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May 04,2016

Performant Financial Corporation Announces Financial Results for First Quarter 2016

LIVERMORE, Calif., May 04, 2016 (GLOBE NEWSWIRE) -- Performant Financial Corporation (Nasdaq:PFMT), 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, 2016:

First Quarter Financial Highlights

  • Total revenues of $38.3 million, compared to revenues of $38.6 million in the prior year period, down 0.7% 
  • Net income of $80 thousand, or $0.00 per diluted share, compared to a net loss of $(4.4) million, or $(0.09) per diluted share, in the prior year period
  • Adjusted EBITDA of $7.4 million, compared to $4.1 million in the prior year period
  • Adjusted net income of $2.0 million, or $0.04 per diluted share, compared to an adjusted net loss of $(0.5) million and $(0.01) per diluted share, respectively, in the prior year period

First Quarter 2016 Results

"Our results reflect the strong performance from our student lending business that benefited from the strong placement volume during the first and second quarters of 2015. We have remained focused on maintaining a strong financial platform and have aggressively managed our expense decisions to remain nimble and ready to jump back into action in anticipation of the pending contract award decisions," said Lisa Im, Performant Financial's Chief Executive Officer.

Student lending revenues in the first quarter were $29.6 million, an increase of 9.5% from $27.1 million in the prior year period. The U.S. Department of Education and Guaranty Agencies accounted for revenues of $7.4 million and $22.3 million, respectively, in the first quarter of 2016, compared to $11.7 million and $15.3 million in the prior year period.  Student loan placement volume (defined below) during the quarter totaled $0.6 billion, compared to $2.2 billion in the prior year period. This figure reflects the lack of placements from Dept of Education and fluctuations in placement volume from Guaranty Agencies.

Healthcare revenues in the first quarter were $2.7 million, down from $5.3 million in the prior year period, due primarily to significant limitations on the scope of recovery activities that have been imposed during the CMS contract transition. Medicare audit recovery revenues were $1.2 million in the first quarter, a decline of $2.0 million from the prior year period. Commercial healthcare clients contributed revenues of $1.5 million a decrease of $0.5 million from the prior year period.

Other revenues in the first quarter were $5.9 million, down from $6.2 million in the prior year period.

As of March 31, 2016, the Company had cash and cash equivalents of approximately $48.1 million.

Business Outlook

"We view the recently updated RFP put forth by the Centers for Medicare and Medicaid for the Recovery Audit Contract as a positive development, although we do not anticipate that a contract award will have a meaningful impact on our results this year. Responses to the RFP are due May 24, 2016. We remain focused on our expense management and identifying new revenue streams for our company.  Based on our year-to-date results, we are reiterating our expectation to achieve 2016 revenue of $125 million to $135 million," concluded Im.

Terms used in this Press Release

Student Loan Placement Volume refers to the dollar volume of defaulted student loans first placed with us during the specified period by public and private clients for recovery. Placement Volume allows us to measure and track trends in the amount of inventory our clients in the student lending market are placing with us during any period. The revenue associated with the recovery of a portion of these loans may be recognized in subsequent accounting periods, which assists management in estimating future revenues and in allocating resources necessary to address current Placement Volumes.

Earnings Conference Call

The Company will hold a conference call to discuss its first quarter 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 877-870-5176 (domestic) or 858-384-5517 (international) and entering the passcode 13635781. The telephonic replay will be available approximately three hours after the call, through May 11, 2016.

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.

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 income. These measures are not in accordance with generally accepted accounting principles (GAAP) and accordingly reconciliations of adjusted EBITDA and adjusted net income to net income determined in accordance with 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 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 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 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 GAAP. In particular, many of the adjustments to our 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.

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 financial guidance for 2016. 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, that our agreements with CMS and the Department of Education, two of our largest customers, are currently subject to rebidding processes, that transition rules have significantly limited our activity under the existing RAC contract, the high level of revenue concentration among the Company's five largest customers, that many of the Company's customer contracts are subject to periodic renewal, are not exclusive and do not provide for committed business volumes, 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, 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, 2015 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


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
 
   March 31, 2016 December 31, 2015
   (Unaudited)  
Assets     
Current assets:     
Cash and cash equivalents  $48,063  $71,182 
Restricted cash  7,516   
Trade accounts receivable, net of allowance for doubtful accounts of $386 and $386, respectively  13,271  17,965 
Deferred income taxes  7,137  7,170 
Prepaid expenses and other current assets  12,774  12,933 
Income tax receivable  315   
Total current assets  89,076  109,250 
Property, equipment, and leasehold improvements, net  24,856  25,515 
Identifiable intangible assets, net  24,137  25,074 
Goodwill  82,522  82,522 
Other assets  169  179 
Total assets  $220,760  $242,540 
Liabilities and Stockholders' Equity     
Current liabilities:     
Current maturities of notes payable  $16,637  $7,998 
Accrued salaries and benefits  6,322  4,761 
Accounts payable  527  929 
Other current liabilities  5,644  5,615 
Income Tax Payable    895 
Estimated liability for appeals  19,064  19,118 
Net payable to client  15,938  14,400 
Total current liabilities  64,132  53,716 
Notes payable, net of current portion  51,073  84,144 
Deferred income taxes  8,564  8,818 
Other liabilities  1,965  2,006 
Total liabilities  125,734  148,684 
Commitments and contingencies     
Stockholders' equity:     
Common stock, $0.0001 par value. Authorized, 500,000 shares at March 31, 2016 and
December 31, 2015; issued and outstanding 49,990 and 49,479 shares at March 31, 2016
and December 31, 2015, respectively
  5  5 
Additional paid-in capital  62,898  61,808 
Retained earnings  32,123  32,043 
Total stockholders' equity  95,026  93,856 
Total liabilities and stockholders' equity  $220,760  $242,540 


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
    Three Months Ended
 March 31,
    2016 2015
Revenues   $38,279  $38,559 
Operating expenses:      
Salaries and benefits   21,337  23,724 
Other operating expenses   14,357  19,195 
Total operating expenses   35,694  42,919 
Income (loss) from operations   2,585  (4,360)
Interest expense   (2,432) (2,385)
Income (loss) before provision for (benefit from)
income taxes
   153  (6,745)
Provision for (benefit from) income taxes   73  (2,343)
Net income (loss)   $80  $(4,402)
Net income (loss) per share      
Basic   $0.00  $(0.09)
Diluted   $0.00  $(0.09)
Weighted average shares      
Basic   49,643  49,357 
Diluted   50,189  49,357 


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
   Three Months Ended
 March 31,
Cash flows from operating activities:  2016 2015
Net income (loss)  $80  $(4,402)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:     
Loss on disposal of asset  9   
Depreciation and amortization  3,390  3,542 
Deferred income taxes  (570) (70)
Stock-based compensation  1,204  1,003 
Interest expense from debt issuance costs and amortization of discount note payable  279  354 
Write-off unamortized debt issuance costs  468   
Changes in operating assets and liabilities:     
Trade accounts receivable  4,694  438 
Prepaid expenses and other current assets  159  (80)
Income tax receivable  (315) (2,331)
Other assets  10  135 
Accrued salaries and benefits  1,561  1,073 
Accounts payable  (402) (205)
Other current liabilities  171  (1,444)
Income taxes payable  (895)  
Estimated liability for appeals  (54) 50 
Net payable to client  1,538  2,737 
Other liabilities  (41) 723 
Net cash provided by operating activities  11,286  1,523 
Cash flows from investing activities:     
Purchase of property, equipment, and leasehold improvements  (1,803) (1,777)
Net cash used in investing activities  (1,803) (1,777)
Cash flows from financing activities:     
Repayment of notes payable  (24,769) (2,455)
Debt issuance costs paid  (410)  
Restricted cash for repayment of notes payable  (7,516)  
Taxes paid related to net share settlement of stock awards  (169)  
Proceeds from exercise of stock options  310  22 
Income tax benefit (shortfall) from employee stock options  80  (46)
Payment of purchase obligation  (142) (250)
Net cash used in financing activities  (32,616) (2,729)
Effect of foreign currency exchange rate changes on cash  14   
Net decrease in cash and cash equivalents  (23,119) (2,983)
Cash and cash equivalents at beginning of period  71,182  80,298 
Cash and cash equivalents at end of period  $48,063  $77,315 
Supplemental disclosures of cash flow information:     
Cash paid for income taxes  $1,760  $101 
Cash paid for interest  $1,688  $2,031 


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, except per share amount)
(Unaudited)
 
  Three Months Ended
 March 31,
  2016 2015
Adjusted Earnings Per Diluted Share:    
Net income (loss) $80  $(4,402)
Plus: Adjustment items per reconciliation of adjusted net income 1,871  3,864 
Adjusted net income (loss) 1,951  (538)
Adjusted Earnings Per Diluted Share $0.04  $(0.01)
Diluted avg shares outstanding 50,189  49,357 
  
  Three Months Ended
 March 31,
  2016 2015
Adjusted EBITDA:    
Net income (loss) $80  $(4,402)
Provision for (benefit from) income taxes 73  (2,343)
Interest expense 2,432  2,385 
Transaction expenses (1)   3,229 
Restructuring and other expenses (4) 232  696 
Depreciation and amortization 3,390  3,542 
Stock-based compensation 1,204  1,003 
Adjusted EBITDA $7,411  $4,110 
  
  Three Months Ended
 March 31,
  2016 2015
Adjusted Net Income:    
Net income (loss) $80  $(4,402)
Transaction expenses (1)   3,229 
Stock-based compensation 1,204  1,003 
Amortization of intangibles (2) 936  1,188 
Deferred financing amortization costs (3) 746  324 
Restructuring and other expenses (4) 232  696 
Tax adjustments (5) (1,247) (2,576)
Adjusted Net Income (Loss) $1,951  $(538)
  
(1) Represents direct and incremental costs associated with expenses incurred in 2015 for a potential acquisition and related financing.
(2) Represents amortization of capitalized expenses related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004, and also an acquisition in the first quarter of 2012 to enhance our analytics capabilities.
(3) Represents amortization of capitalized financing costs related to financing conducted in 2012 and costs related to the amendment of the terms of the note payable in 2014 and 2016.
(4) Represents restructuring costs and severance and termination expenses incurred in connection with termination of employees and consultants.
(5) Represents tax adjustments assuming a marginal tax rate of 40%. 


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

 

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