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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: [audio gap] 2004. I would now like to turn the conference over to William Miller, Chairman and CEO. Please go ahead sir.
WILLIAM MILLER, CHAIRMAN AND CEO, HMS HOLDINGS CORP.: Thank you operator and good morning to everyone. Welcome to the HMS Holdings Corp 2004, Second Quarter Conference Call. I am Bill Miller, Chairman and Chief Executive Officer and I will be hosting the call this morning along with Bob Holster, our President and Chief Operating Officer; Tom Archbold, our Interim Chief Financial Officer; and also joining us will be Bill Lucia, the President of our Health Management System Subsidiary.
Before we begin, let me indicate that we will be making forward-looking statements in the course of this call. And in this regard please refer to the qualifiers listed in the forward-looking statements language, included in the press release issued yesterday. Please note this conference call will routinely open on a listen-only basis to individual investors and interested parties.
This morning I would like to begin by updating you on our two businesses; HMS and Accordis, and our view of this current environment in which each of them is operating. Tom Archbold, our CFO will then review with you the financial performance of the Company for the quarter, and lastly we will be open to your questions.
First, as reported in early May of this year, we succeeded in finalizing the settlement of the Justice Department Investigation that spanned 15 months. It was a costly investigation both in terms of management time and legal expenses and it had a negatively effect on the Q2, 2003 operations of Accordis. With this settlement behind us and our complete focus back on the business, I am pleased to reinstate our quarterly conference call with the investment community to communicate the steady progress that HMS Holdings is making in its respective markets. For the second quarter 2004, the Company generated revenue of 21.3 million representing an increase of 25% from 2003. Operating income in the second quarter of 2004 was 1.1 million versus a loss of 1 million in 2003. Our results have been driven by significant revenue growth in both segments of our business coupled with elimination of the costs associated with the DOJ matter. I am now going to turn the call over to Tom Archbold, who would take us through the second quarter financial results and I will return with commentary both on the operations of Accordis and HMS after Tom's remarks. Tom.
TOM ARCHBOLD, INTERIM CFO, HMS HOLDINGS CORP.: Thank you, Bill, and good morning everyone. And we start with the statement of operations for the second quarter ended June 30, 2004; HMS Holdings reported revenue of 21.3 million, an increase of 4.3 million from the prior year second quarter revenue of 17 million. Health Management Systems which provides coordination of benefits and cost containment services to state Medicaid agencies earned revenue of 10.4 million, a 1.1 million or 12% increase from the prior year. Accordis, which provides revenue cycle management services for hospitals and emergency transport agencies earned revenues of 10.9 million, a 3.2 million or 41% increase from the prior year comparable period. Prior year revenue reflected the uneven revenue stream of our project based revenue resulting in an approximately 55% of Accordis's fiscal year 2003 revenue being recognized in the second half of the year. Total consolidated operating expenses for the quarter were 20.2 million, an increase of 2.2 million compared to 18 million in the prior year second quarter.
Compensation expenses of 11.2 million represents an increase of 1.6 million from the prior year quarter resulting from an increase in staff to support the Company's growth and general increases in compensation rates. At June 30 of this year, we had 563 employees compared to a headcount of 491 at June 30, 2003. Data processing expenses of 1.2 million and occupancy cost of 1.4 million were both largely unchanged from the prior year period. Direct project costs of 4.2 million were 1.3 million greater than the prior year period and 1 million greater than in Q1 of '04.
Project cost associated with Accordis reflects startup costs associated with three new outsourcing engagements. HMS's revenue mix included several projects with a high incremental cost. Other operating cost of 2.2 million, an increase of 0.4 million from the prior year's second quarter. The increase in the current year is principally attributable to Sarbanes-Oxley Compliance cost as well as startup [program] cost associated with new customer and recruiting fees related to increased staffing. Cost associated with the United States Attorney's investigation decreased from 1.1 million in the prior year second quarter to $44,000 in the current year's second quarter. This reduction is consistent with having settled this matter early this year and having recorded settlement costs in the first quarter of this year. Current quarter expenses consist of legal expenses associated with finalizing this settlement.
With regard to income taxes this company does not provide for any income taxes against the current quarter's results of operations. The Company has a substantial deferred -- net deferred tax income asset of 17 million and significantly reduced by deferred income tax asset valuation of 8.6 million in light of the Company's recent history of tax losses.
In summary, for the quarter ended June 30, 2004, HMS Holdings recognized net income of 1.1 million or 5 cents per diluted common share compared to net loss of 0.9 million or 5 cents per common share during the prior year …