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HMS Holdings Corp. Reports Fourth Quarter and Full Year 2015 Results

  • 4Q GAAP EPS of $0.10 Per Diluted Share and Adjusted EPS of $0.19 Per Diluted Share / Full Year 2015 GAAP EPS of $0.28 Per Diluted Share and Adjusted EPS of $0.57 Per Diluted Share
  • Record 4Q Commercial Health Plan Revenue Increased 29.9% YOY / Full Year 2015 Commercial Growth of 18.8% / 18-20% growth projected for 2016
  • Revenue in 4Q, Excluding Medicare RAC, Increased by 8.6% YOY / Full Year 2015 Revenue, excluding Medicare RAC, Increased by 7.7%
  • 4Q Share Repurchases of $25 Million / Year End Shares Outstanding Down 4.5% Compared to Prior Year End

IRVING, Texas, Feb. 26, 2016 (GLOBE NEWSWIRE) -- HMS Holdings Corp. (NASDAQ:HMSY) today announced financial results for the fourth quarter and full-year 2015. Net income for the quarter ended December 31, 2015 was $8.7 million or $0.10 per diluted share, compared to net income of $6.9 million or $0.08 per diluted share in the third quarter and a loss of $2.4 million or ($0.03) per diluted share in the prior year fourth quarter. Adjusted EPS was $0.19 per diluted share in the fourth quarter, compared to $0.15 in the third quarter and $0.03 in the prior year fourth quarter. Several items negatively impacted pretax earnings in the fourth quarter of 2014 by $12.1 million or $0.07 per diluted share in adjusted EPS. In the fourth quarter of 2015 legal expense was approximately $1.4 million or $0.01 per diluted share and a lower than expected tax rate, due to a change in state apportionments and permanent differences, resulted in an after-tax benefit of approximately $0.7 million or $0.01 per diluted share.

For the full year ended December 31, 2015, net income was $24.5 million or $0.28 per diluted share, compared to $13.9 million or $0.16 per diluted share in the prior year. Adjusted EPS for the full-year 2015 increased to $0.57 per diluted share, compared to $0.41 per diluted share in full-year 2014.

Total revenue in the fourth quarter was $128.5 million, compared to total revenue of $118.4 million in the third quarter and $112.2 million in the prior year fourth quarter. For the full year 2015 total revenue increased 7.0% to $474.2 million, including $20.5 million of Medicare RAC revenue, compared to total revenue for the full year 2014 of $443.2 million, which included $22.0 million of Medicare RAC revenue.

“2015 was a breakout year for our commercial health plan business, with annual revenue up 19%. With nearly 30% year-over-year growth in the fourth quarter creating momentum and good visibility on 2016 revenue growth based on already closed sales, we are expecting commercial health plan revenue will expand again this year at a rate similar to 2015,” said Bill Lucia, HMS Chairman and CEO. “Our focus for the year ahead is on execution – implementing sold business and delighting our customers with excellent service; innovation, to stay ahead of the competition and create opportunities for new product sales; efficiency and cost reduction through process engineering; maximizing commercial health plan growth via new and expansion sales; and making an acquisition – assuming we can find the right asset at a fair price.”

Total revenue in the fourth quarter of $118.8 million, excluding Medicare RAC, was approximately 8.6% higher than the prior year fourth quarter, as a significant increase in commercial revenue was partially offset by a decline in state revenue. Commercial health plan revenue in the quarter was a record $58.5 million, a 29.9% increase compared to $45.0 million in the prior year fourth quarter and 12.5% higher than the prior quarter. State government revenue was $54.5 million in the fourth quarter, a 7.1% decrease compared to $58.7 million in the prior year fourth quarter and flat compared to the prior quarter. Non-Medicare RAC Federal and other revenue was $5.8 million in the quarter, a $0.1 million increase compared to the prior year fourth-quarter and a decline of $1.5 million from the prior quarter. Medicare RAC revenue in the quarter was $9.7 million compared to $2.8 million in the prior year fourth quarter and $4.6 million in the prior quarter.

On a full-year basis, commercial health plan revenue was $203.1 million – an 18.8% increase compared to $170.9 million in 2014; state government revenue was $226.1 million – flat compared to $225.8 million in the prior year; and non-Medicare RAC Federal and other revenue was $24.6 million – flat compared to $24.5 million in 2014. Medicare RAC revenue declined by $1.5 million for the full year to $20.5 million, compared to $22.0 million in 2014.

Coordination of benefits (COB) revenue, which continues to be our largest product line across both the government and commercial sectors, was $87.1 million in the fourth quarter compared to $81.6 million in the prior year fourth quarter, an increase of 6.7%, and it accounted for 67.8% of total revenue in the quarter, compared to 71.0% last quarter and 72.7% in the prior year fourth quarter. For the full year, COB revenue of $337.6 million increased 8% compared to $312.5 million for the full year 2014.

Payment integrity revenue (excluding Medicare RAC) was $31.7 million in the quarter, a $3.9 million or 14.0% increase from the fourth quarter of last year and a $2.0 million or 6.7% increase from the prior quarter, reflecting both the higher level of payment integrity product sales to commercial health plan customers in recent quarters and an accelerated pace of implementations due to our “ink to green” initiatives.

“Very strong cash flow gave us the capacity to buy back $50 million of our shares in the second half of 2015, while ending the year with $145.6 million in cash, an increase of $12.5 million compared to the prior year-end,” said Jeff Sherman, HMS Chief Financial Officer. “Full year 2015 revenue, excluding Medicare RAC, of $453.7 million represents an increase of 7.7% compared to the prior year and the midpoint of our expectations when we gave 2015 revenue guidance a year ago.”

The Company will provide additional 2016 guidance on its earnings conference call (details below). See also the Q4 2015 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 fourth quarter and full year 2015 financial and operating results at 7:30 AM CT / 8:30 AM ET on Friday, February 26, 2016. The webcast can be accessed via phone at (877) 303–7208 or (224) 357–2389 for international participants, or at http://investor.hms.com/events.cfm on the HMS Investor Relations website. The webcast will also be archived at http://investor.hms.com/events.cfm and will be available for replay beginning at approximately 11:00 AM CT / 12:00 PM ET on February 26, 2016. This press release and the financial statements contained herein are also available at http://investor.hms.com/releases.cfm.

The HMS Annual Report on Form 10-K for the fiscal year ended December 31, 2015 will be filed and available on the HMS website at http://investor.hms.com/financials.cfm and at www.sec.gov on February 29, 2016 and will contain additional information about our results of operations.

About HMS

HMS Holdings Corp., through its subsidiaries, provides coordination of benefits and payment integrity services for payers. The Company serves state Medicaid programs; 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; and other healthcare payers and sponsors, including child support agencies. As a result of the Company’s services, our customers recover billions of dollars annually and save billions more through the prevention of improper payments.

Non-GAAP Financial Measures

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 common measure of performance used by the capital markets to value enterprises, which the Company’s management uses in addition to measures calculated in accordance with generally accepted accounting principles ("GAAP") to evaluate its results of operations. EBITDA is a non-GAAP financial measure and is reconciled to net income (loss), which the Company's management believes to be the most comparable GAAP measure. Adjusted EBITDA results are calculated by adjusting GAAP income (loss) to exclude the effects of net interest expense, income taxes, depreciation and amortization and stock-based compensation expense.

This press release also includes presentations of adjusted earnings per share ("EPS"). Adjusted EPS represents EPS adjusted for stock-based compensation expense and amortization of acquisition related software and intangible assets 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 its investors and analysts to evaluate its performance. The use of these non-GAAP financial measures has limitations, and the Company’s presentation of such financial measures may be different from the presentation used by other companies, and therefore comparability may be limited. 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 (loss) 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 projections or forecasts of future events and are based on our current expectations and assumptions regarding our business, the economy and other future 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. 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 it is not possible for us to predict all of them. 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: negative or reduced growth rate of spending on Medicaid/Medicare; variations in our results of operations; our ability to execute our business plans or growth strategy; the risk that guidance may not be achieved; unfavorable outcomes in legal proceedings, including contract award protests; our ability to continue to secure contracts or favorable contract terms through the competitive bidding process; the market price of our common stock; changes in the U.S. healthcare environment or healthcare financing system and steps we take in anticipation of such changes; pending or threatened litigation; development and implementation of new product solutions or new process improvements; regulatory, budgetary or political actions that affect procurement practices; our ability to retain customers or the loss of one or more major customers; the unexpected reduction in scope or termination of a significant contract; customer dissatisfaction, our non-compliance with contractual provisions or regulatory requirements, or failure to meet performance standards triggering significant costs or liabilities under our contracts; the cancellation or delay of procurements or contract implementation due to protests or challenges to government awards; emergence of new competitors or competitors’ introduction of new or superior products or services; our failure to comply with laws and regulations governing health data or to protect such data from theft and misuse; our ability to maintain effective information and technology systems and networks, and to protect them damage, interruption or breach; our reliance on subcontractors, vendors or other third party providers and sources to perform services; restrictions on bidding or performing certain work due to perceived conflicts of interests; unanticipated changes in our effective tax rates; a failure to protect intellectual property rights, confidential and proprietary information, or confidential or proprietary information of others in our possession, despite our efforts; negative results of government or customer reviews, audits or investigations; our cash flows from operations, available cash and ability to generate sufficient cash to cover our interest and principal payments under our credit facility or to borrow or use credit; the continuation of our share repurchase program; the nature of investment and acquisition opportunities presented to us; and other factors, risks and uncertainties described in our most recent Annual Report on Form 10-K and subsequent 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)
Years ended December 31,
2015 2014 2013
Revenue $ 474,216 $ 443,225 $ 491,762
Cost of services:
Compensation 178,272 181,273 190,324
Data processing 40,915 39,661 37,115
Occupancy 15,766 16,950 18,397
Direct project expenses 51,527 36,866 45,382
Other operating expenses 28,895 24,588 26,491
Amortization of acquisition related software
and intangible assets 28,148 28,612 31,747
Total cost of services 343,523 327,950 349,456
Selling, general and administrative expenses 83,121 81,071 65,128
Total operating expenses 426,644 409,021 414,584
Operating income 47,572 34,204 77,178
Interest expense (7,812) (7,931) (12,460)
Interest income 49 57 71
Other income, net - - 801
Income before income taxes 39,809 26,330 65,590
Income taxes 15,282 12,383 25,593
Net income $ 24,527 $ 13,947 $ 39,997
Basic income per common share:
Net income per common share -- basic $ 0.28 $ 0.16 $ 0.46
Diluted income per common share:
Net income per common share -- diluted $ 0.28 $ 0.16 $ 0.45
Weighted average shares:
Basic 87,881 87,673 87,598
Diluted 88,361 88,164 88,344

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,
2015 2014
Assets
Current assets:
Cash and cash equivalents $ 145,610 $ 133,116
Accounts receivable, net of allowance for doubtful accounts
of $4,849 and $4,535, respectively and estimated allowance for
appeals of $6,614 and $4,824, at December 31, 2015 and 2014,
respectively 169,146 157,101
Prepaid expenses 11,261 11,810
Prepaid income taxes - 5,142
Deferred income taxes 7,460 7,811
Other current assets 3,051 2,639
Total current assets 336,528 317,619
Property and equipment, net 96,551 116,027
Goodwill 361,468 361,468
Intangible assets, net 54,308 74,578
Deferred tax assets 4,873 6,957
Other assets 4,329 4,339
Total assets $ 858,057 $ 880,988
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities $ 51,661 $ 54,549
Estimated liability for appeals 33,078 36,799
Income taxes payable 3,873 -
Total current liabilities 88,612 91,348
Long-term liabilities:
Revolving credit facility 197,796 197,796
Deferred tax liabilities 38,421 50,853
Deferred rent 6,006 5,037
Other liabilities 2,520 2,864
Total long-term liabilities 244,743 256,550
Total liabilities 333,355 347,898
Commitments and contingencies (Note 13)
Shareholders' equity:
Preferred stock -- $0.01 par value; 5,000,000 shares authorized; none
issued - -
Common stock -- $0.01 par value; 125,000,000 shares authorized;
95,263,461 shares issued and 83,989,715 shares outstanding
at December 31, 2015; 94,511,444 shares issued and 87,985,139 shares
outstanding at December 31, 2014 952 943
Capital in excess of par value 330,290 313,214
Retained earnings 288,474 263,947
Treasury stock, at cost: 11,273,746 and 6,526,305 shares at December 31, 2015
and 2014, respectively (95,014) (45,014)
Total shareholders' equity 524,702 533,090
Total liabilities and shareholders' equity $ 858,057 $ 880,988

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,
2015 2014 2013
Operating activities:
Net income $ 24,527 $ 13,947 $ 39,997
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment 30,328 32,864 31,360
Amortization of intangible assets 20,270 20,734 23,631
Amortization of deferred financing costs 2,084 2,084 3,077
Stock-based compensation expense 14,297 13,356 11,997
Excess tax benefit from exercised stock options (1,569) (1,795) (5,233)
Deferred income taxes (14,020) (12,290) (4,354)
Loss on disposal of fixed assets 84 219 431
Change in fair value of contingent consideration - (517) 35
Changes in operating assets and liabilities:
Accounts receivable (12,045) 14,625 (14,956)
Prepaid expenses 549 1,132 1,341
Prepaid income taxes 6,711 3,445 (1,559)
Other current assets (412) (2,150) (172)
Other assets 10 121 28
Income taxes payable 3,873 - -
Accounts payable, accrued expenses and other liabilities (250) 18,039 1,050
Estimated liability for appeals (3,721) (5,053) 14,508
Net cash provided by operating activities 70,716 98,761 101,181
Investing activities:
Purchases of land, property and equipment (8,620) (22,687) (22,127)
Investment in capitalized software (3,197) (3,514) (3,656)
Investment in common stock - - (500)
Net cash used in investing activities (11,817) (26,201) (26,283)
Financing activities:
Repayment of revolving credit facility - (35,000) (95,000)
Proceeds from exercise of stock options 4,187 4,110 9,260
Excess tax benefit from exercised stock options 1,569 1,795 5,233
Payments of tax withholdings on behalf of employees for net-share
settlement for stock-based compensation (1,029) (1,658) (1,922)
Payments on capital lease obligations (1,132) (1,629) (1,711)
Payments on contingent consideration - (428) -
Purchases of treasury stock (50,000) - (25,000)
Repayment of term loan - - (8,750)
Proceeds from revolving credit facility - - 4,046
Payment of financing fees related to revolving credit facility - - (2,915)
Net cash used in financing activities (46,405) (32,810) (116,759)
Net increase (decrease) in cash and cash equivalents 12,494 39,750 (41,861)
Cash and cash equivalents at beginning of year 133,116 93,366 135,227
Cash and cash equivalents at end of year $ 145,610 $ 133,116 $ 93,366
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 22,878 $ 21,144 $ 34,922
Cash paid for interest $ 5,694 $ 4,458 $ 9,520
Supplemental disclosure of noncash activities:
Accrued property and equipment purchases $ 729 $ 1,610 $ 1,725
Equipment purchased through capital leases $ - $ 20 $ 2,401
Decrease in appeals liability for lost appeals offset with reduction
of accounts receivable $ 7,373 $ 25,706 $ 7,060

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 (Loss) 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 $31.1 million, for the fourth quarter of 2015, an increase of $13.3 million or 75.1% over the same period a year ago. Adjusted EBITDA for the year ended 2015 was $112.5 million, an increase of $11.3 million or 11.2% year over year.
Three months ended
December 31,
Year ended
December 31,
2015 2014 2015 2014
Net Income (loss)$ 8,725 $ (2,394) $ 24,527 $ 13,947
Net interest expense 1,955 1,942 7,763 7,874
Income taxes 4,143 361 15,282 12,383
Depreciation and amortization, net of deferred financing costs, included in net interest expense 12,143 13,567 50,598 53,598
Earnings before interest, taxes, depreciation and amortization (EBITDA) 26,966 13,476 98,170 87,802
Stock based compensation expense 4,089 4,261 14,297 13,356
Adjusted EBITDA$ 31,055 $ 17,737 $ 112,467 $ 101,158
Reconciliation of Net Income (Loss) to GAAP EPS and Adjusted EPS
As summarized in the following table, earnings per share adjusted for stock-based compensation expense and amortization of acquisitions related software and intangible assets and for the related taxes (adjusted EPS) was $0.19 for the fourth quarter of 2015, an increase of 533.3 % from $ 0.03 for the fourth quarter of 2014. Adjusted EPS for the year ended 2015 was $0.57, an increase of $0.16 or 39% for the year ended 2014.
Three months ended
December 31,
Year ended
December 31,
2015 2014 2015 2014
Net Income (loss)$ 8,725 $ (2,394) $ 24,527 $ 13,947
Stock-based compensation expense, net of tax 2,816 1,836 8,808 7,075
Amortization of acquisition related software and intangible assets, net of tax 4,936 2,784 17,342 15,156
Subtotal$ 16,477 $ 2,226 $ 50,677 $ 36,178
Weighted average common shares, diluted 87,110 88,351 88,361 88,164
Diluted GAAP EPS 0.10 $ (0.03) 0.28 $ 0.16
Diluted adjusted EPS 0.19 $ 0.03 0.57 $ 0.41


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

Source:HMS Holdings