HMS Holdings Corp. Announces Q3 2008 Results, 2008 Revised Guidance and Initial 2009 Guidance
Third Quarter Results
For the quarter ended September 30, 2008 revenue increased 30% to $49.0million, compared with $37.7 million for the same period a year ago. Netincome for the quarter was $6.1 million (+48%) or $0.23 (+44%) per dilutedshare compared to net income of $4.1 million or $0.16 per diluted share forthe same period a year ago.
For the nine months ended September 30, 2008, HMSY reported revenue of$132.1 million, an increase of $27.1 million or 26% from the $105.0 millionfor the same period a year ago. HMSY reported net income of $14.3 million(+31%) or $0.53 (+26%) per diluted common share for the nine months endedSeptember 30, 2008, compared to net income of $10.9 million or $0.42 perdiluted common share for the same period a year ago.
Guidance for 2008 and 2009
The company announced it has increased its 2008 guidance from $175.0million in revenue, $50.0 million in adjusted EBITDA and $0.75 in fullydiluted EPS to $181.0 million (+23% y/y) in revenue, $52.0 million (+28% y/y)in adjusted EBITDA and $0.77 (+35% y/y) in fully diluted EPS.
The company also announced its initial guidance for 2009. Revenue isprojected to grow to $214 million (+18% over revised 2008 guidance). AdjustedEBITDA is expected to increase to $62.7 million (+21% over 2008 revisedguidance), and fully diluted EPS is projected to increase to $0.96 (+25% over2008 revised guidance).
"HMS has produced another record quarter, with strong revenue growth ineach of the government healthcare program markets that we serve," said RobertHolster, Chairman and CEO. "With increasing unemployment driving accelerationof the Medicaid program's growth rate, and as states under fiscal duress focusever more attention on cost containment, we are positioned for continued solidrevenue and earnings growth in 2009."
Liquidity and Capital Resources
The Company reported cash balances at the end of September 2008 of $31.6million, an increase of $6.7 million from the end of the second quarter of2008. Cash balances are invested in money market funds that are eitherguaranteed by the U.S. Government or are indirect U.S. Government obligations.The Company also has no borrowings under its $25 million credit facility whichexpires in September 2011.
HMS will be hosting its third quarter 2008 conference call with theinvestment community on Friday, October 31, 2008 at 9:00 am Eastern Time. Theconference call number is US/Canada: (877) 272-8465 Int'l/Local Dial-In: (706)634-1355 Conference ID: 69250729. A slide presentation will accompany theconference call and may be accessed through our website athttp://www.hmsholdings.com/news/quarterly_reports.asp.
A conference call replay will be available beginning October 31, 2008 10:00 AM ET through November 6, 2008 11:59 PM ET. To listen to the replay ofthe call, dial: US/Canada: (800) 642-1687 Int'l/Local Dial-In: (706) 645-9291Conference ID: 69250729 or visit our website athttp://www.hmsholdings.com/news/quarterly_reports.asp.
The HMS Holdings Corp. Form 10-Q for the quarter ended September 30, 2008will be filed and available on our website www.hmsholdings.com on or aboutNovember 14, 2008, and will contain additional information about our resultsof operations for the fiscal year-to-date. This press release and the interimfinancial statements herein will be available at www.hmsholdings.com for atleast a 12-month period. Shareholders and interested investors are welcome tocontact HMSY Investor Relations at 212-857-5986. Following the filing of theForm 10-Q, corporate executives will be available to respond to inquiries fromshareholders and interested investors.
About HMS Holdings Corp.
HMS Holdings Corp. (Nasdaq: HMSY) is the nation's leader in coordinationof benefits and program integrity services for government healthcare programs.The company's clients include health and human services programs in more than40 states, 80 Medicaid managed care plans, the Centers for Medicare andMedicaid Services (CMS), and Veterans Administration facilities. HMS helpsensure that healthcare claims are paid correctly and by the responsible party.As a result of the company's services, government healthcare programs recoverover $1 billion annually, and avoid billions of dollars more in erroneouspayments.
This press release includes presentations of earnings before interest,taxes, depreciation and amortization (EBITDA) and adjusted EBITDA. AdjustedEBITDA represents EBITDA adjusted for share-based compensation expense. EBITDAis a measure commonly used by the capital markets to value enterprises.Interest, taxes, depreciation and amortization can vary significantly betweencompanies due in part to differences in accounting policies, tax strategies,levels of indebtedness and interest rates. Excluding these items providesinsight into the underlying results of operations and facilitates comparisonsbetween HMSY and other companies. EBITDA is also a useful measure of theCompany's ability to service debt and is one of the measures used fordetermining debt covenant compliance. In addition, because of the varyingmethodologies for determining share-based compensation expense, and thesubjective assumptions involved in those determinations, we believe excludingshare-based compensation expense from EBITDA enhances the ability ofmanagement and investors to compare our core operating results over multipleperiods with those of other companies. Management believes EBITDA andadjusted EBITDA information is useful to investors for these reasons. BothEBITDA and adjusted EBITDA are non-GAAP financial measures and should not beviewed as an alternative to GAAP measures of performance. Management believesthe most directly comparable GAAP financial measure is net income and hasprovided a reconciliation of EBITDA and adjusted EBITDA to net income in thispress release.
Certain statements in this press release constitute "forward-lookingstatements" within the meaning of the Private Securities Litigation Reform Actof 1995 (the "Reform Act"). Such forward-looking statements involve known andunknown risks, uncertainties, and other factors that may cause the actualresults, performance, or achievements of HMSY, or industry results, to bematerially different from any future results, performance, or achievementsexpressed or implied by such forward-looking statements. The important factorsthat could cause actual results to differ materially from those indicated bysuch forward-looking statements include, but are not limited to: (i) theinformation being of a preliminary nature and therefore subject to furtheradjustment; (ii) the uncertainties of litigation; (iii) HMSY's dependence onsignificant customers; (iv) changing conditions in the healthcare industrywhich could simplify the reimbursement process and adversely affect HMSY'sbusiness; (v) government regulatory and political pressures which could reducethe rate of growth of healthcare expenditures and/or discourage the assertionof claims for reimbursement against and delay the ultimate receipt of paymentfrom third party payors; (vi) competitive actions by other companies,including the development by competitors of new or superior services orproducts or the entry into the market of new competitors; (vii) all the risksinherent in the development, introduction, and implementation of new productsand services; and (viii) other risk factors described from time to time inHMSY's filings with the SEC, including HMSY's Form 10-K for the year endedDecember 31, 2007. HMSY assumes no responsibility to update the forward-looking statements contained in this release as a result of new information,future events or otherwise. When/if used in this release, the words "focus","believe", "confident", "anticipate", "expected", "strong", "potential", andsimilar expressions are intended to identify forward-looking statements, andthe above described risks inherent therein.
As summarized in the following table, earnings before interest, taxes,depreciation and amortization, and share-based compensation expense (adjustedEBITDA) was $14.6 million for the third quarter of 2008, an increase of 36.6%over the same period a year ago.HMS HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three and Nine-Month Periods Ended September 30, 2008 and 2007 (In thousands, except per share amounts) (unaudited) Three months ended Nine months ended Sept 30, Sept 30, 2008 2007 2008 2007 Revenue $48,965 $37,684 $132,091 $104,983 Cost of services: Compensation 19,297 14,422 53,122 40,882 Data processing 3,059 2,628 8,796 7,110 Occupancy 2,763 2,172 7,987 6,446 Direct project costs 7,310 5,711 19,749 16,368 Other operating costs 4,560 3,928 13,605 9,973 Amortization of acquisition related software and intangibles 1,205 1,154 3,530 3,480 Total cost of services 38,194 30,015 106,789 84,259 Operating income 10,771 7,669 25,302 20,724 Interest expense (371) (492) (1,137) (1,743) Interest income 191 166 520 382 Income before income taxes 10,591 7,343 24,685 19,363 Income taxes 4,448 3,202 10,368 8,443 Net income $6,143 $4,141 $14,317 $10,920 Basic income per share data: Net income per basic share $0.24 $0.17 $0.57 $0.46 Weighted average common shares outstanding, basic 25,083 24,028 24,965 23,713 Diluted income per share data: Net income per diluted share $0.23 $0.16 $0.53 $0.42 Weighted average common shares, diluted 26,794 26,254 26,778 26,077 HMS HOLDINGS CORP. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share amounts) (unaudited) September 30, December 31, 2008 2007 Assets Current assets: Cash and cash equivalents $31,598 $21,275 Accounts receivable, net of allowance of $662 at September 30, 2008 and December 31, 2007 48,004 39,704 Prepaid expenses 2,328 3,266 Other current assets, including deferred tax assets of $1,263 and $657 at September 30, 2008 and December 31, 2007, respectively 1,291 704 83,221 64,949 Property and equipment, net 16,492 16,496 Goodwill, net 82,350 80,242 Deferred income taxes, net 3,145 3,111 Intangible assets, net 20,855 22,495 Other assets 682 807 Total assets $206,745 $188,100 Liabilities and Shareholders' Equity Current liabilities: Accounts payable, accrued expenses and other liabilities $19,415 $21,539 Current portion of long-term debt 6,300 6,300 Total current liabilities 25,715 27,839 Long-term liabilities: Long-term debt 12,600 17,325 Accrued deferred rent 3,302 3,378 Other liabilities 765 809 Total long-term liabilities 16,667 21,512 Total liabilities 42,382 49,351 Commitments and contingencies Shareholders' equity: Preferred stock - $.01 par value; 5,000,000 shares authorized; none issued - - Common stock - $.01 par value; 45,000,000 shares authorized; 26,816,875 shares issued and 25,154,029 shares outstanding at September 30, 2008; 26,409,035 shares issued and 24,746,189 shares outstanding at December 31, 2007 268 264 Capital in excess of par value 139,132 127,887 Retained earnings 34,504 20,187 Treasury stock, at cost; 1,662,846 shares at September 30, 2008 and December 31, 2007 (9,397) (9,397) Accumulated other comprehensive loss (144) (192) Total shareholders' equity 164,363 138,749 Total liabilities and shareholders' equity $206,745 $188,100 HMS HOLDINGS CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2008 and 2007 (in thousands) (unaudited) Nine months ended Sept 30, 2008 2007 Operating activities: Net income $14,317 $10,920 Adjustments to reconcile net income to net cash provided by operating activities: Loss on disposal of fixed assets 53 80 Depreciation and amortization 8,834 7,698 (Increase)/decrease in deferred tax asset (640) 2,873 Share-based compensation expense 2,351 1,420 Changes in assets and liabilities: Increase in accounts receivable (7,380) (8,625) (Increase)/decrease in prepaid expenses and other current assets 985 (135) Increase in other assets (18) (171) Decrease in accounts payable, accrued expenses and other liabilities (2,679) (267) Net cash provided by operating activities 15,823 13,793 Investing activities: Purchases of property and equipment (4,908) (6,772) Acquisition of BSPA - (15,000) Acquisition of Prudent Rx (4,030) - Investment in software (735) (473) Net cash used in investing activities (9,673) (22,245) Financing activities: Proceeds from exercise of stock options 1,647 3,840 Tax benefit of disqualifying dispositions 7,251 5,108 Repayment of long-term debt (4,725) (6,300) Net cash provided by financing activities 4,173 2,648 Net increase/(decrease) in cash and cash equivalents 10,323 (5,804) Cash and cash equivalents at beginning of period 21,275 12,527 Cash and cash equivalents at end of period $31,598 $6,723 Supplemental disclosure of cash flow information: Cash paid for income taxes $1,813 $47 Cash paid for interest $979 $1,458 Supplemental disclosure of noncash investing activities: Accrued purchase price relating to the PrudentRx acquisition $466 $- HMS HOLDINGS CORP. AND SUBSIDIARIES Reconciliation of net income to EBITDA and adjusted EBITDA (In thousands, except share and per share amounts) (unaudited)
SOURCE HMS Holdings Corp.
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