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HMS Holdings Corp. Announces Q3 2008 Results, 2008 Revised Guidance and Initial 2009 Guidance

- Q3 2008 Revenue of $49 million (+30%y/y), EPS $0.23 (+44% y/y)

- 2008 EPS Guidance Increased to $0.77 from $0.75 (+35% y/y)

- 2009 Initial EPS Guidance of $0.96

NEW YORK, Oct. 31 /PRNewswire-FirstCall/ -- HMS Holdings Corp. (Nasdaq: HMSY) today announced its financial results for the third quarter of 2008.

Third Quarter Results

For the quarter ended September 30, 2008 revenue increased 30% to $49.0 million, compared with $37.7 million for the same period a year ago. Net income for the quarter was $6.1 million (+48%) or $0.23 (+44%) per diluted share compared to net income of $4.1 million or $0.16 per diluted share for the 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 million for 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 ended September 30, 2008, compared to net income of $10.9 million or $0.42 per diluted common share for the same period a year ago.

Guidance for 2008 and 2009

The company announced it has increased its 2008 guidance from $175.0 million in revenue, $50.0 million in adjusted EBITDA and $0.75 in fully diluted 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 is projected to grow to $214 million (+18% over revised 2008 guidance). Adjusted EBITDA is expected to increase to $62.7 million (+21% over 2008 revised guidance), and fully diluted EPS is projected to increase to $0.96 (+25% over 2008 revised guidance).

"HMS has produced another record quarter, with strong revenue growth in each of the government healthcare program markets that we serve," said Robert Holster, Chairman and CEO. "With increasing unemployment driving acceleration of the Medicaid program's growth rate, and as states under fiscal duress focus ever more attention on cost containment, we are positioned for continued solid revenue and earnings growth in 2009."

Liquidity and Capital Resources

The Company reported cash balances at the end of September 2008 of $31.6 million, an increase of $6.7 million from the end of the second quarter of 2008. Cash balances are invested in money market funds that are either guaranteed by the U.S. Government or are indirect U.S. Government obligations. The Company also has no borrowings under its $25 million credit facility which expires in September 2011.

HMS will be hosting its third quarter 2008 conference call with the investment community on Friday, October 31, 2008 at 9:00 am Eastern Time. The conference call number is US/Canada: (877) 272-8465 Int'l/Local Dial-In: (706) 634-1355 Conference ID: 69250729. A slide presentation will accompany the conference call and may be accessed through our website at

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 of the call, dial: US/Canada: (800) 642-1687 Int'l/Local Dial-In: (706) 645-9291 Conference ID: 69250729 or visit our website at

The HMS Holdings Corp. Form 10-Q for the quarter ended September 30, 2008 will be filed and available on our website on or about November 14, 2008, 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 for at least a 12-month period. Shareholders and interested investors are welcome to contact HMSY Investor Relations at 212-857-5986. Following the filing of the Form 10-Q, corporate executives will be available to respond to inquiries from shareholders and interested investors.

About HMS Holdings Corp.

HMS Holdings Corp. (Nasdaq: HMSY) is the nation's leader in coordination of benefits and program integrity services for government healthcare programs. The company's clients include health and human services programs in more than 40 states, 80 Medicaid managed care plans, the Centers for Medicare and Medicaid Services (CMS), and Veterans Administration facilities. HMS helps ensure that healthcare claims are paid correctly and by the responsible party. As a result of the company's services, government healthcare programs recover over $1 billion annually, and avoid billions of dollars more in erroneous payments.

This press release includes presentations of earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA. Adjusted EBITDA represents EBITDA adjusted for share-based compensation expense. EBITDA is a measure commonly used by the capital markets to value enterprises. Interest, taxes, depreciation and amortization can vary significantly between companies due in part to differences in accounting policies, tax strategies, levels of indebtedness and interest rates. Excluding these items provides insight into the underlying results of operations and facilitates comparisons between HMSY and other companies. EBITDA is also a useful measure of the Company's ability to service debt and is one of the measures used for determining debt covenant compliance. In addition, because of the varying methodologies for determining share-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding share-based compensation expense from EBITDA enhances the ability of management and investors to compare our core operating results over multiple periods with those of other companies. Management believes EBITDA and adjusted EBITDA information is useful to investors for these reasons. Both EBITDA and adjusted EBITDA are non-GAAP financial measures and should not be viewed as an alternative to GAAP measures of performance. Management believes the most directly comparable GAAP financial measure is net income and has provided a reconciliation of EBITDA and adjusted EBITDA to net income in this press release.

Certain statements in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of HMSY, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to: (i) the information being of a preliminary nature and therefore subject to further adjustment; (ii) the uncertainties of litigation; (iii) HMSY's dependence on significant customers; (iv) changing conditions in the healthcare industry which could simplify the reimbursement process and adversely affect HMSY's business; (v) government regulatory and political pressures which could reduce the rate of growth of healthcare expenditures and/or discourage the assertion of claims for reimbursement against and delay the ultimate receipt of payment from third party payors; (vi) competitive actions by other companies, including the development by competitors of new or superior services or products or the entry into the market of new competitors; (vii) all the risks inherent in the development, introduction, and implementation of new products and services; and (viii) other risk factors described from time to time in HMSY's filings with the SEC, including HMSY's Form 10-K for the year ended December 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", and similar expressions are intended to identify forward-looking statements, and the above described risks inherent therein.



For the Three and Nine-Month Periods Ended September 30, 2008 and 2007

(In thousands, except per share amounts)


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


Consolidated Balance Sheets

(In thousands, except share and per share amounts)


September 30, December 31,

2008 2007


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


Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2008 and 2007

(in thousands)


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


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 $-


Reconciliation of net income to EBITDA and adjusted EBITDA

(In thousands, except share and per share amounts)


As summarized in the following table, earnings before interest, taxes, depreciation and amortization, and share-based compensation expense (adjusted EBITDA) was $14.6 million for the third quarter of 2008, an increase of 36.6% over the same period a year ago.

Reconciliation of net income to Three Months Nine months

EBITDA and adjusted EBITDA Ended Ended

September 30, September 30,

2008 2007 2008 2007

Net Income $6,143 $4,141 $14,317 $10,920

Net interest expense 180 326 617 1,361

Income taxes 4,448 3,202 10,368 8,443

Depreciation and amortization,

net of deferred financing costs

included in net interest expense 2,993 2,599 8,662 7,402

Earnings before interest,

taxes, depreciation

and amortization (EBITDA) 13,764 10,268 33,964 28,126

Share-based compensation expense 833 417 2,351 1,420

Adjusted EBITDA $14,597 $10,685 $36,315 $29,546

SOURCE HMS Holdings Corp.
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