Exhibit 99.1
[LOGO OF AMERIGROUP(R) CORPORATION]
PRESS RELEASE
A M E R I C A I D . A M E R I K I D S . A M E R I F A M . A M E R I P L U S
- --------------------------------------------------------------------------------
AMERIGROUP CORPORATION . 4425 CORPORATION LANE . VIRGINIA BEACH, VIRGINIA 23462
757 490 6900 . WWW.AMERIGROUPCORP.COM
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 REPORTS FOURTH QUARTER NET EARNINGS
$0.14 PER SHARE NET OF PRIOR PERIOD FAVORABLE DEVELOPMENT AND CHANGE IN TAX RATE
FULL-YEAR NET INCOME OF $53.7 MILLION AND $1.02 PER SHARE
Virginia Beach, VA (February 15, 2006) - AMERIGROUP Corporation (NYSE: AGP)
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:
o Won approval to offer Medicare Special Needs Plan (SNP) in Houston;
o Entered New York, the largest Medicaid market;
o Successful bidder in the largest Medicaid procurement in several years, in
Georgia;
o Started new health plans in Virginia and Ohio;
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February 15, 2006
o 2005 total revenues of $2,329,909,000 reflecting organic premium revenue
growth of 15.1 percent;
o 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;
o 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;
o Selling, general and administrative expenses of 12.1 and 11.1 percent of
total revenues for the fourth quarter and full-year 2005, respectively;
o Unregulated cash and investments of $157,902,000; and
o 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:
o 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.
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February 15, 2006
o 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
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Total payments 1,877,194 1,467,376
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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.
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February 15, 2006
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:
o 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;
o Health benefits of approximately 86.0 percent of premium revenues for the
full year;
o 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;
o Compensation expense of $0.09 for SFAS 123(R), spread evenly throughout the
year;
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February 15, 2006
o Income tax rate of approximately 40.0 percent; and
o 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,
www.amerigroupcorp.com, or through 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
www.amerigroupcorp.com.
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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.
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February 15, 2006
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
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Income before income taxes 18,920 36,281 86,711 141,238
Income tax expense 6,000 13,884 33,060 55,224
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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
============= ============= ============= =============
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February 15, 2006
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
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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
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Total 1,129,000 936,000
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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
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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
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$ 1,093,588 $ 919,850
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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
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Total current liabilities 434,870 337,149
Deferred income taxes, capital leases and other
long-term liabilities 17,164 13,989
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Total liabilities 452,034 351,138
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Stockholders' equity:
Common stock, $.01 par value 516 505
Additional paid-in capital 371,744 352,417
Retained earnings 269,294 215,790
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Total stockholders' equity 641,554 568,712
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$ 1,093,588 $ 919,850
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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
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