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HMS Reports Second Quarter 2020 Financial Results

2Q’20 Total Revenue of $142.7 Million, (-15.2%) vs. 2Q’19; YTD’20 Total Revenue -0.7% vs. YTD’19 
2Q’20 Net income of $6.6 Million vs. $29.1 Million in 2Q’19; YTD’20 Net Income -60.4% vs. YTD’192Q’20 GAAP EPS of $0.07 Per Diluted Share vs. $0.33 per Diluted Share in 2Q’192Q’20 Adjusted EPS of $0.19 Per Diluted Share vs. $0.34 per Diluted Share in 2Q’19 (excluding 2Q 2019 Reserve Release Benefit)2Q’20 Adjusted EBITDA of $27.8 Million, (-41.6%) vs. 2Q’19; YTD’20 Adjusted EBITDA -15.5% vs. YTD’19 (excluding 2Q 2019 Reserve Release Benefit)IRVING, Texas, Aug. 07, 2020 (GLOBE NEWSWIRE) — HMS Holdings Corp. (Nasdaq: HMSY) today announced financial results for the second quarter ended June 30, 2020.“HMS is showing its organizational agility and financial strength, and the fundamentals of our business remain strong as our nation and the world continue to address the circumstances surrounding COVID-19,” said Bill Lucia, Chairman and CEO. “With lower utilization rates, client work pauses, and shifts in industry focus, COVID-19 had a negative impact on our Company’s second quarter financial performance, with revenue, net income and adjusted EBITDA declining on both a sequential and year-over-year basis. Despite these challenges, we maintained robust cash flows, with cash and cash equivalents up 38.6% since the end of 2019 to reach $193 million at the end of the second quarter.“Our organization moved swiftly to remain fully operational in support of our clients while protecting our employees’ health and safety. We continue to invest in our business to bolster future growth as well as deliver strong client value to meet the industry’s evolving needs. We believe strong cost containment and clinical outcome capabilities are going to grow in importance both during and after this health crisis, particularly as State budgets are pressured due to lower revenue and higher Medicaid costs.“Regardless of the recent headwinds we have encountered, we remain well positioned to deliver value to our clients and our business outlook for the second half of 2020 and full year 2021 remains positive. We are seeing signs of improving healthcare utilization and other trends that should be beneficial for the HMS business. For example, elective procedures are beginning to increase; Medicaid enrollment is rising due primarily to higher unemployment; and, our Payment Integrity business line is expected to improve during the third quarter as CMS and other clients are lifting pauses on certain medical record requests and audits enacted during a COVID-19 emergency period to reduce administrative burden on hospitals,” Lucia concluded.Second QuarterTotal revenue in the second quarter of 2020 was $142.7 million, compared to total revenue of $168.2 million in the prior year second quarter (-15.2%). 2Q 2019 included $10.5 million in revenue as the Company released its remaining contract-related balances under its original Medicare RAC Contract (the “2Q 2019 Reserve Release”). Revenue in the second quarter of 2020 from the Accent business, which was acquired at the end of 2019, was $10.8 million. Organic revenue in the second quarter of 2020, excluding Accent and the 2Q 2019 Reserve Release, declined 16.4%.Coordination of Benefits (COB) revenue was $106.7 million in the second quarter of 2020 compared to $105.1 million in the prior year second quarter (+1.6%). Organic COB revenue, excluding Accent, was $95.9 million (-8.8%) due to lower claim volumes resulting from circumstances related to COVID-19.Payment Integrity (PI) revenue was $24.4 million in the second quarter of 2020, compared to $49.1 million in the prior year second quarter (-50.3%). Excluding the 2Q 2019 Reserve Release, total PI revenue decreased 36.8% compared to the prior year quarter due to lower claim volumes, primarily driven by temporary suspension or reduction of certain client contract work resulting from circumstances related to COVID-19, as previously disclosed. Population Health Management (PHM) revenue was $11.5 million in the second quarter of 2020, compared to $14.0 million in the prior year second quarter (-17.6%) due to the suspension of certain consumer engagement programs primarily related to COVID-19 circumstances which more than offset an increase in COVID-19-specific program activities.Net income in the second quarter of 2020 was $6.6 million, or $0.07 per diluted share, compared to net income of $29.1 million, or $0.33 per diluted share, in the second quarter of 2019. Net income in the second quarter of 2019 included a net benefit of $0.07 per diluted share related to the 2Q 2019 Reserve Release.Adjusted EBITDA in the second quarter of 2020 was $27.8 million, compared to $47.6 million excluding a net benefit of $8.2 million related to the 2Q 2019 Reserve Release in the prior year second quarter (-41.6%).Adjusted EPS in the second quarter of 2020 was $0.19 per diluted share, compared to $0.34 per diluted share in the second quarter of 2019 excluding the 2Q 2019 Reserve Release of $0.07 per diluted share (-44.1%). Six Months EndedTotal revenue for the six months ended June 30, 2020 was $314.1 million, compared to $316.1 million in the prior year period (-0.7%). For the six months ended June 30, 2019, total revenue included $10.5 million from the 2Q 2019 Reserve Release. Revenue in the six months ended June 30, 2020 from the Accent business was $21.7 million. Excluding the 2Q 2019 Reserve Release and revenue from the Accent business, total revenue decreased 4.3% compared to the prior year period.COB revenue for the six months ended June 30, 2020 was $224.8 million, compared to $210.9 million in the prior year period (+6.6%). Organic COB revenue for the six months ended June 30, 2020, excluding Accent, was $203.1 million (-3.7%).PI revenue for the six months ended June 30, 2020 was $63.7 million, compared to $76.8 million in the prior year period (-17.1%). Excluding the 2Q 2019 Reserve Release, total PI revenue for the six months ended June 30, 2020, decreased 4.0% compared to the prior year period. PHM revenue for the six months ended June 30, 2020 was $25.6 million, compared to $28.3 million in the prior year period (-9.8%).Net income for the six months ended June 30, 2020 was $19.3 million, or $0.21 per diluted share, compared to $48.7 million, or $0.55 per diluted share, in the prior year period. For the six months ended June 30, 2019, net income included $0.07 per diluted share related to the 2Q 2019 Reserve Release and discrete tax benefits recorded in the first quarter of 2019 totaling $0.07 per diluted share.Adjusted EBITDA for the six months ended June 30, 2020 was $74.9 million, compared to $96.8 million in the prior year period, which included a net benefit of $8.2 million related to the 2Q 2019 Reserve Release (-22.6%). Excluding this benefit, Adjusted EBITDA decreased 15.5% compared to the prior year period.Adjusted EPS for the six months ended June 30, 2020 was $0.51 per diluted share. Adjusted EPS was $0.75 per diluted share in the comparable prior year period, including $0.07 per diluted share related to the 2Q 2019 Reserve Release and discrete tax benefits recorded in the first quarter of 2019 totaling $0.07 per diluted share. Excluding the 2Q 2019 Reserve Release and discrete tax item in 2019, adjusted EPS for the first six months of 2020 was $0.51 per diluted share, compared to $0.61 per diluted share in the prior year period (-16.4%).Cash Flow and Capital ResourcesNet cash provided by operating activities for the six months ended June 30, 2020 was $65.8 million compared to $78.1 million in the first six months of 2019. Capital expenditures were $11.5 million for the six months ended June 30, 2020, compared to $8.4 million in the comparable prior year period.The Company’s balance sheet at June 30, 2020 included $193.1 million of cash and cash equivalents and $240.0 million in outstanding bank debt, compared to cash and cash equivalents of $139.3 million and outstanding bank debt of $240.0 million at December 31, 2019.
Financial GuidanceThe Company revised its full year 2020 financial guidance, as follows:(1) Reported FY 2019 revenue includes $10.5 million related to the 2Q 2019 Reserve Release. Including the 2Q 2019 Reserve Release, total FY 2020 revenue growth is expected to be 8.6 – 10.2%. Excluding the 2Q 2019 Reserve Release, then total FY 2020 revenue growth is expected to be 10.5 – 12.1%.(2) Reported FY 2019 net income includes $6.0 million related to the 2Q 2019 Reserve Release, $5.6 million related to the 3Q 2019 Gain on Investment and $6.5 million related to discrete tax benefits. Including the 2Q 2019 Reserve Release, 3Q 2019 Gain on Investment and discrete tax benefits, then FY 2020 net income growth is expected to be (24.1) – (14.9)%. Excluding the 2Q 2019 Reserve Release and 3Q 2019 Gain on Investment, net income growth is expected to be (4.3) – 7.2%.(3) Reported 2019 adjusted EBITDA includes $8.2 million related to the 2Q 2019 Reserve Release and $7.7 million related to the 3Q 2019 Gain on Investment. Including the 2Q 2019 Reserve Release and 3Q 2019 Gain on Investment, adjusted EBITDA growth is expected to be (1.7) – 3.9%. Excluding the 2Q 2019 Reserve Release and 3Q 2019 Gain on Investment, then FY 2020 adjusted EBITDA growth is expected to be 7.9 – 14.0%.Key assumptions underlying the Company’s revised full year 2020 financial guidance include:Depreciation and amortization of approximately $50 millionStock-based compensation expense of approximately $24 millionIntegration-related costs of approximately $8-10 millionNet interest expense of approximately $7 millionAn effective tax rate of 23-25%Capital expenditures of approximately $30-35 millionThe anticipated impact of COVID-19 on the Company’s revenue opportunitiesWebcast and Conference Call InformationHMS will report its preliminary second quarter 2020 financial and operating results via webcast at 7:30 AM CT / 8:30 AM ET on Friday, August 7, 2020. The webcast will include discussion of HMS developments, forward-looking statements and other material information about business and financial matters. The webcast can be accessed via phone at 877-303–7208 (224-357–2389 for international participants), or on the HMS Investor Relations website at http://investor.hms.com/events-and-presentations. The webcast will be archived and available for replay at http://investor.hms.com/events-and-presentations. This press release and the financial statements contained herein are also available on the HMS Investor Relations website at http://investor.hms.com/press-releases.About HMSHMS advances the healthcare system by helping healthcare organizations reduce costs and improve health outcomes. Through our industry-leading technology, analytics and engagement solutions, we save billions of dollars annually while helping consumers lead healthier lives. HMS provides a broad range of payment accuracy and population health management solutions that help move the healthcare system forward. Visit us at www.hms.com and follow us on Twitter at @HMSHealthcare.TrademarksHMS and the HMS logo are registered trademarks of HMS Holdings Corp. and/or its affiliates. Other names may be trademarks of their respective owners.Non-GAAP Financial MeasuresThe 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 press release should not be viewed as alternatives or substitutes for the Company’s reported GAAP results. A reconciliation to 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 presented in this press release are relevant and provide useful information to the Company’s management, investors, and other interested parties about the Company’s operating performance because the measures allow them to understand and compare the Company’s actual and expected operating results during the prior, current and future 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 StatementThe financial results in this press release reflect preliminary, unaudited results, which are not final until the Company’s Form 10-Q is filed. This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such statements relate to our current expectations, projections and assumptions about our business, the economy and future events or conditions. They do not relate strictly to historical or current facts. Forward-looking statements can be identified by words such as “aims,” “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “forecasts,” “future,” “intends,” “likely,” “may,” “outlook,” “plans,” “potential,” “projects,” “seeks,” “strategy,” “targets,” “trends,” “will,” “would,” “could,” “should,” and variations of such terms and similar expressions and references to guidance, although some forward-looking statements may be expressed differently. In particular, these include statements relating to, among other things, the possible effects of COVID-19; our future actions, business plans, objectives and prospects; and our future operating or financial performance and projections, including our updated full year guidance for 2020. Factors or events that could cause actual results to differ may emerge from time to time and are difficult to predict. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results may differ materially from past results and those anticipated, estimated or projected. We caution you not to place undue reliance upon any of these forward-looking statements. Factors that could cause or contribute to such differences, include, but are not limited to: the course of the COVID-19 pandemic and the responses to the pandemic, and their effects on our business and operations, including those of our customers and partners, and general economic, business and market conditions; our ability to execute our business plans and growth strategy; our ability to innovate, develop or implement new or enhanced solutions or services; the nature of acquisition, investment, strategic relationship and divestiture opportunities we are pursuing, and our ability to successfully execute on such opportunities; our ability to successfully integrate acquired businesses and operations and realize synergies; significant and increased competition related to our solutions and services; variations in our results of operations; our ability to accurately forecast the revenue under our contracts and solutions; our ability to protect our systems from damage, interruption or breach, and to maintain effective information and technology systems and networks, including during a catastrophic or extraordinary event, such as COVID-19; our ability to protect our intellectual property rights, proprietary technology, information processes, and know-how; our failure to maintain a high level of customer retention or the unexpected reduction in scope or termination of key contracts with major customers; customer dissatisfaction or our non-compliance with contractual provisions or regulatory requirements; our failure to meet performance standards triggering significant costs or liabilities under our contracts; our inability to manage our relationships with data sources and suppliers; our reliance on subcontractors and other third party providers and parties to perform services; our ability to secure future contracts and favorable contract terms through the competitive bidding process; pending or threatened litigation; unfavorable outcomes in legal proceedings; our success in attracting and retaining qualified employees and members of our management team; our ability to generate sufficient cash to cover our interest and principal payments under our credit facility; changes in tax laws, regulations or guidance and unexpected changes in our effective tax rate; unanticipated increases in the number or amount of claims for which we are self-insured; accounting changes or revisions; political, economic and foreign exchange conditions and other risks relating to our international operations; changes in the healthcare environment or healthcare financing system, including regulatory, budgetary or political actions that affect healthcare spending or the practices and operations of healthcare organizations; our failure to comply with applicable laws and regulations governing individual privacy and information security, domestically and internationally, or to protect such information from theft and misuse; our ability to comply with current and future legal and regulatory requirements; negative results of government or customer reviews, audits or investigations; state or federal limitations related to outsourcing of certain government programs or functions; restrictions on bidding or performing certain work due to perceived conflicts of interests; the market price of our common stock and lack of dividend payments; anti-takeover provisions in our corporate governance documents; and other factors, risks and uncertainties described in our most recent Annual Report on Form 10-K and in our other 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)


HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)


HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


HMS HOLDINGS CORP. AND SUBSIDIARIES
(unaudited)
Reconciliation of Net Income to EBITDA and Adjusted EBITDA



HMS HOLDINGS CORP. AND SUBSIDIARIES
(unaudited)
Reconciliation of Net Income to EPS (Diluted) and Adjusted EPS (Diluted)


(1) Tax effect of adjustments is computed as the pre-tax effect of the adjustments multiplied by the adjusted annual effective tax rate at period end.(2) The reserve release benefit of $0.07 for the three and six months ended June 30, 2019 are net of income tax of approximately $0.03 per diluted share.(3) Diluted EPS and Diluted Adjusted EPS included a $0.07 per diluted share discrete tax benefit primarily related to the exercise of employee stock options for the six months ended June 30, 2019.


HMS HOLDINGS CORP. AND SUBSIDIARIES
(unaudited)
Reconciliation of Net Income to EBITDA and Adjusted EBITDA (Trailing twelve months)Reconciliation of Total Debt to Net Leverage Ratio(4) Total Debt consists of the outstanding principal under our senior secured revolving credit facility
(5) Trailing twelve months Net income
(6) Trailing twelve months Adjusted EBITDA
(7) The Company’s net leverage ratio is calculated by dividing total net debt by trailing twelve months’ Adjusted EBITDA


HMS HOLDINGS CORP. AND SUBSIDIARIES
(unaudited)
Reconciliation of Net Cash Provided by Operating Activities to Free Cash FlowThe Company believes the non-GAAP free cash flow financial measures presented in this press release provide useful information regarding how much cash flow is available, after purchases of property and equipment and investment in capitalized software, to be used for working capital needs or for other opportunities. It should not be inferred that the entire non-GAAP free cash flow amount is available for discretionary expenditures. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

Reconciliation of Revised Financial Guidance for Full Year 2020 Net Income to Projected 2020 EBITDA and Adjusted EBITDA 


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