HMS Holdings Corp. Announces Third Quarter 2012 Results and 2013 Guidance

  HMS Holdings Corp. Announces Third Quarter 2012 Results and 2013 Guidance

                    *Revenue Increased 22.6% y/y to $113.2M
  *GAAP EPS of $0.12; Adjusted EPS of $0.20

Business Wire

NEW YORK -- October 26, 2012

HMS Holdings Corp. (NASDAQ: HMSY) today announced its financial results for
the third quarter of 2012.

For the quarter ended September 30, 2012, revenue increased 22.6% to $113.2
million, compared to $92.4 million for the same period a year ago. Net income
for the quarter was $10.5 million or $0.12 per diluted common share compared
to net income of $14.4 million or $0.17 per diluted common share for the same
period a year ago, a decrease of 27.1%. Fully diluted GAAP earnings per share
(EPS) for the quarter decreased 29.4% y/y to $0.12 and adjusted EPS increased
5.3% y/y to $0.20.

For the nine months ended September 30, 2012, revenue increased 28.9% to
$340.6 million, compared to $264.2 million for the same period a year ago. Net
income for the nine months ended September 30, 2012 was $30.5 million or $0.35
per diluted common share, compared to net income of $36.7 million or $0.42 per
diluted common share for the same period a year ago, a decrease of 16.7%.
Fully diluted GAAP EPS for the first nine months decreased 16.7% y/y to $0.35
and adjusted EPS increased16.0% y/y to $0.58.

“We continue to lay the groundwork for growth in 2013 and beyond,” said Bill
Lucia, President and Chief Executive Officer. “We are focused on implementing
numerous Medicaid RACs, continuing to deliver a high level of Medicare RAC
performance, preparing for the Medicare coordination of benefits contract
award that was recently announced, bringing innovative eligibility
verification solutions to state agencies, and increasing our presence in the
commercial market.”

2013 Guidance

The Company also announced its full-year guidance for 2013. The Company now
expects revenue in the range of $570.0 - $600.0 million, fully diluted GAAP
EPS is projected to increase to a range of $0.63 - $0.70 , and adjusted EPS is
projected to increase to a range of $0.95 - $1.02 .

Q3 2012 Conference Call

HMS will report its third quarter 2012 financial and operating results at 9:00
a.m. ET on Friday, October 26, 2012. 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 37726759. The replay will be available at Noon ET on
October 26 through 11:59 p.m. ET on November 3, 2012.

The HMS Form 10-Q for the quarter September 30, 2012 will be filed and
available on our website at http://investor.hms.com on or about November 8,
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
140 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
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 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 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
For the the Three and Nine months Ended September 30, 2012
( in thousands, except per share amounts)
( unaudited)
                                                              
                  Three months ended                Nine months ended
                  September30,                     September30,
                    2012            2011          2012        2011    
                                                                   
Revenue           $  113,217       $  92,356      $  340,600    $ 264,159 
                                                                   
Cost of
services:
Compensation         40,170            31,762          119,489       94,604
Data processing      7,871             5,973           22,791        16,607
Occupancy            4,428             3,794           12,742        11,328
Direct project       14,530            9,893           40,573        30,546
costs
Other operating      3,198             4,637           14,311        13,448
costs
Amortization of
acquisition
related             8,149           1,660         24,447      5,048   
software and
intangibles
Total cost of        78,346            57,719          234,353       171,581
services
                                                                   
Selling,
general &           14,158          10,560        43,897      31,932  
administrative
expenses
Total operating     92,504          68,279        278,250     203,513 
expenses
Operating            20,713            24,077          62,350        60,646
income
                                                                   
Interest             (4,125   )        (19     )       (12,488 )     (65     )
expense
Other income,        27                165             346           714
net
Interest income     13              14            17          50      
Income before        16,628            24,237          50,225        61,345
income taxes
Income taxes        6,121           9,822         19,695      24,691  
                                                                   
Net income and
comprehensive     $  10,507        $  14,415      $  30,530     $ 36,654  
income
                                                                   
Basic income
per common
share
Net income per    $  0.12          $  0.17        $  0.35       $ 0.43    
share -basic
                                                                   
Weighted
average common
shares              86,405          84,159        86,010      84,372  
outstanding,
basic
                                                                   
Diluted income
per share
Net income per    $  0.12          $  0.17        $  0.35       $ 0.42    
share- diluted
                                                                   
Weighted
average common
shares              88,744          86,869        88,399      87,233  
outstanding,
diluted
                                                                             


HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
( in thousands, except per share and per share amounts)
( unaudited)
                                                               
                                                  September 30,   December 31,
                                                  2012            2011
                                                                  
Assets
Current assets:
Cash and cash equivalents                         $  127,952      $  97,003
Accounts receivable, net of allowance of $811
at September 30, 2012 and $1,158 at December         115,854         112,505
31, 2011
Prepaid expenses                                     11,528          6,602
Prepaid income taxes                                 9,467           2,418
Current portion of deferred financing costs          3,431           3,689
Other current assets                                 434             5,793
Net deferred tax asset                              2,029         2,198   
Total current assets                                 270,695         230,208
                                                                  
Property and equipment, net                          124,435         127,177
Goodwill, net                                        361,642         361,786
Intangible assets, net                               116,006         132,740
Deferred financing costs                             6,668           9,203
Other assets                                        3,949         837     
Total assets                                      $  883,395     $  861,951 
                                                                  
                                                                  
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable, accrued expenses and other      $  31,711       $  40,546
liabilities
Acquisition related contingent consideration         -               2,300
Current portion of term loan                        30,625        17,500  
Total current liabilities                           62,336        60,346  
                                                                  
Long-term liabilities:
Deferred rent                                        545             1,085
Term loan                                            306,250         332,500
Other liabilities                                    2,778           2,423
Deferred tax liabilities                            68,419        74,360  
Total long-term liabilities                         377,992       410,368 
Total liabilities                                   440,328       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;
92,098,493 shares issued and 86,673,646 shares       921             906
outstanding at September 30, 2012; 90,575,837
shares issued and 85,587,299 shares outstanding
at December 31, 2011
Capital in excess of par value                       272,143         240,241
Retained earnings                                    190,017         159,487
Treasury stock, at cost; 5,424,847 shares at
September 30, 2012 and 4,988,538 shares at          (20,014  )     (9,397  )
December 31, 2011
Total shareholders' equity                          443,067       391,237 
Total libilities and shareholders' equity         $  883,395     $  861,951 
                                                                             

HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2012 and 2011
( in thousands)
( unaudited)
                                                             
                                               Nine months ended September30,
                                                 2012            2011     
Operating activities:
Net income                                     $  30,530         $  36,654
Adjustments to reconcile net income to net
cash provided
by operating activities:
Depreciation and amortization                     40,929            14,930
Stock-based compensation expense                  10,194            5,884
Excess tax benefit from exercised stock           (11,859  )        (8,157   )
options
Deferred income taxes                             (5,772   )        1,508
Decrease in allowance for doubtful debts          (347     )        (149     )
Change in fair value of contingent                (2,300   )        391
consideration
Loss on disposal of fixed assets                  62                5
Changes in assets and liabilities:
Accounts receivable                               (3,002   )        (10,371  )
Prepaid expenses                                  (4,926   )        (839     )
Prepaid income taxes                              4,810             11,690
Other current assets                              550               (388     )
Other assets                                      (88      )        57
Accounts payable, accrued
expenses and other liabilities                   (3,861   )       (2,125   )
Net cash provided by operating activities        54,920          49,090   
                                                                 
Investing activities:
Investment in certificate of deposit              -                 (4,809   )
Proceeds from redemtion of certificate of         4,809             -
deposit
Purchases of property and equipment               (20,323  )        (13,092  )
Investment in common stock                        (3,024   )        -
Acquisitions, net                                 (1,605   )        (339     )
Investment in capitalized software               (1,559   )       (1,502   )
                                                                 
Net cash used in investing activities            (21,702  )       (19,742  )
                                                                 
Financing activities:
Repayment of term loan                            (13,125  )        -
Purchases of Treasury Stock                       (10,617  )        -
Payments on contingent consideration              (250     )        -
Proceeds from exercise of stock options           10,991            9,013
Payments of tax withholdings on behalf of
employees for
net-share settlement for stock-based              (1,127   )        (903     )
compensation
Excess tax benefit from exercised stock          11,859          8,157    
options
                                                                 
Net cash (used in)/provided by financing         (2,269   )       16,267   
activities
                                                                 
Net increase in cash and cash equivalents         30,949            45,615
Cash and cash equivalents at beginning of        97,003          94,836   
year
Cash and cash equivalents at end of year       $  127,952       $  140,451  
                                                                 
Supplemental disclosure of cash flow
information:
Cash paid for income taxes                     $  20,762        $  11,547   
Cash paid for interest                         $  10,093        $  89       
Supplemental disclosure of noncash investing
activities:
Accrued property and equipment purchases       $  267           $  438      
Accrued acquisition related contingent         $  -             $  351      
consideration
                                                                             


HMS HOLDINGS CORP. AND SUBSIDIARIES
( in thousands, except per share amounts)
( unaudited)
Reconciliation of Net income to EBITDA and adjusted EBITDA
                                                             
                            Three Months Ended        Nine Months Ended

                            September 30,             September 30,
                             2012       2011       2012        2011   
Net income                  $ 10,507    $ 14,415    $ 30,530     $ 36,654 
                                                                    
Net interest expense          4,112        5            12,471        15
Income taxes                  6,121        9,822        19,695        24,691
Depreciation and
amortization, net of
deferred                     12,884     5,125      38,136      14,930 
financing costs, included
in net interest expense
(income)
Earnings before interest,
taxes, depreciation and       33,624       29,367       100,832       76,290
amortization ( EBITDA)
Stock-based compensation     3,099      1,918      10,194      5,884  
expense
                            $ 36,723    $ 31,285    $ 111,026    $ 82,174 
                                                                    
                                                                    
Reconciliation of Net income to GAAP EPS and Adjusted EPS
                                                                    
                            Three Months Ended        Nine Months Ended

                            September 30,             September 30,
                             2012       2011       2012        2011   
Net income                  $ 10,507     $ 14,415     $ 30,530      $ 36,654
                                                                    
Stock-based compensation      1,959        1,141        6,198         3,519
expense, net of tax
Amortization of              5,150      988        14,864      3,019  
intangibles, net of tax
Subtotal                    $ 17,616    $ 16,544    $ 51,592     $ 43,192 
                                                                    
Weighted average common      88,744     86,869     88,399      87,233 
shares, diluted
                                                                
Diluted GAAP EPS            $ 0.12      $ 0.17      $ 0.35       $ 0.42   
Diluted adjusted EPS        $ 0.20      $ 0.19      $ 0.58       $ 0.50   

Contact:

HMS Holdings Corp.
Christine Rogers Saenz, 212-857-5986 (investor relations)
csaenz@hms.com
Francesca Marraro, 212-857-5442 (media relations)
fmarraro@hms.com
 
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