HMS Holdings CFO Resignation Somewhat Unsurprising Because of Broader Executive and Operational Consolidation

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On Wednesday, HMS Holdings Corp. filed an 8-K disclosing the resignation of Walter Hosp, executive vice president, chief financial officer, and chief administrative officer. He will remain with the company in his existing role during a transition period lasting through June 6, 2014.

Based on the filing and a follow-up conversation with Mr. Hosp as well as President and Chief Executive Officer William Lucia, we believe Mr. Hosp’s resignation arose from the company’s broad efforts to consolidate operations—including the entire executive team—at its Texas headquarters, which conflicted with Mr. Hosp’s long-stated intention of remaining in New York (the location of the company’s prior headquarters) for personal reasons. Lastly, we believe that both Mr. Hosp’s commitment to the transition period and the extended option exercise period in his separation package reflect the amiable nature of the separation as well as management’s conviction (and Mr. Hosp’s personal conviction) that the company will achieve re-emerging growth from several positive drivers in 2015 after government procurement issues have left 2014 as a transition year.

More specific to the stock component of the separation agreement, Mr. Hosp’s outstanding but not fully vested options and restricted stock units will continue to vest through the end of February 2015, and the period for option exercise has been extended to May 29, 2015. The decision in favor of a longer option exercise period reflects Mr. Hosp’s support of the business’s growth re-emerging in 2015 and strong outlook thereafter, in our opinion.

The company has been consolidating operations in Irving, Texas since its July 2010 purchase of the building where an existing office was located. The consolidation efforts have produced operational efficiencies and have helped in the recruitment of both professional staff and management talent. Most recently, in December 2013, the company announced the hiring of Joel Portice as divisional president, government solutions and corporate strategy, and Douglas M. Williams as divisional president, commercial solutions. Management believes its next CFO will help round out what has become a more robust management team working together out of the Irving, Texas headquarters.

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