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 HMS Holdings Corp. Reports Fourth Quarter and Full Year 2014 Results
   Friday, February 27, 2015 6:00:00 AM ET

--Full year revenue, excluding Medicare RAC, increased 10% Commercial revenue was up 15%

--State government revenue was up 9%

--Full year Medicaid coordination of benefits revenue increased 14%

HMS Holdings Corp. (HMSY ) today announced financial results for its fourth quarter and full year ended December 31, 2014. Net loss for the quarter ended December 31, 2014 was $2.4 million or ($0.03) per diluted share, compared to net income of $7.0 million or $0.08 per diluted share in the third quarter and $11.1 million or $0.13 per diluted share in the prior year fourth quarter. Adjusted EPS was $0.03 per diluted share in the fourth quarter, compared to $0.14 per diluted share in the third quarter and $0.20 per diluted share in the prior year fourth quarter. Unusual items negatively impacted fourth quarter pre-tax earnings by $12.1 million or $0.07 per diluted share in adjusted EPS. A higher than expected tax rate impacted fourth quarter adjusted earnings by $3.4 million or $0.04 per diluted share. Total revenue was $112.2 million compared to $113.8 million in the third quarter and $121.6 million in the prior year fourth quarter, which included $25.4 million of Medicare Recovery Audit Contractor ("RAC") revenue compared to $2.8 million in the current year fourth quarter.

For the full year ended December 31, 2014, net income was $13.9 million or $0.16 per diluted share, compared to net income of $40.0 million or $0.45 per diluted share in the prior year. Adjusted EPS for the full year was $0.41 per diluted share compared to $0.75 per diluted share in the prior year. Total revenue for 2014 was $443.2 million, which included $22.0 million of Medicare RAC revenue, compared to $491.8 million in the prior year, which included $108.0 million of Medicare RAC revenue.

"2014 was a year of solid growth in commercial and state government revenues. Despite longer than anticipated implementation schedules, full year commercial revenue increased by 15%. The substantial influx of Medicaid enrollees, due to the Affordable Care Act, boosted state government revenue by 9%. Resulting topline revenue, excluding Medicare RAC, was 10% higher for the year," said Bill Lucia, HMS President and CEO. "2014 revenue from our historically strong Medicaid coordination of benefits product suite was up 14% for the year."

"The $86 million (80%) decline in 2014 Medicare RAC revenue, compared to the prior year, presented significant challenges, but also highlighted the importance of our ongoing strategy to diversify revenues - principally by focusing on commercial business opportunities. We completed the build-out of a talented and experienced commercial sales team in the fourth quarter, so are now well positioned to execute our plan to make commercial sales and revenue our growth engine for 2015," added Lucia.

Total revenue of $109.4 million in the fourth quarter, excluding Medicare RAC revenue, was 13.7% higher than the prior year fourth quarter. Commercial revenue in the quarter was $45.0 million, an 18.1% increase compared to $38.1 million in the prior year fourth quarter; state government revenue was $58.7 million in the fourth quarter, a 12.7% increase compared to $52.1 million in the prior year fourth quarter; non-Medicare RAC federal and other revenue was $5.7 million, a 7.0% decrease compared to $6.1 million in the prior year fourth quarter. On a full-year basis, commercial revenue was $170.9 million, an increase of 14.6% compared to $149.1 million in 2013; state government revenue was $225.8 million, an increase of 8.9% compared to $207.4 million in the prior year; and non-Medicare RAC federal and other revenue was $24.5 million, a decrease of 9.9% compared to $27.2 million in the prior year.

The Company’s coordination of benefits ("COB") products accounted for 72.7% of total revenue in the fourth quarter. Total COB revenue in the quarter from both commercial and government customers was $81.6 million, an increase of 23.9% compared to the prior year fourth quarter. For the full year, COB revenue of $312.5 million was $39.4 million or 14.4% higher than 2013.

"Year-over-year quarterly commercial revenue increased throughout 2014, with the fourth quarter up 18% compared to the prior year fourth quarter," said Lucia. "We are particularly encouraged that many of our health plan customers now view HMS as their business partner in annual planning and budgeting cycles. They are seeking our cost containment solutions in the ever more challenging and complex healthcare reimbursement environment," concluded Lucia.

"We ended the year with an enhanced and low-levered balance sheet, including over $133 million in cash. Looking ahead to 2015, we should have sufficient flexibility to invest in our growth and to make acquisitions as opportunities present themselves, while retaining the capital that will be required when new Medicare RAC awards are made," said Jeff Sherman, HMS Chief Financial Officer. "Successfully managing expenses and redeploying personnel to support our growing commercial business following the precipitous decline in Medicare RAC revenue during 2014 was a substantial achievement. Our process improvement initiatives produced benefits throughout 2014, as the total cost of services was down $12.7 million or 4.0% excluding a $3.1 million decline in amortization," added Sherman.

"Three unusual items negatively impacted fourth quarter pre-tax earnings by $12.1 million or $0.07 per share in adjusted EPS, including: 1) a $5.5 million litigation expense; 2) $5.5 million in accounts receivable write-downs related primarily to two contracts resolved in the fourth quarter; and 3) $1.1 million in severance costs. A higher than expected state tax rate resulted in a full year effective tax rate of 47% and negatively impacted fourth quarter adjusted earnings by $3.4 million or $0.04 per share. We expect to return to a normalized 42% tax rate in 2015," concluded Sherman.

Webcast and Conference Call Information

HMS will report its fourth quarter and full year 2014 financial and operating results at 7:30 a.m. CT/8:30 a.m. ET on Friday, February 27, 2015. Individuals can access the webcast at http://investor.hms.com /events.cfm">http://investor.hms.com /events.cfm .or">http://investor.hms.com /events.cfm">http://investor.hms.com /events.cfm .or listen to the call at (877) 303-7208. International participants can listen to the call at (224) 357-2389.

The webcast will be archived for replay on the HMS Investor Relations website at http://investor.hms.com /events.cfm">http://investor.hms.com /events.cfm . The replay will be available at approximately 11:00 a.m. CT/12:00 p.m. ET on February 27, 2015.

The HMS Form 10-K for the year ended December 31, 2014 will be filed and available on our website at http://investor.hms.com on March 2, 2015, and will contain additional information about our results of operations for the fiscal year to date. This press release and the interim financial statements contained herein are also available at http://investor.hms.com .

About HMS

HMS Holdings Corp., through its subsidiaries, provides coordination of benefits and payment integrity services for payers. The Company serves Medicaid programs in 45 states and the District of Columbia; commercial health plans, including Medicaid managed care, Medicare Advantage and group and individual health lines of business; federal government health agencies, including the Centers for Medicare & Medicaid Services ("CMS") and the Veterans Health Administration; government and private employers; child support agencies; and other healthcare payers and sponsors. As a result of the Company’s services, our customers recovered billions of dollars in 2014 and saved billions more through the prevention of erroneous payments.

Non-GAAP Financial Measures

This press release includes presentations of earnings before interest, taxes, depreciation and amortization ("EBITDA") and adjusted EBITDA. Adjusted EBITDA represents EBITDA adjusted for stock-based compensation expense. EBITDA is a common measure of performance used by the capital markets to value enterprises, which the Company’s management uses in addition to measures calculated in accordance with generally accepted accounting principles ("GAAP") to evaluate its results of operations. EBITDA is a non-GAAP financial measure and is reconciled to net income (loss), which the Company’s management believes to be the most comparable GAAP measure. Adjusted EBITDA results are calculated by adjusting GAAP income (loss) to exclude the effects of net interest expense, income taxes, depreciation and amortization and stock-based compensation expense.

This press release also includes presentations of adjusted earnings per share ("EPS"). Adjusted EPS represents EPS adjusted for stock-based compensation expense and amortization of acquisition related software and intangible assets and for the related taxes for these adjustments. Adjusted EPS is a non-GAAP financial measure and is reconciled to EPS, which the Company’s management believes to be the most comparable GAAP measure.

The Company uses these non-GAAP financial measures for internal management purposes, when publicly providing guidance on possible future results, and as a means to evaluate period-to-period comparisons. The Company’s management believes that these non-GAAP financial measures are a common measure used by its investors and analysts to evaluate its performance. The use of these non-GAAP financial measures has limitations, and the Company’s presentation of such financial measures may be different from the presentation used by other companies, and therefore comparability may be limited. 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, income (loss) in accordance with GAAP.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such statements give our expectations or forecasts of future events; they do not relate strictly to historical or current facts. Forward-looking statements can be identified by words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes," "will," "target," "seeks," "forecast" and similar expressions and references to guidance. In particular, these include statements relating to future actions, business plans, objectives and prospects, and future operating or financial performance. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to: variations in our results of operations; changes in the U.S. healthcare environment and steps we take in anticipation of such changes; regulatory, budgetary or political actions that affect procurement practices; our ability to retain customers or the loss of one or more major customers, including through our failure to reprocure a contract or the reduction in scope or early termination of one or more of our significant contracts; our ability to effectively manage our growth to execute on our business plans; the risk that guidance may not be achieved including but not limited to the risk that we may not achieve non-Medicare margin expansion; the risk that HMS will not receive a contract award for any current or future procurement or reprocurement or that either or both may be delayed; the risk of negative or reduced growth rate of spending on Medicaid/Medicare, simplification of the healthcare payment process or programmatic changes that diminish the scope of benefits; the risk that CMS may not support the RAC program, may change the RAC program and reduce future fees, and may require repayment of certain prior fees; our ability to retain customers or the loss of one or more major customers; customer dissatisfaction or early termination of contracts triggering significant costs or liabilities; the development by competitors of new or superior products or services; the emergence of new competitors, or the development by our customers of in-house capacity to perform the services we offer; all the risks inherent in the development, introduction, and implementation of new products and services; our failure to comply with laws and regulations governing health data or to protect such data from theft and misuse; our ability to maintain effective information systems and protect them from damage or interruption; restrictions on our ability to bid on/perform certain work due to other work we currently perform; the risks and uncertainties attendant to litigation; our ability to successfully integrate our acquisitions; our ability to continue to secure contracts through the competitive bidding process and to accurately predict the cost and time to complete such contracts; the risk that expected tax rate improvements will not be realized; our compliance with the covenants and obligations under the terms of our credit facility and our ability to generate sufficient cash to cover our interest and principal payments thereunder; and negative results of government or customer reviews, audits or investigations to verify our compliance with contracts and applicable laws and regulations. A further description of these and other risks, uncertainties, and related matters can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which is available at www.hms.com under the "Investor Relations" tab. Factors or events that could cause actual results to differ may emerge from time to time and it is not possible for us to predict all of them. Any forward-looking statements are made as of the date of this press release and we do not undertake an obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

 
                                                                                                                                        HMS HOLDINGS CORP. AND SUBSIDIARIES
                                                                                                                                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                                                                                                     (in thousands, except per share amounts)
                                                                                                                                                    (unaudited)
                                                                                                                                                     
                                                                                                                                          Three months ended December 31,                                                                                Year ended December 31,
                                                                                                                 --------------------------------------------------------------------------------                     --------------------------------------------------------------------------------------------
                                                                                                                     2014                           2013                            2014                                 2013
                                                                                                                 -------------------- -------                      -------------------- -------                       -------------------- -------                      -------------------- --------------------
                                                                                                                                                                                                                                                                                              
Revenue                                                                                                                             $ 112,161                                         $ 121,592                                          $ 443,225                                         $              491,762
                                                                                                                 -------------------- -------                      -------------------- -------                       -------------------- -------                      -------------------- --------------------
                                                                                                                                                                                                                                                                                              
Cost of services:
                     Compensation                                                                                                      43,772                                            47,765                                            177,313                                                        185,788
                     Data processing                                                                                                   10,438                                             9,141                                             39,661                                                         37,115
                     Occupancy                                                                                                          3,835                                             4,631                                             16,950                                                         18,397
                     Direct project costs                                                                                              15,470                                            10,014                                             42,934                                                         46,343
                     Other operating costs                                                                                              6,380                                             6,168                                             24,588                                                         26,493
                     Amortization of acquisition related software
                          and intangible assets                                                                      7,132                          7,160                          28,612                                      31,747
                                                                                                                 -------------------- -------                      -------------------- -------                       -------------------- -------                      -------------------- --------------------
                          Total cost of services                                                                                       87,027                                            84,879                                            330,058                                                        345,883
                                                                                                                                                                                                                                                                                              
Selling, general and administrative expenses                                                                        25,225                         16,452                          78,963                                      68,701
                                                                                                                 -------------------- -------                      -------------------- -------                       -------------------- -------                      -------------------- --------------------
                          Total operating expenses                                                                 112,252                        101,331                         409,021                                     414,584
                                                                                                                 -------------------- -------                      -------------------- -------                       -------------------- -------                      -------------------- --------------------
                                                                                                                                                                                                                                                                                              
                     Operating income (loss)                                                                                             (91)                                            20,261                                             34,204                                                         77,178
                                                                                                                                                                                                                                                                                              
Interest expense                                                                                                                      (1,952)                                           (2,363)                                            (7,931)                                                       (12,460)
Interest income                                                                                                                            10                                                35                                                 57                                                             71
Other income, net                                                                                                        -                              2                               -                                         801
                                                                                                                 -------------------- -------                      -------------------- -------                       -------------------- -------                      -------------------- --------------------
                     Income (loss) before income taxes                                                                                (2,033)                                            17,935                                             26,330                                                         65,590
Income taxes                                                                                                           361                          6,842                          12,383                                      25,593
                                                                                                                 -------------------- -------                      -------------------- -------                       -------------------- -------                      -------------------- --------------------
                                                                                                                                                                                                                                                                                              
                          Net income (loss) and comprehensive
                               income (loss)                                                                                        $ (2,394)                                         $  11,093                                          $  13,947                                         $               39,997
                                                                                                                 ==================== =======                      ==================== =======                       ==================== =======                      ==================== ====================
                                                                                                                                                                                                                                                                                              
Basic income (loss) per common share:
                          Net income (loss) per common share - basic                                                                $  (0.03)                                         $    0.13                                          $    0.16                                         $                 0.46
                                                                                                                 ==================== =======                      ==================== =======                       ==================== =======                      ==================== ====================
                                                                                                                                                                                                                                                                                              
Diluted income (loss) per common share:
                          Net income (loss) per common share - diluted                                                              $  (0.03)                                         $    0.13                                          $    0.16                                         $                 0.45
                                                                                                                 ==================== =======                      ==================== =======                       ==================== =======                      ==================== ====================
                                                                                                                                                                                                                                                                                              
Weighted average shares:
                     Basic                                                                                          87,839                         87,736                          87,673                                      87,598
                                                                                                                 ==================== =======                      ==================== =======                       ==================== =======                      ==================== ====================
                     Diluted                                                                                        87,839                         88,352                          88,164                                      88,344
                                                                                                                 ==================== =======                      ==================== =======                       ==================== =======                      ==================== ====================
                                                                                                                                                                                                                                                                                              
 
                                                                            HMS HOLDINGS CORP. AND SUBSIDIARIES
                                                                                CONSOLIDATED BALANCE SHEETS
                                                                    (in thousands, except share and per share amounts)
                                                                                        (unaudited)
                                                                                         
                                                                                                                                    December 31,                          December 31,
                                                                                                                                        2014                                  2013
                                                                                                                                    ------------                      --------------------
                                                                                                                                                                       
                                          Assets
Current assets:
                     Cash and cash equivalents                                                                                         $ 133,116                                  $ 93,366
                     Accounts receivable, net of allowance for doubtful accounts of
                     $1,898 and $916,
                          and estimated allowance for appeals of $4,824 and $13,939
                          at December 31, 2014 and 2013, respectively                                                                    157,101                                   171,726
                     Prepaid expenses                                                                                                     11,810                                    12,942
                     Prepaid income taxes                                                                                                  5,142                                     6,792
                     Deferred tax assets                                                                                                   7,811                                         -
                     Other current assets                                                                                                  2,639                                       489
                                                                                                                                    ------------                      --------------------
                          Total current assets                                                                                           317,619                                   285,315
                                                                                                                                                                       
                     Property and equipment, net                                                                                         116,027                                   123,006
                     Goodwill                                                                                                            361,468                                   361,468
                     Intangible assets, net                                                                                               74,578                                    95,312
                     Deferred financing costs, net                                                                                         6,957                                     9,041
                     Other assets                                                                                                          4,339                                     4,460
                                                                                                                                    ------------                      --------------------
                        Total assets                                                                                                   $ 880,988                                 $ 878,602
                                                                                                                                    ============                      ====================
                                                                                                                                                                       
                           Liabilities and Stockholders’ Equity
Current liabilities:
                     Accounts payable, accrued expenses and other liabilities                                                           $ 54,549                                  $ 37,123
                     Estimated liability for appeals                                                                                      36,799                                    41,852
                     Deferred tax liabilities                                                                                                  -                                     6,326
                     Acquisition related contingent consideration                                                                              -                                       945
                                                                                                                                    ------------                      --------------------
                        Total current liabilities                                                                                         91,348                                    86,246
                                                                                                                                    ------------                      --------------------
                                                                                                                                                                       
Long-term liabilities:
                     Revolving credit facility                                                                                           197,796                                   232,796
                     Deferred tax liabilities                                                                                             50,853                                    52,523
                     Deferred rent                                                                                                         5,037                                       724
                     Other liabilities                                                                                                     2,864                                     3,874
                                                                                                                                    ------------                      --------------------
                        Total long-term liabilities                                                                                      256,550                                   289,917
                                                                                                                                    ------------                      --------------------
                        Total liabilities                                                                                                347,898                                   376,163
                                                                                                                                    ------------                      --------------------
                                                                                                                                                                       
Commitments and Contingencies
                                                                                                                                                                       
Stockholders’ equity:
                     Preferred stock - $0.01 par value; 5,000,000 shares authorized; none                                                      -                                         -
                     issued
                     Common stock - $0.01 par value; 125,000,000 shares authorized;
                        94,511,444 shares issued and 87,985,139 shares outstanding at
                        December 31, 2014;
                        93,826,453 shares issued and 87,300,148 shares outstanding at                                                        943                                       936
                        December 31, 2013
                     Capital in excess of par value                                                                                      313,214                                   296,517
                     Retained earnings                                                                                                   263,947                                   250,000
                     Treasury stock, at cost: 6,526,305 shares at December 31, 2014 and                                                 (45,014)                                  (45,014)
                     2013
                                                                                                                                    ------------                      --------------------
                          Total stockholders’ equity                                                                                     533,090                                   502,439
                                                                                                                                    ------------                      --------------------
                     Total liabilities and stockholders’ equity                                                                        $ 880,988                                 $ 878,602
                                                                                                                                    ============                      ====================
 
 
                                                                                                                                                        HMS HOLDINGS CORP. AND SUBSIDIARIES
                                                                                                                                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                                                                                                  (in thousands)
                                                                                                                                                                    (unaudited)
 
                                                                                                                               Year ended December 31,
                                                                                                                                                                                                            ---------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                2014                   2013
                                                                                                                                                                                                            -------------------- --------                                                                -------------------- --------------------
Operating activities:
                     Net income and comprehensive income                                                                                                                                                                       $   13,947                                                                                   $               39,997
                                          Adjustments to reconcile net income to net cash provided by
                                          operating activities:
                                                                                    Depreciation and amortization of property and equipment                                                                                        32,864                                                                                                   31,360
                                                                                    Amortization of intangible assets                                                                                                              20,734                                                                                                   23,631
                                                                                    Amortization of deferred financing costs                                                                                                        2,084                                                                                                    3,077
                                                                                    Stock-based compensation expense                                                                                                               13,356                                                                                                   11,997
                                                                                    Excess tax benefit from exercised stock options                                                                                               (1,795)                                                                                                  (5,233)
                                                                                    Deferred income taxes                                                                                                                        (12,290)                                                                                                  (4,354)
                                                                                    Allowance for doubtful accounts                                                                                                               (8,133)                                                                                                    6,943
                                                                                    Change in fair value of contingent consideration                                                                                                (517)                                                                                                       35
                                                                                    Loss on disposal of fixed assets                                                                                                                  219                                                                                                      431
                                                                                    Changes in operating assets and liabilities:
                                                                                                         Accounts receivable                                                                                                       10,458                                                                                                 (21,899)
                                                                                                         Prepaid expenses                                                                                                           1,132                                                                                                    1,341
                                                                                                         Prepaid income taxes                                                                                                       3,445                                                                                                  (1,559)
                                                                                                         Other current assets                                                                                                     (2,150)                                                                                                    (172)
                                                                                                         Other assets                                                                                                                 121                                                                                                       28
                                                                                                         Accounts payable, accrued expenses and other liabilities                                                                  18,039                                                                                                    1,050
                                                                                                         Estimated liability for appeals                                                                         7,247                                                                                14,508
                                                                                                                                                                                                            -------------------- --------                                                                -------------------- --------------------
                                                                                                         Net cash provided by operating activities                                                              98,761                                                                               101,181
                                                                                                                                                                                                            -------------------- --------                                                                -------------------- --------------------
                                                                                                                                                                                                                                                                                                                               
Investing activities:
                     Purchases of land, property and equipment                                                                                                                                                                   (22,687)                                                                                                 (22,127)
                     Investment in capitalized software                                                                                                                                                                           (3,514)                                                                                                  (3,656)
                     Investment in common stock                                                                                                                                                                      -                                                                                 (500)
                                                                                                                                                                                                            -------------------- --------                                                                -------------------- --------------------
                                                                                                         Net cash used in investing activities                                                                (26,201)                                                                              (26,283)
                                                                                                                                                                                                            -------------------- --------                                                                -------------------- --------------------
                                                                                                                                                                                                                                                                                                                               
Financing activities:
                     Repayment of revolving credit facility                                                                                                                                                                      (35,000)                                                                                                 (95,000)
                     Proceeds from exercise of stock options                                                                                                                                                                        4,110                                                                                                    9,260
                     Excess tax benefit from exercised stock options                                                                                                                                                                1,795                                                                                                    5,233
                     Payments of tax withholdings on behalf of employees
                                          for net-share settlement for stock-based compensation                                                                                                                                   (1,658)                                                                                                  (1,922)
                     Payments on capital lease obligations                                                                                                                                                                        (1,629)                                                                                                  (1,711)
                     Payments on contingent consideration                                                                                                                                                                           (428)                                                                                                        -
                     Purchases of treasury stock                                                                                                                                                                                        -                                                                                                 (25,000)
                     Repayment of term loan                                                                                                                                                                                             -                                                                                                  (8,750)
                     Proceeds from revolving credit facility                                                                                                                                                                            -                                                                                                    4,046
                     Payment of financing fees related to revolving credit facility                                                                                                                                  -                                                                               (2,915)
                                                                                                                                                                                                            -------------------- --------                                                                -------------------- --------------------
                                                                                                         Net cash used in financing activities                                                                (32,810)                                                                             (116,759)
                                                                                                                                                                                                            -------------------- --------                                                                -------------------- --------------------
                                          Net increase (decrease) in cash and cash equivalents                                                                                                                                     39,750                                                                                                 (41,861)
Cash and cash equivalents at beginning of period                                                                                                                                                                93,366                                                                               135,227
                                                                                                                                                                                                            -------------------- --------                                                                -------------------- --------------------
Cash and cash equivalents at end of period                                                                                                                                                                                     $  133,116                                                                                   $               93,366
                                                                                                                                                                                                            ==================== ========                                                                ==================== ====================
                                                                                                                                                                                                                                                                                                                               
Supplemental disclosure of cash flow information:
                     Cash paid for income taxes                                                                                                                                                                                $   21,144                                                                                   $               34,922
                                                                                                                                                                                                            ==================== ========                                                                ==================== ====================
                     Cash paid for interest                                                                                                                                                                                    $    4,458                                                                                   $                9,520
                                                                                                                                                                                                            ==================== ========                                                                ==================== ====================
Supplemental disclosure of noncash activities:
                     Accrued property and equipment purchases                                                                                                                                                                  $    1,610                                                                                   $                1,725
                                                                                                                                                                                                            ==================== ========                                                                ==================== ====================
                     Equipment purchased through capital leases                                                                                                                                                                $       20                                                                                   $                2,401
                                                                                                                                                                                                            ==================== ========                                                                ==================== ====================
                     Decrease in appeals liability for lost appeals offset with a
                     reduction in
                                          accounts receivable                                                                                                                                                                  $   12,300                                                                                   $                    -
                                                                                                                                                                                                            ==================== ========                                                                ==================== ====================
 
Certain reclassifications were made to prior period amounts to
conform to the current period presentation.
 
                                                                                                                                                          
                                                                                                               HMS HOLDINGS CORP. AND SUBSIDIARIES
                                                                                                            (in thousands, except per share amounts)
                                                                                                                           (unaudited)
                                                                                                                                                          
Reconciliation of Net income (loss) to EBITDA and adjusted EBITDA
                                                                                                                                                          
As summarized in the following table, earnings before interest,
taxes, depreciation and amortization, and stock-based compensation
expense (adjusted EBITDA) was $17.7 million for the fourth quarter
of 2014, a decrease of $19.0 million or 51.8% from the same period a
year ago. Adjusted EBITDA for the year ended 2014 was $101.2
million, a decrease of $43.8 million or 30.2% year over year.
                                                                                                                                                          
                                                                                               Three Months Ended                                                                              Year Ended
                                                                                                  December 31,                                                                                                   December 31,
                                                       --------------------------------------------------------------------------------------------                           -----------------------------------------------------------------------------
                                                          2014                            2013                           2014         2013
                                                       -------------------- ------                                           -------------------- ------                      -------------------- -------                      -------------------- ----------
Net income (loss)                                                         $ (2,394 )                                                            $ 11,093                                         $  13,947                                         $     39,997
Net interest expense                                                         1,942                                                                 2,328                                             7,874                                               12,389
Income taxes                                                                   361                                                                 6,842                                            12,383                                               25,593
Depreciation and amortization, net of deferred
financing costs, included in net interest expense
     financing costs, included in net interest expense   13,567                                                                13,232                         53,598                                               54,991
                                                       -------------------- ------                                                                ------                      -------------------- -------                                           ----------
Earnings before interest, taxes, depreciation and
     amortization (EBITDA)                                                  13,476                                                                33,495                                            87,802                                              132,970
                                                                                                                                                                                                                                 
Stock-based compensation expense                                             4,261                                                                 3,248                                            13,356                                               11,997
                                                                            ------                                                                ------                                           -------                                           ----------
Adjusted EBITDA                                                           $ 17,737                                           $ 36,743                                         $ 101,158                                         $    144,967
                                                       ==================== ====== ====================                      ==================== ======                      ==================== =======                      ==================== ==========
                                                                                                                                                                                                                                 
                                                                                                                                                                                                                                 
Reconciliation of Net income to GAAP EPS and Adjusted EPS
                                                                                                                                                                                                                                 
As summarized in the following table, earnings per share adjusted
for stock-based compensation expense and amortization of intangibles
and for the related taxes (adjusted EPS) was $0.03 for the fourth
quarter of 2014, a decrease of 85.0% from $0.20 for the fourth
quarter of 2013. Adjusted EPS for the year ended 2014 was $0.41, a
decrease of 45.3% from $0.75 for the year ended 2013.
                                                                                                                                                                                                                                 
                                                                                               Three Months Ended                                                                                                 Year Ended
                                                                                                  December 31,                                                                                                   December 31,
                                                       --------------------------------------------------------------------------------------------                           -----------------------------------------------------------------------------
                                                          2014                                               2013                           2014                            2013
                                                       -------------------- ------                                           -------------------- ------                      -------------------- -------                      -------------------- ----------
Net income (loss)                                                         $ (2,394 )                                                            $ 11,093                                         $  13,947                                         $     39,997
Stock-based compensation expense, net of tax                                 1,836                                                                 2,005                                             7,075                                                7,316
Amortization of acquisition related software
     and intangible assets, net of tax                    2,784                                              4,435                         15,156                            19,359
                                                       -------------------- ------                                           -------------------- ------                      -------------------- -------                      -------------------- ----------
     Subtotal                                                             $  2,226                                           $ 17,533                                         $  36,178                                         $     66,672
                                                       ==================== ====== ====================                      ==================== ======                      ==================== =======                      ==================== ==========
                                                                                                                                                                                                                                 
Weighted average common shares, diluted                  88,351                          88,352                         88,164                            88,344
                                                       ==================== ====== ====================                      ==================== ======                      ==================== =======                      ==================== ==========
                                                                                                                                                                                                                                 
Diluted GAAP EPS                                                          $  (0.03 )                                                            $   0.13                                         $    0.16                                         $       0.45
                                                       ==================== ====== ====================                      ==================== ======                      ==================== =======                      ==================== ==========
Diluted adjusted EPS                                                      $   0.03                                           $   0.20                                         $    0.41                                         $       0.75
                                                       ==================== ====== ====================                      ==================== ======                      ==================== =======                      ==================== ==========
                                                                                                                                                          

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20150227005089r1&sid=cmtx6&distro=nx&lang=en

SOURCE: HMS Holdings Corp.

HMS Holdings Corp. 
Investors: 
Dennis Oakes, 212-857-5786 
SVP, Investor Relations 
dennis.oakes@hms.com 
or 
Media: 
Francesca Marraro, 212-857-5442 
VP, Marketing and Communications 
fmarraro@hms.com


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