HMS Holdings Corp.
Feb. 24, 2017

HMS Holdings Corp. Reports Fourth Quarter and Full-Year 2016 Results

IRVING, Texas, Feb. 24, 2017 (GLOBE NEWSWIRE) -- HMS Holdings Corp. (NASDAQ:HMSY) today announced financial results for the fourth quarter and full-year 2016. Net income for the quarter ended December 31, 2016 was $11.0 million or $0.13 per diluted share, compared to net income of $13.5 million or $0.16 per diluted share in the third quarter of 2016 and $8.7 million or $0.10 per diluted share in the prior year fourth quarter. Adjusted EPS in the quarter was $0.20 per diluted share, compared to adjusted EPS of $0.24 per diluted share in the third quarter of 2016 and adjusted EPS of $0.19 per diluted share in the prior year fourth quarter. Net income and adjusted EPS in the third quarter of 2016 both included tax benefits of approximately $6.2 million or $0.07 per diluted share for certain prior open years' Research and Development ("R&D") credits and domestic manufacturing deductions recognized in the quarter.

For the full-year ended December 31, 2016, net income was $37.6 million or $0.43 per diluted share, compared to $24.5 million or $0.28 per diluted share in the prior year - an increase of $0.15 or 53.6%. Adjusted EPS for the full-year 2016 was $0.75 per diluted share, compared to $0.57 per diluted share in full-year 2015 - an increase of $0.18 per diluted share or 31.6%.

Total revenue in the fourth quarter was $128.1 million, compared to total revenue of $124.6 million in the third quarter of 2016 and $128.5 million in the prior year fourth quarter. For the full-year 2016, total revenue increased 4.6% to a record $496.0 million, including $18.8 million of Medicare RAC revenue, compared to total revenue for the full-year 2015 of $474.2 million, which included $20.5 million of Medicare RAC revenue.

"2016 was a year of solid growth in total revenue, operating income and adjusted EPS. Adjusted EBITDA also increased, overall profitability and margins improved, operating cash flow remained strong and we acquired a care management platform - which was our first step in building out a new vertical to complement our historically strong cost containment product suite," said Bill Lucia, Chairman and CEO. "We enter the new year with momentum as fourth quarter health plan revenue of $64.3 million was the second consecutive record quarterly total, though not quite enough to meet our full-year growth target. Additionally, sales which closed during the second half of 2016 and will become revenue generating over the next few months; the run rate benefit of business implemented throughout last year; ongoing product yield improvement initiatives; and a robust pipeline of potential sales we expect to close in the early part of this year each contribute to our view of expected 2017 growth. As a result, we are projecting a high teens increase in year-over-year health plan revenue," Lucia concluded.

Revenue in the fourth quarter of $127.4 million, excluding Medicare RAC, was approximately 7.2% higher than the prior year fourth quarter. Commercial health plan revenue in the quarter was a record $64.3 million, a 10% increase compared to $58.5 million in the prior year fourth quarter and 8.6% higher than the third quarter of 2016. State government revenue was $57.7 million in the fourth quarter, a 5.9% increase compared to $54.5 million in the prior year fourth quarter and 8.9% higher than the third quarter of 2016. Federal (excluding Medicare RAC) and Other revenue was $5.3 million in the fourth quarter, a $0.5 million decrease compared to the prior year fourth quarter and a $0.5 million decrease compared to the third quarter of 2016. Medicare RAC revenue in the fourth quarter of 2016 was $0.7 million, compared to $9.7 million in the prior year fourth quarter and $5.8 million in the third quarter of 2016.

On a full-year basis, commercial health plan revenue was $234.7 million, a 15.6% increase compared to $203.1 million in 2015; state government revenue was $219.1 million, a 3.1% decrease compared to $226.1 million in 2015; Federal (excluding Medicare RAC) and Other revenue was $23.3 million, a decrease of $1.3 million or 5.3% compared to 2015; and Medicare RAC revenue was $18.8 million, an 8.0% decrease compared to $20.5 million in 2015.

Coordination of Benefits ("COB") revenue, which continues to be our largest product line across both the state government and commercial health plan businesses, was $95.0 million in the fourth quarter of 2016 compared to $87.1 million in the prior year fourth quarter and $86.3 million in the third quarter of 2016. COB accounted for 74.2% of total revenue in the fourth quarter, compared to 67.8% in the prior year fourth quarter and 69.3% in the third quarter of 2016. For the full-year, COB revenue was $353.9 million, a 4.8% increase compared to $337.6 million in 2015.

Payment integrity ("PI") revenue (excluding Medicare RAC) was $32.4 million in the fourth quarter, a $0.7 million or 2.2% increase compared to the prior year fourth quarter and a $0.1 million or 0.3% decrease from the third quarter of 2016. For the full-year, PI revenue was $123.3 million, a 6.2% increase compared to $116.1 million in 2015. 

"The leveragability and cash flow generation inherent in our operating model was evident throughout 2016, but particularly so in the fourth quarter which included adjusted EBITDA of $32.2 million, operating cash flow of $34.3 million and a 14.6% operating margin," said Jeff Sherman, CFO. "Available cash at year-end of ~$176 million was significantly higher than the prior year end, even after our third-quarter acquisition of Essette and share repurchases in the fourth quarter of approximately $20.5 million. Our strong balance sheet and expected operating cash flow of $90-110 million for 2017 position the Company well for additional acquisitions, planned investments in big data solutions and our IT infrastructure, internal product innovation activities and other growth initiatives," added Sherman.

For additional information about the Company's fourth quarter and full-year 2016 financial results and the Company's 2017 guidance, see the Q4 and Full-Year 2016 Investor Presentation which is available on the Company's website at http://investor.hms.com/events.cfm.

Webcast and Conference Call Information

HMS will report its preliminary fourth quarter and full-year 2016 financial and operating results via webcast at 7:30 AM CT / 8:30 AM ET on Friday, February 24, 2017. The numbers are preliminary as there are still open audit items that will be discussed on the webcast. The webcast may also include discussion of HMS developments, forward-looking statements and other material information about business and financial matters. The webcast can be accessed via phone at (877) 303-7208 or (224) 357-2389 for international participants, or on the HMS Investor Relations website at http://investor.hms.com/events.cfm. The webcast will also be archived and available for replay beginning at approximately 11:00 AM CT / 12:00 PM ET on February 24, 2017 at http://investor.hms.com/events.cfm. This press release and the financial statements contained herein are also available on the HMS Investor Relations website at http://investor.hms.com/releases.cfm.

About HMS

HMS Holdings Corp., through its subsidiaries, provides coordination of benefits, payment integrity and care management solutions for payers. The Company serves state Medicaid programs; commercial health plans, including Medicaid managed care, Medicare Advantage and group and individual health lines of business; federal government health agencies, including the Centers for Medicare & Medicaid Services and the Veterans Health Administration; government and private employers; child support agencies; and other healthcare payers and sponsors. As a result of the Company's services, customers recover billions of dollars annually and save billions more through the prevention of improper payments.

Non-GAAP Financial Measures

The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States ("GAAP"). From time to time, in press releases, financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures. The non-GAAP financial measures presented in this press release should not be viewed as alternatives or substitutes for the Company's reported GAAP results. A reconciliation to the most directly comparable GAAP financial measure is set forth in the tables that accompany this release.

The Company believes that the non-GAAP financial measures presented in this press release provide useful information to the Company's management, investors, and other interested parties about the Company's operating performance because they allow them to understand and compare the Company's operating results during the current periods to the prior year periods in a more consistent manner. The non-GAAP measures presented in this press release may not be comparable to similarly titled measures used by other companies. 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 financial measures calculated in accordance with GAAP.

Safe Harbor Statement

The financial results in this press release reflect preliminary, unaudited results, which are not final until the Company's Form 10-K is filed. This press release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such statements reflect our current expectations, projections and assumptions about our business, the economy and future events or conditions. They do not relate strictly to historical or current facts. Forward‐looking statements can be identified by words such as "aims," "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "likely," "may," "plans," "projects," "seeks," "targets," "will," "would," "could," "should," and similar expressions and references to guidance, although some forward-looking statements may be expressed differently. In particular, these include statements relating to future actions, business plans, objectives and prospects, future operating or financial performance. Factors or events that could cause actual results to differ may emerge from time to time and are difficult to predict. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results may differ materially from past results and those anticipated, estimated or projected. We caution you not to place undue reliance upon any of these forward-looking statements. 

Factors that could cause or contribute to such differences, include, but are not limited to: our ability to execute our business plans or growth strategy; our failure to innovate, develop or implement new or enhanced solutions or services; the nature of investment and acquisition opportunities we are pursuing, and the successful execution of such investments and acquisitions; our ability to successfully integrate acquired businesses and realize synergies; variations in our results of operations; our failure to accurately forecast the revenue under our contracts and solutions; our ability to protect our systems from damage, interruption or breach, and to maintain effective information and technology systems and networks; our failure to protect our intellectual property rights, proprietary technology, information processes, and know-how; significant competition for our solutions and services; our failure to maintain a high level of customer retention or the unexpected reduction in scope or termination of key contracts with major customers; customer dissatisfaction, our non-compliance with contractual provisions or regulatory requirements; our failure to meet performance standards triggering significant costs or liabilities under our contracts; our inability to manage our relationships with information and data sources and suppliers; reliance on subcontractors and other third party providers and parties to perform services; our ability to continue to secure contracts and favorable contract terms through the competitive bidding process and to prevail in protests or challenges to contract awards; pending or threatened litigation; unfavorable outcomes in legal proceedings; our success in attracting qualified employees and members of our management team; our ability to generate sufficient cash to cover our interest and principal payments under our credit facility or to borrow or use credit; unexpected changes in our effective tax rates; unanticipated increases in the number or amount of claims for which we are self-insured; changes in the U.S. healthcare environment or healthcare financing system, including regulatory, budgetary or political actions that affect procurement practices and healthcare spending; our failure to comply with applicable laws and regulations governing individual privacy and information security or to protect such information from theft and misuse; negative results of government or customer reviews, audits or investigations; state or federal limitations related to outsourcing or certain government programs or functions; restrictions on bidding or performing certain work due to perceived conflicts of interests; the market price of our common stock and lack of dividend payments; and anti-takeover provisions in our corporate governance documents; and other factors, risks and uncertainties described in our most recent Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission. Any forward-looking statements are made as of the date of this press release. Except as may be required by law, we disclaim any obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

   
 HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 
   
     Three Months Ended
December 31,
 
 Twelve Months Ended
December 31, 
 
       
      2016   2015   2016   2015  
 Revenue   $128,093  $128,514  $496,010  $474,216  
 Cost of services:          
 Compensation   47,229   46,694    189,271   178,272  
 Data processing   9,068   10,409   37,337   40,915  
 Occupancy   3,354   3,765   14,000   15,766  
 Direct project expenses  9,301   14,775   46,254   51,527  
 Other operating expenses  7,130   8,453   27,778   28,895  
 Amortization of acquisition related software and intangible assets 7,614   7,013   28,030   28,148  
 Total cost of services  83,696    91,109   342,670   343,523  
 Selling, general and administrative expenses 25,639   22,582   95,671   83,121  
 Total operating expenses  109,335    113,691   438,341   426,644  
 Operating income   18,758   14,823   57,669   47,572  
 Interest expense   (2,207)  (1,970)  (8,519)  (7,812)  
 Interest income   109   15   321   49  
 Income before income taxes  16,660   12,868   49,471   39,809  
 Income tax expense   5,658    4,143   11,835   15,282  
 Net income  $11,002  $8,725  $37,636  $24,527  
             
 Basic income per common share:         
 Net income per common share -- basic$0.13  $0.10  $0.45  $0.28  
 Diluted income per common share:        
 Net income per common share -- diluted$0.13  $0.10  $0.43  $0.28  
 Weighted average shares:          
 Basic    84,154   86,625   84,221   87,881  
 Diluted    85,822   87,110   86,987    88,361  
   
  Note: Certain reclassifications were made to prior period amounts to conform to current period presentations. 


 HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts) ​
 
   
       December 31,
2016
 December 31,
2015
 
 Assets         
 Current assets:        
 Cash and cash equivalents   $175,999  $145,610  
 Accounts receivable, net of allowance for doubtful accounts of $10,772 and $11,464,    
 at December 31, 2016 and 2015, respectively  173,582   169,146  
 Prepaid expenses     13,699   11,261  
 Income tax receivable    3,354   -  
 Other current assets    1,001   3,051  
 Total current assets    367,635   329,068  
 Property and equipment, net    92,167   96,551  
 Goodwill      379,716   361,468  
 Intangible assets, net    37,797   54,308  
 Deferred financing costs, net     2,790   4,873  
 Other assets     2,650   4,329  
 Total assets    $882,755  $850,597  
           
 Liabilities and Shareholders' Equity      
 Current liabilities:        
 Accounts payable, accrued expenses and other liabilities$59,402  $51,661  
 Estimated liability for appeals     30,755   33,078  
 Income taxes payable    -   3,873  
 Total current liabilities    90,157    88,612  
 Long-term liabilities:        
 Revolving credit facility    197,796    197,796  
 Net deferred tax liabilities    22,717   30,961  
 Deferred rent      5,427   6,006  
 Other liabilities     10,048   2,520  
 Total long-term liabilities    235,988   237,283  
 Total liabilities     326,145   325,895  
           
 Shareholders' equity:        
 Preferred stock -- $0.01 par value; 5,000,000 shares authorized; none issued -   -  
 Common stock -- $0.01 par value; 175,000,000 shares authorized; 95,966,852 shares issued and 83,552,774 shares    
 outstanding at December 31, 2016; 95,263,461 shares issued and 83,989,715 shares outstanding at December 31, 2015 959   952  
 Capital in excess of par value     345,025   330,290  
  Retained earnings     326,110   288,474  
 Treasury stock, at cost -- 12,414,078 shares at December 31, 2016 and 11,273,746 shares December 31, 2015 (115,484)  (95,014) 
 Total shareholders' equity    556,610   524,702  
 Total liabilities and shareholders' equity  $882,755  $850,597  
   
  Note: Certain reclassifications were made to prior period amounts to conform to current period presentation.  


 HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) ​
 
   
        Years ended December 31,  
          2016   2015   2014  
 Operating activities:           
 Net income     $37,636  $24,527  $13,947  
 Adjustments to reconcile net income to net cash provided by operating activities:      
 Depreciation and amortization of property and equipment  24,882   30,328   32,864  
 Amortization of intangible assets    20,164   20,270   20,734  
 Amortization of deferred financing costs    2,083   2,084   2,084  
 Stock-based compensation expense    13,277   14,297   13,356  
 Deferred income taxes     (7,368)  (14,020)  (12,290) 
 (Gain) / Loss on disposal of assets    (948)  84   219  
 Change in fair value of contingent consideration   -   -   (517) 
 Changes in operating assets and liabilities, net of the effect of acquisitions:      
 Accounts receivable     (3,554)  (12,045)  14,625  
 Prepaid expenses     (2,399)  549   1,132  
 Prepaid income taxes     -   6,711   3,445  
 Other current assets     2,066   (412)  (2,150) 
 Other assets      234   10   121  
 Income taxes receivable / (payable)    (7,227)  3,873   -  
 Accounts payable, accrued expenses and other liabilities  12,116   (250)  18,039  
 Estimated liability for appeals     (2,323)  (3,721)  (5,053) 
 Net cash provided by operating activities   88,639   72,285   100,556  
 Investing activities:            
 Acquisition of a business, net of cash acquired   (20,678)  -   -  
 Proceeds from sale of cost basis investment    2,496   -   -  
 Purchases of land, property and equipment    (13,703)  (8,620)  (22,687) 
 Investment in capitalized software    (7,316)  (3,197)   (3,514) 
 Net cash used in investing activities   (39,201)  (11,817)  (26,201) 
 Financing activities:           
 Repayment of revolving credit facility    -   -   (35,000) 
 Proceeds from exercise of stock options    2,940   4,187   4,110   
 Payments of tax withholdings on behalf of employees for net-share       
 settlement for stock-based compensation    (1,475)  (1,029)  (1,658) 
 Payments on capital lease obligations    (44 )  (1,132)  (1,629) 
 Payments on contingent consideration    -   -   (428) 
 Purchases of treasury stock     (20,470)  (50,000)  -  
 Net cash used in financing activities   (19,049)  (47,974)  (34,605) 
 Net increase in cash and cash equivalents    30,389   12,494   39,750  
 Cash and cash equivalents          
 Cash and cash equivalents at beginning of year   145,610   133,116   93,366  
 Cash and cash equivalents at end of year   $175,999  $145,610  $133,116  
              
 Supplemental disclosure of cash flow information:        
 Cash paid for income taxes    $20,326  $22,878  $21,144  
 Cash paid for interest    $6,196  $5,694  $4,458  
              
 Supplemental disclosure of noncash activities:         
 Change in balance of accrued property and equipment purchases $684  $729  $1,610  
   
 Note: Certain reclassifications were made to prior period amounts to conform to current period presentation.​ 

 

 HMS HOLDINGS CORP. AND SUBSIDIARIES
 (in thousands, except per share amounts)
  
 Reconciliation of Net Income to EBITDA and Adjusted EBITDA
  
 As summarized in the following tables, earnings before interest, taxes, depreciation and amortization, stock-based compensation, and non-recurring legal expense (adjusted EBITDA) was $32.3 million for the fourth quarter of 2016.
   Three months ended
September 30,
 Three months ended
December 31,
   
   
   2016   2016  2015
 Net Income$  13,508  $  11,002 $  8,724
 Net interest expense   2,016     2,099  1,956
 Income taxes   (2,874)    5,659  4,144
 Depreciation and amortization, net of deferred financing costs, included in net interest expense   11,106     10,962  12,143
 Earnings before interest, taxes, depreciation and amortization (EBITDA)   23,756      29,722  26,967
 Stock based compensation expense   2,102      2,530  4,089
 Non-recurring legal fees (1)   -      -    - 
 Adjusted EBITDA$  25,858  $  32,252 $  31,056
           

Adjusted EBITDA was $117.4 million for the full-year 2016.

  Twelve months ended
December 31,
  
  
   2016   2015
 Net Income$  37,636 $  24,527
 Net interest expense   8,198  7,763
 Income taxes   11,835  15,282
 Depreciation and amortization, net of deferred financing costs, included in net interest expense   44,930  50,598
 Earnings before interest, taxes, depreciation and amortization  (EBITDA)   102,599 $  98,170
 Stock based compensation expense   13,277  14,297
 Non-recurring legal fees (1)   1,563    - 
 Adjusted EBITDA$  117,439 $  112,467
  
 1 In periods prior to 2016, legal fees related to disputes involving PCG were not included in adjusted earnings because they were not considered non-recurring at the time. For the three months ended September 30, 2015, related legal fees were $0.9 million. For the three months ended December 31, 2015 related legal fees were $1.4 million. For the nine months ended December 31, 2015 related legal fees were $5.5 million.

   

HMS HOLDINGS CORP. AND SUBSIDIARIES
 (in thousands, except per share amounts)
 
Reconciliation of Net Income to GAAP EPS and Adjusted EPS
 
As summarized in the following tables, diluted earnings per share adjusted for stock-based compensation expense, non-recurring legal expense, amortization of acquisition related software and intangible assets and for the related taxes (adjusted EPS) was $0.20 for the fourth quarter of 2016, an increase of 5.3% from $0.19 for the fourth quarter of 2015.
 Three months ended
September 30,
 Three months ended
December 31,
  
  
  2016   2016   2015 
Net Income$  13,508  $  11,002  $  8,724 
Stock-based compensation expense   2,102     2,530   4,089 
Non-recurring legal fees (2)   -     -     -  
Amortization of acquisition related software and intangible assets   7,015     6,989     7,013 
Income tax related to adjustments   (2,644)    (3,189)    (3,349)
  Sub-total$  19,981  $  17,332  $  16,477 
      
Weighted average common shares, diluted 84,853   85,822   87,110 
      
Diluted GAAP EPS$  0.16  $  0.13  $  0.10 
Diluted adjusted EPS$  0.24  $  0.20  $  0.19 
 

Adjusted EPS was $0.75 for the full-year of 2016, an increase of 31.6% compared $0.57 for the full-year of 2015.

  
 Twelve months ended
December 31,
  2016   2015 
Net Income$37,636  $24,527 
Stock-based compensation expense 13,277   14,297  
Non-recurring legal fees (2) 1,563   - 
Amortization of acquisition related software and intangible assets 28,030   28,148 
Income tax related to adjustments (15,536)  (16,295)
Sub-total$64,970  $50,677 
    
Weighted average common shares, diluted 86,987   88,361 
    
Diluted GAAP EPS 0.43  $0.28 
Diluted adjusted EPS  0.75  $0.57 
 
2 Related legal fees were not considered non-recurring in 2015. For the three months September 30, 2015, related legal fees were approximately $0.9 million and income taxes on related legal fees were approximately $0.3 million or the equivalent of $0.01 per diluted Adjusted EPS. For the three months ended December 31, 2015, related legal fees were approximately $1.4 million and income taxes on related legal fees were approximately $0.5 million or the equivalent of $0.01 per diluted Adjusted EPS. For the twelve months ended December 31, 2015, related legal fees were approximately $5.5 million and income taxes on related legal fees were approximately $2.1 million or the equivalent of $0.04 per diluted Adjusted EPS.


Investor Contact:

Dennis Oakes

SVP, Investor Relations

dennis.oakes@hms.com

212-857-5786



Media Contact:

Francesca Marraro

VP, Marketing and Communications

fmarraro@hms.com

212-857-5442



Primary Logo

Source: HMS Holdings

News Provided by Acquire Media