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HMS Reports Fourth Quarter and Full Year 2020 Financial Results

HMS Holdings Corp
·21-min read
  • FY'20 Total Revenue of $673.3 Million, +7.5% vs. FY'19

  • FY'20 Net Income of $70.1 Million, -19.6% vs. FY'19

  • FY'20 GAAP EPS of $0.78 per Diluted Share vs. $0.98 per Diluted Share in FY'19

  • FY'20 Adjusted EPS of $1.33 per Diluted Share vs. $1.12 per Diluted Share in FY'19 (excluding net benefit of 2Q-19 Reserve Release, 3Q-19 Gain on Investment and discrete tax benefits)

  • FY'20 Adjusted EBITDA of $184.3 Million, +12.6% vs. FY'19 (excluding net benefit of 2Q-19 Reserve Release and 3Q-19 Gain on Investment)

IRVING, Texas, Feb. 26, 2021 (GLOBE NEWSWIRE) -- HMS Holdings Corp. (Nasdaq: HMSY) today announced financial results for the fourth quarter and full year ended December 31, 2020.

Fourth Quarter
Total revenue in the fourth quarter of 2020 was $194.0 million, compared to total revenue of $163.4 million in the fourth quarter of 2019 (+18.7%). Revenue in the fourth quarter of 2020 from the Accent business, which was acquired at the end of 2019, was $10.9 million. Organic revenue in the fourth quarter of 2020, excluding Accent, increased 13.2%.

Coordination of Benefits (COB) revenue was $130.5 million in the fourth quarter of 2020 compared to $98.6 million in the fourth quarter of 2019 (+32.4%). Organic COB revenue, excluding Accent, was $119.7 million (+23.5%).

Payment Integrity (PI) revenue was $50.3 million in the fourth quarter of 2020, compared to $48.4 million in the fourth quarter of 2019 (+4.1%). Population Health Management (PHM) revenue was $13.1 million in the fourth quarter of 2020, compared to $16.6 million in the prior year fourth quarter (-20.6%).

Net income in the fourth quarter of 2020 was $32.8 million, or $0.36 per diluted share, compared to net income of $17.3 million, or $0.20 per diluted share, in the fourth quarter of 2019.

Adjusted EBITDA in the fourth quarter of 2020 was $64.9 million, compared to $42.3 million in the fourth quarter of 2019 (+53.4%).

Adjusted EPS in the fourth quarter of 2020 was $0.51 per diluted share, compared to adjusted EPS of $0.27 per diluted share in the fourth quarter of 2019 (+88.9%).

Full Year
Total revenue for the twelve months ended December 31, 2020 was $673.3 million, compared to $626.4 million in the prior year (+7.5%). For the twelve months ended December 31, 2019, total revenue included $10.5 million in revenue from the second quarter of 2019 related to the Company's release of its remaining contract-related balance under its original Medicare RAC Contract (the “2Q 2019 Reserve Release”). Revenue in the twelve months ended December 31, 2020 from the Accent business was $43.3 million. Excluding the 2Q 2019 Reserve Release and revenue from the Accent business, total revenue increased 2.6% compared to the prior year.

COB revenue for the twelve months ended December 31, 2020 was $469.2 million, compared to $404.1 million in the prior year (+16.1%). Organic COB revenue for the twelve months ended December 31, 2020, excluding Accent, was $425.9 million (+5.8%).

PI revenue for the twelve months ended December 31, 2020 was $152.0 million, compared to $162.2 million in the prior year (-6.3%). Excluding the 2Q 2019 Reserve Release, PI revenue increased 0.2% compared to the prior year. PHM revenue for the twelve months ended December 31, 2020 was $52.1 million, compared to $60.1 million in the prior year (-13.3%).

Net income for the twelve months ended December 31, 2020 was $70.1 million, or $0.78 per diluted share, compared to $87.2 million, or $0.98 per diluted share, in the prior year. For the twelve months ended December 31, 2019, net income included $0.07 per diluted share related to the 2Q 2019 Reserve Release, a net benefit of $0.06 per diluted share related to a gain on the sale of an investment in the third quarter of 2019 (the "3Q 2019 Gain on Investment"), and discrete tax benefits recorded in the first quarter of 2019 totaling $0.07 per diluted share.

Adjusted EBITDA for the twelve months ended December 31, 2020 was $184.3 million, compared to $179.6 million in the prior year (+2.6%), which included a net benefit of $8.2 million related to the 2Q 2019 Reserve Release and $7.7 million related to the 3Q 2019 Gain on Investment. Excluding those benefits, Adjusted EBITDA increased 12.6% compared to the prior year.

Adjusted EPS for the twelve months ended December 31, 2020 was $1.33 per diluted share. Adjusted EPS was $1.32 per diluted share in the prior year, including $0.07 per diluted share related to the 2Q 2019 Reserve Release, $0.06 per diluted share related to the 3Q 2019 Gain on Investment and discrete tax benefits recorded in the first quarter of 2019 totaling $0.07 per diluted share. Excluding the 2Q 2019 Reserve Release, the 3Q 2019 Gain on Investment and discrete tax benefits in 2019, adjusted EPS for the twelve months ended December 31, 2020 was $1.33 per diluted share, compared to $1.12 per diluted share in the prior year period (+18.8%).

Cash Flow and Capital Resources
Net cash provided by operating activities for the twelve months ended December 31, 2020 was $99.0 million compared to $133.2 million in the prior year. Capital expenditures were $27.9 million for the twelve months ended December 31, 2020, compared to $21.6 million in the prior year.

The Company's balance sheet at December 31, 2020 included $207.1 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.

About HMS
HMS advances healthcare by helping 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 healthcare forward. Visit us at www.hms.com.

Trademarks
HMS 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 Measures
The 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 Statement
The financial results in this press release reflect preliminary, unaudited results, which are not final until the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 is filed. This press release, and other written or oral statements made by management from time to time, may contain "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,” variations of such terms and similar expressions and references to guidance, although some forward-looking statements may be expressed differently. 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 occurrence of any event, change, or other circumstances that could delay or prevent closing of the proposed acquisition of HMS by Gainwell Acquisition Corp. ("Gainwell"), or give rise to the termination of that certain Agreement and Plan of Merger, dated December 20, 2020, by and among HMS, Gainwell, Mustang MergerCo Inc. and Gainwell Intermediate Holding Corp.; 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 or growth strategy; our ability to innovate, develop, implement and deliver new or enhanced solutions or services; the nature of any strategic acquisition, investment, partnership and divestiture opportunities we are pursuing, and our ability to successfully execute on such opportunities; our ability to successfully integrate or merge acquired businesses and realize synergies; significant and increased competition for our solutions and services; 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 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 the COVID-19 pandemic; 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 and IT 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; our success in attracting and retaining qualified employees and members of our management team; risks relating to our international operations, including political, regulatory, economic, foreign exchange, cybersecurity, tax compliance and other risks; variations in our results of operations; our ability to accurately forecast the revenue under our contracts and solutions; our ability to generate sufficient cash to cover our interest and principal payments under our credit facility; changes in tax laws, regulations or guidance or 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; our ability to protect our intellectual property rights, proprietary technology, information processes, and know-how; 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; pending or threatened litigation; unfavorable outcomes in legal proceedings; 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 herein speak only as of the date such statements are first made. 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.

Investor Contact:

Media Contact:

Robert Borchert

Lacey Hautzinger

SVP, Investor Relations

Sr. Director, External Communications

robert.borchert@hms.com

lacey.hautzinger@hms.com

469-284-2140

469-284-7240



HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2020

2019

2020

2019

Revenue

$

193,981

$

163,445

$

673,283

$

626,395

Cost of services:

Compensation

67,521

59,288

261,199

231,321

Direct project and other operating expenses

24,967

26,376

96,182

90,069

Information technology

16,245

14,323

61,433

53,950

Occupancy

4,012

4,100

16,528

16,375

Amortization of acquisition related software and intangible assets

5,389

4,509

21,964

16,999

Total cost of services

118,134

108,596

457,306

408,714

Selling, general and administrative expenses

33,889

29,151

122,750

114,665

Total operating expenses

152,023

137,747

580,056

523,379

Operating income

41,958

25,698

93,227

103,016

Interest expense

(1,451

)

(2,634

)

(7,586

)

(11,013

)

Interest income

5

857

271

4,148

Other income

(386

)

514

1,358

8,211

Income before income taxes

40,126

24,435

87,270

104,362

Income taxes

7,307

7,089

17,121

17,138

Net income

$

32,819

$

17,346

$

70,149

$

87,224

Basic income per common share:

Net income per common share — basic

$

0.37

$

0.20

$

0.79

$

1.00

Diluted income per common share:

Net income per common share — diluted

$

0.36

$

0.20

$

0.78

$

0.98

Weighted average shares:

Basic

88,546

86,328

88,438

87,222

Diluted

90,369

87,987

90,081

89,317



HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)

December 31,
2020

December 31,
2019

Assets

Current assets:

Cash and cash equivalents

$

207,124

$

139,268

Accounts receivable, net

265,717

223,443

Prepaid expenses and other current assets

26,332

30,925

Income tax receivable

3,210

Deferred financing costs, net

564

564

Total current assets

499,737

397,410

Property and equipment, net

81,539

86,947

Goodwill

594,561

599,351

Intangible assets, net

117,193

131,849

Operating lease right-of-use assets

14,428

17,493

Deferred financing costs, net

545

1,109

Other assets

21,674

10,117

Total assets

$

1,329,677

$

1,244,276

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable, accrued expenses and other liabilities

$

96,322

$

97,747

Liability for appeals

6,047

3,570

Total current liabilities

102,369

101,317

Long-term liabilities:

Revolving credit facility

240,000

240,000

Operating lease liabilities

11,991

14,881

Net deferred tax liabilities

18,906

25,587

Other liabilities

8,082

7,626

Total long-term liabilities

278,979

288,094

Total liabilities

381,348

389,411

Commitments and contingencies

Shareholders' equity:

Preferred stock -- $0.01 par value; 5,000,000 shares authorized; none issued

Common stock -- $0.01 par value; 175,000,000 shares authorized;102,249,981, shares issued and 88,586,787 shares outstanding at December 31, 2020; 101,766,468 shares issued and 88,103,566 shares outstanding at December 31, 2019

1,022

1,018

Capital in excess of par value

503,275

479,964

Retained earnings

579,608

509,459

Treasury stock, at cost: 13,663,194 shares at December 31, 2020 and 13,663,194 shares at December 31, 2019

(135,576

)

(135,576

)

Total shareholders' equity

948,329

854,865

Total liabilities and shareholders' equity

$

1,329,677

$

1,244,276



HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

Years Ended December 31,

2020

2019

2018

Operating activities:

Net income

$

70,149

$

87,224

$

54,989

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property, equipment and software

32,104

33,293

33,254

Amortization of intangible assets

14,656

9,691

24,342

Amortization of deferred financing costs

564

564

564

Gain on sale of cost basis investment

(7,697

)

Stock-based compensation expense

24,044

21,901

21,507

Deferred income taxes

(6,681

)

7,290

(3,504

)

Noncash lease expense

3,065

4,133

Change in fair value of contingent consideration

(35

)

Release of estimated liability for appeals, net

(10,478

)

(8,436

)

Changes in operating assets and liabilities:

Accounts receivable

(39,977

)

(16,292

)

(17,312

)

Prepaid expenses and other current assets

4,593

(10,487

)

(2,785

)

Other assets

(8,169

)

(2,173

)

245

Income taxes receivable / payable

9,790

15,607

(16,925

)

Accounts payable, accrued expenses and other liabilities

(4,677

)

4,744

11,181

Operating lease liabilities

(2,890

)

(5,315

)

Liability for appeals

2,477

1,227

(628

)

Net cash provided by operating activities

99,048

133,232

96,457

Investing activities:

Acquisition of businesses, net of cash acquired

1,529

(185,790

)

Proceeds from sale of cost basis investment

9,776

Investment in common stock

(3,388

)

(7,421

)

Purchases of property and equipment

(11,253

)

(8,276

)

(11,264

)

Investment in capitalized software

(16,636

)

(13,348

)

(19,149

)

Net cash used in investing activities

(29,748

)

(205,059

)

(30,413

)

Financing activities:

Proceeds from exercise of stock options

2,779

39,332

38,362

Payments of tax withholdings on behalf of employees for net-share settlements

(3,508

)

(6,988

)

(2,818

)

Payments on capital lease obligations

(715

)

(195

)

Purchases of treasury stock

(5,955

)

Net cash (used in)/provided by financing activities

(1,444

)

32,149

29,589

Net increase/(decrease) in cash and cash equivalents

67,856

(39,678

)

95,633

Cash and Cash Equivalents

Cash and cash equivalents at beginning of year

139,268

178,946

83,313

Cash and cash equivalents at end of period

$

207,124

$

139,268

$

178,946

Supplemental disclosure of cash flow information:

Cash paid for income taxes/(refunds received), net of refunds

$

13,734

$

(5,298

)

$

22,225

Cash paid for interest

$

5,928

$

10,457

$

10,326

Supplemental disclosure of non-cash activities:

Change in balance of accrued property and equipment purchases

$

1,193

$

(1,303

)

$

1,305



HMS HOLDINGS CORP. AND SUBSIDIARIES

(unaudited)

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

Three Months Ended

(in thousands, except percentages)

December 31, 2020

December 31, 2019

Net income

$

32,819

$

17,346

Net interest expense

1,446

1,777

Income taxes

7,307

7,089

Depreciation and amortization of property and equipment and intangible assets

11,545

11,256

Earnings before interest, taxes, depreciation and amortization (EBITDA)

53,117

37,468

Stock-based compensation expense

2,961

3,186

Transaction and integration costs

8,783

1,638

Adjusted EBITDA

$

64,861

$

42,292

% of Revenue

33.4

%

25.9

%


Twelve Months Ended

(in thousands, except percentages)

December 31, 2020

December 31, 2019

Net income

$

70,149

$

87,224

Net interest expense

7,315

6,865

Income taxes

17,121

17,138

Depreciation and amortization of property and equipment and intangible assets

46,760

42,984

Earnings before interest, taxes, depreciation and amortization (EBITDA)

141,345

154,211

Stock-based compensation expense

24,044

21,901

Transaction and integration costs

18,894

3,489

Adjusted EBITDA

$

184,283

$

179,601

% of Revenue

27.4

%

28.7

%

Adjusted EBITDA excluding 2Q 2019 Reserve Release and 3Q 2019 Gain on Investment

$

184,283

$

163,701

% of Revenue

27.4

%

26.6

%



HMS HOLDINGS CORP. AND SUBSIDIARIES

(unaudited)

Reconciliation of Net Income to GAAP EPS (Diluted) and Adjusted EPS (Diluted)

Three Months Ended

(in thousands, except per share amounts)

December 31, 2020

December 31, 2019

Net income

$

32,819

$

17,346

Stock-based compensation expense

2,961

3,186

Transaction and integration costs

8,783

1,638

Amortization of acquisition related software and intangible assets

5,389

4,509

Income tax related to adjustments¹

(4,009

)

(2,595

)

Adjusted net income

$

45,943

$

24,084

Weighted average common shares, diluted

90,369

87,987

Diluted EPS²

$

0.36

$

0.20

Diluted adjusted EPS²

$

0.51

$

0.27


Twelve Months Ended

(in thousands, except per share amounts)

December 31, 2020

December 31, 2019

Net income

$

70,149

$

87,224

Stock-based compensation expense

24,044

21,901

Transaction and integration costs

18,894

3,489

Settlement expense

Amortization of acquisition related software and intangible assets

21,964

16,999

Income tax related to adjustments¹

(15,187

)

(11,784

)

Adjusted net income

$

119,864

$

117,829

Weighted average common shares, diluted

90,081

89,317

Diluted EPS²

$

0.78

$

0.98

Diluted adjusted EPS²

$

1.33

$

1.32

Discrete tax benefits

$

$

0.07

2Q 2019 Reserve Release benefit³

$

$

0.07

3Q 2019 Gain on Investment³

$

$

0.06

Diluted adjusted EPS excluding 2Q 2019 Reserve Release, 3Q 2019 Gain on Investment, and discrete tax benefits

$

1.33

$

1.12

(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) Diluted GAAP EPS and Diluted adjusted EPS for the twelve months ended December 31, 2019 included (i) discrete tax benefits of $0.07 per diluted share primarily related to the exercise of employee stock options, (ii) $0.07 per diluted share related to the 2Q 2019 Reserve Release benefit and (iii) a $0.06 per diluted share benefit related to the 3Q 2019 Gain on Investment.

(3) The 2Q 2019 Reserve Release benefit of $0.07 per diluted share for the twelve months ended December 31, 2019 is net of income tax of approximately $0.03 per diluted share. The 3Q 2019 Gain on Investment benefit of $0.06 per diluted share for the twelve months ended December 31, 2019 is net of income tax of approximately $0.02 per diluted share.



HMS HOLDINGS CORP. AND SUBSIDIARIES

(unaudited)

Reconciliation of Total Debt to Net Leverage Ratio

(in thousands, except ratios)

December 31, 2020

December 31, 2019

Total Debt (revolving credit facility)

$

240,000

$

240,000

Cash and cash equivalents

(207,124

)

(139,268

)

Total net debt⁴

$

32,876

$

100,732

Net income⁵

$

70,149

$

87,224

Adjusted EBITDA⁶

$

184,283

$

179,601

Net leverage ratio⁷

0.18

0.56

(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


Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

Twelve Months Ended

(In thousands)

December 31, 2020

December 31, 2019

Net cash provided by operating activities

$

99,048

$

133,232

Purchases of property and equipment

(11,253

)

(8,276

)

Investment in capitalized software

(16,636

)

(13,348

)

Non-GAAP free cash flow

$

71,159

$

111,608

The Company believes that 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.