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HMS Holdings Corp. Announces Q4 and Full Year 2007 Results

Fourth Quarter Revenues Increase 24% over Prior Year

NEW YORK, Feb. 28 /PRNewswire-FirstCall/ -- HMS Holdings Corp. (Nasdaq: HMSY) today announced financial results for its fourth quarter and full year ended December 31, 2007.

Revenue for the fourth quarter of 2007 increased 24% to $41.7 million, compared with $33.6 million for the same period a year ago. HMSY reported net income of $4.0 million or $0.15 per diluted common share for the fourth quarter of 2007, compared to net income of $1.9 million or $0.07 per diluted common share during the fourth quarter of the prior year.

For the full year 2007, the Company reported revenue of $146.7 million, a 67% increase over 2006 revenue of $87.9 million. Also for the full year, the Company reported income from continuing operations of $15.0 million or $0.57 per diluted common share, versus income from continuing operations of $4.9 million or $0.21 per diluted common share in the prior year.

As summarized in the following table, earnings before interest, taxes, depreciation and amortization, and share based compensation expense (adjusted EBITDA) were $11.1 million for the quarter ended December 31, 2007, an increase of 21.4% over the fourth quarter of 2006. For the year ended December 31, 2007, adjusted EBITDA was $40.7 million, an increase of 108% over the year ended December 31, 2006. Results for the year ended December 31, 2007 reflect the full year impact from our September 2006 acquisition of the Benefits Solution Practice Area (BSPA) of Public Consulting Group, Inc. (PCG).

"Led by managed care, all of HMS's product lines contributed to generating organic growth in excess of twenty percent in our first 'apples-to-apples' quarter since the acquisition of BSPA in 2006," said Robert Holster, Chairman and CEO of HMS Holdings Corp. "Heading into 2008, we look forward to increased demand by government healthcare programs for our cost management services, as an economy and heal (26,462) (42,755)

Financing activities:

Proceeds from exercise of stock options 6,577 2,867

Proceeds from long-term debt - 40,000

Repayment of long-term debt (7,875) (8,500)

Deferred financing costs - (936)

Tax benefit of disqualifying dispositions 8,275 275

Net cash provided by

financing activities 6,977 33,706

Net (decrease) increase in cash

and cash equivalents 8,748 8,470

Cash provided by discontinued operations:

Cash provided by operating activities - 416

Net cash provided by discontinued

operations - 416

Cash and cash equivalents at beginning

of period 12,527 3,641

Cash and cash equivalents at end of period $21,275 $12,527

Supplemental disclosure of cash flow


Cash paid for income taxes $56 $404

Cash paid for interest 1,945 $831

Supplemental disclosure of noncash

investing activities:

Common stock issued in connection

with BSPA acquisition $- $24,410

thcare delivery system under stress focus ever more attention on ensuring that medical claims are paid correctly, and by the responsible payor."

Reconciliation of net income to

EBITDA and adjusted EBITDA Three Months Ended Year Ended

December 31, December 31,

2007 2006 2007 2006

Net Income $4,036 $1,865 $14,956 $5,325

Net interest (income) expense 371 535 1,732 (672)

Income taxes 3,150 1,475 11,593 3,588

Depreciation and amortization, net

of deferred financing costs,

included in net interest expense

(income) 2,796 4,636 10,210 9,657

Earnings before interest,

taxes, depreciation

and amortization (EBITDA) 10,353 8,511 38,491 17,898

Share-based compensation expense 753 639 2,173 1,674

Adjusted EBITDA $11,106 $9,150 $40,664 $19,572

HMSY will be hosting its fourth quarter and full year 2007 results conference call with the investment community on Friday, February 29, 2008 at 10:00 am Eastern Time. The conference call number is US/Canada: 1 (877) 272- 8465 Int'l/Local Dial-In: (706) 634-1355 Participant Code: 33915129. A slide presentation will accompany the conference call and may be accessed through our website at

A conference call replay will be available beginning 2/29/2008 1:00 PM EST through 3/7/2008 11:00 PM EST. To listen to the replay of the call, dial: US/Canada: 1 (800) 642-1687 Int'l/Local Dial-In: (706) 645-9291 Participant Code: 33915129 or visit our website at

The HMS Holdings Corp. Form 10-K for the year ended December 31, 2007 will be filed and available on our website on or about March 17, 2008, and will contain additional information about our results of operations for the fiscal year 2007. This press release and the 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- K, 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 cost management, coordination of benefits, and program integrity services for government healthcare programs. HMS serves the Medicaid programs of 40 states, more than 70 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 $1.0 billion annually, and obtain access to data that helps them prevent 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, 2006. 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.


Consolidated Statements of Income

(In Thousands, Except Per Share Amounts)


Three months ended Year ended

Dec. 31, Dec. 31,

2007 2006 2007 2006

Revenue $41,668 $33,621 $146,651 $87,940

Cost of services:

Compensation 16,255 13,609 57,137 38,547

Data processing 2,916 2,031 10,026 6,812

Occupancy 2,965 2,156 9,411 6,322

Direct project costs 6,023 5,624 21,866 13,849

Other operating costs 4,790 2,733 15,288 8,165

Amortization of acquisition

related software and intangibles 1,162 3,593 4,642 6,420

Total cost of services 34,111 29,746 118,370 80,115

Operating income 7,557 3,875 28,281 7,825

Interest expense (464) (685) (2,207) (1,014)

Interest income 93 150 475 1,686

Income before income taxes 7,186 3,340 26,549 8,497

Income taxes 3,150 1,475 11,593 3,588

Income from continuing operations 4,036 1,865 14,956 4,909

Discontinued operations:

Income from operations - - - 416

Net income $4,036 $1,865 $14,956 $5,325

Basic income per share data:

Income per share from continuing

operations $0.16 $0.08 $0.63 $0.23

Income per share from

discontinued operations - - - 0.02

Net income per basic share $0.16 $0.08 $0.63 $0.25

Weighted average common shares

outstanding, basic 24,471 23,259 23,904 21,731

Diluted income per share data:

Income per share from continuing

operations $0.15 $0.07 $0.57 $0.21

Income per share from

discontinued operations - - - 0.01

Net income per diluted share $0.15 $0.07 $0.57 $0.22

Weighted average common shares,

diluted 26,646 25,470 26,249 23,859


Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)


December 31, December 31,

2007 2006


Current Assets:

Cash and cash equivalents $21,275 $12,527

Accounts receivable, net allowance

of $662 and $512 at December 31, 2007

and 2006, respectively 39,704 30,930

Prepaid expenses and other current

assets, including deferred tax

assets of $657 and $3,353 at December

31, 2007 and 2006 respectively 3,970 5,352

Total current assets 64,949 48,809

Property and equipment, net 16,496 12,160

Goodwill, net 80,242 65,242

Deferred income taxes, net 3,111 3,860

Intangible assets, net 22,495 26,204

Other assets 807 968

Total assets $188,100 $157,243

Liabilities and Shareholders' Equity

Current Liabilities:

Accounts payable, accrued expenses

and other liabilities $21,535 $14,285

Amounts due to Public Consulting Group, Inc. 4 1,385

Current portion of long term-debt 6,300 7,875

Total current liabilities 27,839 23,545

Long-term liabilities:

Long-term debt 17,325 23,625

Other liabilities 4,187 3,166

Total long-term liabilities 21,512 26,791

Total liabilities 49,351 50,336

Shareholders' Equity:

Preferred Stock - $. 01 par value;

5,000,000 shares authorized; none issued - -

Common Stock - $ .01 par value;

45,000,000 shares authorized;

26,409,035 shares issued and

24,746,189 shares outstanding

at December 31, 2007; 25,027,865

shares issued and 23,365,019 shares

outstanding at December 31, 2006 264 250

Capital in excess of par value 127,887 110,876

Retained earnings 20,187 5,231

Treasury stock, at cost; 1,662,846 shares at

December 31, 2007 and December 31, 2006 (9,397) (9,397)

Accumulated other comprehensive loss (192) (53)

Total Shareholders' Equity 138,749 106,907

Total liabilities and shareholders'

equity $188,100 $157,243


Consolidated Statements of Cash Flows

For the Years ended December 31, 2007 and 2006

(in Thousands)


Year ended December 31,

2007 2006

Operating activities:

Net income $14,956 $5,325

Adjustments to reconcile net

income to net cash provided

by operating activities:

Income from discontinued operations - (416)

Loss on disposal of fixed assets 370 29

Depreciation and amortization 10,558 9,713

Share-based compensation expense 2,173 1,674

Changes in assets and liabilities:

(Increase) decrease in accounts

receivable (8,197) (2,105)

Increase in prepaid expenses and

other current assets (1,185) (213)

Decrease in deferred tax asset 3,445 3,163

(Increase) decrease in other

assets (171) 12

Increase in accounts payable,

accrued expenses and other

liabilities 6,284 337

Net cash provided by

operating activities 28,233 17,519

Investing activities:

Purchases of short-term investments - (59,450)

Sales of short-term investments - 96,950

Accordis note receivable - 5,360

Purchases of property and equipment (10,229) (3,334)

Acquisition of Permedion (627) -

Acquisition of BSPA (15,000) (81,150)

Investment in software (606) (1,131)

Net cash used in

investing activities

SOURCE HMS Holdings Corp.
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