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 first quarter ended
March 31, 2019:
First Quarter Financial Highlights
- Total revenues of $34.9 million, compared to revenues of $57.0
million in the prior year period, down 38.8%
- Total revenues in the first quarter increased $5.7 million, or
19.5% when compared to the prior year period after excluding the
effects of the one-time release of a $27.8 million appeal reserve
in connection with the termination of our first CMS RAC contract in
the first quarter of 2018
- Net loss of $8.5 million, or $(0.16) per diluted share,
compared to net income of $8.5 million, or $0.16 per diluted share,
in the prior year period
- Adjusted EBITDA of $(4.4) million, compared to adjusted EBITDA
of $(3.4) million in the prior year period
- Adjusted net loss of $7.9 million, or $(0.15) per diluted
share, compared to an adjusted net loss of $4.3 million or $(0.08)
per diluted share in the prior year period
First Quarter 2019 Results
Total revenues in the first quarter were $34.9 million, a
decrease of (38.8)% from revenues of $57.0 million in the prior
year period. However, after excluding the one-time release of a
$27.8 million appeals reserve in connection with the termination of
the Company's first CMS RAC contract in the first quarter of 2018,
total revenues in the first quarter of 2019 increased $5.7 million,
or 19.5%, from the prior year period.
Healthcare revenues in the first quarter were $10.2 million, a
decrease of (67.4)% from revenues of $31.3 million in the prior
year period. Excluding the one-time appeals reserve release in the
first quarter of 2018, healthcare revenues in the first quarter of
2019 increased $6.7 million, or 191%, when compared to $3.5 million
in the prior year period. Combined CMS MSP and other CMS audit
recovery revenues were $5.9 million in the first quarter, a 354%
increase over the prior year period. Commercial healthcare clients
contributed revenues of $4.3 million, an increase of $2.1 million
or 95.5% from the prior year period.
Student lending revenues in the first quarter were $12.9
million, a decrease of $6.2 million, or 32.5% from revenues of
$19.1 million in the prior year period. This decrease was
related to reduced revenues from Great Lakes Higher Education
Guaranty Corporation, which had revenues of $1.2 million in the
first quarter of 2019, compared to $10.0 million in the prior year
period, offset by a $2.6 million increase in revenues from other
guaranty agencies.
Other revenues in the first quarter were $11.8 million, up from
$6.6 million in the prior year period.
Net loss for the first quarter of 2019 was $8.5 million,
or $(0.16) per share on a fully diluted basis, compared
to net income of $8.5 million or $0.16 per share on
a fully diluted basis in the prior year period. Adjusted
net loss for the first quarter of 2019 was $7.9 million,
resulting in $(0.15) per share on a fully diluted basis.
This compares to adjusted net loss of $4.3 million
or $(0.08) per fully diluted share in the prior year
period. Adjusted EBITDA for the first quarter of 2019
was $(4.4) million as compared to $(3.4)
million in the prior year period.
As of March 31, 2019, the Company had cash, cash
equivalents and restricted cash of approximately $6.0 million.
Business Outlook
“Our results in the first quarter demonstrate our continued
transition from a company that had a historical dependence on the
student lending industry to one that has increasingly diversified
its offerings and serves clients across a wider spectrum including
healthcare agencies, state and federal taxing authorities, other
federal agencies and commercial clients. While we are not out
of the initial investment stage as it relates to many of our more
recent contracts, we are beginning to see tangible benefits, such
as with our CMS MSP contract. At this point, we continue to
anticipate being able to deliver total revenues of $200 million
with margins in excess of 20% by 2021,” stated Lisa Im, CEO of
Performant.
“As for today, we feel confident with our current trajectory for
2019 and we are reiterating our guidance of revenues between $158
and $168 million, and adjusted EBITDA to be a loss of between $2
and $6 million,” 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) income. 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) income to net (loss) income 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) income 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) income 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) income 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 first
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 13690399. The telephonic
replay will be available approximately three hours after the call,
through May 14, 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 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 there can be no assurance
that the Company is able to retain its new contract with the
Department of Education as the result of the protests filed by
unsuccessful bidders, 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 InformationRichard ZubekInvestor
Relations925-960-4988investors@performantcorp.com
PERFORMANT FINANCIAL CORPORATION AND
SUBSIDIARIESConsolidated Balance Sheets(In thousands,
except per share amounts)
|
March 31, 2019 |
|
December 31, 2018 |
|
(Unaudited) |
|
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
4,364 |
|
|
$ |
5,462 |
|
Restricted cash |
1,659 |
|
|
1,813 |
|
Trade accounts receivable, net of allowance for doubtful accounts
of $130 and $22, respectively |
17,877 |
|
|
20,879 |
|
Prepaid expenses and other current assets |
3,792 |
|
|
3,420 |
|
Income tax receivable |
14 |
|
|
179 |
|
Total current assets |
27,706 |
|
|
31,753 |
|
Property, equipment, and leasehold improvements,
net |
21,488 |
|
|
22,255 |
|
Identifiable intangible assets, net |
1,101 |
|
|
1,160 |
|
Goodwill |
81,572 |
|
|
81,572 |
|
ROU assets |
9,714 |
|
|
— |
|
Other assets |
1,019 |
|
|
1,019 |
|
Total assets |
$ |
142,600 |
|
|
$ |
137,759 |
|
Liabilities and Stockholders’ Equity |
|
|
|
Current liabilities: |
|
|
|
Current maturities of notes payable, net of unamortized debt
issuance costs of $144 and $126, respectively |
$ |
2,806 |
|
|
$ |
2,224 |
|
Accrued salaries and benefits |
7,364 |
|
|
5,759 |
|
Accounts payable |
1,989 |
|
|
1,402 |
|
Other current liabilities |
4,317 |
|
|
3,414 |
|
Deferred revenue |
658 |
|
|
1,078 |
|
Estimated liability for appeals |
255 |
|
|
210 |
|
Lease liabilities |
2,882 |
|
|
— |
|
Total current liabilities |
20,271 |
|
|
14,087 |
|
Notes payable, net of current portion and unamortized
debt issuance costs of $2,095 and $2,345, respectively |
40,755 |
|
|
41,105 |
|
Deferred income taxes |
53 |
|
|
22 |
|
Earnout payable |
2,212 |
|
|
1,936 |
|
Lease liabilities |
8,028 |
|
|
— |
|
Other liabilities |
2,167 |
|
|
3,383 |
|
Total liabilities |
73,486 |
|
|
60,533 |
|
Commitments and contingencies |
|
|
|
Stockholders’ equity: |
|
|
|
Common stock, $0.0001 par value. Authorized, 500,000 shares at
March 31, 2019 and December 31, 2018 respectively; issued and
outstanding 53,146 and 52,999 shares at March 31, 2019 and
December 31, 2018, respectively |
5 |
|
|
5 |
|
Additional paid-in capital |
77,747 |
|
|
77,370 |
|
Accumulated deficit) |
(8,638 |
) |
|
(149 |
) |
Total stockholders’ equity |
69,114 |
|
|
77,226 |
|
Total liabilities and stockholders’ equity |
$ |
142,600 |
|
|
$ |
137,759 |
|
|
|
|
|
|
|
|
|
PERFORMANT FINANCIAL CORPORATION AND
SUBSIDIARIESConsolidated Statements of Operations(In
thousands, except per share amounts)(Unaudited)
|
|
Three Months
Ended March 31, |
|
|
2019 |
|
2018 |
Revenues |
|
$ |
34,876 |
|
|
$ |
57,021 |
|
Operating expenses: |
|
|
|
|
Salaries and benefits |
|
29,116 |
|
|
21,781 |
|
Other operating expenses |
|
12,953 |
|
|
23,020 |
|
Total operating expenses |
|
42,069 |
|
|
44,801 |
|
(Loss) income from operations |
|
(7,193 |
) |
|
12,220 |
|
Interest expense |
|
(1,136 |
) |
|
(1,270 |
) |
Interest income |
|
11 |
|
|
6 |
|
(Loss) income before provision for income taxes |
|
(8,318 |
) |
|
10,956 |
|
Provision for income taxes |
|
171 |
|
|
2,501 |
|
Net (loss) income |
|
$ |
(8,489 |
) |
|
$ |
8,455 |
|
Net (loss) income per share |
|
|
|
|
Basic |
|
$ |
(0.16 |
) |
|
$ |
0.16 |
|
Diluted |
|
$ |
(0.16 |
) |
|
$ |
0.16 |
|
Weighted average shares |
|
|
|
|
Basic |
|
53,059 |
|
|
51,320 |
|
Diluted |
|
53,059 |
|
|
53,455 |
|
|
|
|
|
|
|
|
PERFORMANT FINANCIAL CORPORATION AND
SUBSIDIARIESConsolidated Statements of Cash Flows(In
thousands)(Unaudited)
|
Three Months
Ended March 31, |
Cash flows from operating
activities: |
2019 |
|
2018 |
Net (loss) income |
$ |
(8,489 |
) |
|
$ |
8,455 |
|
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities: |
|
|
|
Release of net payable to client related to contract
termination |
— |
|
|
(9,860 |
) |
Release of estimated liability for appeals due to termination of
contract |
— |
|
|
(17,932 |
) |
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 |
2,312 |
|
|
2,576 |
|
Deferred income taxes |
31 |
|
|
283 |
|
Stock-based compensation |
499 |
|
|
639 |
|
Interest expense from debt issuance costs |
232 |
|
|
331 |
|
Earnout mark-to-market |
276 |
|
|
— |
|
ROU assets amortization |
660 |
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
Trade accounts receivable |
3,002 |
|
|
(5,905 |
) |
Prepaid expenses and other current assets |
(372 |
) |
|
(82 |
) |
Income tax receivable |
165 |
|
|
2,316 |
|
Other assets |
— |
|
|
41 |
|
Accrued salaries and benefits |
1,605 |
|
|
1,417 |
|
Accounts payable |
587 |
|
|
(80 |
) |
Deferred revenue and other current liabilities |
483 |
|
|
1,571 |
|
Estimated liability for appeals |
45 |
|
|
— |
|
Net payable to client |
— |
|
|
(2,940 |
) |
Lease liabilities |
(723 |
) |
|
— |
|
Other liabilities |
43 |
|
|
395 |
|
Net cash provided by (used in) operating activities |
356 |
|
|
(9,836 |
) |
Cash flows from investing
activities: |
|
|
|
Purchase of property, equipment, and leasehold improvements |
(1,486 |
) |
|
(2,500 |
) |
Net cash used in investing activities |
(1,486 |
) |
|
(2,500 |
) |
Cash flows from financing
activities: |
|
|
|
Repayment of notes payable |
— |
|
|
(550 |
) |
Taxes paid related to net share settlement of stock awards |
(156 |
) |
|
(299 |
) |
Proceeds from exercise of stock options |
34 |
|
|
116 |
|
Net cash used in financing activities |
(122 |
) |
|
(733 |
) |
Effect of foreign currency exchange rate changes on cash |
— |
|
|
1 |
|
Net decrease in cash, cash equivalents and restricted cash |
(1,252 |
) |
|
(13,068 |
) |
Cash, cash equivalents and restricted cash at
beginning of period |
7,275 |
|
|
23,519 |
|
Cash, cash equivalents and restricted cash at end of
period |
$ |
6,023 |
|
|
$ |
10,451 |
|
Supplemental disclosures of cash flow
information: |
|
|
|
Cash received for income taxes |
$ |
(54 |
) |
|
$ |
(299 |
) |
Cash paid for interest |
$ |
— |
|
|
$ |
939 |
|
Reconciliation of the Consolidated Statements
of Cash Flows to the Consolidated Balance Sheets: |
|
|
|
Cash and cash equivalents |
$ |
4,364 |
|
|
$ |
8,663 |
|
Restricted cash |
1,659 |
|
|
1,788 |
|
Total cash, cash equivalents and restricted cash at end of
period |
$ |
6,023 |
|
|
$ |
10,451 |
|
|
|
|
|
|
|
|
|
PERFORMANT FINANCIAL CORPORATION AND
SUBSIDIARIESReconciliation of Non-GAAP Results(In
thousands, except per share amount)(Unaudited)
|
|
Three Months
Ended March 31, |
|
|
2019 |
|
2018 |
Adjusted Loss Per Diluted Share: |
|
|
|
|
Net (loss)
income |
|
$ |
(8,489 |
) |
|
$ |
8,455 |
|
Plus: Adjustment items per reconciliation of adjusted
net (loss) income |
|
573 |
|
|
(12,791 |
) |
Adjusted net loss |
|
(7,916 |
) |
|
(4,336 |
) |
Adjusted Loss Per Diluted Share |
|
$ |
(0.15 |
) |
|
$ |
(0.08 |
) |
Diluted avg shares outstanding |
|
53,059 |
|
|
51,320 |
|
|
|
Three Months
Ended March 31, |
|
|
2019 |
|
2018 |
Adjusted EBITDA: |
|
|
|
|
Net (loss)
income |
|
$ |
(8,489 |
) |
|
$ |
8,455 |
|
Provision for income taxes |
|
171 |
|
|
2,501 |
|
Interest expense (1) |
|
1,136 |
|
|
1,270 |
|
Interest income |
|
(11 |
) |
|
(6 |
) |
Depreciation and amortization |
|
2,312 |
|
|
2,576 |
|
CMS Region A contract termination
(5) |
|
— |
|
|
(18,816 |
) |
Stock-based compensation |
|
499 |
|
|
639 |
|
Adjusted EBITDA |
|
$ |
(4,382 |
) |
|
$ |
(3,381 |
) |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
|
2019 |
|
2018 |
Adjusted Net Loss: |
|
|
|
|
Net loss
(income) |
|
$ |
(8,489 |
) |
|
$ |
8,455 |
|
Stock-based compensation |
|
499 |
|
|
639 |
|
Amortization of intangibles (2) |
|
59 |
|
|
203 |
|
Deferred financing amortization costs (3) |
|
232 |
|
|
331 |
|
CMS Region A contract termination
(5) |
|
— |
|
|
(18,816 |
) |
Tax adjustments (4) |
|
(217 |
) |
|
4,852 |
|
Adjusted Net Loss |
|
$ |
(7,916 |
) |
|
$ |
(4,336 |
) |
|
|
|
|
|
|
|
|
|
(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 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.
PERFORMANT FINANCIAL CORPORATION AND
SUBSIDIARIESReconciliation of Non-GAAP Results(In
thousands, except per share amount)(Unaudited)
We are providing the following preliminary estimates of our
financial results for the year ended December 31, 2019:
|
|
Three Months Ended |
|
Nine Months Ended |
|
Year
Ended |
|
|
March 31, 2019 |
|
December 31, 2019 |
|
December 31, 2018 |
|
December 31, 2019 |
|
|
Actual |
|
Estimate |
|
Actual |
|
Estimate |
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8,489 |
) |
|
$ (11,471) to (19,456) |
|
$ |
(8,010 |
) |
|
$ (19,960) to (27,945) |
Provision for (benefit from) income taxes |
|
171 |
|
|
(421) to 579 |
|
1,542 |
|
|
(250) to 750 |
Interest expense (1) |
|
1,136 |
|
|
5,614 to 6,614 |
|
4,699 |
|
|
6,750 to 7,750 |
Interest income |
|
(11 |
) |
|
(29) to (44) |
|
(28 |
) |
|
(40) to (55) |
Depreciation and amortization |
|
2,312 |
|
|
7,188 to 8,188 |
|
10,234 |
|
|
9,500 to 10,500 |
Impairment of goodwill and customer relationship
(6) |
|
— |
|
|
— |
|
2,988 |
|
|
— |
CMS Region A contract termination (5) |
|
— |
|
|
— |
|
(19,415 |
) |
|
— |
Stock-based compensation |
|
499 |
|
|
1,501 to 2,501 |
|
2,750 |
|
|
2,000 to 3,000 |
Adjusted EBITDA |
|
$ |
(4,382 |
) |
|
$ 2,382 to (1,618) |
|
$ |
(5,240 |
) |
|
$ (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 intangible assets impairment charge related to
Great Lakes Higher Education Guaranty Corporation customer
relationship.
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