HMS Holdings Corp. (NASDAQ:HMSY) today announced financial results for the third quarter of 2016. Net income for the quarter ended September 30, 2016 was $13.5 million or $0.16 per diluted share, compared to net income of $8.6 million or $0.10 per diluted share in the second quarter of 2016 and $6.9 million or $0.08 per diluted share in the prior year third quarter. Net income in the quarter included tax benefits of approximately $1.1 million or $0.01 per diluted share in connection with 2016 year-to-date and $6.2 million or $0.07 per diluted share for certain prior open years’ Research and Development (“R&D”) credits and domestic manufacturing deductions recognized in the quarter. Adjusted EPS in the quarter was $0.24 per diluted share, compared to adjusted EPS of $0.18 per diluted share in the second quarter of 2016 and adjusted EPS of $0.15 per diluted share in the prior year third quarter. Adjusted EPS in the quarter included a cumulative tax benefit of approximately $6.2 million or $0.07 per diluted share in connection with certain tax credits and deductions for prior years recognized in the quarter. Total revenue in the quarter was $124.6 million, compared to $123.6 million in the second quarter of 2016 and $118.4 million in the prior year third quarter.

“Record commercial health plan revenue in the third quarter resulted in year-to-date growth of 18% compared to the comparable period in 2015.  New business and incremental product sales to existing customers have been extremely strong throughout 2016 and new product implementations are up nearly 20% year-over-year through the first three quarters, compared to the same period last year. We believe we are well-positioned, therefore, for a strong fourth-quarter,” said Bill Lucia, HMS Chairman and CEO. “Early reaction to our acquisition of Essette has been very encouraging. We see meaningful cross-sell opportunities with existing customers for the web-based Essette care management and care coordination platform, particularly with the heightened focus among risk-bearing healthcare entities on identifying, engaging and better managing their members to improve outcomes while controlling costs,” added Lucia.

Total revenue in the third quarter of 2016 of $124.6 million was approximately 5.2% higher than the prior year third quarter. Total revenue for the year-to-date of $367.9 million was approximately 6.4% higher than the first nine months of 2015. Commercial health plan revenue in the quarter was $59.2 million, a 13.9% increase compared to $52.0 million in the prior year third quarter and a $4.0 million increase from the second quarter of 2016. Total commercial revenue for the year-to-date of $170.4 million was approximately 17.9% higher than the first nine months of 2015. State government revenue in the quarter was $53.0 million, a decrease of $1.6 million compared to $54.6 million in the prior year third quarter, and a decrease of $4.6 million compared to the second quarter of 2016 which included a one-time acceleration of approximately $5.5 million of subrogation related revenue. Total state revenue for the year-to-date was $161.3 million or approximately 6.0% lower than the first nine months of 2015. Non-Medicare RAC Federal and other revenue was $6.6 million in the third quarter of 2016, a $0.7 million decrease compared to the prior year third quarter and a $0.1 million decrease from the second quarter of 2016. Medicare RAC revenue in the quarter was $5.8 million, compared to $4.5 million in the prior year third quarter and $4.1 million in the second quarter of 2016. Medicare RAC revenue in the quarter included reconciliation and continued invoicing activity on certain recoupments prior to contract termination.

Coordination of Benefits (“COB”) revenue, which continues to be our largest product line across both the state government and commercial health plan sectors, was $86.3 million in the third quarter of 2016 compared to $84.2 million in the prior year third quarter and $89.7 million in the second quarter of 2016. COB revenue for the year to date was $258.9 million or approximately 3.4% higher than the first nine months of 2015. COB revenue accounted for 69.3% of total revenue in the quarter, compared to 71.1% in the prior year third quarter and 73.0% in the second quarter of 2016. Payment integrity (“PI”) revenue (excluding Medicare RAC) was $32.5 million in the quarter, a $2.8 million or 9.3% increase from the third quarter of last year and a $2.7 million or 9.1% increase from the second quarter of 2016. Total PI revenue for the year-to-date of $90.9 million was approximately 7.6% higher than the first nine months of 2015.

“We concluded a tax analysis in the quarter, with the assistance of an outside consultant, which identified certain tax credits and deductions to which the Company is entitled and which we project will reduce our effective annual tax rate by approximately 300 basis points to approximately 37%. That lower rate will be reflected for full year 2016, but we are also seeking refunds for tax years 2012–2015 in order to take advantage of the same benefits,” said Jeff Sherman, HMS CFO. “We recognized a cumulative tax benefit in the third quarter of approximately $6.2 million related to certain prior open tax years, which boosted adjusted EPS by approximately $0.07 per diluted share.”

For additional information about the Company’s third quarter 2016 financial results, see the Q3 2016 Investor Presentation which is available on the Company’s website at http://investor.hms.com/events.cfm.

Webcast and Conference Call Information

HMS will report its third quarter 2016 financial and operating results via webcast at 7:30 AM CT / 8:30 AM ET on Wednesday, November 9, 2016. The webcast may also include discussion of HMS developments, forward-looking statements and other material information about business and financial matters.  The webcast can be accessed via phone at (877) 303–7208 or (224) 357–2389 for international participants, or at http://investor.hms.com/events.cfm on the HMS Investor Relations website. The webcast will also be archived and available for replay beginning at approximately 11:00 AM CT / 12:00 PM ET on November 9, 2016 at http://investor.hms.com/events.cfm. This press release and the financial statements contained herein are also available at http://investor.hms.com/releases.cfm.

The HMS Quarterly Report on Form 10-Q for the period ended September 30, 2016 is expected to be filed with the Securities and Exchange Commission and available on the HMS website at http://investor.hms.com/financials.cfm and at www.sec.gov on November 9, 2016 and will contain additional information about our results of operations for the fiscal year-to-date.

About HMS

HMS Holdings Corp., through its subsidiaries, provides coordination of benefits, payment integrity and care management solutions for payers. The Company serves State Medicaid programs; 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 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, customers recover billions of dollars annually and save billions more through the prevention of improper payments.