HMS Holdings Corp. (NASDAQ:HMSY) today announced financial results
for the first quarter of 2016. Net income for the quarter ended
March 31, 2016 was $4.6 million or $0.05 per diluted share,
compared to net income of $8.7 million or $0.10 per diluted share
in the fourth quarter of 2015 and $3.5 million or $0.04 per diluted
share in the prior year first quarter. Adjusted EPS was $0.14 per
diluted share in the first quarter of 2016, which included $0.01
per diluted share of non-recurring legal expense, compared to $0.19
in the fourth quarter of 2015 and $0.11 in the prior year first
quarter. Total revenue in the first quarter of 2016 was $119.8
million, compared to $128.5 million in the fourth quarter of 2015
and $110.3 million in the prior year first quarter.
“The first quarter was a very solid beginning
for 2016, particularly for our commercial health plan business
which showed year-over-year revenue growth of nearly 30%. First
quarter commercial health plan revenue of $56 million supports our
earlier view that nearly half of the projected full-year 18–20%
growth will come from the run rate impact of new business
implemented throughout 2015,” said Bill Lucia, Chairman and
CEO. “We completed about one-third more customer
implementations this quarter than the preceding quarter, and have a
plan to implement the needed level of already-sold business over
the next three quarters to meet our full year commercial health
plan revenue objective.”
Total revenue in the first quarter of 2016 of
$119.8 million was approximately 8.6% higher than the prior year
first quarter, as a significant increase in commercial health plan
revenue was partially offset by a net decline in state revenue.
Commercial health plan revenue in the first
quarter of 2016 was $56.0 million, a 29.4% increase compared to
$43.2 million in the prior year first quarter and a $2.5 million
decline, as projected, from the prior quarter. State government
revenue was $50.7 million in the first quarter, compared to $59.8
million in the prior year first quarter, and reflected a decline of
$3.8 million compared to the prior quarter as projected. State
revenue in the prior year first quarter benefited from a spillover
of coordination of benefits work caused by the substantial increase
in Medicaid enrollment during 2014 due to implementation of the
Affordable Care Act.
Non-Medicare RAC Federal and other revenue was
$4.8 million in the first quarter of 2016, a $0.3 million decrease
compared to the prior year first quarter and a decrease of $1.0
million from the prior quarter. Medicare RAC revenue in the quarter
was $8.3 million, compared to $2.3 million in the prior year first
quarter and $9.7 million in the prior quarter.
Coordination of benefits (COB) revenue, which
continues to be our largest product line across both the state
government and commercial health plan sectors, was $82.9 million in
the first quarter of 2016 compared to $83.3 million in the prior
year first quarter, and accounted for 69% of total revenue in the
quarter, compared to 68% last quarter and 76% in the prior year
first quarter.
Payment integrity revenue (excluding Medicare
RAC) was $28.5 million in the first quarter, a $3.8 million or
15.5% increase from the first quarter of last year and a $3.2
million or 10% decline from the prior quarter. The year-over-year
increase reflects 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. The sequential decline is primarily the
result of special year end projects completed in the prior
quarter.
“Total revenue of $119.8 million in the first
quarter, an 8.6% year-over-year increase, was somewhat higher than
our expectation due primarily to a few one-time projects in our
commercial health plan business completed during the quarter and
the finalization of more Medicare RAC audits than anticipated,”
said Jeff Sherman, Chief Financial Officer. “Though we added
significant resources during the quarter to boost customer
implementations, total operating expenses declined from the fourth
quarter level. We continue to expect operating costs for the full
year to be flat with the prior year, excluding non-recurring legal
expense, despite planned investments in our commercial health plan
growth engine and product innovation initiatives,” added
Sherman.
See the Q1 2016 Investor Presentation for
additional information about the Company’s first quarter 2016
financial results which is available on the Company’s website at
http://investor.hms.com/events.cfm.
Webcast and Conference Call
Information
HMS will report its first quarter 2016 financial
and operating results at 7:30 AM CT / 8:30 AM ET on Friday, May 6,
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 and available for replay
at http://investor.hms.com/events.cfm beginning at approximately
11:00 AM CT / 12:00 PM ET on May 6, 2016. This press release and
the financial statements contained herein are also available at
http://investor.hms.com/releases.cfm.
The HMS Quarterly Report on Form 10-Q for the
period ended March 31, 2016 will be filed and available on the HMS
website at http://investor.hms.com/financials.cfm and at
www.sec.gov on May 10, 2016 and will contain additional information
about our results of operations for the fiscal year to date.
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
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 earnings release should not be viewed as
alternatives or substitutes for the Company's reported GAAP
results. A reconciliation of 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 above 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
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,
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 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;
development and implementation of new product solutions or new
process improvements; the nature of investment and acquisition
opportunities that we are pursuing, and the successful execution or
integration of such investments and acquisitions; our reliance on
subcontractors, vendors or other third party providers and sources
to perform services; 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; our ability
to continue to secure contracts or favorable contract terms through
the competitive bidding process; changes in the U.S. healthcare
environment or healthcare financing system and steps we take in
anticipation of such changes; emergence of new competitors or
competitors’ introduction of new or superior products or services;
pending or threatened litigation; regulatory, budgetary or
political actions that affect procurement practices; our ability to
retain customers or the loss of one or more major customers; the
cancellation or delay of procurements or contract implementation
due to protests or challenges to government awards; 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; unfavorable outcomes
in legal proceedings, including contract award protests;
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;
restrictions on bidding or performing certain work due to perceived
conflicts of interests; 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 market price of our common stock; 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) |
(unaudited) |
|
|
|
|
Three Months Ended March
31, |
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
2015 |
|
Revenue |
|
|
|
$ |
119,763 |
|
|
$ |
110,324 |
|
Cost of
services: |
|
|
|
|
|
Compensation |
|
|
|
46,401 |
|
|
|
44,067 |
|
Data processing |
|
|
|
9,624 |
|
|
|
10,045 |
|
Occupancy |
|
|
|
3,627 |
|
|
|
4,007 |
|
Direct project
expenses |
|
|
|
14,483 |
|
|
|
10,478 |
|
Other operating
expenses |
|
|
5,776 |
|
|
|
6,738 |
|
Amortization of acquisition related software and intangible
assets |
|
7,013 |
|
|
|
7,047 |
|
Total cost of
services |
|
|
|
86,924 |
|
|
|
82,382 |
|
Selling, general and
administrative expenses |
|
22,930 |
|
|
|
19,961 |
|
Total operating
expenses |
|
|
109,854 |
|
|
|
102,343 |
|
Operating
income |
|
|
|
9,909 |
|
|
|
7,981 |
|
Interest
expense |
|
|
|
(2,091 |
) |
|
|
(1,954 |
) |
Interest income |
|
|
|
47 |
|
|
|
11 |
|
Income before
income taxes |
|
|
7,865 |
|
|
|
6,038 |
|
Income taxes |
|
|
|
3,305 |
|
|
|
2,516 |
|
Net income |
|
|
|
$ |
4,560 |
|
|
$ |
3,522 |
|
|
|
|
|
|
|
|
Basic income per common share: |
|
|
|
|
Net income per
common share -- basic |
$ |
0.05 |
|
|
$ |
0.04 |
|
Diluted income per common share: |
|
|
|
|
Net income per
common share -- diluted |
$ |
0.05 |
|
|
$ |
0.04 |
|
Weighted average
shares: |
|
|
|
|
Basic |
|
|
|
|
84,033 |
|
|
|
88,246 |
|
Diluted |
|
|
|
|
84,479 |
|
|
|
88,624 |
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
March 31, 2016 |
|
December 31,2015 |
Assets |
|
|
|
|
|
(unaudited) |
|
|
Current
assets: |
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
|
$ |
143,451 |
|
|
$ |
145,610 |
|
Accounts receivable,
net of allowance for doubtful accounts |
|
|
|
|
of $5,157 and $4,849,
and estimated allowance for |
|
|
|
|
appeals of $5,348 and
$6,614, at March 31, 2016 and December 31, 2015, |
|
|
|
respectively |
|
|
|
|
|
165,796 |
|
|
|
169,146 |
|
Prepaid expenses |
|
|
|
|
|
13,623 |
|
|
|
11,261 |
|
Deferred tax assets |
|
|
|
|
|
|
4,226 |
|
|
|
7,460 |
|
Other
current assets |
|
|
|
|
|
2,723 |
|
|
|
3,051 |
|
Total current
assets |
|
|
|
|
|
329,819 |
|
|
|
336,528 |
|
Property
and equipment, net |
|
|
|
|
91,841 |
|
|
|
96,551 |
|
Goodwill |
|
|
|
|
|
|
361,468 |
|
|
|
361,468 |
|
Intangible
assets, net |
|
|
|
|
|
49,265 |
|
|
|
54,308 |
|
Deferred
financing costs, net |
|
|
|
|
4,352 |
|
|
|
4,873 |
|
Other
assets |
|
|
|
|
|
|
4,278 |
|
|
|
4,329 |
|
Total
assets |
|
|
|
|
$ |
841,023 |
|
|
$ |
858,057 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
Accounts payable,
accrued expenses and other liabilities |
|
$ |
34,402 |
|
|
$ |
51,661 |
|
Estimated liability for
appeals |
|
|
|
|
30,613 |
|
|
|
33,078 |
|
Income taxes
payable |
|
|
|
|
|
274 |
|
|
|
3,873 |
|
Total current
liabilities |
|
|
|
|
|
65,289 |
|
|
|
88,612 |
|
Long-term
liabilities: |
|
|
|
|
|
|
|
Revolving credit
facility |
|
|
|
|
|
197,796 |
|
|
|
197,796 |
|
Deferred tax
liabilities |
|
|
|
|
|
37,147 |
|
|
|
38,421 |
|
Deferred rent |
|
|
|
|
|
5,901 |
|
|
|
6,006 |
|
Other
liabilities |
|
|
|
|
|
3,006 |
|
|
|
2,520 |
|
Total long-term
liabilities |
|
|
|
|
243,850 |
|
|
|
244,743 |
|
Total
liabilities |
|
|
|
|
|
309,139 |
|
|
|
333,355 |
|
Commitments
and contingencies (Note 11) |
|
|
|
|
|
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; |
|
|
|
95,406,154 shares
issued and 84,132,408 shares outstanding |
|
|
|
|
at March 31, 2016;
95,263,461 shares issued and 83,989,715 shares |
|
|
|
outstanding at December
31, 2015 |
|
|
|
|
954 |
|
|
|
952 |
|
Capital in
excess of par value |
|
|
|
|
332,910 |
|
|
|
330,290 |
|
Retained
earnings |
|
|
|
|
|
293,034 |
|
|
|
288,474 |
|
Treasury
stock, at cost: 11,273,746 shares at March 31, 2016 and
December 31, |
|
|
2015 |
|
|
|
|
|
|
(95,014 |
) |
|
|
(95,014 |
) |
|
|
|
|
|
|
|
|
|
Total
shareholders' equity |
|
|
|
|
531,884 |
|
|
|
524,702 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders'
equity |
|
|
$ |
841,023 |
|
|
$ |
858,057 |
|
|
|
|
|
|
|
|
|
|
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) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months EndedMarch
31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
2015 |
|
Operating activities: |
|
|
|
|
|
|
|
Net
income |
|
|
|
|
$ |
4,560 |
|
|
$ |
3,522 |
|
Adjustments to
reconcile net income to net cash provided |
|
|
|
|
by (used in) operating
activities: |
|
|
|
|
|
|
Depreciation and
amortization of property and equipment |
|
|
6,577 |
|
|
|
8,163 |
|
Amortization of
intangible assets |
|
|
|
|
5,043 |
|
|
|
5,077 |
|
Amortization of
deferred financing costs |
|
|
|
521 |
|
|
|
521 |
|
Stock-based
compensation expense |
|
|
|
4,240 |
|
|
|
3,245 |
|
Excess tax benefit from
exercised stock options |
|
|
|
(10 |
) |
|
|
(1,448 |
) |
Deferred income
taxes |
|
|
|
|
1,308 |
|
|
|
(226 |
) |
Loss on disposal of
fixed assets |
|
|
|
|
10 |
|
|
|
10 |
|
Changes in operating
assets and liabilities: |
|
|
|
|
|
Accounts
receivable |
|
|
|
|
3,350 |
|
|
|
(9,344 |
) |
Prepaid expenses |
|
|
|
|
|
(2,362 |
) |
|
|
(983 |
) |
Prepaid income
taxes |
|
|
|
|
- |
|
|
|
2,049 |
|
Other current
assets |
|
|
|
|
328 |
|
|
|
51 |
|
Other assets |
|
|
|
|
|
51 |
|
|
|
(147 |
) |
Income taxes
payable |
|
|
|
|
(3,589 |
) |
|
|
- |
|
Accounts payable,
accrued expenses and other liabilities |
|
|
(16,963 |
) |
|
|
(10,772 |
) |
Estimated
liability for appeals |
|
|
|
|
(2,465 |
) |
|
|
187 |
|
Net cash
provided by (used in) operating activities |
|
|
599 |
|
|
|
(95 |
) |
Investing activities: |
|
|
|
|
|
|
|
Purchases of land,
property and equipment |
|
|
|
(570 |
) |
|
|
(2,513 |
) |
Investment in
capitalized software |
|
|
|
|
(1,185 |
) |
|
|
(721 |
) |
Net cash
used in investing activities |
|
|
|
(1,755 |
) |
|
|
(3,234 |
) |
Financing activities: |
|
|
|
|
|
|
|
Proceeds from exercise
of stock options |
|
|
|
26 |
|
|
|
3,273 |
|
Excess tax benefit from
exercised stock options |
|
|
|
10 |
|
|
|
1,448 |
|
Payments of tax
withholdings on behalf of employees for net-share |
|
|
|
settlement for
stock-based compensation |
|
|
|
(1,002 |
) |
|
|
(596 |
) |
Payments on
capital lease obligations |
|
|
|
|
(37 |
) |
|
|
(366 |
) |
Net cash
provided by (used in) financing activities |
|
|
(1,003 |
) |
|
|
3,759 |
|
Net increase (decrease) in cash and cash
equivalents |
|
|
(2,159 |
) |
|
|
430 |
|
Cash and Cash Equivalents |
|
|
|
|
|
|
Cash and
cash equivalents at beginning of year |
|
|
|
145,610 |
|
|
|
133,116 |
|
Cash and cash equivalents at end of
year |
|
|
$ |
143,451 |
|
|
$ |
133,546 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information: |
|
|
|
|
Cash paid for
income taxes |
|
|
|
$ |
5,052 |
|
|
$ |
656 |
|
Cash paid for
interest |
|
|
|
|
$ |
1,446 |
|
|
$ |
2,826 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash
activities: |
|
|
|
|
Accrued property
and equipment purchases |
|
|
$ |
122 |
|
|
$ |
959 |
|
|
|
|
|
|
|
|
|
|
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) |
(unaudited) |
|
Reconciliation of Net Income to EBITDA and Adjusted
EBITDA |
|
As
summarized in the following table, earnings before interest, taxes,
depreciation and amortization, stock-based compensation, and
non-recurring legal expense (adjusted EBITDA) was $27.0 million for
the first quarter of 2016, an increase of $2.6 million or 10.4%
over the same period a year ago. |
|
|
Three months ended
March 31, |
|
|
|
2016 |
|
|
|
2015 |
|
Net Income (loss) |
$ |
4,560 |
|
|
$ |
3,522 |
|
|
|
|
|
Net interest
expense |
|
2,044 |
|
|
|
1,943 |
|
Income taxes |
|
3,305 |
|
|
|
2,516 |
|
Depreciation and
amortization, net of deferred financing costs, included in net
interest expense |
|
11,620 |
|
|
|
13,240 |
|
|
|
|
|
Earnings before
interest, taxes, depreciation and amortization (EBITDA) |
|
21,529 |
|
|
|
21,221 |
|
Stock based
compensation expense |
|
4,240 |
|
|
|
3,245 |
|
Non-recurring legal
fees (1) |
|
1,248 |
|
|
|
- |
|
Adjusted EBITDA |
$ |
27,017 |
|
|
$ |
24,466 |
|
|
|
|
|
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, non-recurring legal expense,
amortization of acquisition related software and intangible assets
and for the related taxes (adjusted EPS) was $0.14 for the first
quarter of 2016, an increase of 27.3% from $0.11 for the first
quarter of 2015. |
|
|
Three months ended
March 31, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
Net Income |
$ |
4,560 |
|
|
$ |
3,522 |
|
|
|
|
|
Stock-based
compensation expense, net of tax |
|
2,458 |
|
|
|
1,892 |
|
Non-recurring legal
fees, net of tax (2) |
|
724 |
|
|
|
- |
|
Amortization of
acquisition related software and intangible assets, net of tax |
|
4,066 |
|
|
|
4,108 |
|
|
|
|
|
Sub-total |
$ |
11,808 |
|
|
$ |
9,522 |
|
|
|
|
|
Weighted average common shares, diluted |
|
84,479 |
|
|
|
88,624 |
|
|
|
|
|
Diluted GAAP EPS |
$ |
0.05 |
|
|
$ |
0.04 |
|
Diluted adjusted EPS |
$ |
0.14 |
|
|
$ |
0.11 |
|
|
1 In periods prior to 2016, legal fees were
included in operations. For the three months ended March 31, 2015
related legal fees were $2.7 million.
2 For the three months ended March 31, 2015,
related legal fees were approximately $1.6 million, net of tax, or
$0.02 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
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