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CST: 07/12/2019 20:31:24   

Performant Financial Corporation Announces Financial Results for Third Quarter 2019

25 Days ago

LIVERMORE, Calif., Nov. 12, 2019 (GLOBE NEWSWIRE) -- Performant Financial Corporation (Nasdaq: PFMT), (the "Company"), a leading provider of technology-enabled recovery and related analytics services in the United States, today reported the following financial results for its third quarter ended September 30, 2019:

Third Quarter Financial Highlights

  • Total revenues of $35.9 million, compared to revenues of $27.6 million in the prior year period, up 30.1%
  • Net loss of $8.1 million, or $(0.15) per diluted share, compared to net loss of $7.6 million, or $(0.15) per diluted share, in the prior year period
  • Adjusted EBITDA of $(3.1) million, compared to adjusted EBITDA of $(4.5) million in the prior year period
  • Adjusted net loss of $7.3 million, or $(0.14) per diluted share, compared to an adjusted net loss of $7.1 million or $(0.14) per diluted share in the prior year period

Third Quarter 2019 Results

Total revenues in the third quarter were $35.9 million, an increase of 30.1% from revenues of $27.6 million in the prior year period. Healthcare revenues in the third quarter of 2019 were $10.8 million, an increase of 50.0% from revenues of $7.2 million in the prior year period. Combined CMS MSP and other CMS audit recovery revenues were $7.1 million in the third quarter, a 69.0% increase over the prior year period. Commercial healthcare clients contributed revenues of $3.7 million, an increase of $0.7 million or 23.3% from the prior year period. Recovery revenues in the third quarter were $20.9 million, an increase of $4.8 million, or 29.8% from revenues of $16.1 million in the prior year period. Revenues from our Customer Care / Outsourced Services in the third quarter were $4.2 million, a decrease of $56 thousand from the prior year period.

Net loss for the third quarter of 2019 was $8.1 million, or $(0.15) per share on a fully diluted basis, compared to net loss of $7.6 million or $(0.15) per share on a fully diluted basis in the prior year period. Adjusted net loss for the third quarter of 2019 was $7.3 million, resulting in $(0.14) per share on a fully diluted basis. This compares to an adjusted net loss of $7.1 million or $(0.14) per fully diluted share in the prior year period. Adjusted EBITDA for the third quarter of 2019 was $(3.1) million as compared to $(4.5) million in the prior year period.

As of September 30, 2019, the Company had cash, cash equivalents and restricted cash of approximately $8.5 million.

Business Outlook

“We continue to report good momentum overall, particularly within our Healthcare operations, which is highlighted by our strong year-over-year gains. Our Recovery business also reported healthy gains over the third quarter of last year through a combination of collecting outstanding inactive tax receivables for the IRS as well as meaningful growth with Department of Education subcontracting opportunities. However, during the quarter we did experience a slight delay in the execution and ramp of one of our contracts, which negatively impacted our revenue results. We have already begun working with the client to remedy the situation and expect to have this contract back on track in the fourth quarter,” stated Lisa Im, CEO of Performant.

“We are reiterating our full year 2019 adjusted EBITDA guidance range of ($6) million to ($2) million. However, following the identification of some data matching issues related to a single line of business within Healthcare and potential delay in the recovery of a large-dollar claim under one of our third-party-liability contracts, we are revising our 2019 revenue guidance range to $147 to $152 million, from $158 to $168 million. This change has no impact on our long-term plan to successfully execute on our strategy, and we remain committed to our long-term revenue and EBITDA margin goals of $200 million and 20% by 2021 respectively,” concluded Im.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, to supplement our consolidated financial statements, the Company presents adjusted EBITDA and adjusted net loss. These measures are not in accordance with accounting principles generally accepted in the United States of America (US GAAP) and accordingly reconciliations of adjusted EBITDA and adjusted net loss to net loss determined in accordance with US GAAP are included in the “Reconciliation of Non-GAAP Results” table at the end of this press release. We have included adjusted EBITDA and adjusted net loss in this press release because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends and to prepare and approve our annual budget. Accordingly, we believe that adjusted EBITDA and adjusted net loss provide useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and board of directors. Our use of adjusted EBITDA and adjusted net loss has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under US GAAP. In particular, many of the adjustments to our US GAAP financial measures reflect the exclusion of items, specifically interest, tax and depreciation and amortization expenses, equity-based compensation expense and certain other non-operating expenses, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be calculated differently from similarly titled non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

Earnings Conference Call

The Company will hold a conference call to discuss its third quarter 2019 results today at 5:00 p.m. Eastern. A live webcast of the call may be accessed on the Investor Relations section of the Company’s website at investors.performantcorp.com. The conference call is also available by dialing 877-705-6003 (domestic) or 201-493-6725 (international).

A replay of the call will be available on the Company's website or by dialing 844-512-2921 (domestic) or 412-317-6671 (international) and entering the passcode 13696200. The telephonic replay will be available approximately three hours after the call, through November 19, 2019.

About Performant Financial Corporation

Performant helps government and commercial organizations enhance revenue and contain costs by preventing, identifying and recovering waste, improper payments and defaulted assets. Performant is a leading provider of these services in several industries, including healthcare, student loans and government. Performant has been providing recovery audit services for more than nine years to both commercial and government clients, including serving as a Recovery Auditor for the Centers for Medicare and Medicaid Services.

Powered by a proprietary analytic platform and workflow technology, Performant also provides professional services related to the recovery effort, including reporting capabilities, support services, customer care and stakeholder training programs meant to mitigate future instances of improper payments. Founded in 1976, Performant is headquartered in Livermore, California.

Forward Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our outlook for revenues, net income (loss), and adjusted EBITDA in 2019 and 2021. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change and actual results may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the high level of revenue concentration among the Company's largest customers and any termination in the Company’s relationship with any of our significant clients would result in a material decline in our revenues, that many of the Company's customer contracts are subject to periodic renewal, are not exclusive, do not provide for committed business volumes and may be changed or terminated unilaterally and on short notice, that the Company faces a long period to implement a new contract which may result in the incurrence of expenses before the receipt of revenues from new client relationships, that the Company may not have sufficient cash flows from operations or the availability of funds under its credit agreement to fund ongoing operations and other liquidity needs, that the Company’s indebtedness could adversely affect its business and financial condition and could reduce the funds available for other purposes and the failure to comply with covenants contained in its credit agreement could result in an event of default that could adversely affect its results of operations, that continuing limitations on the scope of our audit activity under our RAC contracts have significantly reduced our revenue opportunities with this client, that the Company faces significant competition in all of its markets, that the U.S. federal government accounts for a significant portion of the Company's revenues, that future legislative and regulatory changes may have significant effects on the Company's business, that failure of the Company's or third parties' operating systems and technology infrastructure could disrupt the operation of the Company's business and the threat of breach of the Company's security measures or failure or unauthorized access to confidential data that the Company possesses. More information on potential factors that could affect the Company's financial condition and operating results is included from time to time in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's annual report on Form 10-K for the year ended December 31, 2018 and subsequently filed reports on Forms 10-Q and 8-K. The forward-looking statements are made as of the date of this press release and the Company does not undertake to update any forward-looking statements to conform these statements to actual results or revised expectations.

Contact Information
Richard Zubek
Investor Relations
925-960-4988
investors@performantcorp.com

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
 
  September 30,
 2019
  December 31,
 2018
  (Unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 6,888     $ 5,462  
Restricted cash 1,660     1,813  
Trade accounts receivable, net of allowance for doubtful accounts of $180 and $22, respectively 20,525     20,879  
Contract assets 1,159      
Prepaid expenses and other current assets 3,615     3,420  
Income tax receivable     179  
Total current assets 33,847     31,753  
Property, equipment, and leasehold improvements, net 19,829     22,255  
Identifiable intangible assets, net 983     1,160  
Goodwill 81,572     81,572  
ROU assets 8,413      
Other assets 1,043     1,019  
Total assets $ 145,687     $ 137,759  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Current maturities of notes payable to related party, net of unamortized debt issuance costs of $143 and $126, respectively $ 3,182     $ 2,224  
Accrued salaries and benefits 6,995     5,759  
Accounts payable 1,862     1,402  
Other current liabilities 3,206     3,414  
Income taxes payable 24      
Deferred revenue 1,566     1,078  
Estimated liability for appeals 369     210  
Earnout payable 351      
Lease liabilities 2,937      
Total current liabilities 20,492     14,087  
Notes payable to related party, net of current portion and unamortized debt issuance costs of $2,664 and $2,345, respectively 59,061     41,105  
Deferred income taxes 53     22  
Earnout payable 499     1,936  
Lease liabilities 6,566      
Other liabilities 2,272     3,383  
Total liabilities 88,943     60,533  
Commitments and contingencies      
Stockholders’ equity:      
Common stock, $0.0001 par value. Authorized, 500,000 shares at September 30, 2019 and December 31, 2018 respectively; issued and outstanding 53,685 and 52,999 shares at September 30, 2019 and December 31, 2018, respectively 5     5  
Additional paid-in capital 79,846     77,370  
Accumulated deficit (23,107 )   (149 )
Total stockholders’ equity 56,744     77,226  
Total liabilities and stockholders’ equity $ 145,687     $ 137,759  
               


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
         
    Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
    2019   2018   2019   2018
Revenues   $ 35,903     $ 27,581     $ 106,609     $ 115,938  
Operating expenses:                
Salaries and benefits   28,771     24,276     86,816     68,362  
Other operating expenses   12,948     10,505     37,112     45,924  
Total operating expenses   41,719     34,781     123,928     114,286  
(Loss) income from operations   (5,816 )   (7,200 )   (17,319 )   1,652  
Interest expense   (2,166 )   (1,123 )   (5,260 )   (3,534 )
Interest income   11     6     33     19  
Loss before provision for income taxes   (7,971 )   (8,317 )   (22,546 )   (1,863 )
Provision for (benefit from) income taxes   99     (708 )   412     882  
Net loss   $ (8,070 )   $ (7,609 )   $ (22,958 )   $ (2,745 )
Net loss per share                
Basic   $ (0.15 )   $ (0.15 )   $ (0.43 )   $ (0.05 )
Diluted   $ (0.15 )   $ (0.15 )   $ (0.43 )   $ (0.05 )
Weighted average shares                
Basic   53,665     52,281     53,366     51,752  
Diluted   53,665     52,281     53,366     51,752  


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity
(In thousands)
(Unaudited)
         
    Three Months Ended September 30, 2019   Three Months Ended September 30, 2018
    Common Stock   Additional
Paid-In
Capital
  Accumulated Deficit   Total   Common Stock   Additional
Paid-In
Capital
  Retained Earnings (Accumulated Deficit)   Total
  Shares   Amount     Shares   Amount      
Balances at beginning of period   53,648     $ 5     $ 78,980     $ (15,037 )   $ 63,948     51,920     5     $ 73,642     $ 12,725     $ 86,372  
Common stock issued under stock plans, net of shares withheld for employee taxes   37         (21 )       (21 )   56         (55 )       (55 )
Stock-based compensation expense           525         525             814         814  
Shares issued in conjunction with agreement to purchase Premiere Credit of North America                       1,000         2,420         2,420  
Recognition of warrant issued in debt financing           362         362                      
Net loss               (8,070 )   (8,070 )               (7,609 )   (7,609 )
Balances at end of period   53,685     5     $ 79,846     $ (23,107 )   $ 56,744     52,976     5     $ 76,821     $ 5,116     $ 81,942  
                                         
    Nine Months Ended September 30, 2019   Nine Months Ended September 30, 2018
    Common Stock   Additional
Paid-In
Capital
  Accumulated Deficit   Total   Common Stock   Additional
Paid-In
Capital
  Retained
Earnings
  Total
  Shares   Amount     Shares   Amount      
Balances at beginning of period   52,999     $ 5     $ 77,370     $ (149 )   $ 77,226     51,085     5     $ 72,459     $ 7,861     $ 80,325  
Common stock issued under stock plans, net of shares withheld for employee taxes   686         (432 )       (432 )   891         (461 )       (461 )
Stock-based compensation expense           1,743         1,743             2,403         2,403  
Shares issued in conjunction with agreement to purchase Premiere Credit of North America                       1,000         2,420         2,420  
Recognition of warrant issued in debt financing           1,165         1,165                      
Net loss               (22,958 )   (22,958 )               (2,745 )   (2,745 )
Balances at end of period   53,685     5     $ 79,846     $ (23,107 )   $ 56,744     52,976     5     $ 76,821     $ 5,116     $ 81,942  
                                                                         



PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
  Nine Months Ended
 September 30,
  2019   2018
Cash flows from operating activities:      
Net loss $ (22,958 )   $ (2,745 )
Adjustments to reconcile net loss to net cash used in operating activities:      
Loss on disposal of assets 7     44  
Release of net payable to client related to contract termination     (9,860 )
Release of estimated liability for appeals due to termination of contract     (18,531 )
Derecognition of subcontractor receivable for appeals due to termination of contract     5,535  
Derecognition of subcontractor receivable for overturned claims     1,536  
Provision for doubtful accounts for subcontractor receivable     1,868  
Depreciation and amortization 6,698     7,601  
ROU assets amortization 1,913      
Deferred income taxes 31     130  
Stock-based compensation 1,743     2,403  
Interest expense from debt issuance costs 896     963  
Earnout mark-to-market (1,086 )    
Changes in operating assets and liabilities:      
Trade accounts receivable 354     (463 )
Contract asset (1,159 )    
Prepaid expenses and other current assets (195 )   958  
Income tax receivable 179     483  
Other assets (24 )   68  
Accrued salaries and benefits 1,236     1,723  
Accounts payable 460     306  
Deferred revenue and other current liabilities 280     713  
Income taxes payable 24      
Estimated liability for appeals 159     16  
Net payable to client     (2,940 )
Lease liabilities (2,066 )    
Other liabilities 132     326  
Net cash used in operating activities (13,376 )   (9,866 )
Cash flows from investing activities:      
Purchase of property, equipment, and leasehold improvements (4,101 )   (6,319 )
Premiere Credit of North America, LLC working capital cash acquired     1,669  
Net cash used in investing activities (4,101 )   (4,650 )
Cash flows from financing activities:      
Repayment of notes payable (1,750 )   (1,100 )
Debt issuance costs paid (68 )    
Taxes paid related to net share settlement of stock awards (466 )   (647 )
Proceeds from exercise of stock options 34     186  
Borrowings from notes payable 21,000      
Net cash provided by (used in) financing activities 18,750     (1,561 )
Effect of foreign currency exchange rate changes on cash      
Net increase (decrease) in cash, cash equivalents and restricted cash 1,273     (16,077 )
Cash, cash equivalents and restricted cash at beginning of period 7,275     23,519  
Cash, cash equivalents and restricted cash at end of period $ 8,548     $ 7,442  
       
Non-cash investing activities:      
Recognition of contingent consideration in acquisition     1,876  
       
Non-cash financing activities:      
Recognition of shares issued in acquisition $     $ 2,420  
Recognition of warrants issued in debt financing $ 1,165     $  
       
Supplemental disclosures of cash flow information:      
Cash paid for income taxes $ 87     $ 98  
Cash paid for interest $ 4,363     $ 1,748  
       
Reconciliation of the Consolidated Statements of Cash Flows to the
Consolidated Balance Sheets:
     
Cash and cash equivalents $ 6,888     $ 5,654  
Restricted cash 1,660     1,788  
Total cash, cash equivalents and restricted cash at end of period $ 8,548     $ 7,442  
               


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, except per share amount)
(Unaudited)
         
    Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
    2019   2018   2019   2018
Adjusted Loss Per Diluted Share:                
Net loss   $ (8,070 )   $ (7,609 )   $ (22,958 )   $ (2,745 )
Plus: Adjustment items per reconciliation of adjusted net (loss) income   734     520     1,477     (11,195 )
Adjusted net loss   (7,336 )   (7,089 )   (21,481 )   (13,940 )
Adjusted Loss Per Diluted Share   $ (0.14 )   $ (0.14 )   $ (0.40 )   $ (0.27 )
Diluted avg shares outstanding   53,665     52,281     53,366     51,752  


    Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
    2019   2018   2019   2018
Adjusted EBITDA:                
Net loss   $ (8,070 )   $ (7,609 )   $ (22,958 )   $ (2,745 )
Provision for income taxes   99     (708 )   412     882  
Interest expense (1)   2,166     1,123     5,260     3,534  
Interest income   (11 )   (6 )   (33 )   (19 )
Depreciation and amortization   2,141     2,489     6,698     7,601  
Non-core operating expenses (7)   244         309      
Earnout mark-to-market (6)   (174 )       (1,086 )    
CMS Region A contract termination (5)       (599 )       (19,415 )
Stock-based compensation   525     814     1,743     2,403  
Adjusted EBITDA   $ (3,080 )   $ (4,496 )   $ (9,655 )   $ (7,759 )


    Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
    2019   2018   2019   2018
Adjusted Net Loss:                
Net loss   $ (8,070 )   $ (7,609 )   $ (22,958 )   $ (2,745 )
Stock-based compensation   525     814     1,743     2,403  
Amortization of intangibles (2)   65     203     176     608  
Deferred financing amortization costs (3)   353     299     896     963  
Non-core operating expenses (7)   244         309      
Earnout mark-to-market (6)   (174 )       (1,086 )    
CMS Region A contract termination (5)       (599 )       (19,415 )
Tax adjustments (4)   (279 )   (197 )   (561 )   4,246  
Adjusted Net Loss   $ (7,336 )   $ (7,089 )   $ (21,481 )   $ (13,940 )

(1)  Represents interest expense and amortization of issuance costs related to the refinancing of our indebtedness.

(2)  Represents amortization of capitalized expenses related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004.

(3)  Represents amortization of capitalized financing costs related to our Credit Agreement for 2018.

(4)  Represents tax adjustments assuming a marginal tax rate of 27.5%.

(5)  Represents the net impact of the termination of our 2009 CMS Region A contract during the first quarter and third quarter of 2018, comprised of release of an aggregate of $28.4 million of the estimated liability for appeals and the net payable to client balances into revenue, net of derecognition of $9.0 million of prepaid expenses and other current assets with a charge to other operating expenses, reflecting accrued receivables associated with amounts due from subcontractors for decided and yet-to-be decided appeals.

(6) Represents the change from prior reporting periods in the fair value of the potential earnout consideration payable to ECMC Group in connection with the Premiere acquisition.

(7) Represents professional fees related to strategic corporate development activities.

We are providing the following preliminary estimates of our financial results for the year ended December 31, 2019:

    Nine Months Ended   Three Months Ended   Year Ended
    September 30,
2019
  December 31,
2019
  December 31,
2018
  December 31,
2019
    Actual   Estimate   Actual   Estimate
Adjusted EBITDA:                    
Net loss   $ (22,958 )   $  3,755 to (4,210)   $ (8,010 )   $   (19,183) to (27,168)
Provision for (benefit from) income taxes   412       (412) to 588   1,542       0 to 1,000
Interest expense (1)   5,260       2,240 to 3,240   4,699       7,500 to 8,500
Interest income   (33 )     (7) to (22)   (28 )     (40) to (55)
Depreciation and amortization   6,698       1,803 to 2,803   10,234       8,500 to 9,500
Impairment of goodwill and customer relationship (8)           2,988      
Non-core operating expenses (7)   309               309
Earnout mark-to-market (6)   (1,086 )       (218 )     (1,086)
CMS Region A contract termination (5)           (19,415 )    
Stock-based compensation   1,743       257 to 1,257   2,750       2,000 to 3,000
Adjusted EBITDA   $ (9,655 )   $ 7,656 to 3,656   $ (5,458 )   $  (2,000) to (6,000)

(1) Represents interest expense and amortization of issuance costs related to the refinancing of our indebtedness.

(5) Represents the net impact of the termination of our 2009 CMS Region A contract during the first quarter of 2018, comprised of release of $27.8 million of the estimated liability for appeals and the net payable to client balances into revenue, net of derecognition of $9.0 million of prepaid expenses and other current assets with a charge to other operating expenses, reflecting accrued receivables associated with amounts due from subcontractors for decided and yet-to-be decided appeals.

(6) Represents the change from prior reporting periods in the fair value of the potential earnout consideration payable to ECMC Group in connection with the Premiere acquisition.

(7) Represents professional fees related to strategic corporate development activities.

(8) Represents intangible assets impairment charge related to Great Lakes Higher Education Guaranty Corporation customer relationship.

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Reconciliation of Non-GAAP Results

(In thousands, except per share amount)

(Unaudited)

We are providing the following historical breakdown of the quarterly and annual revenue contributions under the new contribution breakdowns of our revenue results for the years ended December 31, 2017 and December 31, 2018, and nine months ended September 30, 2019:

    For the Three Months Ended   For the Year Ended
    March 31, 2017   June 30, 2017   September 30, 2017   December 31, 2017   December 31, 2017
    (in thousands)
Recovery   $ 28,223     $ 30,911     $ 23,094     $ 25,640     $ 107,868  
Healthcare   1,647     2,088     2,627     3,624     9,986  
Outsourced Services   3,239     2,909     4,023     4,024     14,195  
Total   $ 33,109     $ 35,908     $ 29,744     $ 33,288     $ 132,049  


    For the Three Months Ended   For the Year Ended
    March 31, 2018   June 30, 2018   September 30, 2018   December 31, 2018   December 31, 2018
    (in thousands)
Recovery   $ 21,940     $ 20,491     $ 16,162     $ 25,192     $ 83,785  
Healthcare (1)   3,523     6,095     6,553     9,893     26,064  
Outsourced Services   3,768     4,750     4,266     4,645     17,429  
Total   $ 29,231     $ 31,336     $ 26,981     $ 39,730     $ 127,278  


    For the Three Months Ended For the Nine Months Ended
    March 31, 2019   June 30, 2019   September 30, 2019   September 30, 2019
    (in thousands)
Recovery   $ 21,375     $ 22,107     $ 20,936     $ 64,418  
Healthcare   9,020     9,263     10,757     29,040  
Outsourced Services   4,481     4,460     4,210     13,151  
Total   $ 34,876     $ 35,830     $ 35,903     $ 106,609  

(1)     Excludes $27.8 million for the three months ended March 31, 2018, and $0.6 million for the three months ended September 30, 2018, related to the termination of the 2009 CMS Region A contract.

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