million or $2.16 Per Diluted Share
Date:2/13/2008

Board Approves Stock Repurchase Program Raising 2008 EPS Guidance to $2.58 to $2.73 to Reflect Georgia Retroactive

Rate Increase

VIRGINIA BEACH, Va., Feb. 13 /PRNewswire-FirstCall/ -- AMERIGROUP Corporation (NYSE: AGP) today announced that its net income for the fourth quarter of 2007 increased 3.9% to $31.1 million, or $0.57 per diluted share, versus net income of $29.9 million, or $0.56 per diluted share, for the fourth quarter of 2006. This compares sequentially to net income of $31.2 million, or $0.58 per diluted share, for the third quarter of 2007. For the year ended December 31, 2007, net income was $116.5 million, or $2.16 per diluted share, versus net income of $107.1 million, or $2.02 per diluted share, for full-year 2006.

Highlights include:

-- Fourth quarter total revenue was $1.1 billion; a 33.0% increase over

the fourth quarter of 2006 and a 4.3% increase sequentially.

-- Served 1.7 million members at year-end 2007 representing a 30.0%

increase over the prior year end and a 12.0% increase compared to the

end of the third quarter of 2007.

-- Health benefits ratio of 82.9% of premium revenues.

-- Selling, general and administrative expense ratio of 13.1% of total

revenues.

-- Cash flow from operations was $350.7 million for the full year ended

December 31, 2007 and $97.0 million for the three months ended December

31, 2007.

-- Days in claims payable was 57, compared to 55 days in the previous

quarter.

-- Awarded New Health Plan Accreditation by NCQA, in Georgia.

-- Began serving TANF members as well as the Aged, Blind and Disabled

(ABD) popul 13.1% 14.2% 12.6% 13.0%

Income before income taxes 4.6% 5.8% 4.7% 6.1%

Net income 2.9% 3.7% 3.0% 3.8%

(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, 2007 and 2006. Because we receive

two premiums for members that are in both the Medicare Advantage and Aged,

Blind and Disabled products, these members have been counted twice in the

states where we offer these plans.

December 31,

2007 2006

Texas(1) 460,000 406,000

Tennessee(2) 356,000 -

Georgia 211,000 227,000

Florida 206,000 202,000

Maryland 152,000 145,000

New York 112,000 126,000

New Jersey 98,000 102,000

Ohio 54,000 46,000

District of Columbia 38,000 40,000

Virginia 24,000 22,000

South Carolina - -

Total 1,711,000 1,316,000

(1) Membership includes approximately 13,000 and 14,000 members under

ASO contracts in 2007 and 2006, respectively.

(2) Membership includes approximately 170,000 under ASO contracts in

2007.

The following table sets forth the approximate number of our members in

each of our products as of December 31, 2007 and 2006. Because we receive

two premiums for members that are in both the Medicare Advantage and Aged,

Blind and Disabled products, these members have been counted in each

product.

December 31,

Product 2007 2006

TANF (Medicaid)(1) 1,179,000 910,000

SCHIP 268,000 264,000

ABD (Medicaid)(2) 216,000 94,000

FamilyCare (Medicaid) 43,000 43,000

Medicare Advantage (SNP) 5,000 5,000

Total 1,711,000 1,316,000

(1) Membership includes 129,000 members under an ASO contract in

Tennessee.

(2) Membership includes 41,000 and 13,000 members under ASO contracts in

Tennessee and Texas, respectively, in 2007. In 2006, membership includes

14,000 members under an ASO contract in Texas.

AMERIGROUP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

December 31,

2007 2006

Assets

Current assets:

Cash and cash equivalents $487,614 $176,718

Short-term investments 199,947 167,703

Restricted investments held as

collateral 351,318 -

Premium receivables 82,940 63,594

Deferred income taxes 23,475 21,550

Prepaid expenses, provider and other

receivables and other 82,914 71,544

Total current assets 1,228,208 501,109

Property, equipment and software, net 97,933 81,604

Goodwill and other intangible assets, net 263,009 255,340

Long-term investments, including

investments on deposit for licensure 469,218 500,363

Deferred income taxes 12,075 -

Other long-term assets 18,178 7,279

$2,088,621 $1,345,695

Liabilities and Stockholders' Equity

Current liabilities:

Claims payable $541,173 $385,204

Unearned revenue 55,937 26,116

Accounts payable 6,775 6,285

Accrued expenses and other 167,188 144,522

Current portion of long-term debt and

capital leases 27,935 795

Total current liabilities 799,008 562,922

Long-term debt and capital leases 361,458 415

Other long-term liabilities 14,248 6,136

Deferred income taxes - 7,637

Total liabilities 1,174,714 577,110

Stockholders' equity:

Common stock, $.01 par value 532 523

Additional paid-in capital 411,193 391,515

Retained earnings 502,182 376,547

Total stockholders' equity 913,907 768,585

$2,088,621 $1,345,695

AMERIGROUP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Twelve months ended

December 31,

2007 2006

(in thousands)

Cash flows from operating activities:

Net income $116,450 $107,106

Adjustments to reconcile net income

to net cash provided by operating activities:

Depreciation and amortization 31,604 25,486

Loss on disposal of property,

equipment and software 67 725

Deferred tax benefit (2,204) (12,214)

Compensation expense related to

share-based payments 11,879 8,477

Changes in assets and liabilities

increasing (decreasing) cash flows

from operations:

Premium receivables (19,346) 12,548

Prepaid expenses, provider and other

receivables and other current assets (18,499) (21,683)

Other assets (2,577) (647)

Claims payable 155,969 36,525

Unearned revenue 29,821 21,764

Accounts payable, accrued expenses

and other current liabilities 39,464 57,144

Other long-term liabilities 8,112 420

Net cash provided by operating

activities 350,740 235,651

Cash flows used in investing activities:

Purchase of restricted investments held as

collateral, net (351,318) -

Purchase of convertible note hedge

instruments (52,702) -

Proceeds from sale of warrant instruments 25,662 -

Purchase of investments, net 19,875 (284,471)

Acquisition of contract rights and

related assets (11,733) -

Purchase of investments on deposit

for licensure, net (20,974) (11,854)

Purchase of property, equipment and

software (40,334) (41,102)

Purchase price adjustment paid - (4,766)

Net cash used in investing activities (431,524) (342,193)

Cash flows from financing activities:

Proceeds from borrowings under credit

facility and issuance of convertible notes 611,318 -

Repayments of borrowings under credit

facility (222,293) -

Payment of debt issuance costs (11,732) -

Payment of capital lease obligations (842) (1,607)

Proceeds and tax benefits from exercise of

stock options and change in bank

overdrafts, net 15,229 12,698

Net cash provided by financing activities 391,680 11,091

Net increase (decrease) in cash and

cash equivalents 310,896 (95,451)

Cash and cash equivalents at

beginning of year 176,718 272,169

Cash and cash equivalents at end of

year $487,614 $176,718

ation in South Carolina on December 1st.

-- In January 2008, AMERIGROUP received a fully executed amendment to its

contract with Georgia, increasing the weighted average rate by 4.5%,

effective July 1, 2007. The impact of this rate increase is not

included in the 2007 results and will be reflected in the first quarter

of 2008.

-- AMERIGROUP is increasing the range of its 2008 annual earnings estimate

to $2.58 to $2.73 per diluted share from the previous range of $2.45 to

$2.60 per diluted share to reflect the retroactive component of the

July 1, 2007 rate increase for Georgia.

-- The Board of Directors approved a stock repurchase program for up to

one million shares primarily for the purpose of mitigating dilution

from stock option exercises and stock grants.

"Our strong fourth quarter results capped off an excellent year for AMERIGROUP. We have applied a disciplined approach to new markets and products and effectively managed our mature markets, all of which position us well to benefit from future growth," said James G. Carlson, AMERIGROUP's President and Chief Executive Officer. "Fundamentally, we feel very good about our business and our outlook for 2008 remains positive."

Revenue

Total revenues for the fourth quarter of 2007 increased 33.0% to $1.1 billion compared with $809.7 million in the fourth quarter of 2006. Sequentially, total revenues increased $44.0 million, or 4.3%, compared with the third quarter of 2007. The sequential increase primarily reflects rate increases received in Texas and Florida in September.

For the year ended December 31, 2007, total revenues increased 39.2% to $3.9 billion from $2.8 billion for the year ended December 31, 2006, reflecting 38.5% organic premium revenue growth. The retroactive rate increase in Georgia is not included in the 2007 results.

Fourth quarter investment income and other revenue was $23.7 million compared with $11.9 million in the fourth quarter of 2006. Sequentially, investment income and other revenue increased $4.6 million, or 24.1%, from the third quarter of 2007. Investment income and other revenue increased in the fourth quarter primarily due to the inclusion of the newly acquired TLC Family Care Health Plan in West Tennessee with 170,000 members, which are serviced under an administrative services only agreement (ASO) with the State of Tennessee.

Health Benefits

Health benefits as a percent of premium revenues were 82.9% for the fourth quarter of 2007 versus 80.4% in the fourth quarter of 2006, and were consistent with the third quarter of 2007. The health benefits ratio reflects strong revenue growth, solid performance of mature markets, improvements in developing markets as well as favorable reserve development that was similar to recent quarters.

For the full-year 2007, the health benefits ratio was 83.1% compared with 81.1% for the full-year 2006.

Selling, General and Administrative Expenses

Selling, general and administrative expense was $141.5 million or 13.1% of total revenues for the fourth quarter of 2007 versus $114.8 million or 14.2% of total revenues in the fourth quarter of 2006, and compared with $129.9 million or 12.6% of total revenues in the third quarter of 2007.

For the full-year 2007, the selling, general and administrative expense ratio was 12.6% compared with 13.0% for the full-year 2006.

The sequential increase in selling, general and administrative expense is primarily due to an increase in experience rebate expense in Texas driven by two factors: an accrual of $7.4 million associated with the resolution of audit items on all open experience rebate reports for prior years', as previously disclosed in AMERIGROUP SEC filings; and, the experience rebate expense associated with the favorable reserve development in the State.

The total favorable reserve development recorded for the Company, in the quarter, was fully offset by the experience rebate expense items detailed above.

Balance Sheet and Cash Flow Highlights

Cash and investments at December 31, 2007 totaled $1.5 billion. Unregulated cash and investments were $557.8 million of which $206.4 million was unrestricted.

Medical claims payable totaled $541.2 million, representing 57 days of health benefits expense and compares to 55 days in the previous quarter.

Cash flow provided by operations totaled $97.0 million for the three months ended December 31, 2007, and $350.7 million for the full year, compared to $235.7 million in the prior year. Cash flow in the quarter was positively impacted by strong net income and growth in claims payable.

Stock Repurchase Program

The Board of Directors has approved a stock repurchase program, whereby the Company may repurchase up to one million shares of its common stock. "Implementing a stock repurchase program reflects the strength of AMERIGROUP's cash flow and balance sheet," said James W. Truess, Executive Vice President and Chief Financial Officer. "The primary purpose of this program will be to mitigate the dilution from option exercises and stock grants."

Stock repurchases may be made from time to time in the open market or in privately negotiated transactions and will be funded from unrestricted cash. The Company intends to adopt written plans pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934 to effect the repurchase of a portion of shares authorized. The number of shares to be repurchased and the timing of the repurchases will be based on the level of available cash, limitations imposed by the Company's credit agreement and other factors, including market conditions, the terms of any applicable 10b5-1 plans and self-imposed blackout periods. There can be no assurances as to the exact number or aggregate value of shares that will be repurchased. The repurchase program may be suspended or discontinued at any time or from time to time without prior notice.

2008 Outlook

AMERIGROUP is increasing its 2008 annual earnings estimates to $2.58 to $2.73 per diluted share from the previously announced range of $2.45 to $2.60 to reflect the retroactive component of the July 1, 2007 rate increase for Georgia, which will be recognized in the first quarter of 2008.

AMERIGROUP's 2008 earnings estimates are predicated on the following assumptions, among others:
-- Organic premium revenue growth is expected to be above 15%;

-- Investment income and other revenue growth is expected to be in the

low-to-mid teen range;

-- Health benefits ratio in the mid 83% range of premium revenues for the

full year;

-- Selling, general and administrative expenses below 12% of total

revenue; and

-- Fully diluted shares outstanding of approximately 55 million.

2008 earnings outlook of $2.58 to $2.73 does not reflect any dilutive or accretive impact from:
-- AMERIGROUP's possible entry into New Mexico's long-term care program;

-- A possible change in the West Tennessee ASO contract with TennCare; and

-- Developments or rulings in the pending Qui Tam appeal.

Fourth Quarter Earnings Call

AMERIGROUP senior management will discuss the Company's fourth quarter results on a conference call Thursday, February 14, 2008 at 8:30 a.m. Eastern Standard Time (EST). The conference can be accessed by dialing 866-260-3161 (domestic) or (01)706-679-7245 (international) and providing passcode 30406135 approximately ten minutes prior to the start time of the call. A recording of the call may be accessed by dialing 800-642-1687 (domestic) or (01) 706-645-9291 (international) and providing passcode 30406135. The replay will be available shortly after the conclusion of the call until Thursday, February 21, 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 beginning approximately two hours following the conclusion of the live broadcast earnings conference call.

About AMERIGROUP Corporation

AMERIGROUP Corporation, headquartered in Virginia Beach, Virginia, improves healthcare access and quality for the financially vulnerable, seniors and people with disabilities by developing innovative managed health services for the public sector. Through its subsidiaries, AMERIGROUP Corporation serves more than 1.7 million people in the District of Columbia, Florida, Georgia, Maryland, New Jersey, New York, Ohio, South Carolina, Tennessee, Texas and Virginia. For more information, visit http://www.amerigroupcorp.com.

Forward-Looking Statements

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 related to expected 2008 earnings which are subject to numerous factors, many of which are outside of our control, including the levels and amounts of membership, revenues, organic premium revenues, rate increases, operating cash flows, health benefits expenses, medical expense 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. These statements are 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 our 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 and Medicare payment levels, membership eligibility and methodologies and the application of such methodologies by the government; liabilities and other claims asserted against us; 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; our ability to meet our debt service obligations and debt covenants; the competitive environment in which we operate; our ability to maintain and increase membership levels; demographic changes; increased use of services, increased cost of individual services, epidemics, the introduction of new or costly treatments and technology, new mandated benefits or other regulatory changes, insured population characteristics and seasonal changes in the level of healthcare use; our inability to operate new products and markets at expected levels, including, but not limited to, profitability, membership and targeted service standards; catastrophes, including acts of terrorism or severe weather; and the unfavorable resolution of pending litigation. There can also be no assurance that we will achieve the estimated earnings discussed in this release or that our actual results for 2008 will not differ materially from our current estimates. Our ability to achieve the earnings described 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 December 31, 2006 filed with the Securities and Exchange Commission ("SEC") and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC, for a discussion of certain known risk factors that could cause our actual results to differ materially from our current estimates. 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.

Senior Vice President, Senior Vice President,

Investor Relations External Communications

AMERIGROUP Corporation AMERIGROUP Corporation

(757) 321-3597 (202) 218-4925

AMERIGROUP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Three months ended Twelve months ended

December 31, December 31,

2007 2006 2007 2006

Revenues:

Premium $1,053,044 $797,805 $3,872,210 $2,795,810

Investment income and

other 23,686 11,882 73,320 39,279

Total revenues 1,076,730 809,687 3,945,530 2,835,089

Expenses:

Health benefits 873,165 641,678 3,216,070 2,266,017

Selling, general and

administrative 141,541 114,842 499,000 369,896

Depreciation and

amortization 8,008 6,229 31,604 25,486

Interest 3,959 260 12,291 608

Total expenses 1,026,673 763,009 3,758,965 2,662,007

Income before income

taxes 50,057 46,678 186,565 173,082

Income tax expense 18,935 16,734 70,115 65,976

Net income $31,122 $29,944 $116,450 $107,106

Diluted net income per

share $0.57 $0.56 $2.16 $2.02

Weighted average number

of common shares and

dilutive potential

common shares

outstanding 54,299,050 53,525,958 53,845,829 53,082,933

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.

Twelve months

Three months ended ended

December 31, December 31,

2007 2006 2007 2006

Premium revenue 97.8% 98.5% 98.1% 98.6%

Investment income and other 2.2 1.5 1.9 1.4

Total revenues 100.0% 100.0% 100.0% 100.0%

Health benefits (1) 82.9% 80.4% 83.1% 81.1%

Selling, general and administrative

expenses
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SOURCE AMERIGROUP Corporation
Copyright©2008 PR Newswire.
All rights reserved

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