HMS Holdings Corp.
Jul. 26, 2013

HMS Holdings Corp. Announces Second Quarter 2013 Financial and Operating Results

IRVING, Texas--(BUSINESS WIRE)-- HMS Holdings Corp. (NASDAQ: HMSY) today announced its financial and operating results for the second quarter of 2013.

Q2 2013 Financial Summary

For the quarter ended June 30, 2013, HMS reported revenue of $125.8 million, an increase of 4.8% compared to revenue of $120.1 million for the same period a year ago. Net income for the quarter was $10.4 million or $0.12 per fully diluted share compared to net income of $13.0 million or $0.15 per fully diluted share for the same period a year ago. Adjusted EPS decreased 13.0% year over year to $0.20.

For the first half of 2013, HMS reported revenue of $242.4 million, an increase of 6.6% compared to revenue of $227.4 million for the same period a year ago. Net income for the first half was $17.4 million or $0.20 per fully diluted share compared to net income of $20.0 million or $0.23 per fully diluted share for the same period a year ago. Adjusted EPS decreased 8.0% year over year to $0.35.

"Our financial results for the quarter were in line with our revised guidance, and we are affirming our full year 2013 guidance," said Bill Lucia, Chief Executive Officer of HMS.

"We are in a dynamic healthcare environment," Lucia remarked, "as Medicaid lives shift rapidly to managed care and implementation of the Affordable Care Act proves increasingly complex. For HMS, healthcare reform serves as a significant growth driver for our business because we can help our clients maneuver through the changing landscape. We are leveraging our leadership position in Medicaid and Medicare payment integrity and adapting our proven tools to meet the needs of commercial clients with multiple lines of business."

Lucia added, "As HMS adapts to the demands of the changing industry, we are reshaping our underlying cost structure both to ensure our ability to respond to market needs with agility and flexibility, and to improve margins."

Webcast and Conference Call Information

HMS will report its second quarter 2013 financial and operating results at 9:00 a.m. E T on Friday, July 26, 2013. Individuals can access the webcast at http://investor.hms.com/events.cfm or listen to the call at (877) 303-7208. International participants can listen to the call at (224) 357-2389.

The webcast will be archived on the website at http://investor.hms.com/events.cfm. Individuals can listen to the replay at (855) 859-2056. International participants can listen to the replay at (404) 537-3406. The passcode is 75822320. The replay will be available at Noon ET on July 26 through 11:59 p.m. ET on August 2, 2013.

The HMS Form 10-Q for the quarter ended June 30, 2013 will be filed and available on our website at http://investor.hms.com on or about August 9, 2013, 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 212-857-5100.

About HMS Holdings Corp.

HMS Holdings Corp. (NASDAQ: HMSY), 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 150 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 $3.2 billion in 2012, and saved billions more 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 of intangibles and for the related taxes for these adjustments. 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, reducing demand for our services; our ability to continue to secure contracts through the competitive bidding process and any related protests and to accurately predict the cost and time to complete such contracts; 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 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, 2012, 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 press 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

(in thousands, except per share amounts)

(unaudited)

       
Three months ended June 30, Six months ended June 30,
  2013     2012     2013     2012  
Revenue $ 125,809   $ 120,069   $ 242,416   $ 227,383  
Cost of services:
Compensation 46,032 40,043 90,016 79,319
Data processing 9,188 8,026 18,286 14,920
Occupancy 4,781 4,194 9,403 8,314
Direct project costs 12,269 13,200 25,539 26,043
Other operating costs 7,653 5,986 14,290 11,113
Amortization of acquisition related software and intangibles 8,759     8,149     16,688     16,298  
Total cost of services 88,682 79,598

 

174,222

 

156,007
Selling, general & administrative expenses   16,761     14,875       32,560       29,739  
Total operating expenses   105,443     94,473  

 

  206,782  

 

185,746  
Operating income 20,366 25,596

 

35,634

 

41,637
Interest expense (4,047 ) (4,158 ) (7,779 ) (8,363 )
Other income, net 776 209 799 319
Interest income   17     2     18   4  
Income before income taxes 17,112 21,649

 

28,672

 

33,597
Income taxes   6,692     8,669     11,276     13,574  
Net income and comprehensive income $ 10,420   $ 12,980  

 

$ 17,396  

 

$ 20,023  
Basic income per common share:
Net income per share -basic $ 0.12   $ 0.15   $ 0.20   $ 0.23  
Weighted average common shares outstanding, basic   87,674     86,196     87,408     86,030  
Diluted income per share:
Net income per share- diluted $ 0.12   $ 0.15   $ 0.20   $ 0.23  
Weighted average common shares outstanding, diluted 89,023     88,351     88,919     88,429  
HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(in thousands, except per share and per share amounts)

(unaudited)

 
June 30, December 31,
2013   2012  
 
Assets
Current assets:
Cash and cash equivalents $ 131,466 $ 135,227

Accounts receivable, net of allowance for doubtful accounts of $1,006 and $830,
and estimated allowance for appeals of $10,949 and $6,985 at June 30, 2013
and December 31, 2012, respectively

163,786 153,014
Prepaid expenses 12,405 14,283
Prepaid income taxes 6,986 -
Current portion of deferred financing costs - 3,336
Other current assets 390   317  
Total current assets 315,033 306,177
 
Property and equipment, net 128,058 129,327
Goodwill 361,468 370,774
Intangible assets, net 106,416 109,919
Deferred financing costs 9,799 5,867
Other assets 4,481   3,988  
Total assets $ 925,255   $ 926,052  
 
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities $ 34,917 $ 40,867
Acquisition related contingent consideration 432 588
Current portion of term loan - 35,000
Deferred tax liabilities 2,289 2,398
Estimated liability for appeals 25,341   21,787  
Total current liabilities 62,979   100,640  
 
Long-term liabilities:
Deferred rent 592 500
Acquisition related contingent consideration 498 428
Term loan - 297,500
Revolving debt 302,796 -
Other liabilities 4,560 3,305
Deferred tax liabilities 58,383   60,805  
Total long-term liabilities 366,829   362,538  
Total liabilities 429,808   463,178  
 
 
Shareholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares authorized; none issued - -

Common stock - $.01 par value; 125,000,000 shares authorized;
93,185,831 shares issued and 87,760,984 shares outstanding at June 30, 2013;
92,374,539 shares issued and 86,949,692 shares outstanding at December 31, 2012

930 923
Capital in excess of par value 287,132 271,962
Retained earnings 227,399 210,003
Treasury stock, at cost; 5,424,847 shares at June 30, 2013 and at December 31, 2012 (20,014 ) (20,014 )
Total shareholders' equity 495,447   462,874  
Total liabilities and shareholders' equity $ 925,255   $ 926,052  
HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

           
 
Six months ended June 30,
  2013     2012  
Operating activities:
Net income $ 17,396 $ 20,023

Adjustments to reconcile net income to net

cash provided by operating activities:

Depreciation and amortization 30,162 26,871
Stock-based compensation expense 6,122 7,095
Excess tax benefit from exercised stock options (4,244 ) (6,842 )
Deferred income taxes (2,531 ) (3,236 )
Increase in allowance for doubtful debts 4,140 1,669
Change in fair value of contingent consideration 20 -
Loss on disposal of fixed assets 184 59
Changes in operating assets and liabilities:
Accounts receivable (14,912 ) (8,020 )
Prepaid expenses 1,878 (6,195 )
Prepaid income taxes (2,742 ) 6,068
Other current assets (73 ) 593
Other assets 7 (101 )
Accounts payable, accrued expenses and other liabilities (3,090 ) (7,868 )
Estimated liability for appeals   3,554     6,505  
Net cash provided by operating activities   35,871     36,621  
 
Investing activities:
Purchases of property and equipment (12,734 ) (15,789 )
Investment in common stock (500 ) (3,024 )
Acquisitions, net - (1,605 )
Investment in capitalized software   (1,996 )   (1,006 )
Net cash used in investing activities   (15,230 )   (21,424 )
 
Financing activities:
Repayment of term loan (332,500 ) (8,750 )
Proceeds from revolving debt 327,796 -
Repayment of revolving debt (25,000 ) -
Payment of deferred financing costs (2,915 ) -
Purchases of treasury stock - (10,617 )
Payments on contingent consideration - (250 )
Payments on capital lease obligations (838 ) (387 )
Proceeds from exercise of stock options 6,309 7,453

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

(1,498

)

(1,127

)

Excess tax benefit from exercised stock options   4,244     6,842  
Net cash used in financing activities   (24,402 )   (6,836 )
Net (decrease)/increase in cash and cash equivalents (3,761 ) 8,361
Cash and cash equivalents at beginning of period   135,227     97,003  
Cash and cash equivalents at the end of period   131,466     105,364  
 
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 19,881   $ 10,312  
Cash paid for interest $ 4,308   $ 6,933  
Supplemental disclosure of noncash investing activities:
Accrued property and equipment purchases $ 1,655   $ 1,187  
Equipment purchased through capital leases $ 2,196   $ 1,629  
HMS HOLDINGS CORP. AND SUBSIDIARIES

(in thousands, except per share amounts)

(unaudited)

     
Reconciliation of Net income to EBITDA and adjusted EBITDA
 
As summarized in the following table, earnings before interest, taxes, depreciation and amortization, and stock-based compensation expense (adjusted EBITDA) was $38.8 million for the second quarter of 2013, a decrease of 7.1% over the same period a year ago. Adjusted EBITDA for the first half of 2013 was 70.4 million, a decrease of 4.9% over the first half of 2012.
Three Months Ended

June 30,

Six Months Ended

June 30,

  2013   2012   2013   2012
Net income $ 10,420 $ 12,980 $ 17,396 $ 20,023
 
Net interest expense 4,030 4,156 7,761 8,359
Income taxes 6,692 8,669 11,276 13,574
Depreciation and amortization, net of deferred

financing costs, included in net interest expense

  14,548   12,557   27,843   24,987
Earnings before interest, taxes, depreciation and amortization ( EBITDA) 35,690 38,362 64,276 66,943
Stock-based compensation expense   3,094   3,405   6,122   7,095
Adjusted EBITDA $ 38,784 $ 41,767 $ 70,398 $ 74,038
 
 
Reconciliation of Net income to GAAP EPS and Adjusted EPS
 
As summarized in the following table, earnings per share adjusted for stock-based compensation expense and amortization of intangibles and for the related taxes (adjusted EPS) was $0.20 for the second quarter of 2013, a decrease of 13.0% over the same period a year ago. Adjusted EPS for the first half of 2013 was 0.35, a decrease of 8.0% over the first half of 2012.
Three Months Ended

June 30,

Six Months Ended

June 30,

  2013   2012   2013   2012
Net income $ 10,420 $ 12,980 $ 17,396 $ 20,023
 
Stock-based compensation expense, net of tax 1,884 2,042 3,714 4,228
Amortization of intangibles, net of tax   5,333   4,886   10,125   9,713
Subtotal $ 17,637 $ 19,908 $ 31,235 $ 33,964
 
Weighted average common shares, diluted   89,023   88,351   88,919   88,429
       
Diluted GAAP EPS $ 0.12 $ 0.15 $ 0.20 $ 0.23
Diluted adjusted EPS $ 0.20 $ 0.23 $ 0.35 $ 0.38

HMS Holdings Corp.
Francesca Marraro (media relations), (212) 857-5442
fmarraro@hms.com

Source: HMS Holdings Corp.

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