HMS Holdings Corp.
Jul. 27, 2012

HMS Holdings Corp. Announces Second Quarter 2012 Financial and Operating Results

NEW YORK--(BUSINESS WIRE)-- HMS Holdings Corp. (NASDAQ: HMSY) today announced its financial and operating results for the second quarter of 2012.

Q2 2012 Financial Summary

For the quarter ended June 30, 2012, revenue increased 34.4% to $120.1 million, compared to $89.3 million for the same period a year ago. Net income for the quarter increased 4% to $13.0 million compared to net income of $12.4 million for the same period a year ago. Fully diluted GAAP EPS for the quarter increased 7.1% y/y to $0.15 and adjusted EPS increased 35.3% y/y to $0.23.

For the first half of 2012, revenue increased 32% to $227.4 million compared to revenue of $171.8 million for the same period in the prior year. Net income for the first half of the year was $20.0 million versus net income of $22.2 million for the prior year period. Fully diluted GAAP EPS for the first half decreased 11% y/y to $0.23 and adjusted EPS increased 23% y/y to $0.38.

"The Supreme Court's decision to uphold the Affordable Care Act was a great outcome for HMS, providing support for our long-term growth strategy," said Bill Lucia, CEO of HMS. "States are now focused on evaluating alternatives to comply with the ACA and expediting key program integrity initiatives, including the Medicaid Recovery Audit Contractor program," Lucia added. "HMS is working with our clients—including six new states signed this quarter—to help them achieve compliance with the federal law. Politics aside, everyone agrees that fraud, waste, and abuse must be rooted out of the healthcare system, and HMS is uniquely positioned to drive that agenda forward."

Webcast and Conference Call Information

HMS will be hosting its second quarter 2012 conference call and webcast with the investment community on Friday, July 27, 2012 at 9:00 am Eastern Time. Individuals can access the webcast at http://investor.hms.com/events.cfm or listen to the call at 1-888-500-6974. International participants can listen to the call at 1-719-457-2710.

The webcast will be archived on the website at http://investor.hms.com/events.cfm. Individuals can listen to the replay at 1-888-203-1112. International participants can listen to the replay at 1-719-457-0820. The passcode is 6347257. The replay will be available at 11 a.m. ET on July 27 through 11:59 p.m. ET on August 3, 2012.

The HMS Form 10-Q for the quarter June 30, 2012 will be filed and available on our website at http://investor.hms.com on or about August 9, 2012, and will contain additional information about our results of operations for the fiscal year-to-date. This press release and the interim financial statements herein will be available at http://investor.hms.com for at least a 12-month period. Shareholders and interested investors are welcome to contact Investor Relations at 212-857-5986.

About HMS Holdings Corp.

HMS Holdings Corp., through its subsidiaries, is the nation's leader in coordination of benefits and program integrity services for healthcare payers. HMS's clients include health and human services programs in more than 40 states; commercial programs, including commercial plans, employers, and over 135 Medicaid managed care plans; the Centers for Medicare and Medicaid Services (CMS); and Veterans Administration facilities. As a result of the Company's services, clients recovered over $2.5 billion in 2011, and saved nearly $7 billion through the prevention of erroneous payments.

Use of Non-GAAP Financials

This press release includes presentations of earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA. Adjusted EBITDA represents EBITDA adjusted for stock-based compensation expense. EBITDA is a measure commonly used by the capital markets to value enterprises. EBITDA is a non-GAAP financial measure and is reconciled to income before income taxes, which the Company's management believes to be the most comparable generally accepted accounting principles ("GAAP") measure. Adjusted EBITDA results are calculated by adjusting GAAP income before income taxes to exclude the effects of depreciation, amortization of intangible assets, stock-based compensation expense, and net interest expense.

This press release also includes presentations of adjusted EPS. Adjusted EPS represents EPS adjusted for stock-based compensation expense and amortization intangibles. Adjusted EPS is a non-GAAP financial measure and is reconciled to EPS, which the Company's management believes to be the most comparable GAAP measure.

The Company uses these non-GAAP financial measures for internal management purposes, when publicly providing guidance on possible future results, and as a means to evaluate period-to-period comparisons. The Company's management believes that these non-GAAP financial measures are a common measure used by investors and analysts to evaluate its performance. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and reflect an additional way of viewing aspects of the Company's operations that, when viewed with GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provides a more complete understanding of the results of operations and trends affecting the Company's business. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, income before income taxes in accordance with GAAP.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such statements give our expectations or forecasts of future events; they do not relate strictly to historical or current facts. Forward-looking statements can be identified by words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes," "will," "target," "seeks," "forecast" and similar expressions and references to guidance. In particular, these include statements relating to future actions, business plans, objects and prospects, and future operating or financial performance. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to: regulatory actions, budgetary pressures and political influences that could affect the procurement practices and operations of healthcare organizations and agencies; our ability to retain clients or the loss of one or more major clients; client dissatisfaction or early termination of contracts triggering significant costs or liabilities; the development by competitors of new or superior products or services; the emergence of new competitors, or the development by our clients of in-house capacity to perform the services we offer; all the risks inherent in the development, introduction, and implementation of new products and services; our ability to manage our growth and its demands on our resources and infrastructure; our ability to successfully integrate our acquisitions; our compliance with the covenants and obligations under the terms of our credit facility and our ability to generate sufficient cash to cover our interest and principal payments thereunder; variations in our results of operations; negative results of government reviews, audits or investigations to verify our compliance with contracts and applicable laws and regulations; changing conditions in the healthcare industry which could simplify the payment process and reduce the need for and price of our services; our ability to continue to secure contracts through the competitive bidding process and to accurately predict the cost and time to complete such contracts; our failure to comply with laws and regulations governing health data or to protect such data from theft and misuse; and, our ability to maintain effective information systems and protect them from damage or interruption. A further description of these and other risks, uncertainties, and related matters can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which is available at www.hms.com under the "Investor Relations" tab. Any forward-looking statements made by us in this press release speak only as of the date of this release. Factors or events that could cause actual results to differ may emerge from time to time and it is not possible for us to predict all of them. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

             

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Six-Month Periods Ended June 30, 2012 and 2011

(In thousands, except per share amounts)

(unaudited)

 
Three months ended June 30,   Six months ended June 30,
  2012     2011   2012     2011
 
Revenue $ 120,069

 

$ 89,346 $ 227,383 $ 171,803

 

Cost of services:
 
Compensation 40,043 31,531 79,319 62,842
Data processing 8,026 5,652 14,920 10,634
Occupancy 4,194 3,726 8,314 7,534
Direct project costs 13,200 11,064 26,043 20,653
Other operating costs 5,986

 

4,597 11,113 8,811
Amortization of acquisition related software and intangibles   8,149

 

  1,648 16,298 3,388
Total cost of services 79,598

 

58,218 156,007 113,862
 
Selling, general & administrative expenses   14,875   10,668 29,739 21,372
Total operating expenses   94,473   68,886 185,746 135,234
Operating income 25,596 20,460 41,637 36,569
 
Interest expense (4,158) (23) (8,363) (46)
Other income, net 209 277 319 549
Interest income   2   16   4   36
Income before income taxes 21,649 20,730 33,597 37,108
Income taxes   8,669   8,307   13,574   14,869
Net income and comprehensive income $ 12,980 $ 12,423 $ 20,023 $ 22,239
 
Basic income per share data:
Net income per basic share $ 0.15 $ 0.15 $ 0.23 $ 0.26
 
Weighted average common shares outstanding, basic   86,196   83,925   86,030   84,186
 
Diluted income per share data:
Net income per diluted share $ 0.15 $ 0.14 $ 0.23 $ 0.26
 
Weighted average common shares, diluted   88,351   86,720   88,429   87,112
 
                           

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(unaudited)

 

 

June 30,
2012

December 31,
2011

 

 

Assets

Current assets:
Cash and cash equivalents $ 105,364 $ 97,003

Accounts receivable, net of allowance of $811 at June 30, 2012
 and $1,158 at December 31, 2011

112,351

112,505

Prepaid expenses 12,797 6,602
Prepaid income taxes 3,192 2,418
Current portion of deferred financing costs 3,513 3,689
Other current assets 5,200 5,793
Net deferred tax asset         2,106 2,198
Total current assets 244,523 230,208
 
Property and equipment, net 128,982 127,177
Goodwill, net 361,642 361,786
Intangible assets, net 122,117 132,740
Deferred financing costs 7,495 9,203
Other assets         3,962 837
Total assets $         868,721 $ 861,951
 
 
Liabilities and Shareholders' Equity
 
Current liabilities:
Accounts payable, accrued expenses and other liabilities $ 29,398 $ 40,546
Acquisition related contingent consideration 2,300 2,300
Current portion of term loan         26,250 17,500
Total current liabilities         57,948 60,346
 
Long-term liabilities:
Deferred rent 632 1,085
Term loan 315,000 332,500
Other liabilities 3,203 2,423
Deferred tax liabilities         71,032 74,360
Total long-term liabilities         389,867 410,368
Total liabilities         447,815 470,714
 
 
Shareholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares authorized; none issued - -
Common stock - $.01 par value; 125,000,000 shares authorized;
91,583,221 shares issued and 86,158,374 shares outstanding at June 30, 2012;
90,575,837 shares issued and 85,587,299 shares outstanding at December 31, 2011 915 906
Capital in excess of par value 260,495 240,241
Retained earnings 179,510 159,487

Treasury stock, at cost; 5,424,847 shares at June 30, 2012
 and 4,988,538 shares at December 31, 2011

       

(20,014)

(9,397)

Total shareholders' equity         420,906 391,237
 
Total liabilities and shareholders' equity $         868,721 $ 861,951
 
                   

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2012 and 2011

(in thousands)

(unaudited)

 
Six months ended June 30,
    2012       2011
 
Operating activities:
Net income $ 20,023 $ 22,239

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 27,136 9,805
Stock-based compensation expense 7,095 3,966
Excess tax benefit from exercised stock options (6,842) (6,960)
Deferred income taxes (3,236) 839
Decrease in allowance for doubtful debts (347) (74)
Change in fair value of contingent consideration - 399
Loss on disposal of fixed assets 59 2
Changes in assets and liabilities:
Decrease/(Increase)in accounts receivable 501 (5,597)
Increase in prepaid expenses (6,195) (1,006)
Decrease in prepaid income taxes 6,068 7,101
Decrease in other current assets 593 11
Increase in other assets (101) (154)
Decrease in accounts payable, accrued expenses
and other liabilities   (6,802)   (6,377)
Net cash provided by operating activities   37,952   24,194
 
Investing activities:
Investment in certificate of deposit - (4,809)
Purchases of property and equipment (17,507) (8,986)
Investment in Common Stock (3,024) -
Acquisitions, net (1,605) (339)
Investment in capitalized software   (1,006)   (1,060)
Net cash used in investing activities   (23,142)   (15,194)
 
Financing activities:
Repayment of term loan (8,750) -
Purchases of Treasury Stock (10,617) -
Payments on contingent consideration (250) -
Proceeds from exercise of stock options 7,453 7,763

Payments of tax withholdings on behalf of employees
 for net-share settlement for stock-based compensation

(1,127)

(903)

Excess tax benefit from exercised stock options   6,842   6,960
Net cash ( used in)/ provided by financing activities   (6,449)   13,820
Net increase in cash and cash equivalents 8,361 22,820
 
Cash and cash equivalents at beginning of period   97,003   94,836
Cash and cash equivalents at end of period $ 105,364 $ 117,656
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 10,817 $ 7,027
Cash paid for interest $ 6,933 $ 47
Supplemental disclosure of noncash investing activities:
Accrued property and equipment purchases $ 1,187 $ 1,012
 

                             

HMS HOLDINGS CORP. AND SUBSIDIARIES

(In thousands, except per share amounts)

(unaudited)

 
Reconciliation of Net income to EBITDA and adjusted EBITDA
    Three Months Ended

June 30,

Six Months Ended

June 30,

 

2012

2011

2012

2011

Net income $   12,980 $   12,423 $   20,023 $   22,239
 
Net interest expense 4,156 7 8,359 10
Income taxes 8,669 8,307 13,574 14,869
Depreciation and amortization, net of deferred

financing costs, included in net interest expense (income)

    12,733     4,968     25,252     9,805
 

 

 

Earnings before interest, taxes, depreciation and amortization (EBITDA)

 

$

38,538

25,705 67,208 46,923
Stock-based compensation expense

 

   

3,405

    1,930     7,095     3,966

Adjusted EBITDA

 

 

$

 

41,943

$   27,635         $   74,303 $   50,889
 
                           
Reconciliation of Net income to GAAP EPS and Adjusted EPS
 
                        Three Months Ended

June 30,

Six Months Ended

June 30,

 
 

2012

 

2011

 

2012

 

2011

Net income $ 12,980 $ 12,423 $ 20,023 $ 22,239
 
Stock-based compensation expense, net of tax 2,042 1,157 4,228 2,377
Amortization of intangibles, net of tax     4,886     987     9,713     2,030

Subtotal

 

    19,908     14,567     33,964     26,646
 
Weighted average common shares, diluted     88,351     86,720     88,429     87,112
       
Diluted GAAP EPS $   0.15 $   0.14 $   0.23 $   0.26
Diluted adjusted EPS $   0.23 $   0.17         $   0.38 $   0.31
 

HMS Holdings Corp.
Investor Relations:
Christine Saenz, 212-857-5986
csaenz@hms.com
or
Media Relations:
Francesca Marraro, 212-857-5442
fmarraro@hms.com

Source: HMS Holdings Corp.

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