NCI acquires AdvanceMed

NCI, Inc. (NASDAQ:NCIT), a leading provider of information technology (IT), engineering, logistics, and professional services and solutions to U.S. Federal Government agencies, announced today that it has acquired the outstanding capital stock of AdvanceMed Corporation, an affiliate of CSC.

AdvanceMed is a premier provider of healthcare program integrity services focused on the detection and prevention of fraud, waste, and abuse in healthcare programs, providing investigative services to the Centers for Medicare and Medicaid Services (CMS). Serving CMS since 1999, AdvanceMed has grown rapidly, demonstrating the value and return on investment of the Federal Government's integrity program activities.

AdvanceMed employs a strong and experienced professional staff, which leverages sophisticated information technology, data mining, and data analytical tools, to provide a full range of investigative services directed to the identification and recovery of inappropriate Medicare and Medicaid funds. AdvanceMed supports healthcare programs in 38 states with a staff of more than 450 professionals, including information specialists, nurses, physicians, statisticians, investigators, and other healthcare professionals.

AdvanceMed has multiple contracts with CMS under the Zone Program Integrity (ZPIC), Program Safeguard (PSC), Comprehensive Error Rate Testing (CERT), and Medicaid Integrity (MIC) programs. All of these programs are executed under cost plus contract vehicles. The largest contracts—ZPIC Zone 5 and ZPIC Zone 2—were awarded in late 2009 and 2010 and have five-year periods of performance.

The acquisition price was $62 million. Included within the price is a recently completed, state-of-the-art data center to support the ZPIC Zone 5 and ZPIC Zone 2 contracts. Additionally, NCI will make a 338(h)(10) election, enabling a tax deduction, which is expected to result in a tax benefit with an estimated net present value of approximately $6 million to $8 million. NCI expects the transaction to be slightly accretive to 2011 earnings.

As of the end of March 2011, AdvanceMed has a revenue backlog of approximately $300 million with approximately $51 million of that amount being currently funded. Revenue for the trailing 12 months ending March 31, 2011, is estimated to be approximately $51 million, all of which was generated from Federal Government contracts, and 99% of the work performed as a prime contractor. NCI's AdvanceMed 2011 revenue, covering the nine-month period of April 2, 2011, to December 31, 2011, is estimated to be in the range of $43 million to $47 million (the equivalent of $57 million to $63 million on a full 12-month basis), with the midpoint reflecting a full-year growth of approximately 16%. Management will discuss the transaction in more detail and provide revised 2011 guidance during its first quarter 2011 earnings conference call scheduled for May 4, 2011, at 5:00 ET.

NCI's Chairman and CEO, Charles Narang, said, "We are very pleased to have acquired AdvanceMed. We believe that the program integrity market offers substantial long-term growth opportunities and that AdvanceMed is ideally situated to address this market. AdvanceMed has strong leadership, an outstanding professional staff, a superb reputation with its customers, and a demonstrated track record of accomplishment. We believe this acquisition provides significant benefit to the Centers for Medicare and Medicaid Services, to the AdvanceMed leaders and employees, and to NCI shareholders."